<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-25328
FIRST KEYSTONE FINANCIAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0469351
- --------------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
22 West State Street
Media, Pennsylvania 19063
- --------------------------------------- ---------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (610) 565-6210
Securities registered pursuant to Section 12(b) of the Act:
NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK (PAR VALUE $.01 PER SHARE)
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Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
As of December 15, 1997 the aggregate value of the 985,066 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
221,353 shares held by all directors and officers of the Registrant as a group,
was approximately $35.5 million. This figure is based on the last known trade
price of $36.00 per share of the Registrant's Common stock on December 15, 1997.
Number of shares of Common Stock outstanding as of December 15, 1997: 1,206,419
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the fiscal year ended
September 30, 1997 are incorporated into Parts II and III.
(2) Portions of the definitive proxy statement for the Annual Meeting of
Stockholders are incorporated into Part III.
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<PAGE> 2
PART I.
Item 1. BUSINESS
GENERAL
First Keystone Financial, Inc. (the "Company") is a Pennsylvania
corporation and sole shareholder of First Keystone Federal Savings Bank (the
"Bank") which converted to the stock form of organization in January 1995. The
only significant assets of the Company are the capital stock of the Bank, the
Company's loans to its employee stock ownership plan, and the remaining proceeds
from the issuance of $16.2 million of Trust Preferred securities by a wholly
owned subsidiary of the Company. See Note 20 of the Notes to Consolidated
Financial Statements in the Annual Report. The business of the Company primarily
consists of the business of the Bank.
The Bank is a traditional, community oriented federal savings bank
emphasizing customer service and convenience. The Bank's primary business is to
attract deposits from the general public and investing those funds together with
other available sources of funds, such as borrowings, to originate loans. A
substantial portion of the Bank's deposits are comprised of core deposits which
amounted to $88.4 million or 38.8% of the Bank's total deposits at September 30,
1997. The Bank's primary lending emphasis has been, and continues to be, loans
secured by first and second liens on single-family (one-to-four units)
residences located in Delaware and Chester Counties, Pennsylvania and to a
lesser degree, Montgomery County, Pennsylvania and New Castle County, Delaware.
The Bank originates single-family residences secured by first mortgages with
respect to non-conforming jumbo loans and loans to credit impaired borrowers for
sale in the secondary market. The Bank also originates, due to their shorter
terms, adjustable or variable interest rates, higher yields and the Bank's
analysis that the markets have become more stable, loans secured by commercial
real estate properties as well as residential construction loans in the Bank's
market area. The Bank originates mortgage loans for resale into the secondary
market while retaining for its portfolio adjustable-rate mortgage loans and
fixed-rate loans that complement the Bank's asset/liability strategies. The Bank
also sells, servicing released, originations of non-conforming loans. Although
the Bank has not purchased either whole loans or loan participation interests in
the past, depending on market conditions and portfolio needs, the Bank may
consider purchasing loans and participation interests in the future. The Bank's
originations of commercial real estate and multi-family residential loans has
continued to increase as a direct result of the Bank's emphasis on developing
business loan products. Commerical real estate and multi-family residential
loans amounted to $20.3 million or 10.3% of the total loan portfolio at
September 30, 1997 as compared to $14.1 million or 7.9% at September 30, 1996.
To a lesser extent, the Bank also originates consumer loans (consisting
almost entirely of home equity loans and lines of credit), loans secured by
commercial real estate and multi-family (over four units) residential
properties, construction and land loans, commercial business and other mortgage
loans. The Bank's consumer loan portfolio has also continued to increase (as a
dollar amount) as a result of the Bank's emphasis on developing the consumer
loan portfolio. Consumer loans amounted to $25.4 million or 12.9% of the total
loan portfolio at September 30, 1997 as compared to $24.0 million or 13.5% at
September 30, 1996.
In addition to its deposit gathering and lending activities, the Bank
invests in mortgage-related securities, substantially all of which are issued or
guaranteed by U.S. Government agencies and government sponsored enterprises, as
well as U.S. Treasury and federal government agency obligations and municipal
obligations. At September 30, 1997, the Bank's mortgage-related securities
(including mortgage-related securities available for sale) amounted to $125.2
million, or 33.5% of the Company's total assets, and investment securities
(including investment securities available for sale) amounted to $20.2 million,
or 5.4% of total assets.
<PAGE> 3
MARKET AREA
The Bank's primary market area consists of Delaware and Southern Chester
Counties and to a lesser extent the contiguous counties of Montgomery and
Northern Chester Counties, Pennsylvania and New Castle County, Delaware.
Delaware County is part of the Philadelphia Metropolitan Area ("Philadelphia
MSA") which includes besides Delaware County, Bucks, Chester, Montgomery and
Philadelphia Counties (as well as four counties in New Jersey). The Philadelphia
area economy is typical of many large northeast and midwest cities where the
traditional manufacturing based economy has declined to a certain degree and has
been replaced with service sector and specialty area growth. As a result of such
growth, the Philadelphia MSA's economic diversity has broadened and employment
in the area is derived from a number of different employment sectors. In
particular, Delaware County has experienced the development of companies
providing products and services for the health care market such as
Crozer/Keystone Health System, Wyeth-Ayerst Labs, Inc. and Mercy Health Corp.
Philadelphia's central location in the northeast corridor, its
well-educated and skilled population base, infrastructure and other factors has
made the Bank's market area attractive to many large corporate employers. Such
employers include Comcast Corp., Boeing, ARAMARK Corp., Unisys Corp., ARCO
Chemical Company, PECO Energy, and many others. There are over 75 Fortune 1,000
companies maintaining a presence in this area and approximately 20 Fortune 500
companies headquartered in the region surrounding the Philadelphia MSA including
CIGNA Corp., E.I. DuPont, Bethlehem Steel, Bell Atlantic, Union Pacific Corp.,
Ikon Office Solutions, Sun Company, Crown Cork & Seal and others.
Delaware County has experienced somewhat slower population growth than the
Philadelphia MSA, although the growth rates in the outlying areas of Delaware
County have been growing at a rate above that of the Philadelphia MSA. Since
1990, there has been no population growth in Delaware County and it is expected
to increase by less than 1 percent over the next 20 years. Chester County, on
the other hand, has grown over 9 percent since 1990 and expected to increase
further through the millennium. By comparison, median household income in
Delaware County and Chester County is approximately $40,500 and $48,000,
respectively, both of which are near or in excess of the Philadelphia MSA median
of approximately $41,000 (1996 estimates). Likewise, median home values in
Delaware and Chester Counties were approximately $113,200 and $155,900,
respectively, as compared to approximately $112,000 for the Philadelphia MSA in
1990. Unemployment rates in Delaware County have been below those experienced by
the Philadelphia MSA but higher than some of the other counties comprising the
MSA. The average annual unemployment rate for 1997 in Delaware County was 4.6%
as compared to 4.9% for the Philadelphia MSA.
2
<PAGE> 4
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset and liability management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
focus, operating environment, capital and liquidity requirements and performance
objectives, establish prudent asset concentration guidelines and manage the risk
consistent with Board approved guidelines. Through such management, the Company
seeks to reduce both the vulnerability of its operations to changes in interest
rates and to manage the ratio of interest-rate sensitive assets to interest-rate
sensitive liabilities within specified maturities or repricing dates. The
Company's actions in this regard are taken under the guidance of the
Asset/Liability Committee ("ALCO"), which is chaired by the Chief Financial
Officer and comprised of members of the Company's senior and middle management.
The ALCO meets quarterly to review, among other things, the sensitivity of the
Company's assets and liabilities to interest rate changes, the book and market
values of assets and liabilities, unrealized gains and losses, purchase and sale
activity and maturities of investments and borrowings. In connection therewith,
the ALCO generally reviews the Company's liquidity, cash flow needs, maturities
of investments, deposits and borrowings, current market conditions and interest
rates. In addition, the pricing of the Company's residential loan and deposit
products is reviewed at least weekly while the pricing of loans originated for
sale in the secondary market is reviewed daily. The ALCO reports to the
Company's Board of Directors on a quarterly basis.
The Company's primary ALCO monitoring tool is asset/liability simulation
models, which are prepared on a quarterly basis and are designed to capture the
dynamics of balance sheet, rate and spread movements and to quantify variations
in net interest income under different interest rate environments. The Company
also utilizes market value analysis, which addresses the change in equity value
arising from movements in interest rates. The market value of equity is
estimated by valuing the Company's assets and liabilities. The extent to which
assets have gained or lost value in relation to the gains or losses of
liabilities determines the appreciation or depreciation in equity on a market
value basis. Market value analysis is intended to evaluate the impact of
immediate and sustained shifts of the current yield curve upon the market value
of the current balance sheet.
A more conventional but limited ALCO monitoring tool involves an analysis
of the extent to which assets and liabilities are "interest rate sensitive" and
measures an institution's interest rate sensitivity "gap." An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity "gap"
is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. During a period of falling
interest rates, a negative gap would tend to result in an increase in net
interest income, while a positive gap would tend to affect net interest income
adversely. While a conventional gap measure may be useful, it is limited in its
ability to predict trends in future earnings. It makes no presumptions about
changes in prepayment tendencies, deposit or loan maturity preferences or
repricing time lags that may occur in response to a change in the interest rate
environment.
3
<PAGE> 5
The following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
September 30, 1997, based on the information and assumptions set forth in the
footnotes.
<TABLE>
<CAPTION>
More Than More Than
Within Six to One Year Three Over
Six Twelve to Three Years to Five
Months Months Years Five Years Years Total
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Loans receivable(2): $ 59,547 $ 25,228 $ 36,014 $ 23,232 $ 45,087 $ 189,108
Mortgage-related securities(3) 41,775 10,334 34,326 24,101 14,643 125,179
Assets held for sale 4,577 4,577
Investment securities(4) 1,070 75 3,000 19,835 23,980
Interest-earning deposits 19,729 19,729
--------- --------- --------- --------- --------- ---------
Total interest-earning assets $ 126,698 $ 35,562 $ 70,415 $ 50,333 $ 79,565 $ 362,573
========= ========= ========= ========= ========= =========
Interest-bearing liabilities:
Deposits(5) $ 69,916 $ 57,390 $ 86,159 $ 14,453 $ $ 227,918
Borrowed funds 44,525 5,300 24,557 25,125 480 99,987
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities $ 114,441 $ 62,690 $ 110,716 $ 39,578 $ 480 $ 327,905
========= ========= ========= ========= ========= =========
Excess (deficiency) of interest-
earning assets over interest-bearing
liabilities $ 12,257 $ (27,128) $ (40,301) $ 10,755 $ 79,085 $ 34,668
========= ========= ========= ========= ========= =========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities $ 12,257 $ (14,871) $ (55,172) $ (44,417) $ 34,668
========= ========= ========= ========= =========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percentage of
total assets 3.28% (3.98)% (14.77)% (11.89)% 9.28%
========= ========= ========= ========= =========
</TABLE>
(footnotes on following page)
4
<PAGE> 6
- ----------
(1) Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due. Fixed-rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, in each case as
adjusted to take into account estimated prepayments based on assumptions
estimating the prepayments in the expected interest rate environment.
Annual prepayment speeds for loans range from 5% to 15% depending on the
type of loan. Annual prepayment speeds for mortgage-related securities and
investment securities range from 9% to 15%.
(2) Balances have been reduced for non-accruing loans, which amounted to $2.1
million at September 30, 1997 and, with respect to construction loans, the
amount of loans in process.
(3) Includes mortgage-related securities available for sale.
(4) Includes $3.8 million of stock in the FHLB of Pittsburgh.
(5) Management believes that the assumptions used by it to evaluate the
vulnerability of the Bank's operations to changes in interest rates are
conservative and consider them reasonable. However, the interest rate
sensitivity of the Bank's assets and liabilities as portrayed in the table
above could vary substantially if different assumptions were used or actual
experience differs from the assumptions used in the table. Passbook and
statement savings accounts are assumed to decay at a rate of 30.0%, 30.0%,
and 40.0% in each of the first three years, respectively. Money market
"MMDA" and negotiable order of withdrawal ("NOW") accounts are assumed to
decay at a rate of 75% and 25%, in one year or less and over one year,
respectively. The percentages used in the first year are equally divided
over the two six month periods. First Keystone's passbook, statement
savings, MMDA and NOW accounts are generally subject to immediate
withdrawal. However, management considers a portion of these deposits to be
core deposits having significantly longer effective maturities based upon
the Bank's retention of such deposits in changing interest rate
environments.
5
<PAGE> 7
Lending Activities
Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated (excluding
loans held for sale).
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------
1997 1996 1995
------------------- ---------------------- ----------------------
Amount % Amount % Amount %
-------- -------- -------- ----------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family $135,168 68.53% $122,270 68.68% $115,225 69.01%
Multi-family and commercial 18,305 9.28 11,129 6.25 11,789 7.06
Construction and land 16,400 8.31 17,682 9.93 16,343 9.79
-------- -------- -------- ----------- -------- -----------
Total real estate loans 169,873 86.12 151,081 84.86 143,357 85.86
-------- -------- -------- ----------- -------- -----------
Consumer:
Home equity loans and lines of credit 22,964 11.64 20,444 11.48 18,229 10.92
Deposit 348 .18 457 .26 350 .21
Education 365 .19 917 .52 1,010 .60
Other (1) 1,690 .86 2,212 1.24 1,491 .89
-------- -------- -------- ----------- -------- -----------
Total consumer loans 25,367 12.87 24,030 13.50 21,080 12.62
-------- -------- -------- ----------- -------- -----------
Commercial business loans 2,000 1.01 2,923 1.64 2,533 1.52
-------- -------- -------- ----------- -------- -----------
Total loans receivable (2) 197,240 100.00% 178,034 100.00% 166,970 100.00%
-------- ======== -------- =========== -------- ===========
Less:
Loans in process (construction
and land) 5,670 6,368 6,070
Deferred loan origination fees
and discounts 1,653 1,512 1,411
Allowance for loan losses 1,628 2,624 1,487
-------- -------- --------
8,951 10,504 8,968
-------- -------- --------
Total loans receivable, net $188,289 $167,530 $158,002
======== ======== ========
<CAPTION>
September 30,
------------------------------------------------
1994 1993
---------------------- ----------------------
Amount % Amount %
-------- ----------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Single-family $105,728 69.77% $107,999 74.72%
Multi-family and commercial 12,700 8.38 13,069 9.04
Construction and land 13,805 9.11 11,675 8.08
-------- ----------- -------- -----------
Total real estate loans 132,233 87.26 132,743 91.84
-------- ----------- -------- -----------
Consumer:
Home equity loans and lines of credit 15,603 10.30 7,995 5.53
Deposit 374 .25 477 .33
Education 697 .46 669 .46
Other (1) 332 .22 39 .04
-------- ----------- -------- -----------
Total consumer loans 17,006 11.23 9,180 6.36
-------- ----------- -------- -----------
Commercial business loans 2,288 1.51 2,608 1.80
-------- ----------- -------- -----------
Total loans receivable (2) 151,527 100.00% 144,531 100.00%
-------- =========== -------- ===========
Less:
Loans in process (construction 6,698 4,984
and land)
Deferred loan origination fees
and discounts 1,063 1,096
Allowance for loan losses 1,540 1,265
-------- --------
9,301 7,345
-------- --------
Total loans receivable, net $142,226 $137,186
======== ========
</TABLE>
- ----------
(1) Consists primarily of purchased consumer lease receivables.
(2) Does not include $4.6 million, $2.4 million, $57,000, $168,000 and $1.2
million of loans held for sale at September 30, 1997, 1996, 1995, 1994 and
1993, respectively.
6
<PAGE> 8
Contractual Principal Repayments. The following table sets forth the
scheduled contractual maturities of the Bank's loans held to maturity at
September 30, 1997. Demand loans, loans having no stated schedule of repayments
and no stated maturity and overdraft loans are reported as due in one year or
less. The amounts shown for each period do not take into account loan
prepayments and normal amortization of the Bank's loan portfolio held to
maturity.
<TABLE>
<CAPTION>
Real Estate Loans
----------------------------------------------------------------------------------
Multi-family Consumer and
and Construction Commercial
Single-family Commercial and Land Total Business Loans Total
------------- ------------ ------------ -------- -------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less $ 5,412 $ 1,411 $16,400 $ 23,223 $ 7,310 $ 30,533
After one year through three years 10,122 3,127 13,249 6,386 19,635
After three years through five years 9,036 3,586 12,622 4,382 17,004
After five years through ten years 20,059 7,519 27,578 5,949 33,527
After ten years through twenty
years 49,655 2,662 52,317 3,340 55,657
Over twenty years 40,884 40,884 40,884
-------- -------- ------- -------- -------- --------
Total(1) $135,168 $ 18,305 $16,400 $169,873 $ 27,367 $197,240
======== ======== ======= ======== ======== ========
Interest rate terms on amounts due after one year:
Fixed $ 88,769 $ 20,057 $108,826
Adjustable 57,881 57,881
-------- -------- --------
Total(1) $146,650 $ 20,057 $166,707
======== ======== ========
</TABLE>
- ----------
(1) Does not include adjustments relating to loans in process, allowances for
loan losses and deferred fee income.
7
<PAGE> 9
Scheduled contractual amortization of loans does not reflect the expected
term of the Bank's loan portfolio. The average life of loans is substantially
less than their contractual terms because of prepayments and due-on-sale
clauses, which give the Bank the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase when current mortgage loan
rates are higher than rates on existing mortgage loans and, conversely, decrease
when rates on existing mortgage loans are lower than current mortgage loan rates
(due to refinancings of adjustable-rate and fixed-rate loans at lower rates).
Under the latter circumstances, the weighted average yield on loans decreases as
higher yielding loans are repaid or refinanced at lower rates.
Loan Origination, Purchase and Sales Activity. The following table shows
the loan origination, purchase and sale activity of the Bank during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1997 1996 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Gross loans at beginning of period(1) $ 180,491 $ 167,027 $ 151,695
--------- --------- ---------
Loan originations for investment:
Real estate:
Residential 18,016 23,766 24,562
Commercial and multi-family 8,458 399
Construction 16,298 15,875 16,523
--------- --------- ---------
Total real estate loans originated
for investment 42,772 40,040 41,085
Consumer 8,859 9,738 9,063
Commercial business 2,755 875 2,872
--------- --------- ---------
Total loans originated for
investment 54,386 50,653 53,020
Loans originated for resale 37,209 30,239 5,501
--------- --------- ---------
Total originations 91,595 80,892 58,521
--------- --------- ---------
Deduct:
Principal loan repayments and
prepayments (34,779) (37,821) (36,077)
Transferred to real estate owned (411) (1,768) (507)
Loans sold in secondary market (35,079) (27,839) (6,605)
--------- --------- ---------
Subtotal 70,269 (67,438) (43,189)
--------- --------- ---------
Net increase in loans(1) 21,326 13,454 15,332
--------- --------- ---------
Gross loans at end of period(1) $ 201,817 $ 180,481 $ 167,027
========= ========= =========
</TABLE>
- ----------
(1) Includes loans held for sale of $4.6 million, $2.4 million and $57,000 at
September 30, 1997, 1996 and 1995, respectively.
8
<PAGE> 10
The lending activities of the Bank are subject to written underwriting
standards and loan origination procedures established by the Bank's Board of
Directors and management. Applications for all types of loans are taken at all
of the Bank's branch offices by the branch manager or other designated loan
officers. Applications for single-family residential mortgage loans for
portfolio retention also are obtained through loan originators who are employees
of the Bank. The Bank's loan originators will take loan applications outside of
the Bank's offices at the customer's convenience and are compensated on a
commission basis. The Mortgage Lending Department supervises the process of
obtaining credit reports, appraisals and other documentation involved with a
loan. The Bank generally requires that a property appraisal be obtained in
connection with all new mortgage loans. Property appraisals generally are
performed by an independent appraiser from a list approved by the Bank's Board
of Directors. The Bank requires that title insurance (other than with respect to
home equity loans) and hazard insurance be maintained on all security properties
and that flood insurance be maintained if the property is within a designated
flood plain.
Residential mortgage loan applications are primarily developed from
referrals from real estate brokers and builders, existing customers and walk-in
customers. Residential mortgage loans also are originated through
correspondents. Commercial and multi-family real estate loan applications are
obtained primarily from previous borrowers, direct solicitations by Bank
personnel, as well as referrals. Consumer loans originated by the Bank are
obtained primarily through existing and walk-in customers who have been made
aware of the Bank's programs by advertising and other means.
Applications for residential mortgage loans which are originated for resale
in the secondary market or loans designated for portfolio retention that conform
to the requirements for resale into the secondary market and do not exceed
Federal National Mortgage Association ("FNMA")/Federal Home Loan Mortgage
Corporation ("FHLMC") limits are approved by the Bank's Chief Lending Officer or
in his absence, by the Senior Loan Underwriter or Loan Committee (a committee
comprised of three directors and the Bank's Chief Lending Officer). All other
first mortgage loans (commercial and multi-family residential real estate and
construction loans) and residential mortgage loans in excess of FNMA/FHLMC
maximum amounts, currently $214,600, but less than $1.0 million must be approved
by the Loan Committee. All first mortgage loans in excess of $1.0 million must
be approved by the Bank's Board of Directors or the Executive Committee thereof.
All mortgage loans which do not require approval by the Board of Directors are
submitted to the Board at its next meeting for review and ratification. Home
equity loans and lines of credit up to $100,000 can be approved by the Chief
Lending Officer, the Vice President of Construction Loans and the Administrative
Vice President of mortgage lending. Loans in excess of such amount must be
approved by the Loan Committee.
Applications for non-conforming residential real estate loans, submitted by
correspondents and sold servicing released into the secondary market, are
packaged and submitted for pre-approval to the buyer prior to closing. The Bank,
on occasion will originate non-conforming loans in accordance with the buyers'
underwriting standards and sells them in bulk into the secondary market.
Single-Family Residential Loans. Substantially all of the Bank's
single-family residential mortgage loans consist of conventional loans.
Conventional loans are loans that are neither insured by the Federal Housing
Administration or partially guaranteed by the Department of Veterans Affairs.
The vast majority of the Bank's single-family residential mortgage loans are
secured by properties located in Pennsylvania, primarily in Delaware and Chester
Counties, and are originated under terms and documentation which permit their
sale to the FHLMC or FNMA. The Bank, consistent with its asset/liability
management strategies, sells some of its newly originated longer term fixed-rate
residential mortgage loans and to a limited degree, existing longer term
fixed-rate residential mortgage loans while retaining adjustable-rate mortgage
loans and shorter term fixed-rate residential mortgage loans. See "-
Mortgage-Banking Activities."
The single-family residential mortgage loans offered by the Bank currently
consist of fixed-rate loans, including bi-weekly and balloon loans, and
adjustable-rate loans. Fixed-rate loans generally have maturities ranging from
15 to 30 years and are fully amortizing with monthly loan payments sufficient to
repay the total amount of the loan with interest by the end of the loan term.
The Bank's fixed-rate loans are originated under terms, conditions and
documentation which permit them to be sold to U.S. Government-sponsored
agencies, such as the FHLMC and the FNMA, and other investors in the secondary
mortgage market. The Bank also offers bi-weekly loans under the terms of which
the borrower makes payments every two weeks. Although such loans have a 30 year
amortization schedule,
9
<PAGE> 11
due to the bi-weekly payment schedule, such loans repay substantially more
rapidly than a standard monthly amortizing 30-year fixed-rate loan. The Bank
also offers five and seven year balloon loans which provide that the borrower
can conditionally renew the loan at a to-be-determined rate for the remaining 25
or 23 years, respectively, of the amortization period. At September 30, 1997,
$104.6 million, or 56.7%, of the Bank's single-family residential mortgage loans
held in portfolio were fixed-rate loans, including $27.0 million of bi-weekly
fixed-rate residential mortgage loans.
The adjustable-rate loans currently offered by the Bank have interest rates
which adjust every one or three years in accordance with a designated index,
such as U.S. Treasury obligations, adjusted to a constant maturity ("CMT"), plus
a stipulated margin. The Bank's adjustable-rate single-family residential real
estate loans generally have a cap of 2% on any increase or decrease in the
interest rate at any adjustment date, and a cap of 6% over the life of the loan.
In order to increase acceptance of adjustable-rate loans, the Bank recently has
been originating loans which are fixed for a period of three to ten years which
converts to a one-year adjustable-rate loan. The Bank's adjustable-rate loans
require that any payment adjustment resulting from a change in the interest rate
of an adjustable-rate loan be sufficient to result in full amortization of the
loan by the end of the loan term and, thus, do not permit any of the increased
payment to be added to the principal amount of the loan, or so-called negative
amortization. Although the Bank does offer adjustable-rate loans with initial
rates below the fully indexed rate, such loans are underwritten using methods
approved by FHLMC and FNMA which allow borrowers to be qualified at 2% above the
discounted loan rate. At September 30, 1997, $70.4 million or 52.1% of the
Bank's single-family residential mortgage loans held for portfolio were
adjustable-rate loans.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
increase the loan payment by the borrower increases to the extent permitted by
the terms of the loan, thereby increasing the potential for default. Moreover,
as with fixed-rate loans, as interest rates increase, the marketability of the
underlying collateral property may be adversely affected by higher interest
rates. The Bank believes that these risks, which have not had a material adverse
effect on the Bank to date because of the generally stable interest rate
environment in recent years, generally are less than the risks associated with
holding fixed-rate loans in an increasing interest rate environment.
For conventional residential mortgage loans held in portfolio and also for
those loans originated for sale in the secondary market, the Bank's maximum
loan-to-value ratio is 95%, and is based on the lesser of sales price or
appraised value. On all loans with a loan-to-value ratio of over 80%, private
mortgage insurance is required in an amount which reduces the Bank's exposure to
75%.
Commercial and Multi-Family Residential Real Estate Loans. The Bank has
moderately increased its investment in commercial and multi-family lending. Such
loans are being extended primarily to small and medium-sized businesses located
in the Bank's primary market area, a portion of the market that the Bank
believes has been underserved in recent years. Loans secured by commercial and
multi-family real estate amounted to $18.3 million, or 9.3%, of the Bank's total
loan portfolio, at September 30, 1997. The Bank's commercial and multi-family
residential real estate loans are secured primarily by professional office
buildings, small retail establishments, warehouses and apartment buildings (with
36 units or less) located in the Bank's primary market area.
The Bank's adjustable-rate multi-family residential and commercial real
estate loans generally are either one-year or three-year adjustable-rate loans
indexed to the CMT plus a margin. In addition, depending on collateral value and
strength of the borrower, fixed-rate balloon loans and longer term fixed-rate
loans are also originated. Generally, fees of 1% to 3% of the principal loan
balance are charged to the borrower upon closing. Although terms for
multi-family residential and commercial real estate loans may vary, the Bank's
underwriting standards generally provide for terms of up to 25 years with
amortization of principal over the term of the loan and loan-to-value ratios of
not more than 75%. Generally, the Bank obtains personal guarantees of the
principals of the borrower as additional security for any commercial real estate
and multi-family residential loans and requires that the borrower have at least
a 25% equity investment in any such property.
The Bank evaluates various aspects of commercial and multi-family
residential real estate loan transactions in an effort to mitigate risk to the
extent possible. In underwriting these loans, consideration is given to the
stability of the property's cash flow history, future operating projections,
current and projected occupancy, position in the
10
<PAGE> 12
market, location and physical condition. In recent periods, the Bank has also
generally imposed a debt coverage ratio (the ratio of net cash from operations
before payment of debt service to debt service) of not less than 110%. The
underwriting analysis also includes credit checks and a review of the financial
condition of the borrower and guarantor, if applicable. An appraisal report is
prepared by a state-licensed and certified appraiser (generally Member of
Appraisal Institute ("MAI") qualified) commissioned by the Bank to substantiate
property values for every commercial real estate and multi-family loan
transaction. All appraisal reports are reviewed by the Bank prior to the closing
of the loan.
Multi-family residential and commercial real estate lending entails
different and significant risks when compared to single-family residential
lending because such loans often involve large loan balances to single borrowers
and because the payment experience on such loans is typically dependent on the
successful operation of the project or the borrower's business. These risks can
also be significantly affected by supply and demand conditions in the local
market for apartments, offices, warehouses or other commercial space. The Bank
attempts to minimize its risk exposure by limiting such lending to proven
developers/owners, only considering properties with existing operating
performance which can be analyzed, requiring conservative debt coverage ratios,
and periodically monitoring the operation and physical condition of the
collateral.
Construction Loans. Substantially all of the Bank's construction loans have
consisted of loans to construct single-family properties extended either to
individuals or to selected developers with whom the Bank is familiar to build
such properties on a pre-sold or limited speculative basis. With respect to
loans to individuals, such loans have a maximum term of six months, have
variable rates of interest based upon the prime rate published in the Wall
Street Journal ("Prime Rate") plus a margin, have loan-to-value ratios of 80% or
less of the appraised value upon completion and generally do not require the
amortization of principal during the term. Upon completion of construction, the
loans convert to permanent residential mortgage loans.
The Bank also provides construction loans and lines of credit to
developers. The majority of such loans consist of loans to selected local
developers with whom the Bank is familiar to build single-family dwellings on a
pre-sold or, to a significantly lesser extent, on a speculative basis. The Bank
generally limits to two the number of unsold units which a developer may have
under construction in a project. Such loans generally have terms of 24 months or
less, have maximum loan-to-value ratios of 75% of the appraised value upon
completion and generally do not require the amortization of the principal during
the term. The loans are made with floating rates of interest based on the Prime
Rate plus a margin adjusted on a monthly basis. The Bank also receives
origination fees, which generally range from 1.0% to 3.0% of the commitment. The
borrower is required to fund a portion of the project's costs, the exact amount
determined on a case-by-case basis. Loan proceeds are disbursed in stages after
inspections of the project indicate that such disbursements are for costs
already incurred and which have added to the value of the project. Only interest
payments are due during the construction phase and the Bank may provide the
borrower with an interest reserve from which it can pay the stated interest due
thereon. The Bank's construction loans include loans to the developers to
acquire the necessary land, develop the site and construct the residential units
("ADC loans"). At September 30, 1997, net residential construction loans
totalled $6.1 million, or 3.1%, of the total loan portfolio, which primarily
consisted of construction loans to developers.
Loans to developers include both secured and unsecured lines of credit with
outstanding commitments totalling $2.4 million. All have personal guaranties of
the principals and are cross-collateralized with existing loans. Loans
outstanding under builder lines of credit totalled $856,000 at September 30,
1997. The majority of the loans are secured by real estate and the unsecured
lines, given only to the Bank's most creditworthy and long standing customers,
totalled $327,000, or .17% of the total loan portfolio.
The Bank also will originate ground or land loans, both to individuals to
purchase a building lot on which he intends to build his primary residence, as
well as to developers to purchase lots to build speculative homes at a later
date. Such loans have terms of 36 months or less with a maximum loan-to-value
ratio of 75% of the lower of appraised value or sale price with respect to loans
to individuals and 65% of the lower of appraised value or sales price with
respect to loans to developers. The loans are made with floating rates based on
the Prime Rate plus a margin. The Bank also receives origination fees, which
generally range between 1.0% and 3.0% of the loan amount. At September 30, 1997,
land loans (including loans to acquire and develop land) totalled $4.6 million
or 2.3% of the total loan portfolio.
11
<PAGE> 13
Prior to making a commitment to fund a construction loan, the Bank requires
an appraisal of the property by an independent state-licensed and qualified
appraiser approved by the Board of Directors. In addition, during the term of
the construction loan, the project is inspected by an independent inspector.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of value proves to be inaccurate, the
Bank may be confronted, at or prior to the maturity of the loan, with a project,
when completed, having a value which is insufficient to assure full repayment.
Loans on lots may run the risk of adverse zoning changes, environmental or other
restrictions on future use.
Consumer Lending Activities. The Bank offers consumer loans in order to
provide a full range of retail financial services to its customers. At September
30, 1997, $25.4 million, or 12.9%, of the Bank's total loan portfolio was
comprised of consumer loans. The Bank originates substantially all of such loans
in its primary market area.
The largest component of the Bank's consumer loan portfolio consists of
home equity loans and home equity lines of credit (a form of revolving credit),
both of which are secured by the underlying equity in the borrower's primary
residence. Home equity loans are amortizing loans with fixed interest rates and
maximum terms of 15 years while equity lines of credit have adjustable interest
rates indexed to the Prime Rate. Generally home equity loans or home equity
lines do not exceed $100,000. The Bank's home equity loans and lines of credit
generally require combined loan-to-value ratios of 80% or less. At September 30,
1997, home equity loans amounted to $23.0 million, or 11.6%, of the Bank's total
loan portfolio.
At September 30, 1997, the remaining portion of the Bank's consumer loan
portfolio was comprised of education, deposit and other consumer loans. At
September 30, 1997, the Bank had $365,000 (or .19% of the total loan portfolio)
of education loans, all of which were underwritten to conform with the standards
of the Pennsylvania Higher Education Agency. Deposit loans and other consumer
loans (including credit card loans) totalled $2.0 million, or 1.0%, of the
Bank's total loan portfolio at September 30, 1997. In April, 1995 the Bank
introduced its own credit card program. The credit cards are offered to only the
Bank's most creditworthy customers. At September 30, 1997, these loans totalled
$507,000 or .26% of the total loan portfolio. Consumer loans also included
certain consumer leases totalling $988,000 purchased from a leasing company.
Consumer loans generally have shorter terms and higher interest rates than
mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. These risks are not as prevalent in the case of the
Bank's consumer loan portfolio, however, because a high percentage of the
portfolio is comprised of home equity loans and home equity lines of credit
which are secured by real estate and underwritten in a manner such that they
result in a lending risk which is substantially similar to single-family
residential loans.
Commercial Business Loans. At September 30, 1997, commercial business loans
amounted to $2.0 million or 1.0% of the Bank's total loan portfolio. The
majority of commercial business loans consist of a small number of commercial
lines of credit secured by real estate and, to a lesser extent, unsecured lines
of credit. The remaining portfolio consists of office equipment and other leases
purchased from the Bennett Funding Group ("Bennett Funding"), a leasing company
located in Syracuse, New York. Such lines totalled $297,000 or .14% of the
Bank's total loan portfolio at September 30, 1997. See "-Asset Quality -
Non-Performing Assets" for a discussion of the Bank's commercial business loan
leases.
Mortgage-Banking Activities. Due to customer preference for fixed-rate
loans, especially during the stable mortgage interest rate environment in 1997
and 1996, the Bank has continued to originate fixed-rate loans. Long term,
generally 30 years, fixed-rate loans not taken into portfolio for
asset/liability purposes are sold into the secondary market. In addition, the
Bank has developed a product for sale in the secondary market of non-conforming
(loans not conforming to FHLMC/FNMA underwriting guidelines) and impaired credit
loans. The Bank has substantially increased the origination and sales of
non-conforming mortgage loans during fiscal 1997 and 1996 and, to a lesser
extent, during fiscal 1995. The Bank's net gain on sales of mortgage loans
amounted to $285,000,
12
<PAGE> 14
$209,000 and $53,000 during the years ended September 30, 1997, 1996 and 1995,
respectively. Due to the general increases in rates in fiscal 1995, mortgage
originations declined significantly for both the Bank and the mortgage industry.
The development of non-conforming loan products, whose loan rates generally do
not fluctuate during the interest rate cycles, should smooth out originations
over various interest rate cycles. The Bank had $4.6 million, $2.4 million and
$57,000 of mortgage loans held for sale at September 30, 1997, 1996 and 1995,
respectively.
The Bank's conforming mortgage loans sold to others are sold, generally
with servicing retained, on a loan-by-loan basis primarily to the FHLMC and the
FNMA. A period of less than five days generally lapses between the closing of
the loan by the Bank and its purchase by the investor. Mortgages with
established interest rates generally will decrease in value during periods of
increasing interest rates. Accordingly, fluctuations in prevailing interest
rates may result in a gain or loss to the Bank as a result of adjustments to the
carrying value of loans held for sale or upon sale of loans. The Bank attempts
to protect itself from these market fluctuations through the use of forward
commitments at the time of the commitment by the Bank of a loan rate to the
borrower. These commitments are mandatory delivery contracts with FHLMC and FNMA
within a certain time frame and within certain dollar amounts by a price
determined at the commitment date. Market risk does exist as non-refundable
points paid by the borrower may not be sufficient to offset fees associated with
closing the forward commitment contract. Non-conforming mortgage loans sold to
others are sold, servicing released, on a loan-by-loan basis and are generally
pre-approved by the buyer prior to closing.
Borrowers are generally charged an origination fee, which is a percentage
of the principal balance of the loan. In accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases," the various fees received by the Bank in
connection with the origination of loans are deferred and amortized as a yield
adjustment over the lives of the related loans using the interest method.
However, when such loans are sold, the remaining unamortized fees (which is all
or substantially all of such fees due to the relatively short period during
which such loans are held) are recognized on the sale of loans held for sale.
The Bank, for conforming loan products, generally retains the servicing on
all loans sold to others. In addition, the Bank services substantially all of
the loans which it retains in portfolio. Loan servicing includes collecting and
remitting loan payments, accounting for principal and interest, making advances
to cover delinquent payments, making inspections as required of mortgaged
premises, contacting delinquent mortgagors, supervising foreclosures and
property dispositions in the event of unremedied defaults and generally
administering the loans. Funds that have been escrowed by borrowers for the
payment of mortgage-related expenses, such as property taxes and hazard and
mortgage insurance premiums, are maintained in noninterest-bearing accounts at
the Bank.
13
<PAGE> 15
The following table presents information regarding the loans serviced by
the Bank for others at the dates indicated. Substantially all the loans were
secured by properties in Pennsylvania. A small percentage of the loans are
secured by properties located in Delaware, Maryland or New Jersey.
<TABLE>
<CAPTION>
September 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Loans originated by the Bank and serviced for:
FNMA $ 5,228 $ 5,817 $ 6,513
FHLMC 108,895 121,029 127,831
Others 431 383 293
-------- -------- --------
Total loans serviced for others $114,554 $127,229 $134,637
======== ======== ========
</TABLE>
The Bank receives fees for servicing mortgage loans, which generally amount
to 0.25% per annum on the declining principal balance of mortgage loans. Such
fees serve to compensate the Bank for the costs of performing the servicing
function. Other sources of loan servicing revenues include late charges. For
years ended September 30, 1997, 1996 and 1995, the Bank earned gross fees of
$293,000, $331,000 and $357,000, respectively, from loan servicing. The Bank
retains a portion of funds received from borrowers on the loans it services for
others in payment of its servicing fees received on loans serviced for others.
Loans-to-One Borrower Limitations. Regulations impose limitations on the
aggregate amount of loans that a savings institution could make to any one
borrower, including related entities. Under such regulations, the permissible
amount of loans-to-one borrower follows the national bank standard for all loans
made by savings institutions, which generally does not permit loans-to-one
borrower to exceed 15% of unimpaired capital and surplus. Loans in an amount
equal to an additional 10% of unimpaired capital and surplus also may be made to
a borrower if the loans are fully secured by readily marketable securities. At
September 30, 1997, the Bank's five largest loans or groups of loans-to-one
borrower, including related entities, ranged from an aggregate of $1.4 million
to $2.3 million, and the Bank's loans-to-one borrower limit was $3.8 million at
such date.
ASSET QUALITY
General. As a part of the Bank's efforts to improve its asset quality, it
has developed and implemented an asset classification system. All of the Bank's
assets are subject to review under the classification system, but particular
emphasis is placed on the review of multi-family residential and commercial real
estate loans, construction loans and commercial business loans. All assets of
the Bank are periodically reviewed and the classification recommendations
submitted to the Asset Classification Committee at least monthly. The Asset
Classification Committee is composed of the President and Chief Executive
Officer, the Chief Financial Officer, the Chief Lending Officer, the Vice
President of Loan Administration, the Internal Auditor and the Vice President of
Construction Lending. All assets are placed into one of the four following
categories: Pass, Substandard, Doubtful and Loss. The criteria used to review
and establish each asset's classification are substantially identical to the
asset classification system used by the Office of Thrift Supervision (the "OTS")
in connection with the examination process. As of September 30, 1997, the Bank
did not have any assets which it had classified as doubtful or loss. See "-
Non-Performing Assets" and "- Other Classified Assets" for a discussion of
certain of the Bank's assets which have been classified as substandard and
regulatory classification standards generally.
When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the deficiency by contacting the borrower and seeking payment.
Contacts are generally made 30 days after a payment is due. In most cases,
deficiencies are cured promptly. If a delinquency continues, late charges are
assessed and additional efforts are made to collect the loan. While the Bank
generally prefers to work with borrowers to resolve such problems,
14
<PAGE> 16
when the account becomes 90 days delinquent, the Bank institutes foreclosure or
other proceedings, as necessary, to minimize any potential loss.
Loans are placed on non-accrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. As a matter of
policy, the Bank does not accrue interest on loans past due 90 days or more. See
Note 2 of the Notes to Consolidated Financial Statements included in the
Company's Annual Report to Stockholders' for the year ended September 30, 1997
set forth as Exhibit 13 hereto ("Annual Report").
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until sold. Real
estate owned is initially recorded at the lower of fair value less estimated
costs to sell the property, or cost (generally the balance of the loan on the
property at the date of acquisition). After the date of acquisition, all costs
incurred in maintaining the property are expenses and costs incurred for the
improvement or development of such property are capitalized up to the extent of
their net realizable value.
Under Generally Accepted Accounting Principles ("GAAP"), the Bank is
required to account for certain loan modifications or restructuring as "troubled
debt restructuring." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Bank for economic or legal
reasons related to the borrower's financial difficulties grants a concession to
the borrower that the Bank would not otherwise consider under current market
conditions. Debt restructuring or loan modifications for a borrower do not
necessarily always constitute troubled debt restructuring, however, and troubled
debt restructuring do not necessarily result in non-accrual loans.
15
<PAGE> 17
Delinquent Loans. The following table sets forth information concerning
delinquent loans at the dates indicated, in dollar amounts and as a percentage
of each category of the Bank's loan portfolio. The amounts presented represent
the total outstanding principal balances of the related loans, rather than the
actual payment amounts which are past due.
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------------------------- -------------------------------------
30-59 Days 60-89 Days 30-59 Days 60-89 Days
----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent
of of of of
Loan Loan Loan Loan
Amount Category Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family
residential $ 401 .30% $ 62 .05% $ 928 .76% $ 614 .50%
Construction 287 1.80 528 2.99
Consumer loans 15 .06 33 .13 2 .01
Commercial business
loans 2 .10 1 .03 1 .03
------ ------ ------ ------
Total $ 418 .21% $ 382 .19% $1,459 .82% $ 615 .35%
====== === ====== ==== ====== ==== ====== ===
</TABLE>
16
<PAGE> 18
Non-Performing Assets. The following table sets forth the amounts and
categories of the Bank's non-performing assets and troubled debt restructurings
at the dates indicated.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Single-family residential $1,661 $1,466 $1,986 $1,907 $1,649
Commercial and multi-
family(1) 22 55 22 2,400 2,686
Construction(3) 275 888 872 1,027
Consumer 14 1,666 2 1 1
Commercial business 100 2,165 258 196 121
------ ------ ------ ------ ------
Total non-performing loans 2,072 5,352 3,156 5,376 5,484
------ ------ ------ ------ ------
Accruing loans greater than
90 days delinquent 5
------ ------ ------ ------ ------
Total non-performing loans 2,077 5,352 3,156 5,376 5,484
------ ------ ------ ------ ------
REO 1,672 1,557 465 503 971
------ ------ ------ ------ ------
Total non-performing assets $3,749 $6,909 $3,621 $5,879 $6,455
====== ====== ====== ====== ======
Troubled debt restructurings(2) $ 384 $2,348
====== ====== ====== ====== ======
Total non-performing loans and
troubled debt restructurings
as a percentage of gross loans
receivable(4) 1.29% 3.10% 3.45% 3.73% 3.92%
====== ====== ====== ====== ======
Total non-performing assets
as a percentage of total assets 1.00% 2.35% 1.29% 2.47% 2.76%
====== ====== ====== ====== ======
Total non-performing assets and
troubled debt restructurings as
percentage of total assets 1.11% 2.35% 2.12% 2.43% 2.76%
====== ====== ====== ====== ======
</TABLE>
- ----------
(1) Consist of one loan at September 30, 1997 and 1995, respectively, and two
loans at September 30, 1996. For fiscal 1994 and 1993, consists primarily
of one loan restructured during fiscal 1995.
(2) Consists of lease financing receivables at September 30, 1997 from the
Bennett Funding Group of Syracuse, New York and one loan at September 30,
1995. The troubled debt restructurings in 1997 and 1995 have been
performing in accordance with the terms of the agreements since the
restructurings.
(3) Consist of two loans at September 30, 1997 and 1995 and one loan at
September 30, 1994 and 1993.
(4) Includes loans receivable and loans held for sale, less construction and
land loans in process and deferred loan origination fees and discounts.
17
<PAGE> 19
The Bank's total non-performing assets and troubled debt restructurings
have decreased from $6.9 million, or 2.35% of total assets, at September 30,
1996 to $4.1 million, or 1.00% at September 30, 1997. The primary reason for the
decrease was the resolution of certain consumer and commercial lease financings
totalling $3.6 million related to Bennett Funding.
During fiscal 1997, the Company completed negotiations with the Bennett
Funding bankruptcy trustee. Under terms of the agreement, the Company will
receive a percentage of the cash collected by the trustee on the Company's lease
financings, as well as, any future collections on the leases. As a result of the
cash payments and a write-down on the credit, the remaining balances as of
September 30, 1997 aggregated $385,000. In addition, certain consumer
receivables in an affliated Bennett Company which did not declare bankruptcy and
which have been paying in accordance with the original loan agreements have been
returned to accrual status. These loans totalled $992,000 at September 30, 1997.
The $1.7 million of non-performing single-family residential loans at
September 30, 1997 consisted of 32 loans, with principal balances ranging from
$1,000 to $216,000 with an average of approximately $52,000. Many of such loans
are involved in bankruptcy proceedings which increases the period of time it
takes the Bank to resolve such assets.
At September 30, 1997, the $1.7 million of REO consisted of one
single-family residential property with a carrying value of $168,000 and one
former construction loan project with a carrying value of $1.5 million. The
construction loan was for the acquisition and development of a 106-lot
residential townhouse project located in Pennsylvania. The project currently has
13 units under varying stages of development and 15 building lots. The Company
has hired a developer to complete the project and is actively marketing the
units. Expected completion is approximately fifteen months.
Other Classified Assets. Federal regulations require that each insured
savings association classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted.
At September 30, 1997, the Bank had $4.5 million and $50,000 of assets
classified as substandard and loss, respectively, and no assets classified as
doubtful. Substantially all classified assets are also non-performing.
Allowance for Loan Losses. The Bank's policy is to establish reserves
for estimated losses on delinquent loans when it determines that losses are
expected to be incurred on such loans and leases. The allowance for losses on
loans is maintained at a level believed adequate by management to absorb
potential losses in the portfolio. Management's determination of the adequacy of
the allowance is based on an evaluation of the portfolio, past loss experience,
current economic conditions, volume, growth and composition of the portfolio,
and other relevant factors. The allowance is increased by provisions for loan
losses which are charged against income. The activity in the Bank's allowance
for loan losses has remained relatively stable (other than the $956,000 Bennett
Funding charge-off in fiscal 1997 and the $1.1 million charge-off in fiscal 1993
related to the Bank's then largest non-performing construction loan) and the
level of provisions has been relatively small with the exception in fiscal 1996
of an additional $1.1 million provision related to Bennett Funding. As shown in
the table below, at September 30, 1997, the Bank's allowance for loan losses
amounted to 78.38% and .86% of the Bank's non-performing loans and gross loans
receivable, respectively.
18
<PAGE> 20
The following table summarizes changes in the allowance for loan losses
and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
Year Ending September 30,
------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of
period $ 2,624 $ 1,487 $ 1,540 $1,265 $ 2,150
Charged-off loans:
Single-family residential (119) (113) (163) (141) (121)
Construction (1,154)
Commercial lease purchases (956)
Consumer and commercial business (177) (5)
------- ------- ------- ------ -------
Total charged-off loans (1,252) (113) (168) (141) (1,275)
------- ------- ------- ------ -------
Recoveries on loans previously charged off:
Residential real estate 7 12
Construction 10 43
Commercial and multi-
family residential 8
Consumer and commercial business ------- ------- ------- ------ -------
Total recoveries 17 63
------- ------- ------- ------ -------
Net loans charged-off (1,235) (113) (105) (141) (1,275)
Provision for loan losses 239 1,250 52 416 390
------- ------- ------- ------ -------
Allowance for loan losses, end of
period $ 1,628 $ 2,624 $ 1,487 $1,540 $ 1,265
======= ======= ======= ====== =======
Net loans charged-off to average
interest-earning loans(1) .68% .07% .07% .10% .89%
======= ======= ======= ====== =======
Allowance for loan losses
to gross loans receivable(1) .86% 1.54% .93% 1.07% .91%
======= ======= ======= ====== =======
Net loans charged-off to
allowance for loan losses 75.86% 4.31% 7.06% 9.16% 100.79%
======= ======= ======= ====== =======
Recoveries to charge-offs 1.36% % 37.50% % .87%
======= ======= ======= ====== =======
</TABLE>
(1) Gross loans receivable and average interest-earning loans receivable
include loans receivable and loans available for sale, less construction
and land loans in process and deferred loan origination fees and discounts.
19
<PAGE> 21
The following table presents the Bank's allocation of the allowance for
loan losses to the total amount of loans in each category listed at the dates
indicated.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------- ------------------- -------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $ 439 68.53% $ 204 68.68% $ 226 69.01% $ 280 69.77% $ 282 74.72%
Commercial and multi-
family residential 77 9.28 3 6.25 12 7.06 243 8.38 243 9.04
Construction 300 8.31 290 9.93 615 9.79 481 9.11 546 8.08
Consumer 67 12.87 370 13.50 100 12.62 79 11.23 43 6.36
Commercial business 31 1.01 1,152 1.64 55 1.52 45 1.51 55 1.80
Unallocated 714 605 479 412 96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses $1,628 100.00% $2,624 100.00% $1,487 100.00% $1,540 100.00% $1,265 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
20
<PAGE> 22
Effective December 21, 1993, the OTS, in conjunction with the Office of
the Comptroller of the Currency, the FDIC and the Federal Reserve Board, issued
a joint policy statement ("Policy Statement") regarding an institution's
allowance for loan and lease losses. The Policy Statement, which reflects the
position of the issuing regulatory agencies and does not necessarily constitute
GAAP, includes guidance (i) on the responsibilities of management for the
assessment and establishment of an adequate allowance and (ii) for the agencies'
examiners to use in evaluating the adequacy of such allowance and the policies
utilized to determine such allowance. The Policy Statement also sets forth
quantitative measures for the allowance with respect to assets classified
substandard and doubtful and with respect to the remaining portion of an
institution's loan portfolio. While the Policy Statement sets forth quantitative
measures, such guidance is not intended as a "floor" or "ceiling." The review of
the Policy Statement did not result in a material adjustment to the Bank's
policy for establishing loan losses.
Management of the Bank presently believes that its allowance for loan
losses is adequate to cover any potential losses in the Bank's loan portfolio.
However, future adjustments to this allowance may be necessary, and the Bank's
results of operations could be adversely affected if circumstances differ
substantially from the assumptions used by management in making its
determinations in this regard.
MORTGAGE-RELATED SECURITIES AND INVESTMENT SECURITIES
Mortgage-Related Securities. Federally chartered savings institutions
have authority to invest in various types of liquid assets, including United
States Treasury obligations, securities of various federal agencies and of state
and municipal governments, certificates of deposit at federally-insured banks
and savings and loan associations, certain bankers' acceptances and Federal
funds. Subject to various restrictions, federally chartered savings institutions
may also invest a portion of their assets in commercial paper, corporate debt
securities and mutual funds, the assets of which conform to the investments that
federally chartered savings institutions are otherwise authorized to make
directly.
The Bank maintains a significant portfolio of mortgage-related
securities as a means of investing in housing-related mortgage instruments
without the costs associated with originating mortgage loans for portfolio
retention and with limited credit risk of default which arises in holding a
portfolio of loans to maturity. Mortgage-related securities (which also are
known as mortgage participation certificates or pass-through certificates)
represent a participation interest in a pool of single-family or multi-family
residential mortgages. The principal and interest payments on mortgage-backed
securities are passed from the mortgage originators, as servicer, through
intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such U.S. Government agencies and
government sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, the FNMA and the Government
National Mortgage Association ("GNMA"). The Bank also invests to a limited
degree in certain privately issued, credit enhanced mortgage-related securities
rated AAA by national securities rating agencies.
The FHLMC is a public corporation chartered by the U.S. Government. The
FHLMC issues participation certificates backed principally by conventional
mortgage loans. The FHLMC guarantees the timely payment of interest and the
ultimate return of principal on participation certificates. The FNMA is a
private corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. FHLMC and FNMA securities are not
backed by the full faith and credit of the United States, but because the FHLMC
and the FNMA are U.S. Government-sponsored enterprises, these securities are
considered to be among the highest quality investments with minimal credit
risks. The GNMA is a government agency within the Department of Housing and
Urban Development which is intended to help finance government-assisted housing
programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans, and
the timely payment of principal and interest on GNMA securities are guaranteed
by the GNMA and backed by the full faith and credit of the U.S. Government.
Because the FHLMC, the FNMA and the GNMA were established to provide support for
low- and middle-income housing, there are limits to the maximum size of loans
that qualify for these, programs which limit is currently $214,600.
21
<PAGE> 23
Mortgage-related securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate loans. As a result, the risk characteristics of the underlying
pool of mortgages, (i.e., fixed-rate or adjustable rate) as well as prepayment
risk, are passed on to the certificate holder. The life of a mortgage-backed
pass-through security thus approximates the life of the underlying mortgages.
The Bank's mortgage-related securities include regular interests in
collateralized mortgage obligations ("CMOs"). CMOs were developed in response to
investor concerns regarding the uncertainty of cash flows associated with the
prepayment option of the underlying mortgagor and are typically issued by
governmental agencies, governmental sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar institutions. A CMO can be collateralized by loans
or securities which are insured or guaranteed by the FNMA, the FHLMC or the
GNMA. In contrast to pass-through mortgage-related securities, in which cash
flow is received pro rata by all security holders, the cash flow from the
mortgages underlying a CMO is segmented and paid in accordance with a
predetermined priority to investors holding various CMO classes. By allocating
the principal and interest cash flows from the underlying collateral among the
separate CMO classes, different classes of bonds are created, each with its own
stated maturity, estimated average life, coupon rate and prepayment
characteristics.
The short-term classes of a CMO usually carry a lower coupon rate than
the longer term classes and, therefore, the interest differential cash flow on a
residual interest is greatest in the early years of the CMO. As the early coupon
classes are extinguished, the residual income declines. Thus, the longer the
lower coupon classes remain outstanding, the greater the cash flow accruing to
CMO residuals. As interest rates decline, prepayments accelerate, the interest
differential narrows, and the cash flow from the CMO declines. Conversely, as
interest rates increase, prepayments decrease, generating a larger cash flow to
residuals.
A senior-subordinated structure often is used with CMOs to provide
credit enhancement for securities which are backed by collateral which is not
guaranteed by FNMA, FHLMC or GNMA. These structures divide mortgage pools into
various risk classes: a senior class and one or more subordinated classes. The
subordinated classes provide protection to the senior class. When cash flow is
impaired, debt service goes first to the holders of senior classes. In addition,
incoming cash flows also may go into a reserve fund to meet any future
shortfalls of cash flow to holders of senior classes. The holders of
subordinated classes may not receive any funds until the holders of senior
classes have been paid and, when appropriate, until a specified level of funds
has been contributed to the reserve fund.
Certain CMOs can be classified as "high-risk mortgage securities" under
OTS Thrift Bulletin 52 ("TB 52") and its predecessor. Pursuant to TB 52, a
savings institution such as the Bank generally may only acquire high-risk
mortgage securities, which are defined as any CMO that at the time of purchase,
or at any subsequent date, meets any of the three tests set forth therein, to
reduce its overall interest rate risk, although an institution with strong
capital and earnings and adequate liquidity and that has a closely supervised
trading department may acquire such securities if they are reported as trading
assets or held for sale at market value. The three tests are an average life
test, an average life sensitivity test and a price sensitivity test.
Mortgage-related securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-related
securities are more liquid than individual mortgage loans and may be used to
collateralize certain obligations of the Bank. At September 30, 1997, $21.9
million of the Bank's mortgage-related securities were pledged to secure various
obligations of the Bank, including reverse repurchase agreements and as
collateral for certain government deposits.
The Bank's mortgage-related securities are classified as either "held
to maturity" or "available for sale" based upon the Bank's intent and ability to
hold such securities to maturity at the time of purchase, in accordance with
GAAP. As of September 30, 1997, the Bank had an aggregate of $125.2 million, or
33.5%, of total assets invested in mortgage-related securities, net, of which
$20.7 million was held to maturity and $104.5 million was available for sale.
The tables below present the Bank's mortgage-related securities on the basis of
these classifications, which were included in the Bank's Consolidated Financial
Statements beginning in fiscal 1996. The mortgage-related securities of the Bank
which are held
22
<PAGE> 24
to maturity are carried at cost, adjusted for the amortization of premiums and
the accretion of discounts using a method which approximates a level yield,
while mortgage-related securities available for sale are carried at the current
market value. See Notes 1 and 4 of the Notes to Consolidated Financial
Statements in the Annual Report.
In November 1995, the Financial Accounting Standards Board
(the "FASB") issued a special report, "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities", (the
"Guide"), which discussed through a question and answer format many of the
implementation questions that have arisen since the adoption of SFAS 115.
Concurrent with the initial adoption of this implementation guidance but no
later than December 31, 1995, an enterprise was permitted to reassess the
appropriateness of the classifications of all securities held at that time and
account and disclose resulting reclassifications in accordance with SFAS 115.
The Guide provided that reclassifications from the held-to-maturity category
that result from this one-time assessment will not call into question the intent
of an enterprise to hold other debt securities to maturity in the future. In
December 1995, as permitted under the terms of the Guide, the Company
reclassified certain securities with an aggregated amortized cost of $50.5
million from held to maturity to available for sale.
The following table sets forth the composition of the Bank's mortgage-related
securities portfolio, both held to maturity and available for sale, at the dates
indicated.
<TABLE>
<CAPTION>
September 30,
------------------------------
1997 1996 1995
-------- -------- --------
Held to maturity:
(In thousands)
<S> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 2,747 $ 3,631 $ 8,743
FNMA 10,053 11,383 26,014
-------- -------- --------
Total mortgage-backed securities 12,800 15,014 34,757
-------- -------- --------
Collateralized mortgage obligations:
FHLMC 2,026 2,238 8,337
FNMA 5,740 5,789 16,968
Other 141 180 232
-------- -------- --------
Total collateralized mortgage obligations 7,907 8,207 25,537
-------- -------- --------
Total mortgage-related securities, amortized cost $ 20,707 $ 23,221 $ 60,294
======== ======== ========
Total fair value(1) $ 20,200 $ 22,060 $ 59,010
======== ======== ========
Available for sale:
Mortgage-backed securities:
FHLMC $ 17,540 $ 12,852 $ 3,935
FNMA 14,587 11,079 2,913
GNMA 28,938 8,355 1,136
-------- -------- --------
Total mortgage-backed securities 61,065 32,286 7,984
-------- -------- --------
Collateralized mortgage obligations:
FHLMC 5,356 7,298
FNMA 17,301 18,594 9,682
GNMA 1,338 1,593
Other 18,819 1,131 1,640
-------- -------- --------
Total collateralized mortgage obligations 42,814 28,616 11,322
-------- -------- --------
Total mortgage-related securities, amortized cost $103,879 $ 60,902 $ 19,306
======== ======== ========
Total fair value(1) $104,472 $ 60,211 $ 19,538
======== ======== ========
</TABLE>
- ----------
(1) See Note 4 of the Notes to Consolidated Financial Statements in the Annual
Report.
23
<PAGE> 25
The following table sets forth the purchases, sales and principal
repayments of the Bank's mortgage-related securities for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Mortgage-related securities, beginning of period(1) $ 83,432 $ 79,832 $ 68,620
--------- --------- ---------
Purchases:
Mortgage-backed securities - held to maturity 1,938
CMO - held to maturity 2,000
Mortgage-backed securities - available for sale 33,584 15,471 8,094
CMO - available for sale 18,069 9,997 13,824
Sales:
Mortgage-backed securities - available for sale (6,422) (2,250)
CMO - available for sale (6,374)
Repayments and prepayments:
Mortgage-backed securities (7,668) (6,467) (4,241)
CMO (4,057) (5,788) (4,216)
Increase (decrease) in net premium 535 169 (231)
Change in net unrealized gain (loss) on mortgage-related securities
available for sale 1,284 (924) 232
--------- --------- ---------
Net increase in mortgage-related securities 41,747 3,600 11,212
--------- --------- ---------
Mortgage-related securities, end of period(1) $ 125,179 $ 83,432 $ 79,832
========= ========= =========
</TABLE>
- ----------
(1) Includes mortgage-related securities available for sale.
At September 30, 1997, the weighted average contractual maturity of the
Bank's fixed-rate mortgage-backed securities was approximately 22.4 years. The
actual maturity of a mortgage-backed security is less than its stated maturity
due to prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and adversely affect its yield
to maturity. The yield is based upon the interest income and the amortization of
any premium or discount related to the mortgage-backed security. In accordance
with GAAP, premiums and discounts are amortized over the estimated lives of the
loans, which decrease and increase interest income, respectively. The prepayment
assumptions used to determine the amortization period for premiums and discounts
can significantly affect the yield of the mortgage-backed security, and these
assumptions are reviewed periodically to reflect actual prepayments. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
rising mortgage interest rates, if the coupon rates of the underlying mortgages
are less than the prevailing market interest rates offered for mortgage loans,
refinancings generally decrease and slow the prepayment of the underlying
mortgages and the related securities. Conversely, during periods of falling
mortgage interest rates, if the coupon rates of the underlying mortgages exceed
the prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates the prepayment of the underlying mortgages
and the related securities. Under such circumstances, the Bank may be subject to
reinvestment risk because to the extent that the Bank's mortgage-related
securities amortize or prepay faster than anticipated, the Bank may not be able
to reinvest the proceeds of such repayments and prepayments at a comparable
yield. At September 30, 1997, of the $20.7 million of mortgage-related
securities held to maturity, an aggregate of $7.4 million were secured by
fixed-rate securities and an aggregate of $13.3 million were secured by
adjustable-rate securities.
24
<PAGE> 26
Investment Securities. The following table sets forth information regarding
the carrying and fair value of the Bank's investment securities, both held to
maturity and available for sale, at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB stock $ 3,769 $ 3,769 $ 2,337 $ 2,337 $ 1,492 $ 1,492
U.S. Government and agency
obligations 17,000 16,958 16,500 16,388 10,565 10,505
Municipal securities 3,138 3,213 145 144 145 145
------- ------- ------- ------- ------- -------
Total $23,907 $23,153 $18,982 $18,869 $12,202 $12,142
======= ======= ======= ======= ======= =======
</TABLE>
At September 30, 1997, the Bank had an aggregate of $23.9 million, or 6.4%,
of total assets invested in investment securities, of which $13.8 million was
held to maturity and $10.1 million was available for sale. Included in U.S.
Government and agency obligations are callable bonds ranging from three months
to three years. The Bank's investment securities had a weighted average
contractual maturity of 10.87 years and a weighted average yield of 7.29%
(adjusted to a fully taxable equivalent yield).
SOURCES OF FUNDS
General. The Bank's principal source of funds for use in lending and for
other general business purposes has traditionally come from deposits obtained
through the Bank's branch offices. The Bank also derives funds from contractual
payments and prepayments of outstanding loans and mortgage-related securities,
from sales of loans, from maturing investment securities and from advances from
the FHLB of Pittsburgh and other borrowings. Loan repayments are a relatively
stable source of funds, while deposits inflows and outflows are significantly
influenced by general interest rates and money market conditions. The Bank uses
borrowings to supplement its deposits as a source of funds.
Deposits. The Bank's current deposit products include passbook accounts,
NOW accounts, MMDA, certificates of deposit ranging in terms from 30 days to
five years and noninterest-bearing personal and business checking accounts. The
Bank's deposit products also include Individual Retirement Account ("IRA")
certificates and Keogh accounts.
The Bank's deposits are obtained primarily from residents in Delaware and
Chester Counties in southeastern Pennsylvania. The Bank attracts local deposit
accounts by offering a wide variety of accounts, competitive interest rates, and
convenient branch office locations and service hours. The Bank utilizes
traditional marketing methods to attract new customers and savings deposits,
including print media and radio advertising and direct mailings. However, the
Bank does not solicit funds through deposit brokers nor does it pay any
brokerage fees if it accepts such deposits. The Bank participates in the
regional ATM network known as MAC(R).
The Bank has been competitive in the types of accounts and in interest
rates it has offered on its deposit products but does not necessarily seek to
match the highest rates paid by competing institutions. With the significant
decline in interest rates paid on deposit products, the Bank in recent years has
experienced disintermediation of deposits into competing investment products.
25
<PAGE> 27
The following table shows the distribution of, and certain information
relating to, the Bank's deposits by type of deposit as of the dates indicated.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
-------- ------ -------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook and statement
savings accounts $ 38,035 16.69% $ 41,504 18.93% $ 43,088 19.25%
MMDA 16,429 7.21 16,159 7.37 17,892 8.00
NOW accounts 27,754 12.18 28,085 12.81 26,621 11.90
Certificates of deposit 139,535 61.22 128,747 58.73 126,985 56.75
Noninterest-bearing
deposits 6,165 2.70 4,710 2.16 9,167 4.10
-------- ------ -------- ------ -------- ------
Total deposits at end of
period $227,918 100.00% $219,205 100.00% $223,753 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
The following table sets forth the net savings flows of the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Increase (Decrease) before interest credited $ 99 $(13,152) $ (1,040)
Interest credited 8,614 8,604 8,728
-------- -------- --------
Net savings increase (decrease) $ 8,713 $ (4,548) $ 7,688
======== ======== ========
</TABLE>
The following table sets forth maturities of the Bank's certificates of
deposit of $100,000 or more at September 30, 1997 by time remaining to maturity.
<TABLE>
<CAPTION>
Amounts in
Thousands
----------
<S> <C>
Three months or less $ 3,177
Over three months through six months 1,526
Over six months through twelve months 1,987
Over twelve months 4,022
----------
$ 10,712
==========
</TABLE>
26
<PAGE> 28
The following table presents, by various interest rate categories, the
amount of certificates of deposit at September 30, 1997 and 1996, and the
amounts at September 30, 1997 which mature during the periods indicated.
<TABLE>
<CAPTION>
Amounts at September 30, 1997
September 30, Maturing Within
------------------- ----------------------------------------------
Certificates of
Deposit 1997 1996 One Year Two Years Three Years Thereafter
- ----------------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
4.0% or less $ 394 $ 1,740 $ 394
4.01% to 6.0% 116,480 103,038 67,511 $ 28,545 $ 6,033 $ 14,391
6.01% to 8.0% 19,705 21,092 8,180 3,334 8,130 61
8.01% to 10.0% 2,956 2,877 2,050 906
-------- -------- -------- -------- -------- --------
Total certificate
accounts $139,535 $128,747 $ 78,135 $ 32,785 $ 14,163 $ 14,452
======== ======== ======== ======== ======== ========
</TABLE>
The following table presents the average balance of each deposit type and the
average rate paid on each deposit type for the periods indicated.
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------
1997 1996 1995
------------------- -------------------- -------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook and statement
savings accounts $ 39,199 2.42% $ 42,270 2.44% $ 47,058 2.48%
Money market accounts 16,350 2.75 18,358 2.65 19,997 2.68
Certificates of deposit 133,091 5.58 128,384 5.82 120,106 6.32
NOW accounts 28,143 1.28 27,098 1.37 25,904 1.68
Noninterest-bearing
deposits 4,357 4,193 3,446
-------- -------- --------
Total deposits $221,140 4.15% $220,303 4.25% $216,511 4.49%
======== ==== ======== ==== ======== ====
</TABLE>
27
<PAGE> 29
Borrowings. The Bank may obtain advances from the FHLB of Pittsburgh upon
the security of the common stock it owns in the FHLB and certain of its
residential mortgage loans and securities held to maturity, provided certain
standards related to creditworthiness have been met. Such advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. The Bank, during fiscal 1997 and 1996 increased its FHLB
borrowings to fund asset growth thereby leveraging, in part, the capital raised
during the initial public offering in fiscal 1995 and the issurance of trust
preferred securities in fiscal 1997. At September 30, 1997, the Bank had $75.4
million in outstanding FHLB advances. See Note 10 of the Notes to Consolidated
Financial Statements in the Annual Report.
The Bank has entered into agreements to sell securities under terms which
require it to repurchase the same or substantially similar securities by a
specified date. Repurchase agreements are considered borrowings which are
secured by the sold securities. At September 30, 1997, the Bank had $24.6
million of repurchase agreements outstanding of which $5.3 million were due in
1997 and $19.3 million due in 2000.
Both the FHLB advances and the repurchase agreements have certain call
features whereby the FHLB of Pittsburgh or the issuer of the repurchase
agreement can call the borrowings after the expiration of certain timeframes.
The timeframes on the callable borrowings range from six months to three years.
SUBSIDIARIES
The Bank is permitted to invest up to 2% of its assets in the capital stock
of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of September 30, 1997, the Bank was authorized to invest up to approximately
$11.2 million in the stock of, or loans to, service corporations. As of
September 30, 1997, the net book value of the Bank's investment in stock,
unsecured loans, and conforming loans to its service corporations was $1.5
million.
The Bank only has one active, wholly owned subsidiary, First Pointe, Inc.
("First Pointe"), which was formed for the purpose of developing a real estate
parcel received in a deed-in-lieu of foreclosure action. At September 30, 1997,
the Bank's equity investment in First Pointe was a net deficit of $34,874 and
First Pointe had total assets of $1.5 million consisting of 13 units under
development and 15 building lots. For the year ended September 30, 1997, First
Pointe had a net loss of $34,572. The Bank also has two other subsidiaries, both
inactive, which had been involved in either real estate development or real
estate management. With the Bank's cessation of its involvement in such
activities and the resolution of the various development projects in which the
subsidiaries were involved, these subsidiaries were placed on an inactive
status. See "- Asset Quality - Non-Performing Assets" and Notes 1 and 7 of the
Notes to Consolidated Financial Statements in the Annual Report.
COMPETITION
The Bank faces strong competition both in attracting deposits and making
real estate loans. Its most direct competition for deposits has historically
come from other savings associations, credit unions and commercial banks located
in its market area including many large financial institutions which have
greater financial and marketing resources available to them. In addition, during
times of high interest rates, the Bank has faced additional significant
competition for investors' funds from short-term money market securities, mutual
funds and other corporate and government securities. The ability of the Bank to
attract and retain savings deposits depends on its ability to generally provide
a rate of return, liquidity and risk comparable to that offered by competing
investment opportunities.
The Bank experiences strong competition for real estate loans principally
from other savings associations, commercial banks and mortgage banking
companies. The Bank competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers and the convenient locations of its branch office network. Competition
may increase as a result of the continuing reduction of restrictions on the
interstate operations of financial institutions.
EMPLOYEES
The Bank had 72 full-time employees and 12 part-time employees as of
September 30, 1997. None of these employees is represented by a collective
bargaining agreement. The Bank believes that it enjoys excellent relations with
its personnel.
28
<PAGE> 30
REGULATION
The Company. The Company as a savings and loan holding company within the
meaning of the Home Owners' Loan Act, as amended ("HOLA"), is required to
register as such with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. As a subsidiary of a savings and loan
holding company, the Bank is subject to certain restrictions in its dealings
with the Company and affiliates thereof.
Federal Activities Restrictions. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings association. However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings association; (ii)
transactions between the savings association and its affiliates; and (iii) any
activities of the savings association that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings association. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
association subsidiary of such a holding company fails to meet a QTL test, then
such unitary holding company also shall become subject to the activities
restrictions applicable to multiple savings and loan holding companies and,
unless the savings association qualifies as a QTL within one year thereafter,
shall register as, and become subject to the restrictions applicable to, a bank
holding company. See "- The Bank - Qualified Thrift Lender Test."
If the Company were to acquire control of another savings association,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings association meets the QTL
test, as set forth below, the activities of the Company and any of its
subsidiaries (other than the Bank or other subsidiary savings associations)
would thereafter be subject to further restrictions. No multiple savings and
loan holding company or subsidiary thereof which is not a savings association
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof any business
activity, other than: (i) furnishing or performing management services for a
subsidiary savings association; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings association; (iv) holding or managing properties used
or occupied by a subsidiary savings association; (v) acting as trustee under
deeds of trust; (vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding companies; or (vii)
unless the Director of the OTS by regulation prohibits or limits such activities
for savings and loan holding companies, those activities authorized by the
Federal Reserve Board as permissible for bank holding companies. The activities
described in (i) through (vi) above may only be engaged in after giving the OTS
prior notice and being informed that the OTS does not object to such activities.
In addition, the activities described in (vii) above also must be approved by
the Director of the OTS prior to being engaged in by a multiple savings and loan
holding company.
Limitations on Transactions with Affiliates. Transactions between savings
associations and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act ("FRA") and OTS regulations issued in connection therewith.
An affiliate of a savings association is any company or entity which controls,
is controlled by or is under common control with the savings association. In a
holding company context, the parent holding company of a savings association
(such as the Company) and any companies which are controlled by such parent
holding company are affiliates of the savings association. Generally, Sections
23A and 23B (i) limit the extent to which the savings association or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such association's capital stock and surplus, and contain
an aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable, to
the association or subsidiary as those provided to a non-affiliate. The term
"covered transaction" includes, among other things, the making of loans or
extension of credit to an affiliate, purchase of assets, issuance of a guarantee
and similar transactions. In addition to the restrictions imposed by Sections
23A and 23B, under OTS regulations no savings association may (i) loan or
otherwise extend credit to an affiliate, except for any affiliate which engages
only in activities which are permissible for bank holding companies, (ii) a
savings association may not purchase or invest in securities of an affiliate
other than shares of a subsidiary; (iii) a savings association and its
subsidiaries may not purchase a low-quality asset from an affiliate; (iv) and
covered transactions and certain other transactions between a savings
association or its subsidiaries and an affiliate must be on terms and conditions
that are consistent with safe and sound banking practices. With certain
exceptions, each extension of credit by a savings association to an affiliate
must be secured by
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collateral with a market value ranging from 100% to 130% (depending on the type
of collateral) of the amount of the loan or extension of credit.
The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to treat
such subsidiaries as affiliates. The regulation also requires savings
associations to make and retain records that reflect affiliate transactions in
reasonable detail, and provides that certain classes of savings associations may
be required to give the OTS prior notice of affiliate transactions.
In addition, Sections 22(g) and (h) of the FRA place restrictions on loans
to executive officers, directors and principal stockholders. Under Section
22(h), loans to a director, an executive officer and to a greater than 10%
stockholder of a savings institution (a "principal stockholder"), and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered to employees of the Bank and also
requires prior board approval for certain loans. In addition, the aggregate
amount of extensions of credit by a savings institution to all insiders cannot
exceed the institution's unimpaired capital and surplus. Furthermore, Section
22(g) places additional restrictions on loans to executive officers. At
September 30, 1997, the Bank was in compliance with the above restrictions.
Restrictions on Acquisitions. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings association or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings association or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings association, other than
a subsidiary savings association, or of any other savings and loan holding
company.
Federal Securities Laws. The Company's Common Stock is registered with the
Securities and Exchange Commission ("SEC") under the Security Exchange Act of
1934 ("Exchange Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
Shares of common stock owned by an affiliate of the Company are subject to
the resale restrictions of Rule 144 under the Securities Act of 1933, as amended
("Securities Act"). If the Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the Company
who complies with the other conditions of Rule 144 (including those that require
the affiliate's sale to be aggregated with those of certain other persons) is
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks.
The Bank. The OTS has extensive regulatory authority over the operations of
savings associations. As part of this authority, savings associations are
required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS. The investment and lending authority of savings
associations are prescribed by federal laws and regulations and they are
prohibited from engaging in any activities not permitted by such laws and
regulations. Those laws and regulations generally are applicable to all
federally chartered savings associations and may also apply to state-chartered
savings associations. Such regulation and supervision is primarily intended for
the protection of depositors.
The OTS' enforcement authority over all savings associations and their
holding companies was substantially enhanced by Financial Institutions Reform
Recovery and Enforcement Act of 1989 ("FIRREA"). This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may
provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS. FIRREA significantly increased the amount of and
grounds for civil money penalties. FIRREA requires, except under certain
circumstances, public disclosure of final enforcement actions by the OTS.
Insurance of Accounts. The deposits of the Bank are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the United States Government. As insurer, the
FDIC
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is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings associations, after giving the OTS an
opportunity to take such action.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is not aware of any existing circumstances which could
result in termination of the Bank's deposit insurance.
The BIF fund met its target reserve level in September 1995, but the SAIF
was not expected to meet its target reserve level until at least 2002.
Consequently, in late 1995, the FDIC approved a final rule regarding deposit
insurance premiums which, effective with respect to the semi-annual premium
assessment beginning January 1, 1996, reduced deposit insurance premiums for BIF
member institutions to zero basis points (subject to an annual minimum of
$2,000) for institutions in the lowest risk category. Deposit insurance premiums
for SAIF members were maintained at their existing levels (23 basis points for
institutions in the lowest risk category).
On September 30, 1996, President Clinton signed into law legislation (the
"Deposit Insurance Funds Act of 1996") to eliminate the premium differential
between SAIF-insured institutions and BIF-insured institutions by recapitalizing
the SAIF's reserves to the required ratio. The legislation provided that all
SAIF member institutions pay a one-time special assessment to recapitalize the
SAIF, which in the aggregate was sufficient to bring the reserve ratio in the
SAIF to 1.25% of insured deposits. The legislation also provided for the merger
of the BIF and the SAIF, with such merger being conditioned upon, among other
things, the prior elimination of the federal thrift charter.
Effective October 8, 1996, pursuant to the provision of the Deposit
Insurance Funds Act of 1996, FDIC regulations imposed a one-time special
assessment equal to 65.7 basis points for all SAIF-assessable deposits as of
March 31, 1995, which was collected on November 27, 1996. The Bank's one-time
special assessment amounted to approximately $1.4 million. Net of related tax
benefits, the one-time special assessment amounted to $876,000.
Following the imposition of the one-time special assessment, the FDIC
lowered assessment rates for SAIF members to reduce the disparity in the
assessment rates paid by BIF and SAIF members. Beginning October 1, 1996,
effective BIF and SAIF rates both range from zero basis points to 27 basis
points. From 1997 through 1999, SAIF members will pay 6.4 basis points to fund
the Financing Corporation while BIF member institutions will pay approximately
1.3 basis points. The Bank's insurance premiums, which previously amounted to 23
basis points, were reduced to 6.4 basis points.
Capital requirements. Federally insured savings associations are required
to maintain minimum levels of regulatory capital. Pursuant to FIRREA, the OTS
has established capital standards applicable to all savings associations. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
Current OTS capital standards require savings associations to satisfy three
different capital requirements. Under these standards, savings associations must
maintain "tangible" capital equal to 1.5% of adjusted total assets, "core"
capital equal to 3% of adjusted total assets and "total" capital (a combination
of core and "supplementary" capital) equal to 8.0% of "risk-weighted" assets.
For purposes of the regulation, core capital generally consists of common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in the equity accounts
of fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill." Tangible capital is given the
same definition as core capital but does not include qualifying supervisory
goodwill and is reduced by the amount of all the savings association's
intangible assets, with only a limited exception for purchased mortgage
servicing rights ("PMSRs"). Both core and tangible capital are further reduced
by an amount equal to a savings association's debt and equity investments in
subsidiaries engaged in activities not permissible for national banks (other
than subsidiaries engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository institutions or their
holding
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<PAGE> 33
companies). In addition, under the Prompt Corrective Action provisions of the
OTS regulations, all but the most highly rated institutions must maintain a
minimum leverage ratio of 4% in order to be adequately capitalized. See "-
Prompt Corrrective Action." At September 30, 1997, the Bank did not have any
investment in subsidiaries engaged in impermissible activities and required to
be deducted from its capital calculation.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") granted the OTS the authority to prescribe rules for the amount of
PMSRs that may be included in a savings association's regulatory capital and
required that the value of readily marketable PMSRs included in the calculation
of a savings association's regulatory capital not exceed 90% of fair market
value and that such value be determined at least quarterly. Under final OTS
rules effective March 4, 1994, (i) PMSRs do not have to be deducted from
tangible and core regulatory capital, provided that they do not exceed 50% of
core capital, (ii) savings associations are required to determine the fair
market value and to review the book value of their PMSRs at least quarterly and
to obtain an independent valuation of PMSRs annually, (iii) savings associations
that desire to include PMSRs in regulatory capital may not carry them at a book
value under GAAP that exceeds the discounted value of their future net income
stream and (iv) for purposes of calculating regulatory capital, the amount of
PMSRs reported as balance sheet assets should amount to the lesser of 90% of
their fair market value, 90% of their original purchase price or 100% of their
remaining unamortized book value.
At September 30, 1997, the Bank had PMSRs totalling $189,000.
A savings association is allowed to include both core capital and
supplementary capital in the calculation of its total capital for purposes of
the risk-based capital requirements, provided that the amount of supplementary
capital does not exceed the savings association's core capital. Supplementary
capital generally consists of hybrid capital instruments; perpetual preferred
stock which is not eligible to be included as core capital; subordinated debt
and intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics, with the categories ranging
from 0% (requiring no additional capital) for assets such as cash to 100% for
repossessed assets or loans more than 90 days past due. Single-family
residential real estate loans which are not past-due or non-performing and which
have been made in accordance with prudent underwriting standards are assigned a
50% level in the risk-weighing system, as are certain privately-issued
mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk
characteristics.
Under OTS regulations, an institution with a greater than "normal" level of
interest rate exposure must deduct an interest rate risk ("IRR") component from
total capital for purposes of calculating risk-based capital requirement.
Interest rate exposure is measured, generally, as the decline in an
institution's net portfolio value that would result from a 200 basis point
increase or decrease in market interest rates (whichever would result in lower
net portfolio value), divided by the estimated economic value of the savings
association's assets. The interest rate risk component to be deducted from total
capital is equal to one-half of the difference between an institution's measured
exposure and "normal" IRR exposure (which is defined as 2%), multiplied by the
estimated economic value of the institution's assets. In August 1995, the OTS
indefinitely delayed implementation of its IRR regulation. Based on internal
measures of interest rate risk at September 30, 1997, the Bank would have been
required to deduct $2.1 million pursuant to the IRR component in calculating
total risk-based capital had the IRR component of the capital regulations been
in effect. However, even in the event of such a deduction, the Bank would still
be deemed to be a "well-capitalized" institution.
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The following is a reconciliation of the Bank's equity determined in
accordance with GAAP to regulatory tangible, core, and risk-based capital at
September 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996 September 30, 1995
------------------------------- ------------------------------- -------------------------------
Tangible Core Risk-based Tangible Core Risk-based Tangible Core Risk-based
Capital Capital Capital Capital Capital Capital Capital Capital Capital
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP equity $ 30,254 $ 30,254 $ 30,254 $ 22,608 $ 22,608 $ 22,608 $ 23,129 $ 23,129 $ 23,129
Purchased mortgage servicing (9) (9) (9)
Assets required to be deducted(1) (55) (55)
General valuation allowances 1,578 1,775 1,412
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total regulatory capital 30,254 30,254 31,832 22,608 22,608 24,328 23,120 23,120 24,477
Minimum capital requirement per
FIRREA published guidelines 5,594 11,188 12,792 4,421 8,841 11,289 4,212 8,425 10,986
-------- -------- -------- -------- -------- -------- -------- -------- --------
Excess $ 24,660 $ 19,066 $ 19,040 $ 18,187 $ 13,767 $ 13,039 $ 18,908 $ 14,695 $ 13,491
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Consists of equity investment nonincludable in regulatory capital.
These capital requirements are viewed as minimum standards by the OTS, and
most institutions are expected to maintain capital levels well above the
minimum. In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS for
individual savings association's capital, upon a determination that the
regulations provide that higher individual minimum regulatory capital
requirements may be appropriate in circumstances where, among others: (1) a
savings association has a high degree of exposure to interest rate risk,
prepayment risk, credit risk, concentration of credit risk, certain risks
arising from nontraditional activities, or similar risks or a high proportion of
off-balance sheet risk; (2) a savings association is growing, either internally
or through acquisitions, at such a rate that supervisory problems are presented
that are not dealt with adequately by OTS regulations; and (3) a savings
association may be adversely affected by the activities or condition of its
holding company, affiliates, subsidiaries or other persons or savings
associations with which it has significant business relationships. The Bank is
not subject to any such individual minimum regulatory capital requirement.
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Prompt Corrective Action. Under Section 38 of the FDIA as added by
FDICIA, the OTS adopted in 1992 regulations implementing Section 38 of the FDIA.
Under the regulations, an institution shall be deemed to be (i) "well
capitalized" if it has total risk-based capital of 10% or more, has a Tier I
risk-based capital ratio of 6% or more, has a Tier I leverage capital ratio of
5% or more and is not subject to any order or final capital directive to meet
and maintain a specific capital level for any capital measure, (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8% or more, a Tier I
risk-based capital ratio of 4% or more and a Tier I leverage capital ratio of 4%
or more (3% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8%, a Tier I risk-based capital ratio that is
less than 4% or a Tier I leverage capital ratio that is less than 4% (3% under
certain circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier I risk-based capital ratio
that is less than 3% or a Tier I leverage capital ratio that is less than 3%,
and (v) "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2%. Section 38 of the FDIA and the
OTS regulations promulgated thereunder also specify circumstances under the OTS
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized institution
to comply with supervisory actions as if it were in the next lower category
(except that the FDIC may not reclassify a significantly undercapitalized
institution as critically undercapitalized). At September 30, 1997 the Bank meet
the requirements of a "well capitalized" institution under OTS regulations.
Liquidity Requirements. All savings associations are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings associations. At the present time, the required minimum
liquid asset ratio is 5%. The Bank has consistently exceeded such regulatory
liquidity requirement and, at September 30, 1997, had a liquidity ratio of 9.77%
Qualified Thrift Lender Test. Under Section 2303 of the Economic Growth and
Regulatory Paper work Reduction Act of 1996, a savings association can comply
with the QTL test by either meeting the QTL test set forth in the HOLA and the
implementing regulations or qualifying as a domestic building and loan
association as defined in Section 7701(a)(19) of the Internal Revenue Code of
1986, as amended ("Code"). The QTL Test set forth in the HOLA requires that
Qualified Thrift Investments ("QTLs") represent 65% of portfolio assets. A
savings institution that does not comply with the QTL test must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the association
shall be restricted to those of a national bank; (iii) the association shall not
be eligible to obtain any advances from its FHLB; and (iv) payment of dividends
by the association shall be subject to the rules regarding payment of dividends
by a national bank. Upon the expiration of three years from the date the
association ceases to be a QTL, it must cease any activity and not retain any
investment not permissible for a national bank and immediately repay any
outstanding FHLB advances (subject to safety and soundness considerations).
Portfolio assets are defined as total assets less intangibles, property
used by a savings association in its business and liquidity investments in an
amount not exceeding 20% of assets. Generally, QTLs are residential housing
related assets, The recent legislation allows small business loans, credit card
loans, student loans and loans for personal, family and household purposes to be
included without limitation as qualified investments. In addition, commercial
loans may be made in an amount up to 10% of total assets. At September 30, 1997,
approximately 84.06% of the Bank's assets were invested in QTLs, which was in
excess of the percentage required to qualify the Bank under the QTL Test in
effect at that time.
Restrictions on Capital Distributions. OTS regulations govern capital
distributions by savings associations, which include cash dividends, stock
redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other transactions charged to the capital account of a
savings association to make capital distributions. Generally, the regulation
creates a safe harbor for specified levels of capital distributions from
associations meeting at least their minimum capital requirements, so long as
such associations notify the OTS and receive no objection to the distribution
from the OTS. Savings institutions and distributions that do not qualify for the
safe harbor are required to obtain prior OTS approval before making any capital
distributions.
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<PAGE> 36
Generally, savings associations that before and after the proposed
distribution meet or exceed their fully phased-in capital requirements, or Tier
1 associations, may make capital distributions during any calendar year equal to
the higher of (i) 100% of net income for the calendar year-to-date plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75% of
net income over the most recent four-quarter period. The "surplus capital ratio"
is defined to mean the percentage by which the association's ratio of total
capital to assets exceeds the ratio of its fully phased-in capital requirement
to assets. Failure to meet fully phased-in or minimum capital requirements will
result in further restrictions on capital distributions including possible
prohibition without explicit OTS approval. See "- Capital Requirements."
In order to make distributions under these safe harbors, Tier 1 and Tier 2
associations must submit written notice to the OTS 30 days prior to making the
distribution. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. In addition, a Tier 1 association deemed
to be in need of more than normal supervision by the OTS may be downgraded to a
Tier 2 or Tier 3 association as a result of such a determination. The Bank
currently is a Tier 1 institution for purposes of the regulation dealing with
capital distributions.
OTS regulations also prohibit the Bank from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
(or total) capital of the Bank would be reduced below the amount required to be
maintained for the liquidation account established by it for certain depositors
in connection with its conversion from mutual to stock form.
The OTS has proposed to amend its capital distribution regulation to
conform its requirements to the OTS prompt corrective action regulation. Under
the proposed regulation, an institution that would remain at least adequately
capitalized after making a capital distribution, and that was owned by a holding
company, would be required to provide notice to the OTS prior to making a
capital distribution. "Troubled" associations and undercapitalized associations
would be allowed to make capital distributions only by filing an application and
receiving OTS approval, and such applications would be approved under certain
limited circumstances.
Community Reinvestment. Under the Community Reinvestment Act of 1977, as
amended ("CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The Bank received an "outstanding" rating as a result of its last OTS evaluation
in February 1995.
Policy Statement on Nationwide Branching. Effective May 11, 1992, the OTS
amended and codified its policy statement on branching by federally chartered
savings associations to delete then-existing regulatory restrictions on the
branching authority of such associations and to permit nationwide branching to
the extent allowed by federal statute. (Prior OTS policy generally permitted
interstate branching for federally chartered savings associations only to the
extent allowed state-chartered savings associations in the states where the
association's home office was located and where the branch was sought or if the
branching resulted from OTS approval of a supervisory interstate acquisition of
a troubled institution.) Current OTS policy generally permits a federally
chartered savings association to establish branch offices outside of its home
state if the association meets the domestic building and loan test in Section
7701(a)(19) of the Code or the asset composition test of subparagraph (c) of
that section, and if, with respect to each state outside of its home state where
the association has established branches, the branches, taken alone, also
satisfy one of the two tax tests. An association seeking to take advantage of
this authority would have to have a branching application approved by the OTS,
which would consider the regulatory capital of the association and its record
under the CRA, as amended, among other things.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB.
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<PAGE> 37
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of its advances from the FHLB of Pittsburgh,
whichever is greater. At September 30, 1997, the Bank had $3.8 million in FHLB
stock, which was in compliance with this requirement.
Federal Reserve System. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. At September 30, 1997,
the Bank was in compliance with applicable requirements. However, because
required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
NEW SAFETY AND SOUNDNESS GUIDELINES. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial, as well as compensation matters for insured
financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
OTS and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions.
FEDERAL AND STATE TAXATION
General. The Company and the Bank are subject to the corporate tax
provisions of the Code, as well as certain additional provisions of the Code
which apply to thrift and other types of financial institutions. The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Company and
the Bank.
Fiscal Year. For the year ended September 30, 1995 and thereafter, the
Company and the Bank and its subsidiaries file a consolidated federal income tax
return on a fiscal year basis. Prior to September 30, 1995, the Company and the
Bank and its subsidiaries filed consolidated federal income tax returns on a
calendar year basis.
Method of Accounting. The Bank maintains its books and records for federal
income tax purposes using the accrual method of accounting. The accrual method
of accounting generally requires that items of income be recognized when all
events have occurred that establish the right to receive the income and the
amount of income can be determined with reasonable accuracy, and that items of
expense be deducted at the later of (i) the time when all events have occurred
that establish the liability to pay the expense and the amount of such liability
can be determined with reasonable accuracy or (ii) the time when economic
performance with respect to the item of expense has occurred.
Bad Debt Reserves. The Bank is permitted to establish reserves for bad
debts and to make annual additions thereto which qualify as deductions from
taxable income. The Company, as of October 1, 1996, changed its method of
computing reserves for bad debts to the experience method (the "Experience
Method"). The bad debt deduction allowable under this method is available to
small banks with assets less than $500 million. Generally, this method will
allow the Company to deduct an annual addition to the reserve for bad debts
equal to the increase in the balance of the Company's reserve for bad debts at
the end of the year to an amount equal to the percentage of total loans at the
end of the year, computed using the ratio of the previous six years net charge
offs divided by the sum of the previous six years total outstanding loans at
year end.
The Bank treated such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after December 31, 1995. The timing of the recapture may be
delayed for a two-year period provided certain residential lending requirements
are met. For financial reporting purposes, the Company will not incur any
additional tax expense. At September 30, 1997, under SFAS No. 109, deferred
taxes were provided on the difference between the book reserve at September 30,
1997 and the applicable excess reserve in an amount equal to the Bank's increase
in the tax reserve from December 31, 1987 to September 30, 1997.
36
<PAGE> 38
Prior to September 30, 1996, the Bank had the option of electing either the
experience method or the percentage of taxable income method (the "Percentage
Method") for its annual addition to the bad debt reserves.
Under the Experience Method, the deductible annual addition is the amount
necessary to increase the balance of the reserve at the close of the taxable
year to the greater of (i) the amount which bears the same ratio to loans
outstanding at the close of the taxable year as the total net bad debts
sustained during the current and five preceding taxable years bear to the sum of
the loans outstanding at the close of those six years or (ii) the balance in the
reserve account at the close of the Bank's "base year," which was its tax year
ended December 31, 1987.
Under the Percentage Method, the bad debt deduction with respect to
qualifying real property loans is computed as a percentage of the Bank's taxable
income before such deduction, as adjusted for certain items (such as capital
gains and the dividends received deduction). Under this method, a qualifying
institution such as the Bank generally may deduct 8% of its taxable income. In
the absence of other factors, the availability of the Percentage Method has
permitted a qualifying savings institution, such as the Bank, to be taxed at an
effective federal income tax rate of 31.28%, as compared to 34% for corporations
generally.
For taxable years ended on or before December 31, 1988, the Bank has
generally elected to use the Percentage Method to compute the amount of its bad
debt deduction with respect to its qualifying real property loans. For all
taxable years ended after December 31, 1988 with the exception of the September
30, 1996 tax year, the Bank elected to use the Experience Method to compute the
amount of its bad debt deduction with respect to its qualifying real property
loans.
The income of the Company or any non-bank subsidiaries would not be subject
to the bad debt deduction allowed the Bank, whether or not consolidated tax
returns are filed.
Distributions. While the Bank maintains a bad debt reserve, if it were to
distribute cash or property to its sole stockholder having a total fair market
value in excess of its accumulated tax-paid earnings and profits, or were to
distribute cash or property to its stockholder in redemption of its stock, the
Bank would generally be required to recognize as income an amount which, when
reduced by the amount of federal income tax that would be attributable to the
inclusion of such amount in income, is equal to the lesser of: (i) the amount of
the distribution or (ii) the sum of (a) the amount of the accumulated bad debt
reserve of the Bank with respect to qualifying real property loans (to the
extent that additions to such reserve exceed the additions that would be
permitted under the experience method) and (b) the amount of the Bank's
supplemental bad debt reserve.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of 20%
on a base of regular taxable income plus certain tax preferences ("alternative
minimum taxable income" or "AMTI"). The alternative minimum tax is payable to
the extent such AMTI is in excess of an exemption amount. The Code provides that
an item of tax preference is the excess of the bad debt deduction allowable for
a taxable year pursuant to the percentage of taxable income method over the
amount allowable under the experience method. The other items of tax preference
that constitute AMTI include (a) tax-exempt interest on newly-issued (generally,
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) for taxable years beginning after 1989, 75% of the
excess (if any) of (i) adjusted current earnings as defined in the Code, over
(ii) AMTI (determined without regard to this preference and prior to reduction
by net operating losses). Net operating losses can offset no more than 90% of
AMTI. Certain payments of alternative minimum tax may be used as credits against
regular tax liabilities in future years.
Audit by IRS. The Bank's consolidated federal income tax returns for
taxable years through December 31, 1994 have been closed for the purpose of
examination by the IRS.
37
<PAGE> 39
STATE TAXATION
The Company is subject to the Pennsylvania Corporate Net Income Tax and
Capital Stock and Franchise Tax. The Corporate Net Income Tax rate for fiscal
1997 is 9.99% and is imposed on the Company's unconsolidated taxable income for
federal purposes with certain adjustments. In general, the Capital Stock Tax is
a property tax imposed at the rate of 1.3% of a corporation's capital stock
value, which is determined in accordance with a fixed formula.
The Bank is taxed under the Pennsylvania Mutual Thrift Institutions Tax Act
(the ("MTIT"), as amended to include thrift institutions having capital stock.
Pursuant to the MTIT, the Bank's tax rate is 11.5%. The MTIT exempts the Bank
from all other taxes imposed by the Commonwealth of Pennsylvania for state
income tax purposes and from all local taxation imposed by political
subdivisions, except taxes on real estate and real estate transfers. The MTIT is
a tax upon net earnings, determined in accordance with GAAP with certain
adjustments. The MTIT, in computing GAAP income, allows for the deduction of
interest earned on state and federal securities, while disallowing a percentage
of a thrift's interest expense deduction in the proportion of interest income on
those securities to the overall interest income of the Bank. Net operating
losses, if any, thereafter can be carried forward three years for MTIT purposes.
38
<PAGE> 40
ITEM 2. PROPERTIES
At September 30, 1997, the Bank conducted business from its executive
offices located in Media, Pennsylvania and five full-service offices
located in Delaware County, Pennsylvania. See also Note 8 of the Notes
to Consolidated Financial Statements in the Annual Report.
The following table sets forth certain information with respect to the
Bank's offices at September 30, 1997.
<TABLE>
<CAPTION>
Net Book Value
of Amount of
Description/Address Leased/Owned Property Deposits
--------------------------------- ------------ -------------- ---------
(In thousands)
<S> <C> <C> <C>
Executive Offices:
Main Office
22 West State Street
Media, Pennsylvania 19063 Owned $1,001 $ 75,569
Branch Offices:
3218 Edgmont Avenue
Brookhaven, Pennsylvania 19015 Owned 305 75,246
Routes 1 and 100
Chadds Ford, Pennsylvania 19318 Leased(1) 77 21,281
23 East Fifth Street
Chester, Pennsylvania 19013 Leased(2) 276 15,569
330 Dartmouth Avenue
Swarthmore, Pennsylvania 19081 Owned 127 40,253
Route 82 and 926 Leased(3) 41
-------- --------
Kennett Square, PA 19348
$ 1,827 $227,918
======== ========
</TABLE>
----------
(1) Lease expiration date is September 30, 2000. The Bank has two five
year renewal options.
(2) Lease expiration date is December 31, 2005. The Bank has one ten
year renewal option.
(3) Lease expiration date is September 30, 2001. The Bank has four five
year renewal options.
(4) Office opened on November 21, 1997.
39
<PAGE> 41
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by
management to be immaterial to the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following table shows market pride information for Company's Common
Stock (Symbol: FKFS). The prices set forth below represent the high and
low closing prices during the quarterly periods indicated:
<TABLE>
<CAPTION>
PRICE PER SHARE
-----------------------------------
HIGH LOW CLOSE
<S> <C> <C> <C>
Dec 1995 21.00 15.25 20.875
Mar 1996 20.75 18.50 19.00
Jun 1996 19.00 17.00 17.25
Sep 1996 18.25 16.75 18.25
Dec 1996 20.00 19.25 19.25
Mar 1997 22.50 21.75 21.75
Jun 1997 23.375 22.50 23.375
Sep 1997 33.25 27.75 32.25
</TABLE>
At December 16, 1997, there were approximately 458 shareholders of
record, not including the number of persons or entities whose stock is
held in nominee or street name through various brokerage firms or
banks.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required herein is incorporated by reference from pages
9 to 17 of the Registrant's 1997 Annual Report.
ITEM 7. FINANCIAL STATEMENTS.
The information required herein is incorporated by reference form pages
18 to 39 of the Registrant's 1997 Annual Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
40
<PAGE> 42
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT.
The information required herein is incorporated by reference from pages
2 to 5 and page 12 of the Registrant's Proxy Statement dated January 7,
1998 ("Proxy Statement").
ITEM 10. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from pages
8 to 12 of the Registrant's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from pages
6 to 8 of the Registrant's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from page
12 of the Registrant's Proxy Statement.
41
<PAGE> 43
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report.
(1) The following documents are filed as part of this report
and are incorporated herein by reference from the
Registrant's Annual Report.
Report of Independent Auditors.
Consolidated Statements of Financial Condition at
September 30, 1997 and 1996.
Consolidated Statements of Income for the Years Ended
September 30, 1997, 1996 and 1995.
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995.
Notes to the Consolidated Financial Statements.
(2) All schedules for which provision is made in the
applicable accounting regulation of the SEC are omitted
because they are not applicable or the required
information is included in the Consolidated Financial
Statements or notes thereto.
(3) The following exhibits are filed as part of this Form
10-KSB.
42
<PAGE> 44
No Description
- --- -----------
3.1 Amended and Restated Articles of Incorporation of First Keystone
Financial, Inc. *
3.2 Amended and Restated Bylaws of First Keystone Financial, Inc. *
4.0 Specimen Stock Certificate of First Keystone Financial, Inc. *
4.1 Amended and Restated Declaration of Trust relating to First Keystone
Capital Trust I, dated as of August 26, 1997, between First Keystone
Financial, Inc. and the Trustees named therein.
4.2 Indenture, dated as of August 26, 997 between First Keystone Financial,
Inc. and The Bank of New York, as trustee, relating to Junior
Subordinated Deferrable Interest Debentures due 2027 of First Keystone
Financial, Inc.
4.3 Series A Capital Securities Guarantee Agreement, dated as of August 26,
1997, relating to the Series A Capital Securities of First Keystone
Capital Trust I.
4.4 Common Securities Guarantee Agreement, dated as of August 26, 1997,
relating to the Common Securities of First Keystone Capital Trust I.
10.1 Employee Stock Ownership Plan and Trust of First Keystone Financial,
Inc. *
10.2 401(K)/ Profit Sharing Plan of First Keystone Federal Savings Bank *
10.3 Employment Agreement between First Keystone Financial, Inc. and Donald
S. Guthrie **
10.4 Employment Agreement between First Keystone Financial, Inc. and Stephen
J. Henderson **
10.5 Employment Agreement between First Keystone Financial, Inc. and Thomas
M. Kelly **
10.6 Form of Severance Agreement between First Keystone Financial, Inc. and
Elizabeth M. Mulcahy **
10.8 Form of Severance Agreement between First Keystone Financial, Inc. and
Carol Walsh **
10.9 1995 Stock Option Plan **
10.10 1995 Recognition and Retention Plan and Trust Agreement **
43
<PAGE> 45
11 Statement re: Computation of Earnings Per Share
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant - Reference is made to Item 1
"Business," for the required information
23 Consent of Deloitte & Touche LLP
- ----------
(*) Incorporated by reference from the Registration Statement Form S-1
(Registration No. 33-84824) filed by the Registrant with the SEC on October
6, 1994, as amended.
(**) Incorporated by reference from the Registration Form 10-KSB for the year
ended September 30, 1995.
(b) Reports filed in Form 8-K.
None.
44
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST KEYSTONE FINANCIAL, INC.
By: /s/ Donald S. Guthrie
Donald S. Guthrie
President and Chief Executive
Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report had been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Donald S. Guthrie January 9, 1998
- --------------------------------------------
Donald S. Guthrie
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas M. Kelly January 9, 1998
- --------------------------------------------
Thomas M. Kelly
Executive Vice-President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
/s/ Donald A. Purdy January 9, 1998
- --------------------------------------------
Donald A. Purdy
Chairman of the Board
/s/ William K. Betts January 9, 1998
- --------------------------------------------
William K. Betts
Director
/s/ Edward Calderoni January 9, 1998
- --------------------------------------------
Edward Calderoni
Director
/s/ Silvio F. D'Ignazio January 9, 1998
- --------------------------------------------
Silvio F. D'Ignazio
Director
45
<PAGE> 47
/s/ Olive J. Faulkner January 9, 1998
- --------------------------------------------
Olive J. Faulkner
Director
/s/ Edmund Jones January 9, 1998
- --------------------------------------------
Edmund Jones
Director
/s/ Willard F. Letts January 9, 1998
- --------------------------------------------
Willard F. Letts
Director
/s/ Walter J. Lewicki January 9, 1998
- --------------------------------------------
Walter J. Lewicki
Director
/s/ Joan G. Taylor January 9, 1998
- --------------------------------------------
Joan G. Taylor
Director
46
<PAGE> 1
EXHIBIT 4.1
=========================================================
AMENDED AND RESTATED DECLARATION
OF TRUST
FIRST KEYSTONE CAPITAL TRUST I
Dated as of August 26, 1997
=========================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------------------
SECTION 2.2 Lists of Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------------------------
SECTION 2.3 Reports by the Property Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------------------
SECTION 2.4 Periodic Reports to Property Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------------------------------
SECTION 2.5 Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 11
------------------------------------------------
SECTION 2.6 Events of Default; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------------------
SECTION 2.7 Event of Default; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------------------
ARTICLE III
ORGANIZATION
SECTION 3.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----
SECTION 3.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------
SECTION 3.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------
SECTION 3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------
SECTION 3.5 Title to Property of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------------------------
SECTION 3.6 Powers and Duties of the Administrative Trustees . . . . . . . . . . . . . . . . . . . . . 15
------------------------------------------------
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees . . . . . . . . . . . . . . . . . . . 18
----------------------------------------------------
SECTION 3.8 Powers and Duties of the Property Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------------------------------
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee . . . . . . . . . . . . . . . . 21
-----------------------------------------------------------
SECTION 3.10 Certain Rights of Property Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------------------
SECTION 3.11 Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------
SECTION 3.12 Execution of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . 26
------------------------------------------------------
SECTION 3.14 Duration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------------
SECTION 3.15 Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------------------------------
SECTION 4.2 Responsibilities of the Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-------------------------------
SECTION 4.3 Right to Proceed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee . . . . . . . . . . . . . . . . . . . . . . . 29
---------------------------------------------
SECTION 5.2 Delaware Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
----------------
SECTION 5.3 Property Trustee; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------------------
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware Trustee Generally . . . . . 31
--------------------------------------------------------------------------------
SECTION 5.5 Administrative Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-----------------------
SECTION 5.6 Delaware Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-----------------
SECTION 5.7 Appointment, Removal and Resignation of Trustees . . . . . . . . . . . . . . . . . . . . . 32
------------------------------------------------
SECTION 5.8 Vacancies among Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------------------
SECTION 5.9 Effect of Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------
SECTION 5.10 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
--------
SECTION 5.11 Delegation of Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-------------------
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . 35
-----------------------------------------------------------
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-------------
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 36
---------------------------------------
SECTION 7.2 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
----------------------------
SECTION 7.3 Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------------
SECTION 7.4 Registrar, Paying Agent and Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . 39
------------------------------------------
SECTION 7.5 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-----------------------------------
SECTION 7.6 Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
----------------------
SECTION 7.7 Outstanding Capital Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
------------------------------
SECTION 7.8 Capital Securities in Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
------------------------------
SECTION 7.9 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
--------------------
SECTION 7.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------
SECTION 7.11 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-------------
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
--------------------
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
----------------------
SECTION 9.2 Transfer Procedures and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
------------------------------------
SECTION 9.3 Deemed Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
-----------------------
SECTION 9.4 Book Entry Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------------------
SECTION 9.5 Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------------------------
SECTION 9.6 Appointment of Successor Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . 54
----------------------------------------
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
---------
SECTION 10.2 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-----------
SECTION 10.3 Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
--------------
SECTION 10.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------
SECTION 10.5 Outside Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------------------
SECTION 10.6 Compensation; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------------------
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-----------
SECTION 11.3 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-------
SECTION 11.4 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-----------
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
----------
SECTION 12.2 Meetings of the Holders; Action by Written Consent . . . . . . . . . . . . . . . . . . . . 64
--------------------------------------------------
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee . . . . . . . . . . . . . . . . . . . . 66
--------------------------------------------------
SECTION 13.2 Representations and Warranties of Delaware Trustee . . . . . . . . . . . . . . . . . . . . 66
--------------------------------------------------
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-----------------------------
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------
SECTION 15.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------------
SECTION 15.3 Intention of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
------------------------
SECTION 15.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
--------
SECTION 15.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
----------------------
SECTION 15.6 Partial Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
----------------------
SECTION 15.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
------------
ANNEX I TERMS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A1-1
EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A2-4
EXHIBIT B SPECIMEN OF DEBENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
</TABLE>
iv
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
- ------------------- -----------
<S> <C>
310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3(c), 5.3(d)
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(a)
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4; 3.6(j)
314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7(a)
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(b)
316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6(e)
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8(e); 3.8(h)
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8(i); 7.5
</TABLE>
- ---------------
* This Cross-Reference Table does not constitute part of the Declaration
and shall not affect the interpretation of any of its terms or
provisions.
v
<PAGE> 7
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FIRST KEYSTONE CAPITAL TRUST I
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration")
dated and effective as of August 26, 1997, by the Trustees (as defined herein),
the Sponsor (as defined herein) and by the holders, from time to time, of
undivided beneficial interests in the Trust to be issued pursuant to this
Declaration;
WHEREAS, certain of the Trustees and the Sponsor established
First Keystone Capital Trust I (the "Trust"), a trust created under the
Delaware Business Trust Act pursuant to a Declaration of Trust dated as of
August 20, 1997 (the "Original Declaration"), and a Certificate of Trust filed
with the Secretary of State of the State of Delaware on August 20, 1997, for
the sole purpose of issuing and selling certain securities representing
undivided beneficial interests in the assets of the Trust and investing the
proceeds thereof in certain Debentures of the Debenture Issuer (each as
hereinafter defined), and engaging in only those other activities necessary,
advisable or incidental thereto; and
WHEREAS, all of the Trustees and the Sponsor, by this
Declaration, amend and restate each and every term and provision of the
Original Declaration;
NOW, THEREFORE, it being the intention of the parties hereto
to continue the Trust as a statutory business trust under the Business Trust
Act and that this Declaration constitute the governing instrument of such
business trust, the Trustees declare that all assets contributed to the Trust
will be held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
<PAGE> 8
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not
defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the
same meaning throughout;
(c) all references to "the Declaration" or "this
Declaration" are to this Declaration as modified, supplemented or
amended from time to time;
(d) all references in this Declaration to Articles and
Sections and Annexes and Exhibits are to Articles and Sections of and
Annexes and Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the
same meaning when used in this Declaration unless otherwise defined in
this Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and
vice versa.
"Administrative Trustee" has the meaning set forth in Section
5.1(b).
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent, Registrar or Exchange Agent.
"Authorized Officer" of a Person means any other Person that
is authorized to legally bind such former Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate registered in the name of a Clearing Agency or its nominee,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday or a Sunday
or a day on which banking institutions in the City of New York or the City of
Media, Pennsylvania are authorized or required by law or executive order to
close.
2
<PAGE> 9
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from
time to time, or any successor legislation.
"Capital Security Beneficial Owner" means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of
a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Capital Securities" means, collectively, the Series A Capital
Securities and the Series B Capital Securities.
"Capital Securities Guarantee" means, collectively, the Series
A Capital Securities Guarantee and the Series B Capital Securities Guarantee.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Capital Securities and in whose name or in the name of a
nominee of that organization shall be registered a Global Certificate and which
shall undertake to effect book entry transfers and pledges of the Capital
Securities.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time the
Clearing Agency effects book entry transfers and pledges of securities
deposited with the Clearing Agency.
"Closing Time" means the "Closing Time" under the Purchase
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the United States Securities and Exchange
Commission as from time to time constituted, or if any time after the execution
of this Declaration such Commission is not existing and performing the duties
now assigned to it under applicable Federal securities laws, then the body
performing such duties at such time.
"Common Securities" has the meaning specified in Section
7.1(a).
"Common Securities Guarantee" means the guarantee agreement
dated as of August 26, 1997 of the Sponsor in respect of the Common Securities.
"Company Indemnified Person" means (a) any Administrative
Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers,
directors, shareholders, members,
3
<PAGE> 10
partners, employees, representatives or agents of any Administrative Trustee;
or (d) any officer, employee or agent of the Trust or its Affiliates.
"Corporate Trust Office" means the office of the Property
Trustee at which the corporate trust business of the Property Trustee shall, at
any particular time, be principally administered, which office at the date of
execution of this Agreement is located at 101 Barclay Street, 21st Floor West,
New York, New York 10286.
"Covered Person" means: (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the
Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means First Keystone Financial, Inc., a
Pennsylvania corporation, or any successor entity resulting from any
consolidation, amalgamation, merger or other business combination, in its
capacity as issuer of the Debentures under the Indenture.
"Debenture Trustee" means The Bank of New York, a New York
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
"Debentures" means, collectively, the Series A Debentures and
the Series B Debentures.
"Default" means an event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Definitive Capital Securities" shall have the meaning set
forth in Section 7.3(c).
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Direct Action" shall have the meaning set forth in Section
3.8(e).
"Distribution" means a distribution payable to Holders in
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" in respect of the Securities means an Event
of Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
4
<PAGE> 11
"Exchange Agent" has the meaning set forth in Section 7.4.
"Exchange Offer" means the offer that may be made pursuant to
the Registration Rights Agreement (i) by the Trust to exchange Series B Capital
Securities for Series A Capital Securities and (ii) by the Debenture Issuer to
exchange Series B Debentures for Series A Debentures and the Series B Capital
Securities Guarantee for the Series A Capital Securities Guarantee.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Global Capital Security" has the meaning set forth in Section
7.3(a).
"Holder" means a Person in whose name a Security is
registered, such Person being a beneficial owner within the meaning of the
Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of August 26, 1997,
among the Debenture Issuer and the Debenture Trustee, as amended from time to
time.
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
"List of Holders" has the meaning set forth in Section 2.2(a).
"Liquidated Damages" has the meaning set forth in the
Registration Rights Agreement.
"Majority in liquidation amount" means, with respect to the
Trust Securities, except as provided in the terms of the Capital Securities or
by the Trust Indenture Act, Holder(s) of outstanding Trust Securities voting
together as a single class or, as the context may require, Holders of
outstanding Capital Securities or Holders of outstanding Common
5
<PAGE> 12
Securities voting separately as a class, who are the record owners of more than
50% of the aggregate liquidation amount of all outstanding Securities of the
relevant class.
"Offering Memorandum" has the meaning set forth in Section
3.6(b)(i).
"Officers' Certificate" means, with respect to any Person, a
certificate signed by any of the Chairman, a Vice Chairman, the Chief Executive
Officer, the President, a Vice President, the Comptroller, the Secretary or an
Assistant Secretary of such Person. Any Officers' Certificate delivered by the
Trust shall be signed by at least one Administrative Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the Certificate
has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering
the Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each
such officer, such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who
may be an employee of the Sponsor, and who shall be acceptable to the Property
Trustee.
"Paying Agent" has the meaning specified in Section 7.4.
"Payment Amount" has the meaning specified in Section 6.1.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PORTAL" has the meaning set forth in Section 3.6(b)(iii).
"Property Trustee" has the meaning set forth in Section
5.3(a).
"Property Trustee Account" has the meaning set forth in Section
3.8(c)(i).
6
<PAGE> 13
"Purchase Agreement" means the Purchase Agreement for the
initial offering and sale of Capital Securities in the form of Exhibit C.
"QIBs" shall mean qualified institutional buyers as defined in
Rule 144A.
"Quorum" means a majority of the Administrative Trustees or,
if there are only two Administrative Trustees, both of them.
"Registrar" has the meaning set forth in Section 7.4.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of August 26, 1997, by and among the Trust, the Debenture
Issuer and the initial purchaser named therein, as amended from time to time.
"Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Related Party" means, with respect to the Sponsor, any direct
or indirect wholly owned subsidiary of the Sponsor or any other Person that
owns, directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means any officer within the Corporate
Trust Office of the Property Trustee with direct responsibility for the
administration of this Declaration and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.
"Restricted Definitive Capital Securities" has the meaning set
forth in Section 7.3(c).
"Restricted Capital Security" means a Capital Security
required by Section 9.2 to contain a Restricted Securities Legend.
"Restricted Securities Legend" has the meaning set forth in
Section 9.2(i).
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act,
or any successor rule or regulation.
"Rule 144" means Rule 144 under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
7
<PAGE> 14
"Rule 144A" means Rule 144A under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Securities" or "Trust Securities" means the Common Securities
and the Capital Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee
and the Capital Securities Guarantee.
"Series A Capital Securities" has the meaning specified in
Section 7.1(a) and may be alternatively referred to as the 9.70% Capital
Securities.
"Series A Capital Securities Guarantee" means the guarantee
agreement dated as of August 26, 1997, by the Sponsor in respect of the Series
A Capital Securities.
"Series A Debentures" means the Series A 9.70% Junior
Subordinated Deferrable Interest Debentures due August 15, 2027 of the
Debenture Issuer issued pursuant to the Indenture.
"Series B Capital Securities" has the meaning specified in
Section 7.1(a).
"Series B Capital Securities Guarantee" means the guarantee
agreement to be entered in connection with the Exchange Offer by the Sponsor in
respect of the Series B Capital Securities.
"Series B Debentures" means the Series B 9.70% Junior
Subordinated Deferrable Interest Debentures due August 15, 2027 of the
Debenture Issuer issued pursuant to the Indenture.
"Special Event" has the meaning set forth in Section 4(c) of
Annex I hereto.
"Sponsor" means First Keystone Financial, Inc. a Pennsylvania
corporation, or any successor entity resulting from any merger, consolidation,
amalgamation or other business combination, in its capacity as sponsor of the
Trust.
"Successor Entity" has the meaning set forth in Section
3.15(b)(i).
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
8
<PAGE> 15
"10% in liquidation amount" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holder(s) of outstanding Trust Securities voting together
as a single class or, as the context may require, Holders of outstanding
Capital Securities or Holders of outstanding Common Securities voting
separately as a class, who are the record owners of 10% or more of the
aggregate liquidation amount of all outstanding Securities of the relevant
class.
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue as a trustee in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as trustees in accordance with
the provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
"Unrestricted Global Capital Security" has the meaning set
forth in Section 9.2(b).
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of
the Trust Indenture Act that are required to be part of this Declaration in
order for this Declaration to be qualified under the Trust Indenture Act and
shall, to the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee
which is a Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this
Declaration limits, qualifies or conflicts with the duties imposed by Sections
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
9
<PAGE> 16
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
(a) Each of the Sponsor and the Administrative Trustees
on behalf of the Trust shall provide the Property Trustee, unless the Property
Trustee is Registrar for the Securities, (i) within 14 days after each record
date for payment of Distributions, a list, in such form as the Property Trustee
may reasonably require, of the names and addresses of the Holders ("List of
Holders") as of such record date, provided that neither the Sponsor nor the
Administrative Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time that the List of Holders does not differ from
the most recent List of Holders given to the Property Trustee by the Sponsor
and the Administrative Trustees on behalf of the Trust, and (ii) at any other
time, within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Property Trustee. The Property Trustee shall preserve, in as current a
form as is reasonably practicable, all information contained in Lists of
Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its
obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture
Act.
SECTION 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year, commencing May 15,
1998, the Property Trustee shall provide to the Holders of the Capital
Securities such reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form and in the manner provided by Section 313 of the Trust
Indenture Act. The Property Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such documents, reports and
information as are required by Section 314 (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314(a)(4) of the Trust
Indenture Act, such compliance certificate to be delivered annually on or
before 120 days after the end of each fiscal year of the Sponsor. Delivery of
such documents, reports and information to the Property Trustee is for
informational purposes only and the Property Trustee's receipt of such shall
not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the
10
<PAGE> 17
Sponsor's compliance with any of its covenants hereunder (as to which the
Property Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) of the Trust Indenture Act may be given in the form of an Officers'
Certificate.
SECTION 2.6 Events of Default; Waiver.
(a) The Holders of a Majority in liquidation amount of
Capital Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of
Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a
majority in aggregate principal amount of the holders of the
Debentures (a "Super Majority") to be waived under the Indenture, the
Event of Default under the Declaration may only be waived by the vote
of the Holders of at least the proportion in aggregate liquidation
amount of the Capital Securities that the relevant Super Majority
represents of the aggregate principal amount of the Debentures
outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of Section
316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the
Trust Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any
such default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon. Any waiver by the Holders
of the Capital Securities of an Event of Default with respect to the Capital
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
The Holders of a Majority in liquidation amount of the Capital Securities shall
have the right to direct the time, method and place of conducting any
proceeding for any remedy
11
<PAGE> 18
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee, including the right to direct the
Property Trustee to exercise the remedies available to it as holder of the
Debentures, provided however, that (subject to the provisions of Section 3.9)
the Property Trustee shall have the right to decline to follow any such
direction if the Property Trustee shall determine that the action so directed
would be unjustly prejudicial to the Holders not taking part in such direction
or if the Property Trustee, being advised by counsel, determines that the
action of proceeding so directed may not lawfully be taken or if the Property
Trustee, in good faith, by its board of directors or trustees, executive
committee, or a trust committee of directors or trustees and/or Responsible
Officers, shall determine that the action or proceedings so directed would
involve the Property Trustee in personal liability.
(b) The Holders of a Majority in liquidation amount of
the Common Securities may, by vote, on behalf of the Holders of all of the
Common Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where
the Holders of the Common Securities are deemed to have waived such
Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration shall also
not be waivable; or
(ii) requires the consent or vote of a Super Majority to
be waived, except where the Holders of the Common Securities are
deemed to have waived such Event of Default under the Declaration as
provided below in this Section 2.6(b), the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least
the proportion in aggregate liquidation amount of the Common
Securities that the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding;
provided further, the Holders of Common Securities will be deemed to have
waived any such Event of Default and all Events of Default with respect to the
Common Securities and their consequences if all Events of Default with respect
to the Capital Securities have been cured, waived or otherwise eliminated, and
until such Events of Default have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf
of the Holders of the Capital Securities and only the Holders of the Capital
Securities will have the right to direct the Property Trustee in accordance
with the terms of the Securities. The foregoing provisions of this Section
2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act are hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Subject to the foregoing
provisions of this Section 2.6(b), upon such waiver, any such default shall
cease to exist and any Event of Default with respect to the Common Securities
arising therefrom shall be deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend
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to any subsequent or other default or Event of Default with respect to the
Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture
by the Property Trustee, at the direction of the Holders of the Capital
Securities, constitutes a waiver of the corresponding Event of Default under
this Declaration. The foregoing provisions of this Section 2.6(c) shall be in
lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after
the occurrence of a default actually known to a Responsible Officer, transmit
by mail, first class postage prepaid, to the Holders, notices of all defaults
with respect to the Securities actually known to a Responsible Officer, unless
such defaults have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 2.7(a) being hereby defined to be
an Event of Default as defined in the Indenture, not including any periods of
grace provided for therein and irrespective of the giving of any notice
provided therein); provided that, except for a default in the payment of
principal of (or premium, if any) or interest (including Compounded Interest
and Additional Sums (as such terms are defined in the Indenture), if any) or
Liquidated Damages (as defined in the Registration Rights Agreement) on any of
the Debentures, the Property Trustee shall be protected in withholding such
notice if and so long as a Responsible Officer in good faith determines that
the withholding of such notice is in the interests of the Holders.
(b) The Property Trustee shall not be deemed to have
knowledge of any default except:
(i) a default under Sections 5.01(a) (other than the
payment of Compounded Interest, Additional Sums and Liquidated
Damages) and 5.01(b) of the Indenture; or
(ii) any default as to which the Property Trustee shall
have received written notice or of which a Responsible Officer charged
with the administration of the Declaration shall have actual
knowledge.
(c) Within ten Business Days after the occurrence of
any Event of Default actually known to the Property Trustee, the Property
Trustee shall transmit notice of such Event of Default to the Holders of the
Capital Securities, the Administrative Trustees and the Sponsor, unless such
Event of Default shall have been cured or waived. The Sponsor and the
Administrative Trustees shall file annually with the Property Trustee a
certification as to whether or not they are in compliance with all the
conditions and covenants applicable to them under this Declaration.
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ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named "First Keystone Capital Trust I" as such
name may be modified from time to time by the Administrative Trustees following
written notice to the Delaware Trustee, the Property Trustee and the Holders.
The Trust's activities may be conducted under the name of the Trust or any
other name deemed advisable by the Administrative Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o First
Keystone Financial, Inc., 22 West State Street, Media, Pennsylvania 19063. On
ten Business Days written notice to the Delaware Trustee, the Property Trustee
and the Holders of Securities, the Administrative Trustees may designate
another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities, (b) use the proceeds from the sale of the Securities
to acquire the Debentures, and (c) except as otherwise limited herein, to
engage in only those other activities necessary, advisable or incidental
thereto. The Trust shall not borrow money, issue debt or reinvest proceeds
derived from investments, mortgage or pledge any of its assets, or otherwise
undertake (or permit to be undertaken) any activity that would cause the Trust
not to be classified for United States federal income tax purposes as a grantor
trust.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Administrative Trustees shall
have exclusive and complete authority to carry out the purposes of the Trust.
An action taken by the Administrative Trustees in accordance with their powers
shall constitute the act of and serve to bind the Trust and an action taken by
the Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the
Trustees acting on behalf of the Trust, no Person shall be required to inquire
into the authority of the Trustees to bind the Trust. Persons dealing with the
Trust are entitled to rely conclusively on the power and authority of the
Trustees as set forth in this Declaration.
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SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the
Debentures and the Property Trustee Account or as otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.6 Powers and Duties of the Administrative Trustees.
The Administrative Trustees shall have the exclusive power,
duty and authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Securities in accordance with
this Declaration; provided, however, that except as contemplated in Section
7.1(a), (i) the Trust may issue no more than one series of Capital Securities
and no more than one series of Common Securities, (ii) there shall be no
interests in the Trust other than the Securities, and (iii) the issuance of
Securities shall be limited to a simultaneous issuance of both Capital
Securities and Common Securities at the Closing Time;
(b) in connection with the issue and sale of the
Capital Securities and the consummation of the Exchange Offer to:
(i) prepare and execute, if necessary, an offering
memorandum (the "Offering Memorandum") in preliminary and final form
prepared by the Sponsor, in relation to the offering and sale of
Series A Capital Securities to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act), and to execute and file with the
Commission, at such time as determined by the Sponsor, any
Registration Statement, including any amendments thereto, as
contemplated by the Registration Rights Agreement;
(ii) execute and file any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be
necessary, in order to qualify or register all or part of the Capital
Securities in any State in which the Sponsor has determined to qualify
or register such Capital Securities for sale;
(iii) execute and file an application, prepared by the
Sponsor, to permit the Capital Securities to trade or be quoted or
listed in or on the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") Market or any other securities exchange,
quotation system or the Nasdaq Stock Market's National Market;
(iv) execute and deliver letters, documents or
instruments with DTC and other Clearing Agencies relating to the
Capital Securities;
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(v) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto,
prepared by the Sponsor, relating to the registration of the Capital
Securities under Section 12(g) of the Exchange Act; and
(vi) execute and enter into the Common Securities
Guarantee and the Debenture Subscription Agreement dated as of August
26, 1997 between the Sponsor and the Trust, the Common Securities
Subscription Agreement dated as of August 26, 1997, between the
Sponsor and the Trust, and the Registration Rights Agreement providing
for the sale and registration of the Capital Securities;
(c) to acquire the Series A Debentures with the
proceeds of the sale of the Series A Capital Securities and the Common
Securities and to exchange the Series A Debentures for a like principal amount
of Series B Debentures, pursuant to the Exchange Offer; provided, however, that
the Administrative Trustees shall cause legal title to the Debentures to be
held of record in the name of the Property Trustee for the benefit of the
Holders;
(d) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all
actions to be taken hereunder that require a record date be established,
including and with respect to, for the purposes of Section 316(c) of the Trust
Indenture Act, Distributions, voting rights, redemptions and exchanges, and to
issue relevant notices to the Holders of Capital Securities and Holders of
Common Securities as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may
be required of the Administrative Trustees pursuant to the terms of the
Securities;
(g) to bring or defend, pay, collect, compromise,
arbitrate, resort to legal action, or otherwise adjust claims or demands of or
against the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the
Property Trustee has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents
(who may be designated as officers with titles) and managers, contractors,
advisors and consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's
obligations under the Trust Indenture Act;
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(j) to give the certificate required by Section
314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate
may be executed by any Administrative Trustee;
(k) to incur expenses that are necessary or incidental
to carry out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as,
Registrar and Exchange Agent for the Securities or to appoint a Paying Agent
for the Securities as provided in Section 7.4 except for such time as such
power to appoint a Paying Agent is vested in the Property Trustee;
(m) to give prompt written notice to the Property
Trustee and to Holders of any notice received from the Debenture Issuer of its
election to defer payments of interest on the Debentures by extending the
interest payment period under the Indenture;
(n) to take all action that may be necessary or
appropriate for the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory business trust
under the laws of the State of Delaware and of each other jurisdiction in which
such existence is necessary to protect the limited liability of the Holders or
to enable the Trust to effect the purposes for which the Trust was created;
(o) to take any action, not inconsistent with this
Declaration or with applicable law, that the Administrative Trustees determine
in their discretion to be necessary or desirable in carrying out the activities
of the Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an
Investment Company required to be registered under the Investment
Company Act;
(ii) causing the Trust to be classified for United
States federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure
that the Debentures will be treated as indebtedness of the Debenture
Issuer for United States federal income tax purposes;
(p) to take all action necessary to consummate the
Exchange Offer or otherwise cause the Capital Securities to be registered
pursuant to an effective registration statement in accordance with the
provisions of the Registration Rights Agreement;
(q) to take all action necessary to cause all
applicable tax returns and tax information reports that are required to be
filed with respect to the Trust to be duly prepared and filed by the
Administrative Trustees, on behalf of the Trust; and
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(r) to execute all documents or instruments, perform
all duties and powers, and do all things for and on behalf of the Trust in all
matters necessary or incidental to the foregoing.
The Administrative Trustees must exercise the powers set forth
in this Section 3.6 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Administrative Trustees
shall not take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Administrative Trustees shall
have none of the powers or the authority of the Property Trustee set forth in
Section 3.8.
The Administrative Trustees shall take all actions on behalf
of the Trust that are not specifically required by this Declaration to be taken
by any other Trustee.
Any expenses incurred by the Administrative Trustees pursuant
to this Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including
the Property Trustee and the Delaware Trustee) shall not, engage in any
activity other than as required or authorized by this Declaration. The Trust
shall not:
(i) invest any proceeds received by the Trust from
holding the Debentures, but shall distribute all such proceeds to
Holders pursuant to the terms of this Declaration and of the
Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust property for other than a Trust
purpose;
(iv) make any loans or incur any indebtedness other than
loans represented by the Debentures;
(v) possess any power or otherwise act in such a way as
to vary the Trust assets or the terms of the Securities in any way
whatsoever, except as otherwise expressly provided herein;
(vi) issue any securities or other evidences of
beneficial ownership of, or beneficial interest in, the Trust other
than the Securities;
(vii) other than as provided in this Declaration or Annex
I, (A) direct the time, method and place of conducting any proceeding
with respect to any remedy
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available to the Debenture Trustee, or exercising any trust or power
conferred upon the Debenture Trustee with respect to the Debentures,
(B) waive any past default that is waivable under the Indenture or (C)
exercise any right to rescind or annul any declaration that the
principal of all the Debentures shall be due and payable; or
(viii) consent to any amendment, modification or termination
of the Indenture or the Debentures where such consent shall be
required unless the Trust shall have received an opinion of
independent tax counsel experienced in such matters to the effect that
such amendment, modification or termination will not cause more than
an insubstantial risk that for United States federal income tax
purposes the Trust will not be classified as a grantor trust.
SECTION 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by
and held of record in the name of the Property Trustee in trust for the benefit
of the Holders. The right, title and interest of the Property Trustee to the
Debentures shall vest automatically in each Person who may hereafter be
appointed as Property Trustee in accordance with Section 5.7. Such vesting and
cessation of title shall be effective whether or not conveyancing documents
with regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right,
title and interest in the Debentures to the Administrative Trustees or to the
Delaware Trustee (if the Property Trustee does not also act as Delaware
Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest
bearing trust account (the "Property Trustee Account") in the name of
and under the exclusive control of the Property Trustee on behalf of
the Holders and, upon the receipt of payments of funds made in respect
of the Debentures held by the Property Trustee, deposit such funds
into the Property Trustee Account and make payments or cause the
Paying Agent to make payments to the Holders from the Property Trustee
Account in accordance with Section 6.1. Funds in the Property Trustee
Account shall be held uninvested until disbursed in accordance with
this Declaration. The Property Trustee Account shall be an account
that is maintained with a banking institution the rating on whose
long-term unsecured indebtedness by a "nationally recognized
statistical rating organization", as that term is defined for purposes
of Rule 436(g)(2) under the Securities Act, is at least investment
grade;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Trust
Securities to the extent the Debentures are redeemed or mature; and
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(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the
Securities, engage in such ministerial activities as shall be
necessary or appropriate to effect the distribution of the Debentures
to Holders upon the occurrence of certain events.
(d) The Property Trustee shall take all actions and
perform such duties as may be specifically required of the Property Trustee
pursuant to the terms of the Securities.
(e) Subject to Section 3.9(a), the Property Trustee
shall take any Legal Action which arises out of or in connection with an Event
of Default of which a Responsible Officer has actual knowledge or the Property
Trustee's duties and obligations under this Declaration or the Trust Indenture
Act. If an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay the principal of or
premium, if any, or interest (including Compounded Interest and Additional
Sums, if any) or Liquidated Damages, if any, on the Debentures on the date such
principal, premium, if any, or interest (including Compounded Interest and
Additional Sums, if any) or Liquidated Damages, if any, is otherwise payable
(or in the case of redemption, on the redemption date), then a Holder of
Capital Securities may directly institute a proceeding for enforcement of
payment to such Holder of the principal of or premium, if any, or interest
(including Compounded Interest and Additional Sums, if any) or Liquidated
Damages, if any, on the Debentures having a principal amount equal to the
aggregate liquidation amount of the Capital Securities of such Holder (a
"Direct Action") on or after the respective due date specified in the
Debentures. In connection with such Direct Action, the rights of the Holders
of the Common Securities will be subrogated to the rights of such Holder of
Capital Securities to the extent of any payment made by the Debenture Issuer to
such Holder of Capital Securities in such Direct Action. Except as provided in
the preceding sentence, the Holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the Debentures.
(f) The Property Trustee shall not resign as a Trustee
unless either:
(i) the Trust has been completely liquidated and the
proceeds of the liquidation distributed to the Holders pursuant to the
terms of the Securities; or
(ii) a successor Property Trustee has been appointed and
has accepted that appointment in accordance with Section 5.7 (a
"Successor Property Trustee").
(g) The Property Trustee shall have the legal power to
exercise all of the rights, powers and privileges of a holder of Debentures
under the Indenture and, if an Event of Default actually known to a Responsible
Officer occurs and is continuing, the Property Trustee shall, for the benefit
of Holders, enforce its rights as holder of the Debentures subject to the
rights of the Holders pursuant to the terms of such Securities.
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(h) The Property Trustee shall be authorized to
undertake any actions set forth in Section 317(a) of the Trust Indenture Act.
(i) For such time as the Property Trustee is the Paying
Agent, the Property Trustee may authorize one or more Persons to act as
additional Paying Agents and to pay Distributions, redemption payments or
liquidation payments on behalf of the Trust with respect to all Securities and
any such Paying Agent shall comply with Section 317(b) of the Trust Indenture
Act. Any such additional Paying Agent may be removed by the Property Trustee
at any time the Property Trustee remains as Paying Agent and a successor Paying
Agent or additional Paying Agents may be (but are not required to be) appointed
at any time by the Property Trustee while the Property Trustee is so acting as
Paying Agent.
(j) Subject to this Section 3.8, the Property Trustee
shall have none of the duties, liabilities, powers or the authority of the
Administrative Trustees set forth in Section 3.6.
Notwithstanding anything expressed or implied to the contrary
in this Declaration or any Annex or Exhibit hereto, (i) the Property Trustee
must exercise the powers set forth in this Section 3.8 in a manner that is
consistent with the purposes and functions of the Trust set out in Section 3.3
and (ii) the Property Trustee shall not take any action that is inconsistent
with the purposes and functions of the Trust set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Declaration and in the Securities and no implied covenants shall
be read into this Declaration against the Property Trustee. In case an Event
of Default has occurred (that has not been cured or waived pursuant to Section
2.6) of which a Responsible Officer has actual knowledge, the Property Trustee
shall exercise such of the rights and powers vested in it by this Declaration,
and use the same degree of care and skill in their exercise, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(b) No provision of this Declaration shall be construed
to relieve the Property Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and
after the curing or waiving of all such Events of Default that may
have occurred:
(A) the duties and obligations of the Property
Trustee shall be determined solely by the express provisions
of this Declaration and in the Securities and the Property
Trustee shall not be liable except for the
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performance of such duties and obligations as are specifically
set forth in this Declaration and in the Securities, and no
implied covenants or obligations shall be read into this
Declaration or the Securities against the Property Trustee; and
(B) in the absence of bad faith on the part of
the Property Trustee, the Property Trustee may conclusively
rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or
opinions furnished to the Property Trustee and conforming to
the requirements of this Declaration; provided, however, that
in the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to
the Property Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or not they
conform to the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer, unless
it shall be proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of not less than a
Majority in liquidation amount of the Securities relating to the time,
method and place of conducting any proceeding for any remedy available
to the Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Declaration or indemnity reasonably satisfactory to the Property
Trustee against such risk or liability is not reasonably assured to
it;
(v) the Property Trustee's sole duty with respect to
the custody, safe keeping and physical preservation of the Debentures
and the Property Trustee Account shall be to deal with such property
in a similar manner as the Property Trustee deals with similar
property for its own account, subject to the protections and
limitations on liability afforded to the Property Trustee under this
Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or
liability for or with respect to the value, genuineness, existence or
sufficiency of the Debentures or the payment of any taxes or
assessments levied thereon or in connection therewith;
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(vii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree
in writing with the Sponsor. Money held by the Property Trustee need
not be segregated from other funds held by it except in relation to
the Property Trustee Account maintained by the Property Trustee
pursuant to Section 3.8(c)(i) and except to the extent otherwise
required by law;
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the
Sponsor with their respective duties under this Declaration, nor shall
the Property Trustee be liable for any default or misconduct of the
Administrative Trustees or the Sponsor; and
(ix) the Trustee shall not be deemed to have notice of any
Event of Default unless a Responsible Officer of the Trustee has
actual knowledge thereof or unless written notice of any event which
is in fact such a default is received by the Trustee at the Corporate
Trust Office of the Trustee, and such notice references the Securities
and this Indenture.
SECTION 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and
shall be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the
Administrative Trustees contemplated by this Declaration may be
sufficiently evidenced by an Officers' Certificate;
(iii) whenever in the administration of this Declaration,
the Property Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting any action
hereunder, the Property Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the
Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to
any recording, filing or registration of any instrument (including any
financing or continuation statement
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or any filing under tax or securities laws) or any rerecording,
refiling or registration thereof;
(v) the Property Trustee may consult with counsel or
other experts of its selection and the advice or opinion of such
counsel and experts with respect to legal matters or advice within the
scope of such experts' area of expertise shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion, such counsel may be counsel to the Sponsor or any
of its Affiliates, and may include any of its employees. The Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this
Declaration at the request or direction of any Holder, unless such
Holder shall have provided to the Property Trustee security and
indemnity, reasonably satisfactory to the Property Trustee, against
the costs, expenses (including reasonable attorneys' fees and expenses
and the expenses of the Property Trustee's agents, nominees or
custodians) and liabilities that might be incurred by it in complying
with such request or direction, including such reasonable advances as
may be requested by the Property Trustee provided, that, nothing
contained in this Section 3.10(a)(vi) shall be taken to relieve the
Property Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company,
personally or by agent or attorney at the sole cost of the Company and
shall incur no liability or additional liability of any kind by reason
of such inquiry or investigation;
(viii) the Property Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or
by or through agents, custodians, nominees or attorneys and the
Property Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due
care by it hereunder;
(ix) any action taken by the Property Trustee or its
agents hereunder shall bind the Trust and the Holders, and the
signature of the Property Trustee or its
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agents alone shall be sufficient and effective to perform any such
action and no third party shall be required to inquire as to the
authority of the Property Trustee to so act or as to its compliance
with any of the terms and provisions of this Declaration, both of
which shall be conclusively evidenced by the Property Trustee's or its
agent's taking such action;
(x) whenever in the administration of this Declaration
the Property Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other
action hereunder, the Property Trustee (i) may request instructions
from the Holders which instructions may only be given by the Holders
of the same proportion in liquidation amount of the Securities as
would be entitled to direct the Property Trustee under the terms of
the Securities in respect of such remedy, right or action, (ii) may
refrain from enforcing such remedy or right or taking such other
action until such instructions are received and (iii) shall be
protected in conclusively relying on or acting in or accordance with
such instructions;
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any obligation to
take any action that is discretionary under the provisions of this
Declaration; and
(xii) the Property Trustee shall not be liable for any
action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Declaration.
(b) No provision of this Declaration shall be deemed to
impose any duty or obligation on the Property Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on
it, in any jurisdiction in which it shall be illegal, or in which the Property
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other
than Section 5.2, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Administrative Trustees or the Property Trustee
described in this Declaration. Except as set forth in Section 5.2, the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Business Trust Act. In the
event the Delaware Trustee shall
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at any time be required to take any action or perform any duty hereunder, the
Delaware Trustee shall be entitled to the benefits of Section 3.9(b)(ii)-(viii)
and Section 3.10. No implied covenants or obligations shall be read into this
Declaration against the Delaware Trustee.
SECTION 3.12 Execution of Documents.
Except as otherwise required by the Business Trust Act or this
Declaration, any Administrative Trustee is authorized to execute on behalf of
the Trust any documents that the Administrative Trustees have the power and
authority to execute pursuant to Section 3.6; provided that any Registration
Statements contemplated by the Registration Rights Agreement and referred to in
Section 3.6(b)(i), including any amendments thereto, shall be signed by all of
the Administrative Trustees.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities
shall be taken as the statements of the Sponsor, and the Trustees do not assume
any responsibility for their correctness. The Trustees make no representations
as to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration, the Debentures or the Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless dissolved pursuant to the provisions of
Article VIII hereof, shall have existence up to August 20, 2028.
SECTION 3.15 Mergers.
(a) The Trust may not merge with or into, consolidate,
amalgamate or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, except as described in
Section 3.15(b) and (c) of this Trust Agreement or Section 3 of Annex I.
(b) The Trust may, at the request of the Sponsor, with
the consent of the Administrative Trustees or, if there are more than two, a
majority of the Administrative Trustees and without the consent of the Holders,
the Delaware Trustee or the Property Trustee, merge with or into, consolidate,
amalgamate or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to, a trust organized as
such under the laws of any State; provided that:
(i) such successor entity (the "Successor Entity")
either:
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(A) expressly assumes all of the obligations of
the Trust under the Securities; or
(B) substitutes for the Securities other
securities having substantially the same terms as the
Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Securities rank with
respect to Distributions and payments upon liquidation,
redemption and otherwise;
(ii) the Sponsor expressly appoints a trustee of the
Successor Entity that possesses the same powers and duties as the
Property Trustee as the holder of the Debentures;
(iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on
any national securities exchange or with another organization on which
the Capital Securities are then listed or quoted, if any;
(iv) if the Capital Securities (including any Successor
Securities) are rated by any nationally recognized statistical rating
organization prior to such transaction, such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities), or
if the Debentures are so rated, the Debentures, to be downgraded by
any nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the Holders (including the
holders of any Successor Securities) in any material respect (other
than with respect to any dilution of such Holders' interests in the
new entity);
(vi) such Successor Entity has a purpose substantially
identical to that of the Trust;
(vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Sponsor has received
an opinion of an independent counsel to the Trust experienced in such
matters to the effect that:
(A) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders
(including the holders of any Successor Securities) in any
material respect (other than with respect to any dilution of
the Holders' interest in the new entity); and
(B) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease,
neither the Trust nor the Successor Entity will be required to
register as an Investment Company;
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(viii) the Sponsor or any permitted successor or assignee owns
all of the common securities of such Successor Entity and guarantees
the obligations of such Successor Entity under the Successor
Securities at least to the extent provided by the Capital Securities
Guarantee and the Common Securities Guarantee; and
(ix) there shall have been furnished to the Property
Trustee an Officer's Certificate and an Opinion of Counsel, each to
the effect that all conditions precedent in this Declaration to such
transaction have been satisfied.
(c) Notwithstanding Section 3.15(b), the Trust shall
not, except with the consent of Holders of 100% in liquidation amount of the
Securities, consolidate, amalgamate, merge with or into, or be replaced by, or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, any other Person or permit any other Person to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or the Successor Entity not to be classified as a grantor
trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
At the Closing Time, the Sponsor will purchase all of the
Common Securities then issued by the Trust, in an amount equal to at least 3%
of the total capital of the Trust, at the same time as the Series A Capital
Securities are issued and sold.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Capital
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare the Offering Memorandum and to prepare
for filing by the Trust with the Commission any Registration Statement,
including any amendments thereto, as contemplated by the Registration Rights
Agreement;
(b) to determine the States in which to take
appropriate action to qualify or register for sale all or part of the Capital
Securities and to do any and all such acts, other than actions which must be
taken by the Trust, and advise the Trust of actions it must take, and prepare
for execution and filing any documents to be executed and filed by the Trust,
as the Sponsor deems necessary or advisable in order to comply with the
applicable laws of any such States;
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(c) if deemed necessary or advisable by the Sponsor, to
prepare for filing by the Trust an application to permit the Capital Securities
to trade or be quoted or listed in or on the PORTAL market, or any other
securities exchange, quotation system or the Nasdaq Stock Market's National
Market;
(d) to prepare for filing by the Trust with the
Commission a registration statement on Form 8-A, including any amendments
thereto, relating to the registration of the Capital Securities under Section
12(g) of the Exchange Act, if required; and
(e) to negotiate the terms of and execute the Purchase
Agreement and to negotiate the terms of the Registration Rights Agreement
providing for the sale and registration of the Capital Securities.
SECTION 4.3 Right to Proceed.
The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on
the Capital Securities is attributable to the failure of the Company to pay
interest or principal on the Debentures, to institute a proceeding directly
against the Debenture Issuer for enforcement of its payment obligations on the
Debentures.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities,
the Sponsor may, by written instrument, increase or decrease the number of
Trustees; and
(b) after the issuance of any Securities, the number of
Trustees may be increased or decreased by vote of the Holders of a Majority in
liquidation amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities;
provided, however, that, the number of Trustees shall in no event be less than
two (2); provided further that (1) one Trustee shall satisfy the requirements
of the Delaware Trustee pursuant to Section 5.2; (2) there shall be at least
one Trustee who is an officer of the Sponsor (an "Administrative Trustee"); and
(3) one Trustee shall be the Property Trustee for so long as this Declaration
is required to qualify as an indenture under the Trust Indenture Act, and such
Trustee may also serve as Delaware Trustee if it meets the applicable
requirements. Notwithstanding the above, unless an Event of Default shall have
occurred and be continuing, at any time or times, for the purpose of meeting
the legal requirements
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of the Trust Indenture Act or of any jurisdiction in which any part of the
Trust's property may at the time be located, the Holders of a Majority in
liquidation amount of the Common Securities acting as a class at a meeting of
the Holders of the Common Securities, and the Administrative Trustees shall
have power to appoint one or more Persons either to act as a co-trustee,
jointly with the Property Trustee, of all or any part of the Trust's property,
or to act as separate trustee of any such property, in either case with such
powers as may be provided in the instrument of appointment, and to vest in such
Person or Persons in such capacity any property, title, right or power deemed
necessary or desirable, subject to the provisions of this Declaration. In case
an Event of Default has occurred and is continuing, the Property Trustee alone
shall have power to make any such appointment of a co-trustee.
SECTION 5.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the
"Delaware Trustee") shall be:
(a) a natural person who is a resident of the State of
Delaware; or
(b) if not a natural person, an entity which has its
principal place of business in the State of Delaware, and otherwise meets the
requirements of applicable law,
provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee (the
"Property Trustee") which shall act as Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or Person
permitted by the Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District
of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of
the supervising or examining authority referred to above, then for the
purposes of this Section 5.3(a)(ii), the combined capital and surplus
of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
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(b) If at any time the Property Trustee shall cease to
be eligible to so act under Section 5.3(a), the Property Trustee shall
immediately resign in the manner and with the effect set forth in Section
5.7(c).
(c) If the Property Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Property Trustee and the Holder of the Common Securities (as
if it were the obligor referred to in Section 310(b) of the Trust Indenture
Act) shall in all respects comply with the provisions of Section 310(b) of the
Trust Indenture Act.
(d) The Capital Securities Guarantee and the Indenture
shall be deemed to be specifically described in this Declaration for purposes
of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
(e) The initial Property Trustee shall be:
The Bank of New York
101 Barclay Street, 21st Floor West
New York, New York 10286
Attention: Corporate Trust Trustee
Administration
SECTION 5.4 Certain Qualifications of Administrative Trustees and Delaware
Trustee Generally.
Each Administrative Trustee and the Delaware Trustee (unless
the Property Trustee also acts as the Delaware Trustee) shall be either a
natural person who is at least 21 years of age or a legal entity that shall act
through one or more Authorized Officers.
SECTION 5.5 Administrative Trustees.
The initial Administrative Trustees shall be:
Donald S. Guthrie
Thomas M. Kelly
Donald A. Purdy
(a) Except as expressly set forth in this Declaration
and except if a meeting of the Administrative Trustees is called with respect
to any matter over which the Administrative Trustees have power to act, any
power of the Administrative Trustees may be exercised by, or with the consent
of, any one such Administrative Trustee.
(b) An Administrative Trustee shall have the authority
set forth in Section 3.12 to execute on behalf of the Trust any documents which
the Administrative Trustees have the power and authority to cause the Trust to
execute pursuant to Section 3.6.
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(c) An Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purposes of signing any documents which the
Administrative Trustees have power and authority to cause the Trust to execute
pursuant to Section 3.6.
SECTION 5.6 Delaware Trustee.
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Department
SECTION 5.7 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.7(b) of this Declaration and
to Section 6(b) of Annex I hereto, Trustees may be appointed or removed without
cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) unless an Event of Default shall have occurred and
be continuing after the issuance of any Securities, by vote of the
Holders of a Majority in liquidation amount of the Common Securities
voting as a class at a meeting of the Holders of the Common
Securities; and
(iii) if an Event of Default shall have occurred and be
continuing after the issuance of the Securities, with respect to the
Property Trustee or the Delaware Trustee, by vote of Holders of a
Majority in liquidation amount of the Capital Securities voting as a
class at a meeting of Holders of the Capital Securities.
(b) (i) The Trustee that acts as Property Trustee shall not
be removed in accordance with Section 5.7(a) until a Successor Property Trustee
("Successor Property Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Property Trustee
and delivered to the Administrative Trustees and the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not
be removed in accordance with this Section 5.7(a) until a successor
Trustee possessing the qualifications to act as Delaware Trustee under
Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been
appointed and has accepted such appointment by written instrument
executed by such Successor Delaware Trustee and delivered to the
Administrative Trustees and the Sponsor.
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(c) A Trustee appointed to office shall hold office
until his successor shall have been appointed or until his death, removal or
resignation. Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument in writing signed by the Trustee and
delivered to the Sponsor and the Trust, which resignation shall take effect
upon such delivery or upon such later date as is specified therein; provided,
however, that:
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
(A) until a Successor Property Trustee has been
appointed and has accepted such appointment by instrument
executed by such Successor Property Trustee and delivered to
the Trust, the Sponsor and the resigning Property Trustee; or
(B) until the assets of the Trust have been
completely liquidated and the proceeds thereof distributed to
the Holders; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the
Trust, the Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities or, if an
Event of Default shall have occurred and be continuing after the issuance of
the Securities, the Holders of the Capital Securities shall use their best
efforts to promptly appoint a Successor Delaware Trustee or Successor Property
Trustee, as the case may be, if the Property Trustee or the Delaware Trustee
delivers an instrument of resignation in accordance with this Section 5.7.
(e) If no Successor Property Trustee or Successor
Delaware Trustee shall have been appointed and accepted appointment as provided
in this Section 5.7 within 60 days after delivery of an instrument of
resignation or removal, the Property Trustee or Delaware Trustee resigning or
being removed, as applicable, may petition any court of competent jurisdiction
for appointment of a Successor Property Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper and prescribe, appoint a Successor Property Trustee or Successor
Delaware Trustee, as the case may be.
(f) No Property Trustee or Delaware Trustee shall be
liable for the acts or omissions to act of any Successor Property Trustee or
Successor Delaware Trustee, as the case may be.
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(g) At the time of resignation or removal of the
Property Trustee or the Delaware Trustee, the Debenture Issuer shall pay to
such Trustee any amounts that may be owed to such Trustee pursuant to Section
10.4.
SECTION 5.8 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the
number of Trustees is not reduced pursuant to Section 5.1, or if the number of
Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A
resolution certifying the existence of such vacancy by the Administrative
Trustees or, if there are more than two, a majority of the Administrative
Trustees shall be conclusive evidence of the existence of such vacancy. The
vacancy shall be filled with a Trustee appointed in accordance with Section
5.7.
SECTION 5.9 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever
a vacancy in the number of Administrative Trustees shall occur, until such
vacancy is filled by the appointment of an Administrative Trustee in accordance
with Section 5.7, the Administrative Trustees in office, regardless of their
number, shall have all the powers granted to the Administrative Trustees and
shall discharge all the duties imposed upon the Administrative Trustees by this
Declaration.
SECTION 5.10 Meetings.
If there is more than one Administrative Trustee, meetings of
the Administrative Trustees shall be held from time to time upon the call of
any Administrative Trustee. Regular meetings of the Administrative Trustees
may be held at a time and place fixed by resolution of the Administrative
Trustees. Notice of any in-person meetings of the Administrative Trustees
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
such meeting. Notice of any telephonic meetings of the Administrative Trustees
or any committee thereof shall be hand delivered or otherwise delivered in
writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement
of the time, place and anticipated purposes of the meeting. The presence
(whether in person or by telephone) of an Administrative Trustee at a meeting
shall constitute a waiver of notice of such meeting except where an
Administrative Trustee attends a meeting for the express purpose of objecting
to the transaction of any activity on the ground that the meeting has not been
lawfully called or convened. Unless provided otherwise in this Declaration,
any action of the Administrative Trustees may be taken at a meeting by vote of
a majority of the Administrative Trustees present (whether in person or by
telephone) and eligible to vote with respect to such matter, provided that a
Quorum is present, or without a meeting by the unanimous written consent of the
Administrative
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Trustees. In the event there is only one Administrative Trustee, any and all
action of such Administrative Trustee shall be evidenced by a written consent
of such Administrative Trustee.
SECTION 5.11 Delegation of Power.
(a) Any Administrative Trustee may, by power of
attorney consistent with applicable law, delegate to any other natural person
over the age of 21 his or her power for the purpose of executing any documents
contemplated in Section 3.6, including any registration statement or amendment
thereto filed with the Commission, or making any other governmental filing; and
(b) the Administrative Trustees shall have power to
delegate from time to time to such of their number or to officers of the Trust
the doing of such things and the execution of such instruments either in the
name of the Trust or the names of the Administrative Trustees or otherwise as
the Administrative Trustees may deem expedient, to the extent such delegation
is not prohibited by applicable law or contrary to the provisions of the Trust,
as set forth herein.
SECTION 5.12 Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware
Trustee or any Administrative Trustee that is not a natural person, as the case
may be, may be merged or converted or with which it may be consolidated, or any
Person resulting from any merger, conversion or consolidation to which the
Property Trustee or the Delaware Trustee, as the case may be, shall be a party,
or any Person succeeding to all or substantially all the corporate trust
business of the Property Trustee or the Delaware Trustee, as the case may be,
shall be the successor of the Property Trustee or the Delaware Trustee, as the
case may be, hereunder, provided such Person shall be otherwise qualified and
eligible under this Article, without the execution or filing of any paper or
any further act on the part of any of the parties hereto.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
Holders shall receive Distributions in accordance with the
applicable terms of the relevant Holder's Securities. If and to the extent
that the Debenture Issuer makes a payment of interest (including Compounded
Interest and Additional Sums), premium and/or principal on the Debentures held
by the Property Trustee or Liquidated Damages or any other payments pursuant to
the Registration Rights Agreement with respect to the Debentures held by the
Property Trustee (the amount of any such payment being a "Pay-
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ment Amount"), the Property Trustee shall and is directed, to the extent funds
are available for that purpose, to make a distribution (a "Distribution") of
the Payment Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
(a) The Administrative Trustees shall on behalf of the
Trust issue one class of capital securities representing undivided beneficial
interests in the assets of the Trust having such terms as are set forth in
Annex I (the "Series A Capital Securities") and one class of common securities
representing undivided beneficial interests in the assets of the Trust having
such terms as are set forth in Annex I (the "Common Securities"). The
Administrative Trustees shall on behalf of the Trust issue one class of capital
securities representing undivided beneficial interests in the Trust having such
terms as set forth in Annex I (the "Series B Capital Securities") in exchange
for the Series A Capital Securities accepted for exchange in the Exchange
Offer, which Series B Capital Securities shall not bear the legends required by
Section 9.2(i) unless the Holder of such Series A Capital Securities is either
(A) a broker-dealer who purchased such Series A Capital Securities directly
from the Trust for resale pursuant to Rule 144A or any other available
exemption under the Securities Act, (B) a Person participating in the
distribution of the Series A Capital Securities or (C) a Person who is an
affiliate (as defined in Rule 144A) of the Trust, provided, however, any Series
B Capital Securities issued in a Private Exchange, as defined in the
Registration Rights Agreement, shall bear a customary legend with respect to
restrictions on transfer pursuant to the Securities Act. The Trust shall issue
no securities or other interests in the assets of the Trust other than the
Trust Securities.
(b) The consideration received by the Trust for the
issuance of the Securities shall constitute a contribution to the capital of
the Trust and shall not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable undivided beneficial interests in the assets of
the Trust.
(d) Every Person, by virtue of having become a Holder
or a Capital Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by, this Declaration.
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SECTION 7.2 Execution and Authentication.
(a) The Securities shall be signed on behalf of the
Trust by an Administrative Trustee by manual or facsimile signature. In case
any Administrative Trustee of the Trust who shall have signed any of the
Securities shall cease to be such Administrative Trustee before the Securities
so signed shall be delivered by the Trust, such Securities nevertheless may be
delivered as though the person who signed such Securities had not ceased to be
such Administrative Trustee; and any Securities may be signed on behalf of the
Trust by such persons who, at the actual date of execution of such Security,
shall be the Administrative Trustees of the Trust, although at the date of the
execution and delivery of the Declaration any such person was not such an
Administrative Trustee.
(b) One Administrative Trustee shall sign the Capital
Securities for the Trust by manual or facsimile signature. Unless otherwise
determined by the Trust, such signature shall, in the case of Common
Securities, be a manual signature.
A Capital Security shall not be valid until authenticated by
the manual or facsimile signature of an authorized signatory of the Property
Trustee. The signature shall be conclusive evidence that the Capital Security
has been authenticated under this Declaration.
Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in the Terms in Annex I hereto
except as provided in Section 7.6.
The Property Trustee may appoint an authenticating agent
acceptable to the Trust to authenticate Capital Securities. An authenticating
agent may authenticate Capital Securities whenever the Property Trustee may do
so. Each reference in this Declaration to authentication by the Property
Trustee includes authentication by such agent. An authenticating agent has the
same rights as the Property Trustee to deal with the Sponsor or an Affiliate.
SECTION 7.3 Form and Dating.
The Capital Securities and the Property Trustee's certificate
of authentication shall be substantially in the form of Exhibit A-1 and the
Common Securities shall be substantially in the form of Exhibit A-2, each of
which is hereby incorporated in and expressly made a part of this Declaration.
Certificates representing the Securities may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees, as evidenced by their execution thereof. The
Securities may have letters, CUSIP or other numbers, notations or other marks
of identification or designation and such legends or endorsements required by
law, stock exchange rule, agreements to which the Trust is subject, if any, or
usage (provided that any
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such notation, legend or endorsement is in a form acceptable to the Trust).
The Trust at the direction of the Sponsor shall furnish any such legend not
contained in Exhibit A-1 to the Property Trustee in writing. Each Capital
Security shall be dated the date of its authentication. The terms and
provisions of the Securities set forth in Annex I and the forms of Securities
set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and
to the extent applicable, the Property Trustee and the Sponsor, by their
execution and delivery of this Declaration, expressly agree to such terms and
provisions and to be bound thereby.
(a) Global Securities. Securities offered and sold to
QIBs in reliance on Rule 144A, as provided in the Purchase Agreement, shall be
issued in the form of one or more permanent global Securities in definitive,
fully registered form without distribution coupons with the appropriate global
legends and Restricted Securities Legend set forth in Exhibit A-1 hereto (a
"Global Capital Security"), which shall be deposited on behalf of the
purchasers of the Capital Securities represented thereby with the Property
Trustee, as custodian for the Clearing Agency, and registered in the name of
the Clearing Agency or a nominee of the Clearing Agency, duly executed by the
Trust and authenticated by the Property Trustee as hereinafter provided. The
number of Capital Securities represented by a Global Capital Security may from
time to time be increased or decreased by adjustments made on the records of
the Property Trustee and the Clearing Agency or its nominee as hereinafter
provided.
(b) Book-Entry Provisions. This Section 7.3(b) shall
apply only to the Global Capital Securities and such other Capital Securities
in global form as may be authorized by the Trust to be deposited with or on
behalf of the Clearing Agency.
The Trust shall execute and the Property Trustee shall, in
accordance with this Section 7.3, authenticate and make available for delivery
initially one or more Global Capital Securities that (i) shall be registered in
the name of Cede & Co. or other nominee of such Clearing Agency and (ii) shall
be delivered by the Trustee to such Clearing Agency or pursuant to such
Clearing Agency's written instructions or held by the Property Trustee as
custodian for the Clearing Agency.
Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Declaration with respect to
any Global Capital Security held on their behalf by the Clearing Agency or by
the Property Trustee as the custodian of the Clearing Agency or under such
Global Capital Security, and the Clearing Agency may be treated by the Trust,
the Property Trustee and any agent of the Trust or the Property Trustee as the
absolute owner of such Global Capital Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in
any Global Capital Security.
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(c) Definitive Capital Securities. Except as provided
in Section 7.9 or 9.2(f)(i), owners of beneficial interests in a Global Capital
Security will not be entitled to receive physical delivery of certificated
Capital Securities ("Definitive Capital Securities"). Purchasers of Securities
(other than QIBs) who are "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) will receive Capital Securities in
the form of individual certificates in definitive, fully registered form
without distribution coupons and with the Restricted Securities Legend set
forth in Exhibit A-1 hereto ("Restricted Definitive Capital Securities");
provided, however, that upon transfer of such Restricted Definitive Capital
Securities to a QIB, such Restricted Definitive Capital Securities will, unless
the Global Capital Security has previously been exchanged, be exchanged for an
interest in a Global Capital Security pursuant to the provisions of Section
9.2. Restricted Definitive Capital Securities will bear the Restricted
Securities Legend set forth on Exhibit A-1 unless removed in accordance with
this Section 7.3 or Section 9.2.
(d) Authorized Denominations. The Capital Securities
are issuable only in denominations of $1,000 and any integral multiple thereof.
SECTION 7.4 Registrar, Paying Agent and Exchange Agent.
The Trust shall maintain in the Borough of Manhattan, The City
of New York, (i) an office or agency where Capital Securities may be presented
for registration of transfer ("Registrar"), (ii) an office or agency where
Capital Securities may be presented for payment ("Paying Agent") and (iii) an
office or agency where Securities may be presented for exchange ("Exchange
Agent"). The Registrar shall keep a register of the Capital Securities and of
their transfer. The Trust may appoint the Registrar, the Paying Agent and the
Exchange Agent and may appoint one or more co-registrars, one or more
additional paying agents and one or more additional exchange agents in such
other locations as it shall determine. The term "Registrar" includes any
additional registrar, "Paying Agent" includes any additional paying agent and
the term "Exchange Agent" includes any additional exchange agent. The Trust
may change any Paying Agent, Registrar, co-registrar or Exchange Agent without
prior notice to any Holder. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees. The
Trust shall notify the Property Trustee of the name and address of any Agent
not a party to this Declaration. If the Trust fails to appoint or maintain
another entity as Registrar, Paying Agent or Exchange Agent, the Property
Trustee shall act as such. The Trust or any of its Affiliates may act as
Paying Agent, Registrar, or Exchange Agent. The Trust shall act as Paying
Agent, Registrar, and Exchange Agent for the Common Securities.
The Trust initially appoints the Property Trustee as Registrar
and Paying Agent for the Capital Securities.
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SECTION 7.5 Paying Agent to Hold Money in Trust.
The Trust shall require each Paying Agent other than the
Property Trustee to agree in writing that the Paying Agent will hold in trust
for the benefit of Holders or the Property Trustee all money held by the Paying
Agent for the payment of liquidation amounts or Distributions, and will notify
the Property Trustee if there are insufficient funds for such purpose. While
any such insufficiency continues, the Property Trustee may require a Paying
Agent to pay all money held by it to the Property Trustee. The Trust at any
time may require a Paying Agent to pay all money held by it to the Property
Trustee and to account for any money disbursed by it. Upon payment over to the
Property Trustee, the Paying Agent (if other than the Trust or an Affiliate of
the Trust) shall have no further liability for the money. If the Trust or the
Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as Paying Agent.
SECTION 7.6 Replacement Securities.
If a Holder claims that a Security owned by it has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, the Trust shall issue and the Property Trustee shall, upon
written order of the Trust, authenticate a replacement Security if the Property
Trustee's and the Trust's requirements, as the case may be, are met. An
indemnity bond must be provided by the Holder which, in the judgment of the
Property Trustee, is sufficient to protect the Trustees, the Sponsor, the Trust
or any authenticating agent from any loss which any of them may suffer if a
Security is replaced. The Trust may charge such Holder for its expenses in
replacing a Security.
Every replacement Security is an additional beneficial
interest in the Trust.
SECTION 7.7 Outstanding Capital Securities.
The Capital Securities outstanding at any time are all the
Capital Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section as not outstanding.
If a Capital Security is replaced, paid or purchased pursuant
to Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Capital
Security is held by a bona fide purchaser.
If Capital Securities are considered paid in accordance with
the terms of this Declaration, they cease to be outstanding and Distributions
on them shall cease to accumulate.
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A Capital Security does not cease to be outstanding because
one of the Trust, the Sponsor or an Affiliate of the Sponsor holds the
Security.
SECTION 7.8 Capital Securities in Treasury.
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be
fully protected in relying on any such direction, waiver or consent, only
Securities which a Responsible Officer of the Property Trustee actually knows
are so owned shall be so disregarded.
SECTION 7.9 Temporary Securities.
(a) Until Definitive Capital Securities are ready for
delivery, the Trust may prepare and, in the case of the Capital Securities, the
Property Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of Definitive Capital Securities but may
have variations that the Trust considers appropriate for temporary Securities.
Without unreasonable delay, the Trust shall prepare and, in the case of the
Capital Securities, the Property Trustee shall authenticate Definitive Capital
Securities in exchange for temporary Securities.
(b) A Global Capital Security deposited with the
Clearing Agency or with the Property Trustee as custodian for the Clearing
Agency pursuant to Section 7.3 shall be transferred to the beneficial owners
thereof in the form of Definitive Capital Securities only if such transfer
complies with Section 9.2 and (i) the Clearing Agency notifies the Sponsor that
it is unwilling or unable to continue as Clearing Agency for such Global
Capital Security or if at any time such Clearing Agency ceases to be a
"clearing agency" registered under the Exchange Act and a clearing agency is
not appointed by the Sponsor within 90 days of such notice, (ii) a Default or
an Event of Default has occurred and is continuing or (iii) the Trust at its
sole discretion elects to cause the issuance of Definitive Capital Securities.
(c) Any Global Capital Security that is transferable to
the beneficial owners thereof in the form of Definitive Capital Securities
pursuant to this Section 7.9 shall be surrendered by the Clearing Agency to the
Property Trustee located in the Borough of Manhattan, The City of New York, to
be so transferred, in whole or from time to time in part, without charge, and
the Property Trustee shall authenticate and make available for delivery, upon
such transfer of each portion of such Global Capital Security, an equal
aggregate liquidation amount of Securities of authorized denominations in the
form of certificated Capital Securities. Any portion of a Global Capital
Security in transferred pursuant to this Section shall be registered in such
names as the Clearing Agency shall direct. Any Capital Security in the form of
Definitive Capital Securities delivered in
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exchange for an interest in the Global Capital Security shall, except as
otherwise provided by Sections 7.3 and 9.2, bear the Restricted Securities
Legend set forth in Exhibit A-1 hereto.
(d) Subject to the provisions of Section 7.9(c), the
Holder of a Global Capital Security may grant proxies and otherwise authorize
any Person, including Participants and Persons that may hold interests through
Participants, to take any action which such Holder is entitled to take under
this Declaration or the Securities.
(e) In the event of the occurrence of any of the events
specified in Section 7.9(b), the Trust will promptly make available to the
Property Trustee a reasonable supply of certificated Capital Securities in
fully registered form without distribution coupons.
SECTION 7.10 Cancellation.
The Trust at any time may deliver Capital Securities to the
Property Trustee for cancellation. The Registrar, Paying Agent and Exchange
Agent shall forward to the Property Trustee any Capital Securities surrendered
to them for registration of transfer, redemption, exchange or payment. The
Property Trustee shall promptly cancel all Capital Securities, surrendered for
registration of transfer, redemption, exchange, payment, replacement or
cancellation and shall dispose of cancelled Capital Securities in accordance
with its customary procedures unless the Trust otherwise directs. The Trust
may not issue new Capital Securities to replace Capital Securities that it has
paid or that have been delivered to the Property Trustee for cancellation or
that any Holder has exchanged.
SECTION 7.11 CUSIP Numbers.
The Trust in issuing the Capital Securities may use "CUSIP"
numbers (if then generally in use), and, if so, the Property Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property
Trustee of any change in the CUSIP numbers.
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ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust.
(a) The Trust shall automatically dissolve:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor; or the
revocation of the Sponsor's charter and the expiration of 90 days
after the date of revocation without a reinstatement thereof;
(iii) following the distribution of a Like Amount of the
Debentures to the Holders, provided that, the Property Trustee has
received written notice from the Sponsor directing the Property
Trustee to dissolve the Trust (which direction is optional, and except
as otherwise expressly provided below, within the discretion of the
Sponsor) and provided, further, that such direction and such
distribution is conditioned on (a) the receipt of any required
regulatory approval and (b) the Administrative Trustees' receipt of an
opinion of an independent tax counsel experienced in such matters,
which opinion may rely on published rulings of the Internal Revenue
Service, to the effect that the Holders will not recognize any gain or
loss for United States federal income tax purposes as a result of the
dissolution of the Trust and the distribution of Debentures;
(iv) upon the entry of a decree of judicial dissolution
of the Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called
for redemption and the amounts necessary for redemption thereof shall
have been paid to the Holders in accordance with the terms of the
Securities; or
(vi) the expiration of the term of the Trust provided in
Section 3.14.
(b) As soon as is practicable after the occurrence of
an event referred to in Section 8.1(a), after completion of the winding up of
the affairs of the Trust, the Administrative Trustees shall file a certificate
of cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall
survive the termination of the Trust.
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ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in
part, in accordance with the terms and conditions set forth in this Declaration
and in the terms of the Securities. Any transfer or purported transfer of any
Security not made in accordance with this Declaration shall be null and void.
(b) The Administrative Trustees shall provide for the
registration of Capital Securities and of the transfer of Capital Securities,
which will be effected without charge but only upon payment (with such
indemnity as the Administrative Trustees may require) in respect of any tax or
other governmental charges that may be imposed in relation to it. Upon
surrender for registration of transfer of any Capital Securities, the
Administrative Trustees shall cause one or more new Capital Securities to be
issued in the name of the designated transferee or transferees. Every Capital
Security surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Administrative
Trustees and the Registrant duly executed by the Holder or such Holder's
attorney duly authorized in writing. Each Capital Security surrendered for
registration of transfer shall be canceled by the Property Trustee. A
transferee of a Capital Security shall be entitled to the rights and subject to
the obligations of a Holder hereunder upon the receipt by such transferee of a
Capital Security. By acceptance of a Capital Security, each transferee shall
be deemed to have agreed to be bound by this Declaration.
(c) For so long as the Trust Securities remain
outstanding, the Sponsor will covenant (i) to directly or indirectly maintain
100% direct or indirect ownership of the Common Securities of the Trust;
provided, however, that any permitted successor of the Sponsor under the
Indenture may succeed to the Sponsor's ownership of such Common Securities,
(ii) to use its reasonable efforts to cause the Trust (a) to remain a business
trust, except in connection with the distribution of Debentures to the Holders
of Trust Securities in liquidation of the Trust, the redemption of all of the
Trust Securities, or certain mergers, consolidations or amalgamations, each as
permitted by this Declaration, and (b) to otherwise continue to be classified
as a grantor trust for United States federal income tax purposes and (iii) to
use its reasonable efforts to cause each holder of Trust Securities to be
treated as owning an undivided beneficial interest in the Debentures.
SECTION 9.2 Transfer Procedures and Restrictions
(a) General. Except as otherwise provided in Section
9.2(b), if Capital Securities are issued upon the registration of transfer,
exchange or replacement of Capital Securities bearing the Restricted Securities
Legend set forth in Exhibit A-1 hereto, or if a request is made to remove such
Restricted Securities Legend on Capital Securities, the Capital Securities so
issued shall bear the Restricted Securities Legend, or the Restricted
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Securities Legend shall not be removed, as the case may be, unless there is
delivered to the Trust and the Property Trustee such evidence satisfactory to
the Sponsor, which shall include an Opinion of Counsel as may be reasonably
required by the Sponsor, that neither the legend nor the restrictions on
transfer set forth therein are required to ensure that transfers thereof are
made pursuant to an exception from the registration requirements of the
Securities Act or, with respect to Restricted Definitive Capital Securities,
that such Securities are not "restricted" within the meaning of Rule 144. Upon
provision of such satisfactory evidence, the Property Trustee, at the written
direction of the Trust, shall authenticate and deliver Capital Securities that
do not bear the legend.
(b) Transfers After Effectiveness of a Registration
Statement. After the effectiveness of a Registration Statement with respect to
any Capital Securities, all requirements pertaining to legends on such Capital
Securities will cease to apply (other than the legend requiring that transfers
of Capital Securities be made in blocks having an aggregate liquidation amount
of not less than $100,000 or the legend required if Series B Capital Securities
are issued in a Private Exchange), and beneficial interests in a Capital
Security in global form without legends will be available to transferees of
such Capital Securities, upon exchange of the transferring Holder's Restricted
Definitive Capital Security or directions to transfer such Holder's beneficial
interest in the Global Capital Security as the case may be. No such transfer
or exchange of a Restricted Definitive Capital Security or of an interest in
the Global Capital Security shall be effective unless the transferor delivers
to the Trust a certificate in a form substantially similar to that attached
hereto as the form of "Assignment" in Exhibit A-1. Except as otherwise
provided in Section 9.2(m), after the effectiveness of a Registration
Statement, the Trust shall issue and the Property Trustee, upon a written order
of the Trust signed by one Administrative Trustee, shall authenticate a Capital
Security in global form without the Restricted Securities Legend (the
"Unrestricted Global Capital Security") for deposit with the Clearing Agency or
its custodian to evidence transfers of beneficial interests from the (i) Global
Capital Security and (ii) Restricted Definitive Capital Securities.
(c) Transfer and Exchange of Definitive Capital
Securities. When Definitive Capital Securities are presented to the Registrar
or co-Registrar
(x) to register the transfer of such Definitive Capital
Securities; or
(y) to exchange such Definitive Capital Securities which
became mutilated, destroyed, defaced, stolen or lost, for an equal
number of Definitive Capital Securities,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Capital Securities surrendered for
registration of transfer or exchange:
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(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the
Administrative Trustees and the Registrar or co-registrar, duly
executed by the Holder thereof or his attorney duly authorized in
writing; and
(ii) in the case of Definitive Capital Securities that
are Restricted Definitive Capital Securities:
(A) if such Restricted Capital Securities are
being delivered to the Registrar by a Holder for registration
in the name of such Holder, without transfer, a certification
from such Holder to that effect; or
(B) if such Restricted Capital Securities are
being transferred: (i) a certification from the transferor in
a form substantially similar to that attached hereto as the
form of "Assignment" in Exhibit A-1, and (ii) if the Trust or
Registrar so requests, evidence reasonably satisfactory to it
as to the compliance with the restrictions set forth in the
Restricted Securities Legend.
(d) Restrictions on Transfer of a Definitive Capital
Security for a Beneficial Interest in a Global Capital Security. A Definitive
Capital Security may not be exchanged for a beneficial interest in a Global
Capital Security except upon satisfaction of the requirements set forth below.
Upon receipt by the Property Trustee of a Definitive Capital Security, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Property Trustee and the Administrative Trustees, together
with:
(i) if such Definitive Capital Security is a Restricted
Capital Security, certification (in a form substantially similar to
that attached hereto as the form of "Assignment" in Exhibit A-1); and
(ii) whether or not such Definitive Capital Security is
a Restricted Capital Security, written instructions directing the
Property Trustee to make, or to direct the Clearing Agency to make, an
adjustment on its books and records with respect to the appropriate
Global Capital Security to reflect an increase in the number of the
Capital Securities represented by such Global Capital Security,
then the Property Trustee shall cancel such Definitive Capital Security and
cause, or direct the Clearing Agency to cause, the aggregate number of Capital
Securities represented by the appropriate Global Capital Security to be
increased accordingly. If no Global Capital Securities are then outstanding,
the Trust shall issue and the Property Trustee shall authenticate, upon written
order of any Administrative Trustee, an appropriate number of Capital
Securities in global form.
(e) Transfer and Exchange of Global Capital Securities.
Subject to Section 9.2(f), the transfer and exchange of Global Capital
Securities or beneficial interests
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therein shall be effected through the Clearing Agency, in accordance with this
Declaration (including applicable restrictions on transfer set forth herein, if
any) and the procedures of the Clearing Agency therefor.
(f) Transfer of a Beneficial Interest in a Global
Capital Security for a Definitive Capital Security.
(i) Any Person having a beneficial interest in a Global
Capital Security may upon request, but only upon 20 days prior notice
to the Property Trustee, and if accompanied by the information
specified below, exchange such beneficial interest for a Definitive
Capital Security representing the same number of Capital Securities.
Upon receipt by the Property Trustee from the Clearing Agency or its
nominee on behalf of any Person having a beneficial interest in a
Global Capital Security of written instructions or such other form of
instructions as is customary for the Clearing Agency or the Person
designated by the Clearing Agency as having such a beneficial interest
in a Restricted Capital Security and a certification from the
transferor (in a form substantially similar to that attached hereto as
the form of "Assignment" in Exhibit A-1), which may be submitted by
facsimile, then the Property Trustee will cause the aggregate number
of Capital Securities represented by Global Capital Securities to be
reduced on its books and records and, following such reduction, the
Trust will execute and the Property Trustee will authenticate and make
available for delivery to the transferee a Definitive Capital
Security.
(ii) Definitive Capital Securities issued in exchange
for a beneficial interest in a Global Capital Security pursuant to
this Section 9.2(f) shall be registered in such names and in such
authorized denominations as the Clearing Agency, pursuant to
instructions from its Clearing Agency Participants or otherwise, shall
instruct the Property Trustee in writing. The Property Trustee shall
deliver such Capital Securities to the Persons in whose names such
Capital Securities are so registered in accordance with such
instructions of the Clearing Agency.
(g) Restrictions on Transfer and Exchange of Global
Capital Securities. Notwithstanding any other provisions of this Declaration
(other than the provisions set forth in subsection (h) of this Section 9.2 and
subsection (b) of Section 7.9), a Global Capital Security may not be
transferred as a whole except by the Clearing Agency to a nominee of the
Clearing Agency or another nominee of the Clearing Agency or by the Clearing
Agency or any such nominee to a successor Clearing Agency or a nominee of such
successor Clearing Agency.
(h) Authentication of Definitive Capital Securities.
If at any time:
(i) there occurs a Default or an Event of Default which
is continuing, or
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(ii) the Trust, in its sole discretion, notifies the
Property Trustee in writing that it elects to cause the issuance of
Definitive Capital Securities under this Declaration,
then an Administrative Trustee on behalf of the Trust will execute, and the
Property Trustee, upon receipt of a written order of the Trust signed by one
Administrative Trustee requesting the authentication and delivery of Definitive
Capital Securities to the Persons designated by the Trust, will authenticate
and make available for delivery Definitive Capital Securities, equal in number
to the number of Capital Securities represented by the Global Capital
Securities, in exchange for such Global Capital Securities.
(i) Legend.
(i) Except as permitted by the following paragraph
(ii), each Capital Security certificate evidencing the Global Capital
Securities and the Definitive Capital Securities (and all Capital
Securities issued in exchange therefor or substitution thereof) shall
bear a legend (the "Restricted Securities Legend") in substantially
the following form:
THE CAPITAL SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER
APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL
SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH FIRST
KEYSTONE FINANCIAL, INC. (THE "COMPANY") OR ANY "AFFILIATE" OF
THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY
PREDECESSOR OF THIS CAPITAL SECURITY) ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION
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STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (E)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO
THE RIGHT OF THE TRUST AND THE COMPANY PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) OR (E) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
(ii) PURSUANT TO CLAUSE (D) TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE REVERSE OF THIS CAPITAL
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE CAPITAL SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED
ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000 (100 CAPITAL SECURITIES). ANY SUCH TRANSFER OF
CAPITAL SECURITIES IN A BLOCK HAVING A LIQUIDATION AMOUNT OF
LESS THAN $100,000 SHALL BE
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DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED
TO THE RECEIPT OF DISTRIBUTIONS OF SUCH CAPITAL SECURITIES,
AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST
WHATSOEVER IN SUCH CAPITAL SECURITIES.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
ALSO AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT
AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA") OR (ii) THE
ACQUISITION AND HOLDING OF THIS CAPITAL SECURITY BY IT IS NOT
PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF
THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT
FROM ANY SUCH PROHIBITION.
(ii) Upon any sale or transfer of a Restricted Capital
Security (including any Restricted Capital Security represented by a
Global Capital Security) pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144 under the
Securities Act after such registration statement ceases to be
effective:
(A) in the case of any Restricted Capital
Security that is a Definitive Capital Security, the Registrar
shall permit the Holder thereof to exchange such Restricted
Capital Security for a Definitive Capital Security that does
not bear the Restricted Securities Legend and rescind any
restriction on the transfer of such Restricted Capital
Security; and
(B) in the case of any Restricted Capital
Security that is represented by a Global Capital Security, the
Registrar shall permit the Holder of such Global Capital
Security to exchange such Global Capital Security for another
Global Capital Security that does not bear the Restricted
Securities Legend.
(j) Cancellation or Adjustment of Global Capital
Security. At such time as all beneficial interests in a Global Capital
Security have either been exchanged for Definitive Capital Securities to the
extent permitted by this Declaration or redeemed, repurchased or canceled in
accordance with the terms of this Declaration, such Global Capital Security
shall be canceled by the Property Trustee. At any time prior to such
cancellation,
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if any beneficial interest in a Global Capital Security is exchanged for
Definitive Capital Securities, Capital Securities represented by such Global
Capital Security shall be reduced and an adjustment shall be made on the books
and records of the Clearing Agency and the Registrar, to reflect such
reduction.
(k) Obligations with Respect to Transfers and Exchanges
of Capital Securities.
(i) To permit registrations of transfers and exchanges,
the Trust shall execute and the Property Trustee shall authenticate
Definitive Capital Securities and Global Capital Securities at the
Registrar's or co-registrar's request in accordance with the terms of
this Declaration.
(ii) Registrations of transfers or exchanges will be
effected without charge, but only upon payment (with such indemnity as
the Trust or the Sponsor may require) in respect of any tax or other
governmental charge that may be imposed in relation to it.
(iii) The Registrar or co-registrar shall not be required
to register the transfer of or exchange of (a) Capital Securities
during a period beginning at the opening of business 15 days before
the day of mailing of a notice of redemption or any notice of
selection of Capital Securities for redemption and ending at the close
of business on the day of such mailing; or (b) any Capital Security so
selected for redemption in whole or in part, except the unredeemed
portion of any Capital Security being redeemed in part.
(iv) Prior to the due presentation for registration of
transfer of any Capital Security, the Trust, the Property Trustee, the
Paying Agent, the Registrar or any co-registrar may deem and treat the
Person in whose name a Capital Security is registered as the absolute
owner of such Capital Security for the purpose of receiving
Distributions on such Capital Security (subject to Section 2(c) of
Annex I) and for all other purposes whatsoever, and none of the Trust,
the Property Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Capital Securities issued upon any registration
of transfer or exchange pursuant to the terms of this Declaration
shall evidence the same security and shall be entitled to the same
benefits under this Declaration as the Capital Securities surrendered
upon such registration of transfer or exchange.
(l) No Obligation of the Property Trustee.
(i) The Property Trustee shall have no responsibility
or obligation to any beneficial owner of a Global Capital Security, a
Clearing Agency Participant in the
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Clearing Agency or other Person with respect to the accuracy of the
records of the Clearing Agency or its nominee or of any Clearing
Agency Participant thereof, with respect to any ownership interest in
the Capital Securities or with respect to the delivery to any Clearing
Agency Participant, beneficial owner or other Person (other than the
Clearing Agency) of any notice (including any notice of redemption) or
the payment of any amount, under or with respect to such Capital
Securities. All notices and communications to be given to the Holders
and all payments to be made to Holders under the Capital Securities
shall be given or made only to or upon the order of the registered
Holders (which shall be the Clearing Agency or its nominee in the case
of a Global Capital Security). The rights of beneficial owners in any
Global Capital Security shall be exercised only through the Clearing
Agency subject to the applicable rules and procedures of the Clearing
Agency. The Property Trustee may conclusively rely and shall be fully
protected in relying upon information furnished by the Clearing Agency
or any agent thereof with respect to its Clearing Agency Participants
and any beneficial owners.
(ii) The Property Trustee and the Registrar shall have
no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this
Declaration or under applicable law with respect to any transfer of
any interest in any Capital Security (including any transfers between
or among Clearing Agency Participants or beneficial owners in any
Global Capital Security) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms
of this Declaration, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
(m) Exchange of Series A Capital Securities for Series
B Capital Securities. The Series A Capital Securities may be exchanged for
Series B Securities pursuant to the terms of the Exchange Offer. The Property
Trustee shall make the exchange as follows:
The Sponsor shall present the Property Trustee with an
Officers' Certificate certifying the following:
(A) upon issuance of the Series B Capital
Securities, the transactions contemplated
by the Exchange Offer have been
consummated; and
(B) the number of Series A Capital Securities
properly tendered in the Exchange Offer
that are represented by a Global Capital
Security and the number of Series A Capital
Securities properly tendered in the
Exchange Offer that are represented by
Definitive Capital Securities, the name of
each Holder of such Definitive Capital
Securities, the liquidation amount of
Capital Securities properly tendered in the
Ex-
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change Offer by each such Holder and the
name and address to which Definitive
Capital Securities for Series B Capital
Securities shall be registered and sent for
each such Holder.
The Property Trustee, upon receipt of (i) such Officers'
Certificate and (ii) an Opinion of Counsel (x) to the effect that the Series B
Capital Securities have been registered under Section 5 of the Securities Act
and the Indenture has been qualified under the Trust Indenture Act and (y) with
respect to the matters set forth in Section 3(p) of the Registration Rights
Agreement, shall authenticate (A) a Global Capital Security representing Series
B Capital Securities in aggregate liquidation amount equal to the aggregate
liquidation amount of Series A Capital Securities represented by a Global
Capital Security indicated in such Officers' Certificate as having been
properly tendered and (B) Definitive Capital Securities representing Series B
Capital Securities registered in the names of, and in the liquidation amounts
indicated in such Officers' Certificate.
If, upon consummation of the Exchange Offer, less than all the
outstanding Series A Capital Securities shall have been properly tendered and
not withdrawn, the Property Trustee shall make an endorsement on the Global
Capital Security representing Series A Capital Securities indicating the
reduction in the number and aggregate liquidation amount represented thereby as
a result of the Exchange Offer.
The Trust shall deliver such Definitive Capital Securities
representing Series B Capital Securities to the Holders thereof as indicated in
such Officers' Certificate.
(n) Minimum Transfers. Series A Capital Securities
and, when issued, Series B Capital Securities may only be transferred in
minimum blocks of $100,000 aggregate liquidation amount. Any transfer of
Series A Capital Securities or Series B Capital Securities in a block having an
aggregate liquidation amount of less than $100,000 shall be deemed to be voided
and of no legal effect whatsoever. Any such transferee shall be deemed not to
be a Holder of such Series A or Series B Capital Securities for any purpose,
including, but not limited to, the receipt of Distributions on such Capital
Securities, and such transferee shall be deemed to have no interest whatsoever
in such Capital Securities.
SECTION 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Security
shall be registered on the books and records of the Trust as the sole owner of
such Security for purposes of receiving Distributions and for all other
purposes whatsoever and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such Security on the part of any
Person, whether or not the Trust shall have actual or other notice thereof.
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SECTION 9.4 Book Entry Interests.
Global Capital Securities shall initially be registered on the
books and records of the Trust in the name of Cede & Co., the nominee of the
Clearing Agency, and no Capital Security Beneficial Owner will receive a
definitive Capital Security Certificate representing such Capital Security
Beneficial Owner's interests in such Global Capital Securities, except as
provided in Section 9.2 and Section 7.9. Unless and until definitive, fully
registered Capital Securities certificates have been issued to the Capital
Security Beneficial Owners pursuant to Section 9.2 and Section 7.9:
(a) the provisions of this Section 9.4 shall be in full
force and effect;
(b) the Trust and the Trustees shall be entitled to
deal with the Clearing Agency for all purposes of this Declaration
(including the payment of Distributions on the Global Capital
Securities and receiving approvals, votes or consents hereunder) as
the Holder of the Capital Securities and the sole holder of the Global
Certificates and shall have no obligation to the Capital Security
Beneficial Owners;
(c) to the extent that the provisions of this Section
9.4 conflict with any other provisions of this Declaration, the
provisions of this Section 9.4 shall control; and
(d) the rights of the Capital Security Beneficial
Owners shall be exercised only through the Clearing Agency and shall
be limited to those established by law and agreements between such
Capital Security Beneficial Owners and the Clearing Agency and/or the
Clearing Agency Participants and the Clearing Agency shall receive and
transmit payments of Distributions on the Global Certificates to such
Clearing Agency Participants. DTC will make book entry transfers
among the Clearing Agency Participants.
SECTION 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Capital
Security Holders is required under this Declaration, the Trustees shall give
all such notices and communications specified herein to be given to the Holders
of Global Capital Securities to the Clearing Agency, and shall have no notice
obligations to the Capital Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities, the
Administrative Trustees may, in their sole discretion, appoint a successor
Clearing Agency with respect to such Capital Securities.
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ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Declaration,
the Securities Guarantees and the terms of the Securities, the Sponsor shall
not be:
(i) personally liable for the return of any portion of
the capital contributions (or any return thereon) of the Holders which
shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder any
deficit upon dissolution or termination of the Trust or otherwise.
(b) The Debenture Issuer shall be liable for all of the
debts and obligations of the Trust (other than in respect of the payment of
principal, interest and premium, if any, on the Securities) to the extent not
satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust
Act, the Holders shall be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible
or accountable in damages or otherwise to the Trust or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of the Trust and
in a manner such Indemnified Person reasonably believed to be within the scope
of the authority conferred on such Indemnified Person by this Declaration or by
law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's negligence or
willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in
relying in good faith upon the records of the Trust and upon such information,
opinions, reports or statements presented to the Trust by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and, if selected by such Indemnified
Person, has been selected by such Indemnified Person with reasonable care on
behalf of the Trust, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, profits, losses, or any
other facts pertinent to the existence and amount of assets from which
Distributions to Holders might properly be paid.
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SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an
Indemnified Person has duties (including fiduciary duties) and liabilities
relating thereto to the Trust or to any other Covered Person, an Indemnified
Person acting under this Declaration shall not be liable to the Trust or to any
other Covered Person for its good faith reliance on the provisions of this
Declaration. The provisions of this Declaration, to the extent that they
restrict the duties and liabilities of an Indemnified Person otherwise existing
at law or in equity (other than the duties imposed on the Property Trustee
under the Trust Indenture Act), are agreed by the parties hereto to replace
such other duties and liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises
between any Covered Persons and any Indemnified Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest of
each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person
is permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own interests, and
shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under such express standard
and shall not be subject to any other or different standard imposed by
this Declaration.
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SECTION 10.4 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to the full
extent permitted by law, any Company Indemnified Person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Trust) by reason of the fact that he is or was a Company
Indemnified Person against expenses (including attorneys' fees and
expenses), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the Company Indemnified
Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full
extent permitted by law, any Company Indemnified Person who was or is
a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Trust to procure
a judgment in its favor by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys' fees
and expenses) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or matter
as to which such Company Indemnified Person shall have been adjudged
to be liable to the Trust unless and only to the extent that the Court
of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such Person is fairly and reasonably entitled to indemnity for
such expenses which such Court of Chancery or such other court shall
deem proper.
(iii) To the extent that a Company Indemnified Person
shall be successful on the merits or otherwise (including dismissal of
an action without prejudice or the settlement of an action without
admission of liability) in defense of any action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in
defense of any claim, issue or matter therein, he shall be
indemnified, to the full extent permitted by law, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
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(iv) Any indemnification under paragraphs (i) and (ii)
of this Section 10.4(a) (unless ordered by a court) shall be made by
the Debenture Issuer only as authorized in the specific case upon a
determination that indemnification of the Company Indemnified Person
is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (i) and (ii). Such
determination shall be made (1) by the Administrative Trustees by a
majority vote of a Quorum consisting of such Administrative Trustees
who were not parties to such action, suit or proceeding, (2) if such a
Quorum is not obtainable, or, even if obtainable, if a Quorum of
disinterested Administrative Trustees so directs, by independent legal
counsel in a written opinion, or (3) by the Common Security Holder of
the Trust.
(v) Expenses (including attorneys' fees and expenses)
incurred by a Company Indemnified Person in defending a civil,
criminal, administrative or investigative action, suit or proceeding
referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall
be paid by the Debenture Issuer in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or
on behalf of such Company Indemnified Person to repay such amount if
it shall ultimately be determined that he is not entitled to be
indemnified by the Debenture Issuer as authorized in this Section
10.4(a). Notwithstanding the foregoing, no advance shall be made by
the Debenture Issuer if a determination is reasonably and promptly
made (i) by the Administrative Trustees by a majority vote of a quorum
of disinterested Administrative Trustees, (ii) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested
Administrative Trustees so directs, by independent legal counsel in a
written opinion or (iii) the Common Security Holder of the Trust,
that, based upon the facts known to the Administrative Trustees,
counsel or the Common Security Holder at the time such determination
is made, such Company Indemnified Person acted in bad faith or in a
manner that such person did not believe to be in or not opposed to the
best interests of the Trust, or, with respect to any criminal
proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event
shall any advance be made in instances where the Administrative
Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty
to the Trust or its Common or Capital Security Holders.
(vi) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this
Section 10.4(a) shall not be deemed exclusive of any other rights to
which those seeking indemnification and advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested
directors of the Debenture Issuer or Capital Security Holders of the
Trust or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office. All rights
to indemnification under this Section 10.4(a) shall be deemed to be
provided by a contract between the Debenture Issuer and
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each Company Indemnified Person who serves in such capacity at any
time while this Section 10.4(a) is in effect. Any repeal or
modification of this Section 10.4(a) shall not affect any rights or
obligations then existing.
(vii) The Debenture Issuer or the Trust may purchase and
maintain insurance on behalf of any person who is or was a Company
Indemnified Person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Debenture Issuer would have the power to
indemnify him against such liability under the provisions of this
Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to
"the Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Section 10.4(a) with respect to the resulting or
surviving entity as he would have with respect to such constituent
entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 10.4(a) shall,
unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a Company Indemnified Person and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
(b) The Debenture Issuer agrees to indemnify the (i)
Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the
Property Trustee or the Delaware Trustee, and (iv) any officers, directors,
shareholders, members, partners, employees, representatives, custodians,
nominees or agents of the Property Trustee or the Delaware Trustee (each of the
Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified
Person") for, and to hold each Fiduciary Indemnified Person harmless against,
any and all loss, liability, damage, claim or expense including taxes (other
than taxes based on the income of such Fiduciary Indemnified Person) incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses (including reasonable legal fees and expenses)
of defending itself against or investigating any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 10.4(b)
shall survive the resignation or removal of the Property Trustee or the
Delaware Trustee and the satisfaction and discharge of this Declaration.
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(c) The Debenture Trustee agrees to pay the Property
Trustee and the Delaware Trustee, from time to time, such compensation for all
services rendered by the Property Trustee and the Delaware Trustee hereunder as
may be mutually agreed upon in writing by the Sponsor and the Property Trustee
or the Delaware Trustee, as the case may be, and, except as otherwise expressly
provided herein, to reimburse the Property Trustee and the Delaware Trustee
upon its or their request for all reasonable expenses, disbursements and
advances incurred or made by the Property Trustee or the Delaware Trustee, as
the case may be, in accordance with the provisions of this Declaration, except
any such expense, disbursement or advance as may be attributable to its or
their negligence or bad faith.
SECTION 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee (subject to Section 5.3(c)) may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others, similar or dissimilar to the business of the Trust, and the
Trust and the Holders shall have no rights by virtue of this Declaration in and
to such independent ventures or the income or profits derived therefrom, and
the pursuit of any such venture, even if competitive with the business of the
Trust, shall not be deemed wrongful or improper. No Covered Person, the
Sponsor, the Delaware Trustee, or the Property Trustee shall be obligated to
present any particular investment or other opportunity to the Trust even if
such opportunity is of a character that, if presented to the Trust, could be
taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee
and the Property Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Covered Person, the Delaware
Trustee and the Property Trustee may engage or be interested in any financial
or other transaction with the Sponsor or any Affiliate of the Sponsor, or may
act as depositary for, trustee or agent for, or act on any committee or body of
holders of, securities or other obligations of the Sponsor or its Affiliates.
SECTION 10.6 Compensation; Fees.
The Debenture Issuer agrees:
(a) to pay to the Trustees from time to time such
compensation for all services rendered by them hereunder as the parties shall
agree in writing from time to time (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust); and
(b) except as otherwise expressly provided herein, to
reimburse the Trustees upon request for all reasonable expenses, disbursements
and advances incurred or made by the Trustees in accordance with any provision
of this Declaration (including the reasonable compensation and the expenses and
disbursements of their respective agents and
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counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith.
The provisions of this Section 10.6 shall survive the
dissolution of the Trust and the termination of this Declaration and the
removal or resignation of any Trustee.
No Trustee may claim any lien or charge on any property of the
Trust as a result of any amount due pursuant to this Section 10.6.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the
calendar year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail,
each transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The books of account and the records of the
Trust shall be examined by and reported upon as of the end of each Fiscal Year
of the Trust by a firm of independent certified public accountants selected by
the Administrative Trustees.
(b) The Administrative Trustees shall cause to be duly
prepared and delivered to each of the Holders, any annual United States federal
income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the
Code to deliver any such statement at a later date, the Administrative Trustees
shall endeavor to deliver all such information statements within 30 days after
the end of each Fiscal Year of the Trust.
(c) The Administrative Trustees shall cause to be duly
prepared and filed with the appropriate taxing authority, an annual United
States federal income tax return, on a Form 1041 or such other form required by
United States federal income tax law, and any other annual income tax returns
required to be filed by the Administrative Trustees on behalf of the Trust with
any state or local taxing authority.
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SECTION 11.3 Banking.
The Trust may maintain one or more bank accounts in the name
and for the sole benefit of the Trust; provided, however, that all payments of
funds in respect of the Debentures held by the Property Trustee shall be made
directly to the Property Trustee Account and no other funds of the Trust shall
be deposited in the Property Trustee Account. The sole signatories for such
accounts shall be designated by the Administrative Trustees; provided, however,
that the Property Trustee shall designate the signatories for the Property
Trustee Account.
SECTION 11.4 Withholding.
The Trust and the Administrative Trustees shall comply with
all withholding requirements under United States federal, state and local law.
The Trust shall request, and the Holders shall provide to the Trust, such forms
or certificates as are necessary to establish an exemption from withholding
with respect to each Holder, and any representations and forms as shall
reasonably be requested by the Trust to assist it in determining the extent of,
and in fulfilling, its withholding obligations. The Administrative Trustees
shall file required forms with applicable jurisdictions and, unless an
exemption from withholding is properly established by a Holder, shall remit
amounts withheld with respect to the Holder to applicable jurisdictions. To
the extent that the Trust is required to withhold and pay over any amounts to
any authority with respect to Distributions or allocations to any Holder, the
amount withheld shall be deemed to be a Distribution in the amount of the
withholding to the Holder. In the event of any claimed over withholding,
Holders shall be limited to an action against the applicable jurisdiction. If
the amount required to be withheld was not withheld from actual Distributions
made, the Trust may reduce subsequent Distributions by the amount of such
withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Declaration
(including Section 7 of the Annex I hereto) or by any applicable terms of the
Securities, this Declaration may only be amended by a written instrument
approved and executed by:
(i) the Administrative Trustees (or if there are more
than two Administrative Trustees a majority of the Administrative
Trustees);
(ii) if the amendment affects the rights, powers,
duties, obligations or immunities of the Property Trustee, the
Property Trustee; and
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(iii) if the amendment affects the rights, powers,
duties, obligations or immunities of the Delaware Trustee, the
Delaware Trustee.
(b) No amendment shall be made, and any such purported
amendment shall be void and ineffective:
(i) unless the Property Trustee shall have first
received:
(A) an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the
terms of the Securities); and
(B) an Opinion of Counsel (who may be counsel
to the Sponsor or the Trust) that such amendment is permitted
by, and conforms to, the terms of this Declaration (including
the terms of the Securities) and that all conditions
precedent, if any, in this Declaration to the execution and
delivery of such amendment have been satisfied,
provided, however, that the Property Trustee shall not be required to sign any
such amendment which affects the rights, powers, duties, obligations or
immunities of the Property Trustee; and
(ii) to the extent the result of such amendment would be
to:
(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income
taxation as a grantor trust;
(B) reduce or otherwise adversely affect the
powers of the Property Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an
Investment Company required to be registered under the
Investment Company Act;
(c) At such time after the Trust has issued any
Securities that remain outstanding, any amendment that would adversely affect
the rights, privileges or preferences of any Holder may be effected only with
such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be
amended without the consent of all of the Holders;
(e) Article Four shall not be amended without the
consent of the Holders of a Majority in liquidation amount of the Common
Securities and;
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(f) The rights of the Holders of the Common Securities
under Article Five to increase or decrease the number of, and appoint and
remove Trustees shall not be amended without the consent of the Holders of a
Majority in liquidation amount of the Common Securities; and
(g) Notwithstanding Section 12.1(c), this Declaration
may be amended without the consent of the Holders to:
(i) cure any ambiguity, correct or supplement any
provision in this Declaration that may be inconsistent with any other
provision of this Declaration or to make any other provisions with
respect to matters or questions arising under this Declaration which
shall not be inconsistent with the other provisions of the
Declaration; and
(ii) to modify, eliminate or add to any provisions of
the Declaration to such extent as shall be necessary to ensure that
the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Securities are
outstanding or to ensure that the Trust will not be required to
register as an Investment Company under the Investment Company Act;
and
(iii) to modify, eliminate or add any provisions of the
Declaration to such extent as shall be necessary to enable the Trust
and the Sponsor to conduct an Exchange Offer in the manner
contemplated by the Registration Rights Agreement;
provided, however, that in each case such action shall not adversely affect in
any material respect the interests of the Holders, and any amendments of this
Declaration shall become effective when notice thereof is given to the Holders.
SECTION 12.2 Meetings of the Holders; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities
may be called at any time by the Administrative Trustees (or as provided in the
terms of the Securities) to consider and act on any matter on which Holders of
such class of Securities are entitled to act under the terms of this
Declaration, the terms of the Securities or the rules of any stock exchange on
which the Capital Securities are listed or admitted for trading. The
Administrative Trustees shall call a meeting of the Holders of such class if
directed to do so by the Holders of at least 10% in liquidation amount of such
class of Securities. Such direction shall be given by delivering to the
Administrative Trustees one or more notices in writing stating that the signing
Holders wish to call a meeting and indicating the general or specific purpose
for which the meeting is to be called. Any Holders calling a meeting shall
specify in writing the Security Certificates held by the Holders exercising the
right to call a meeting and only those Securities specified shall be counted
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met.
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(b) Except to the extent otherwise provided in the
terms of the Securities, the following provisions shall apply to meetings of
Holders:
(i) notice of any such meeting shall be given to all
the Holders having a right to vote thereat at least seven days and not
more than 60 days before the date of such meeting. Whenever a vote,
consent or approval of the Holders is permitted or required under this
Declaration or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading, such vote, consent or
approval may be given at a meeting of the Holders. Any action that
may be taken at a meeting of the Holders may be taken without a
meeting if a consent in writing setting forth the action so taken is
signed by the Holders owning not less than the minimum amount of
Securities in liquidation amount that would be necessary to authorize
or take such action at a meeting at which all Holders having a right
to vote thereon were present and voting. Prompt notice of the taking
of action without a meeting shall be given to the Holders entitled to
vote who have not consented in writing. The Administrative Trustees
may specify that any written ballot submitted to the Security Holder
for the purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the Administrative
Trustees;
(ii) each Holder may authorize any Person to act for it
by proxy on all matters in which a Holder is entitled to participate,
including waiving notice of any meeting, or voting or participating at
a meeting. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Holder executing it.
Except as otherwise provided herein, all matters relating to the
giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware
corporation and the Holders were stockholders of a Delaware
corporation;
(iii) each meeting of the Holders shall be conducted by
the Administrative Trustees or by such other Person that the
Administrative Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration,
the terms of the Securities, the Trust Indenture Act or the listing
rules of any stock exchange on which the Capital Securities are then
listed or trading, otherwise provides, the Administrative Trustees, in
their sole discretion, shall establish all other provisions relating
to meetings of Holders, including notice of the time, place or purpose
of any meeting at which any matter is to be voted on by any Holders,
waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person
or by proxy or any other matter with respect to the exercise of any
such right to vote.
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ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Property Trustee represents and warrants to the Trust and
the Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) The Property Trustee is a New York banking
corporation, a national banking association or a bank or trust company
organized under the laws of any State of the United States or the District of
Columbia, in any case with trust powers and authority to execute and deliver,
and to carry out and perform its obligations under the terms of, this
Declaration;
(b) The execution, delivery and performance by the
Property Trustee of this Declaration has been duly authorized by all necessary
corporate action on the part of the Property Trustee. This Declaration has
been duly executed and delivered by the Property Trustee and constitutes a
legal, valid and binding obligation of the Property Trustee, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such remedies
is considered in a proceeding in equity or at law);
(c) The execution, delivery and performance of this
Declaration by the Property Trustee does not conflict with or constitute a
breach of the charter or by-laws of the Property Trustee; and
(d) No consent, approval or authorization of, or
registration with or notice to, any New York State or federal banking authority
is required for the execution, delivery or performance by the Property Trustee
of this Declaration.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Delaware Trustee represents and warrants to the Trust and
the Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
(a) The Delaware Trustee is duly organized, validly
existing and in good standing under the laws of the State of Delaware or the
United States, with trust power and
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authority to execute and deliver, and to carry out and perform its obligations
under the terms of, this Declaration;
(b) The execution, delivery and performance by the
Delaware Trustee of this Declaration has been duly authorized by all necessary
corporate action on the part of the Delaware Trustee. This Declaration has
been duly executed and delivered by the Delaware Trustee and constitutes a
legal, valid and binding obligation of the Delaware Trustee, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such remedies
is considered in a proceeding in equity or at law);
(c) No consent, approval or authorization of, or
registration with or notice to, any federal banking authority is required for
the execution, delivery or performance by the Delaware Trustee of this
Declaration; and
(d) The Delaware Trustee is a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware.
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights Agreement.
The Holders of the Capital Securities, the Debentures and the
Capital Securities Guarantee are entitled to the benefits of a Registration
Rights Agreement. In certain limited circumstances set forth in the
Registration Rights Agreement, the Debenture Issuer shall be required to pay
Liquidated Damages with respect to the Debentures. Unless otherwise stated,
the term "Distribution", as used in this Declaration, includes such Liquidated
Damages.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.
All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, overnight courier service or
confirmed telecopy, as follows:
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(a) if given to the Trust, in care of the
Administrative Trustees at the Trust's mailing address set forth below (or such
other address as the Trust may give notice of to the Property Trustee, the
Delaware Trustee and the Holders):
First Keystone Capital Trust I
c/o First Keystone Financial, Inc.
22 West State Street
Media, Pennsylvania 19063
Attention: Thomas M. Kelly
Administrative Trustee
Telecopy: (610) 892-5108
(b) if given to the Delaware Trustee, at the mailing
address set forth below (or such other address as Delaware Trustee may give
notice of to the Holders):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Department
Telecopy: (212) 815-5917
(c) if given to the Property Trustee, at the Property
Trustee's mailing address set forth below (or such other address as the
Property Trustee may give notice of to the Holders):
The Bank of New York
101 Barclay Street
21st Floor West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Telecopy: (212) 815-5917
(d) if given to the Holder of the Common Securities, at
the mailing address of the Sponsor set forth below (or such other address as
the Holder of the Common Securities may give notice to the Property Trustee and
the Trust):
First Keystone Financial, Inc.
22 West State Street
Media, Pennsylvania 19063
Attention: Thomas M. Kelly
Executive Vice President and
Chief Financial Officer
Telecopy: (610) 892-5108
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(e) if given to any other Holder, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 15.2 Governing Law.
This Declaration and the rights of the parties hereunder shall
be governed by and interpreted in accordance with the laws of the State of
Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
SECTION 15.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust.
The provisions of this Declaration shall be interpreted to further this
intention of the parties.
SECTION 15.4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 15.5 Successors and Assigns
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Declaration by the
Sponsor and the Trustees shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed.
SECTION 15.6 Partial Enforceability.
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Declaration, or the application of such provision to persons
or circumstances other than those to which it is held invalid, shall not be
affected thereby.
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SECTION 15.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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IN WITNESS WHEREOF, the undersigned has caused these presents
to be executed as of the day and year first above written.
------------------------------------------------------
Donald S. Guthrie, as Administrative Trustee
------------------------------------------------------
Thomas M. Kelly, as Administrative Trustee
------------------------------------------------------
Donald A. Purdy, as Administrative Trustee
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By:
---------------------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Property Trustee
By:
---------------------------------------------------
Name:
Title:
FIRST KEYSTONE FINANCIAL, INC.
as Sponsor and Debenture Issuer
By:
---------------------------------------------------
Name: Thomas M. Kelly
Title: Executive Vice President and Chief
Financial Officer
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ANNEX I
TERMS OF
SERIES A/SERIES B 9.70% CAPITAL SECURITIES
9.70% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of August 26, 1997 (as amended from time to
time, the "Declaration"), the designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Securities are set out below
(each capitalized term used but not defined herein has the meaning set forth in
the Declaration or, if not defined in such Declaration, as defined in the
Offering Memorandum referred to below in Section 2(c) of this Annex I):
1. Designation and Number.
(a) Capital Securities. 16,200 Series A Capital
Securities of the Trust and 16,200 Series B Capital Securities of the Trust,
both series together with an aggregate liquidation amount with respect to the
assets of the Trust of sixteen million two hundred thousand dollars
($16,200,000), and each with a liquidation amount with respect to the assets of
the Trust of $1,000 per security, are hereby designated for the purposes of
identification only as "Series A 9.70% Capital Securities" and "Series B 9.70%
Capital Securities", respectively (collectively, the "Capital Securities").
The certificates evidencing the Capital Securities shall be substantially in
the form of Exhibit A-1 to the Declaration, with such changes and additions
thereto or deletions therefrom as may be required by ordinary usage, custom or
practice or to conform to the rules of any exchange or quotation system on or
in which the Capital Securities are listed, traded or quoted.
(b) Common Securities. 502 Common Securities of the
Trust with an aggregate liquidation amount with respect to the assets of the
Trust of five hundred and two thousand dollars ($502,000) and a liquidation
amount with respect to the assets of the Trust of $1,000 per security, are
hereby designated for the purposes of identification only as "9.70% Common
Securities" (collectively, the "Common Securities"). The certificates
evidencing the Common Securities shall be substantially in the form of Exhibit
A-2 to the Declaration, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed
at a rate per annum of 9.70% (the "Coupon Rate") of the liquidation amount of
$1,000 per Security (the "Liquidation Amount"), such rate being the rate of
interest payable on the Debentures to be held by the Property Trustee.
Distributions in arrears for more than one semi-annual
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period will bear additional distributions thereon compounded semi-annually at
the Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes distributions of any such Liquidated
Damages payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds on hand legally
available therefor.
(b) Distributions on the Securities will be cumulative,
will accumulate from the most recent date to which Distributions have been paid
or duly provided for or, if no Distributions have been paid or duly provided
for, from August 26, 1997, and will be payable semi-annually in arrears on
February 15 and August 15 of each year, commencing on February 15, 1998 (each,
a "Distribution Date"), except as otherwise described below. Distributions
will be computed on the basis of a 360-day year consisting of twelve 30-day
months and for any period less than a full calendar month on the basis of the
actual number of days elapsed in such month. As long as no Event of Default
has occurred and is continuing under the Indenture, the Debenture Issuer has
the right under the Indenture to defer payments of interest by extending the
interest payment period at any time and from time to time on the Debentures for
a period not exceeding 10 consecutive semi-annual periods, including the first
such semi-annual period during such period (each an "Extension Period"), during
which Extension Period no interest shall be due and payable on the Debentures,
provided that no Extension Period shall end on a date other than an Interest
Payment Date for the Debentures or extend beyond the Maturity Date of the
Debentures. As a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, Distributions will continue to accumulate
with additional Distributions thereon (to the extent permitted by applicable
law but not at a rate greater than the rate at which interest is then accruing
on the Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period. Prior to the termination of any such Extension Period, the
Debenture Issuer may further defer payments of interest by further extending
such Extension Period; provided that such Extension Period, together with all
such previous and further extensions within such Extension Period, may not
exceed 10 consecutive semi-annual periods, including the first semi-annual
period during such Extension Period, or extend beyond the Maturity Date of the
Debentures. Upon the termination of any Extension Period and the payment of
all amounts then due, the Debenture Issuer may commence a new Extension Period,
subject to the above requirements.
(c) Distributions on the Securities will be payable to
the Holders thereof as they appear on the books and records of the Trust on the
close of business on the first day of the month in which the relevant
Distribution Date occurs, which Distribution Dates correspond to the interest
payment dates on the Debentures. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment in respect
of the Global Capital Securities will be made as described under the heading
"Description of Capital Securities -- Form, Denomination, Book-Entry Procedures
and Transfer" in the Offering
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Memorandum dated August 26, 1997, of the Debenture Issuer and the Trust
relating to the Securities and the Debentures. Payments in respect of Capital
Securities held in certificated form will be made by check mailed to the Holder
entitled thereto. The relevant record dates for the Common Securities shall be
the same as the record dates for the Capital Securities. Distributions payable
on any Securities that are not punctually paid on any Distribution Date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Holder on the relevant record date,
and such defaulted Distribution will instead be payable to the Person in whose
name such Securities are registered on the special record date or other
specified date determined in accordance with the Indenture. If any date on
which Distributions are payable on the Securities is not a Business Day, then
payment of the Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that if such next succeeding
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day with the same force and effect
as if made on such date.
(d) In the event that there is any money or other
property held by or for the Trust that is not accounted for hereunder, such
property shall be distributed Pro Rata (as defined herein) among the Holders.
3. Liquidation Distribution Upon Dissolution.
In the event of any dissolution of the Trust or the Sponsor
otherwise gives notice of its election to dissolve the Trust pursuant to
Section 8.1(a)(iii) of the Declaration, the Trust shall be dissolved by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, to the Holders a Like
Amount (as defined below) of the Debentures, unless such distribution is
determined by the Property Trustee not to be practicable, in which event such
Holders will be entitled to receive Pro Rata out of the assets of the Trust
legally available for distribution to Holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, an amount
equal to the aggregate of the liquidation amount of $1,000 per Security plus
accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal
amount of Debentures to be paid in accordance with their terms and (ii) with
respect to a distribution of Debentures upon the liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Securities of the Holder to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets on hand
legally available to pay in full the
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aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Securities shall be paid on a Pro Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in
part, at maturity or upon early redemption (either at the option of the
Debenture Issuer or pursuant to a Special Event, as described below), the
proceeds from such repayment shall be simultaneously applied by the Property
Trustee (subject to the Property Trustee having received written notice no
later than 45 days prior to such repayment) to redeem a Like Amount of the
Securities at a redemption price equal to (i) in the case of the repayment of
the Debentures at maturity, the Maturity Redemption Price (as defined below),
(ii) in the case of the optional redemption of the Debentures upon the
occurrence and continuation of a Special Event, the Special Event Redemption
Price (as defined below) and (iii) in the case of the optional redemption of
the Debentures on or after August 15, 2007, the Optional Redemption Price (as
defined below). The Maturity Redemption Price, the Special Event Redemption
Price and the Optional Redemption Price are referred to collectively as the
"Redemption Price". Holders will be given not less than 30 nor more than 60
days notice of such redemption.
(b) (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued and unpaid interest on the Debentures as of the maturity date thereof.
(ii) In the case of an optional redemption, if fewer than all
the outstanding Securities are to be so redeemed, the Securities to be redeemed
will be determined as described in Section 4(f)(ii) below. Upon the entry of
an order for the dissolution of the Trust by a court of competent jurisdiction,
the Debentures thereafter will be subject to optional repayment, in whole, but
not in part, on or after August 15, 2007 (the "Initial Optional Redemption
Date").
The Debenture Issuer shall have the right (subject to the
conditions in the Indenture) to elect to redeem the Debentures in whole or in
part at any time on or after the Initial Optional Redemption Date, upon not
less than 30 days and not more than 60 days notice, at the Optional Redemption
Price and, simultaneous with such redemption, to cause a Like Amount of the
Securities to be redeemed by the Trust at the Optional Redemption Price on a
Pro Rata basis. "Optional Redemption Price" shall mean a price equal to the
percentage of the liquidation amount of Securities to be redeemed plus
accumulated and unpaid Distributions thereon, if any, to the date of such
redemption if redeemed during the 12-month period beginning August 15 of the
years indicated below:
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<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2007 104.850%
2008 104.365%
2009 103.880%
2010 103.395%
2011 102.910%
2012 102.425%
2013 101.940%
2014 101.455%
2015 100.970%
2016 100.485%
2017 and thereafter 100.000%
</TABLE>
(c) If at any time a Tax Event or a Regulatory Capital
Event (each as defined below, and each a "Special Event") occurs, the Debenture
Issuer shall have the right (subject to the conditions set forth in the
Indenture) at any time prior to the Initial Optional Redemption Date, upon not
less than 30 nor more than 60 days notice, to redeem the Debentures in whole,
but not in part, within the 90 days following the occurrence of such Special
Event (the "90 Day Period"), and, simultaneous with such redemption, to cause a
Like Amount of the Securities to be redeemed by the Trust at the Special Event
Redemption Price on a Pro Rata basis.
"Make-Whole Amount" shall be equal to the greater of (i) 100%
of the principal of a Like Amount of Debentures to be redeemed or (ii) the sum,
as determined by a Quotation Agent (as defined in the Indenture), of the
present values of remaining scheduled payments of principal amount and interest
on the Debentures, discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined in the Indenture), plus, in the case of each of
clauses (i) and (ii), accrued and unpaid Distributions thereon, if any, to the
date of such redemption.
"Tax Event" shall occur upon receipt by the Sponsor and the
Trust of an Opinion of Counsel from counsel experienced in such matters to the
effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws or any regulations thereunder of the
United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after August 26,
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1997, there is more than an insubstantial risk that (i) the Trust is, or will
be within 90 days of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the Debentures, (ii)
interest payable by the Debenture Issuer on the Debentures is not, or within 90
days of the date of such opinion, will not be, deductible by the Debenture
Issuer, in whole or in part, for United States federal income tax purposes, or
(iii) the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
A "Regulatory Capital Event" means that the Sponsor shall have
become, or pursuant to law or regulation will become within 180 days, subject
to capital requirements under which, in the written opinion of independent bank
regulatory counsel experienced in such matters, the Capital Securities would
not constitute Tier 1 Capital (as that concept is used in the guidelines or
regulations issued by the Federal Reserve Board as of the date of the Offering
Memorandum) applied as if the Sponsor (or its successor) were a bank holding
company, or the then-equivalent of such Tier 1 Capital.
"Special Event Redemption Price" shall mean, with respect to a
redemption of Securities, a price equal to the Make-Whole Amount.
(d) On and from the date fixed by the Administrative Trustees
for any distribution of Debentures and liquidation of the Trust: (i) the
Securities will no longer be deemed to be outstanding, (ii) the Clearing Agency
or its nominee (or any successor Clearing Agency or its nominee), as the Holder
of the Capital Securities, will receive a registered global certificate or
certificates representing the Debentures to be delivered upon such distribution
and any certificates representing Securities not held by the Clearing Agency or
its nominee (or any successor Clearing Agency or its nominee) will be deemed to
represent beneficial interests in a Like Amount of Debentures until such
certificates are presented to the Debenture Issuer or its agent for transfer or
reissue.
(e) The Trust may not redeem fewer than all the
outstanding Securities unless all accumulated and unpaid Distributions have
been paid on all Securities for all semi-annual Distribution periods
terminating on or before the date of redemption.
(f) The procedure with respect to redemptions or
distributions of Securities shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution
Notice") will be given by the Trust by mail to each Holder to be
redeemed or exchanged not fewer than 30 nor more than 60 days before
the date fixed for redemption or exchange thereof which, in the case
of a redemption, will be the date fixed for redemption of the
Debentures. For purposes of the calculation of the date of redemption
or exchange and the dates on which notices are given pursuant to this
Section 4(f)(i), a Redemption/ Distribution Notice shall be deemed to
be given on the day such notice is first mailed
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by first-class mail, postage prepaid, to Holders. Each
Redemption/Distribution Notice shall be addressed to the Holders at
the address of each such Holder appearing in the books and records of
the Trust. No defect in the Redemption/Distribution Notice or in the
mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any
other Holder.
(ii) In the event that fewer than all the outstanding
Securities are to be redeemed, the particular Securities to be
redeemed shall be selected on a Pro Rata basis (based upon Liquidation
Amounts) not more than 60 days prior to the date fixed for redemption
from the outstanding Capital Securities not previously called for
redemption, provided, however, that with respect to Holders that would
be required to hold less than 100 but more than zero Securities as a
result of such pro rata redemption, the Trust shall redeem Securities
of each such Holder so that after such redemption such Holder shall
hold either 100 Securities or such Holder no longer holds any
Securities and shall use such method (including, without limitation,
by lot) as the Trust shall deem fair and appropriate, provided,
further, that any such proration may be made on the basis of the
aggregate Liquidation Amount of Securities held by each Holder thereof
and may be made by making such adjustments as the Trust deems fair and
appropriate in order that only Securities in denominations of $1,000
or integral multiples thereof shall be redeemed. In respect of Capital
Securities registered in the name of and held of record by the
Clearing Agency or its nominee (or any successor Clearing Agency or
its nominee) or any nominee, the distribution of the proceeds of such
redemption will be made to the Clearing Agency and disbursed by such
Clearing Agency in accordance with the procedures applied by such
agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, (which notice will be irrevocable),
then (A) with respect to Capital Securities issued in book-entry form,
by 12:00 noon, New York City time, on the redemption date, provided
that the Debenture Issuer has paid the Property Trustee a sufficient
amount of cash in connection with the related redemption or maturity
of the Debentures by 10:00 a.m., New York City time, on the maturity
date or the date of redemption, as the case requires, the Property
Trustee will deposit irrevocably with the Clearing Agency or its
nominee (or successor Clearing Agency or its nominee) funds sufficient
to pay the applicable Redemption Price with respect to such Capital
Securities and will give the Clearing Agency irrevocable instructions
and authority to pay the Redemption Price to the relevant Clearing
Agency Participants, and (B) with respect to Capital Securities issued
in certificated form and Common Securities, provided that the
Debenture Issuer has paid the Property Trustee a sufficient amount of
cash in connection with the related redemption or maturity of the
Debentures, the Property Trustee will pay the relevant Redemption
Price to the Holders by check mailed to the address of the relevant
Holder appearing on the books and records of the Trust on the
redemption date. If a Redemp-
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tion/Distribution Notice shall have been given and funds deposited as
required, if applicable, then immediately prior to the close of
business on the date of such deposit, or on the redemption date, as
applicable, Distributions will cease to accumulate on the Securities
so called for redemption and all rights of Holders so called for
redemption will cease, except the right of the Holders of such
Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Securities shall cease to be
outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
Redemption Date of the Securities will be subject to the rights of
Holders on the close of business on a regular record date in respect
of a Distribution Date occurring on or prior to such Redemption Date.
Neither the Administrative Trustees nor the Trust
shall be required to register or cause to be registered the transfer
of (i) any Securities beginning on the opening of business 15 days
before the day of mailing of a notice of redemption and ending at the
close of business on the day of such mailing or (ii) any Securities
selected for redemption except the unredeemed portion of any Security
being redeemed. If any date fixed for redemption of Securities is not
a Business Day, then payment of the Redemption Price payable on such
date will be made on the next succeeding day that is a Business Day
(and without any interest or other payment in respect of any such
delay) except that, if such next succeeding Business Day falls in the
next calendar year, such payment shall be made on the immediately
preceding Business Day, with the same force and effect as if made on
such date fixed for redemption. If payment of the Redemption Price in
respect of any Securities is improperly withheld or refused and not
paid either by the Property Trustee or by the Sponsor as guarantor
pursuant to the relevant Securities Guarantee, Distributions on such
Securities will continue to accumulate from the original redemption
date to the actual date of payment, in which case the actual payment
date will be considered the date fixed for redemption for purposes of
calculating the Redemption Price.
(v) Redemption/Distribution Notices shall be sent by the
Property Trustee on behalf of the Trust to (A) in respect of the
Capital Securities, the Clearing Agency or its nominee (or any
successor Clearing Agency or its nominee) if the Global Certificates
have been issued or, if Definitive Capital Security Certificates have
been issued, to the Holder thereof, and (B) in respect of the Common
Securities to the Holder thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws and banking
laws), provided the acquiror is not the Holder of the Common
Securities or the obligor under the Indenture, the Sponsor or any of
its subsidiaries may at any time and from time to time purchase
outstanding Capital Securities by tender, in the open market or by
private agreement.
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<PAGE> 86
5. Voting Rights - Capital Securities.
(a) Except as provided under Sections 5(b), 6(b) and 7
and as otherwise required by law and the Declaration, the Holders of the
Capital Securities will have no voting rights.
(b) So long as any Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on such Debenture Trustee with respect
to the Debentures, (ii) waive any past default that is waivable under Section
5.07 of the Indenture, (iii) exercise any right to rescind or annul a
declaration of acceleration of the maturity of the principal of the Debentures
or (iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a majority in liquidation amount
of all outstanding Capital Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee
without the prior approval of each Holder of the Capital Securities. The
Trustees shall not revoke any action previously authorized or approved by a
vote of the Holders of the Capital Securities except by subsequent vote of such
Holders. Subject to Section 2.7 of the Declaration, the Property Trustee shall
notify each Holder of Capital Securities of any notice of default with respect
to the Debentures. In addition to obtaining the foregoing approvals of such
Holders of the Capital Securities, prior to taking any of the foregoing
actions, the Trustees shall obtain an opinion of counsel experienced in such
matters to the effect that the Trust will not be classified as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.
If an Event of Default under the Declaration has occurred and
is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of or premium, if any, or interest on the Debentures on
the due date (or in the case of redemption, on the redemption date), then a
Holder of Capital Securities may directly institute a proceeding for
enforcement of payment to such Holder of the principal of or premium, if any,
or interest on a Like Amount of Debentures (a "Direct Action") on or after the
respective due date specified in the Debentures. In connection with such
Direct Action, the rights of the Common Securities Holder will be subrogated to
the rights of such Holder of Capital Securities to the extent of any payment
made by the Debenture Issuer to such Holder of Capital Securities in such
Direct Action. Except as provided in the second preceding sentence, the
Holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Debentures.
Any approval or direction of Holders of Capital Securities may
be given at a separate meeting of Holders of Capital Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice
of any meeting at which Holders of Capital
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<PAGE> 87
Securities are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of record
of Capital Securities. Each such notice will include a statement setting forth
(i) the date of such meeting or the date by which such action is to be taken,
(ii) a description of any resolution proposed for adoption at such meeting on
which such Holders are entitled to vote or of such matter upon which written
consent is sought and (iii) instructions for the delivery of proxies or
consents.
No vote or consent of the Holders of the Capital Securities
will be required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Capital Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Capital Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b), 6(c), and 7
as otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) Unless an Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by the holder of the Common
Securities. If an Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed at such time by the
holders of a Majority in liquidation amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace, or increase or decrease the number
of, the Administrative Trustees, which voting rights are vested exclusively in
the Sponsor as the holder of the Common Securities. No resignation or removal
of a Trustee and no appointment of a successor trustee shall be effective until
the acceptance of appointment by the successor trustee in accordance with the
provisions of the Declaration.
(c) So long as any Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on such Debenture Trustee with respect
to the Debentures, (ii) waive any past default that is waivable under Section
5.07 of the Indenture, (iii) exercise any right to rescind or annul a
declaration of acceleration of the maturity of the principal of the Debentures
or (iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in liquidation amount
of all outstanding Common Securities; provided, however, that where a consent
under the Indenture would require the consent of
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each holder of Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior approval of each Holder of the Common
Securities. The Trustees shall not revoke any action previously authorized or
approved by a vote of the Holders of the Common Securities except by subsequent
vote of such Holders. Subject to Section 2.7 of the Declaration, the Property
Trustee shall notify each Holder of Common Securities of any notice of default
with respect to the Debentures. In addition to obtaining the foregoing
approvals of such Holders of the Common Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of such action.
If an Event of Default under the Declaration has occurred and
is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of or premium, if any, or interest on the Debentures on
the due date (or in the case of redemption, on the redemption date), then a
Holder of Common Securities may institute a Direct Action for enforcement of
payment to such Holder of the principal of or premium, if any, or interest on a
Like Amount of Debentures on or after the respective due date specified in the
Debentures. In connection with Direct Action, the rights of the Common
Securities Holder will be subordinated to the rights of such Holder of Capital
Securities to the extent of any payment made by the Debenture Issuer to such
Holder of Common Securities in such Direct Action. Except as provided in the
second preceding sentence, the Holders of Common Securities will not be able to
exercise directly any other remedy available to the holders of the Debentures.
Any approval or direction of Holders of Common Securities may
be given at a separate meeting of Holders of Common Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice
of any meeting at which Holders of Common Securities are entitled to vote, or
of any matter upon which action by written consent of such Holders is to be
taken, to be mailed to each Holder of record of Common Securities. Each such
notice will include a statement setting forth (i) the date of such meeting or
the date by which such action is to be taken, (ii) a description of any
resolution proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities
will be required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
7. Amendments to Declaration and Indenture.
In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor,
the Property Trustee and the Administrative Trustees, without the consent of
the Holders (i) to cure any ambiguity,
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<PAGE> 89
correct or supplement any provisions in the Declaration that may be
inconsistent with any other provisions, or to make any other provisions with
respect to matters or questions arising under the Declaration which shall not
be inconsistent with the other provisions of the Declaration, (ii) to modify,
eliminate or add to any provisions of the Declaration to such extent as shall
be necessary to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust at all times that any Securities
are outstanding or to ensure that the Trust will not be required to register as
an "Investment Company" under the Investment Company Act or (iii) to modify,
eliminate or add any provisions of the Declaration to such extent as shall be
necessary to enable the Trust and the Sponsor to conduct an Exchange Offer in
the manner contemplated by the Registration Rights Agreement; provided,
however, that in each case such action shall not adversely affect in any
material respect the interests of any Holder. Any amendments of the
Declaration shall become effective when notice thereof is given to the Holders.
Under the circumstances referred to in Section 12.1(c) of the Declaration, the
Declaration also may be amended by the Trustees and the Sponsor with (i) the
consent of Holders representing a Majority in liquidation amount of all
outstanding Securities, and (ii) receipt by the Trustees of an Opinion of
Counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect the Trust's
status as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status as an Investment Company under the Investment
Company Act, provided that, without the consent of each Holder of Trust
Securities, the Declaration may not be amended to (i) change the amount or
timing of any Distribution on the Trust Securities or otherwise adversely
affect the amount of any Distribution required to be made in respect of the
Trust Securities as of a specified date or (ii) restrict the right of a holder
of Trust Securities to institute suit for the enforcement of any such payment
on or after such date.
8. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each
Holder according to the aggregate liquidation amount of the Securities held by
the relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the
Capital Securities pro rata according to the aggregate liquidation amount of
Capital Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Capital Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Capital Securities, to
each Holder of Common Securities pro rata according to the aggregate
liquidation amount of Common Securities held by the relevant Holder relative to
the aggregate liquidation amount of all Common Securities outstanding. In any
such proration, the Trust may make such adjustments as may be appropriate in
order that only securities in authorized denominations shall be redeemed
(subject to the minimum block requirements of Section 9.2(n) of the
Declaration).
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<PAGE> 90
9. Ranking.
The Capital Securities rank pari passu with the Common
Securities and payment thereon shall be made Pro Rata with the Common
Securities, except that, if an Event of Default under the Declaration occurs
and is continuing, no payments in respect of Distributions on, or payments upon
liquidation, redemption or otherwise with respect to, the Common Securities
shall be made until the Holders of the Capital Securities shall be paid in full
the Distributions, Redemption Price, Liquidation Distribution and other
payments to which they are entitled at such time.
10. Acceptance of Securities Guarantee and Indenture.
Each Holder of Capital Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Capital Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture.
11. No Preemptive Rights.
The Holders shall have no preemptive or similar rights to
subscribe for any additional securities.
12. Miscellaneous.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the
Capital Securities Guarantee, the Common Securities Guarantee (as may be
appropriate) and the Indenture (including any supplemental indenture) to a
Holder without charge upon written request to the Sponsor at its principal
place of business.
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<PAGE> 91
EXHIBIT A-1
FORM OF SERIES A CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY,
INSERT: THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING
OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS
NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO
TRANSFER OF THIS CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL
SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY
OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER
NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.]
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
[IF THIS CAPITAL SECURITY IS A RESTRICTED CAPITAL SECURITY,
INSERT:] THESE CAPITAL SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL
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<PAGE> 92
SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST
DATE ON WHICH FIRST KEYSTONE FINANCIAL, INC. (THE "COMPANY") OR ANY "AFFILIATE"
OF THE COMPANY WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF
THIS CAPITAL SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (D), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS CAPITAL SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.]
THE CAPITAL SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED
ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 (100
CAPITAL SECURITIES). ANY SUCH TRANSFER OF CAPITAL SECURITIES IN A BLOCK HAVING
A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO
LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE
HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO
THE RECEIPT OF DISTRIBUTIONS OF SUCH CAPITAL SECURITIES, AND SUCH TRANSFEREE
SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL SECURITIES.
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<PAGE> 93
THE HOLDER OF THIS CAPITAL SECURITY BY ITS THE ACCEPTANCE
HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN
EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA") OR (ii) THE ACQUISITION AND HOLDING OF THIS CAPITAL
SECURITY BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975
OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT FROM ANY SUCH
PROHIBITION.
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<PAGE> 94
Number of Series A Aggregate Liquidation
Capital Securities: Amount: $16,200,000
16,200 CUSIP NO. 320653 AA 6
Certificate Evidencing Series A Capital Securities
of
First Keystone Capital Trust I
Series A 9.70% Capital Securities
(liquidation amount $1,000 per Capital Security)
First Keystone Capital Trust I, a statutory business trust
created under the laws of the State of Delaware (the "Trust"), hereby certifies
that ______________ (the "Holder") is the registered owner of $16,200,000 in
aggregate liquidation amount of Capital Securities of the Trust representing
undivided beneficial interests in the assets of the Trust designated the Series
A 9.70% Capital Securities (liquidation amount $1,000 per Capital Security)
(the "Capital Securities"). Subject to the Declaration (as defined below), the
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Capital Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of August 26, 1997, as the same may be amended from time to
time (the "Declaration"), including the designation of the terms of the Capital
Securities as set forth in Annex I to the Declaration. Capitalized terms used
but not defined herein shall have the meaning given them in the Declaration.
The Sponsor will provide a copy of the Declaration, the Capital Securities
Guarantee, the Common Securities Guarantee (as may be appropriate), and the
Indenture (including any supplemental indenture) to a Holder without charge
upon written request to the Trust at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the Capital
Securities as evidence of indirect beneficial ownership in the Debentures.
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<PAGE> 95
IN WITNESS WHEREOF, the Trust has duly executed this
certificate.
Dated:
FIRST KEYSTONE CAPITAL TRUST I
By:
--------------------------------
Name: Thomas M. Kelly
Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
THE BANK OF NEW YORK,
as Property Trustee
Dated: By:
---------------------------
Authorized Signatory
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<PAGE> 96
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed
at a rate per annum of 9.70% (the "Coupon Rate") of the liquidation amount of
$1,000 per Capital Security, such rate being the rate of interest payable on
the Debentures to be held by the Property Trustee. Distributions in arrears
for more than one semi-annual period will bear interest thereon compounded
semi-annually at the Coupon Rate (to the extent permitted by applicable law).
Pursuant to the Registration Rights Agreement, in certain limited circumstances
the Debenture Issuer will be required to pay Liquidated Damages (as defined in
the Registration Rights Agreement) with respect to the Debentures. The term
"Distributions," as used herein, includes such cash distributions and any such
interest and such Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds on hand legally available therefor.
Distributions on the Capital Securities will be cumulative,
will accumulate from the most recent date to which Distributions have been paid
or duly provided for, if no Distributions have been paid or duly provided for,
from August 26, 1997 and will be payable semi-annually in arrears, on February
15 and August 15 of each year, commencing on February 15, 1998, except as
otherwise described below. Distributions will be computed on the basis of a
360-day year consisting of twelve 30-day months and, for any period less than a
full calendar month, the number of days elapsed in such month. As long as no
Event of Default has occurred and is continuing under the Indenture, the
Debenture Issuer has the right under the Indenture to defer payments of
interest by extending the interest payment period at any time and from time to
time on the Debentures for a period not exceeding 10 consecutive calendar
semi-annual periods, including the first such semi-annual period during such
extension period (each an "Extension Period"), provided that no Extension
Period shall end on a date other than an Interest Payment Date for the
Debentures or extend beyond the Maturity Date of the Debentures. As a
consequence of such deferral, Distributions also will be deferred. Despite
such deferral, semi-annual Distributions will continue to accumulate with
interest thereon (to the extent permitted by applicable law, but not at a rate
exceeding the rate of interest then accruing on the Debentures) at the Coupon
Rate compounded semi-annually during any such Extension Period. Prior to the
termination of any such Extension Period, the Debenture Issuer may further
defer payments of interest by further extending such Extension Period; provided
that such Extension Period, together with all such previous and further
extensions within such Extension Period, may not exceed 10 consecutive
semi-annual periods, including the first semi-annual period during such
Extension Period, end on a date other than an Interest Payment Date for the
Debentures or extend beyond the Maturity Date of the Debentures. Payments of
accumulated Distributions will be payable to Holders as they appear on the
books and records of the Trust on the first record date after the end of the
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuer may commence a new Extension
Period, subject to the above requirements.
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<PAGE> 97
Subject to the receipt of any required regulatory approval and
to certain other conditions set forth in the Declaration and the Indenture, the
Property Trustee may, at the direction of the Sponsor, at any time dissolve the
Trust and, after satisfaction of liabilities to creditors of the Trust, cause
the Debentures to be distributed to the holders of the Securities in
liquidation of the Trust or, simultaneous with any redemption of the
Debentures, cause a Like Amount of the Securities to be redeemed by the Trust.
The Capital Securities shall be redeemable as provided in the
Declaration.
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<PAGE> 98
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
___________________________________________________________ agent to transfer
this Capital Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.
Date:
-----------------------
Signature: __________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
Signature Guarantee*:
-----------------------------------
- ----------------------------------
* Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities and
Exchange Act of 1934, as amended.
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<PAGE> 99
[Include the following if the Capital Security bears a Restricted Capital
Securities Legend]
In connection with any transfer of any of the Capital Securities evidenced by
this certificate, the undersigned confirms that such Capital Securities are
being:
CHECK ONE BOX BELOW
(1) [ ] exchanged for the undersigned's own account without
transfer; or
(2) [ ] transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933, as amended; or
(3) [ ] transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3)
or (7) of Rule 501 under the Securities Act of 1933,
as amended, that is acquiring the Capital Securities
for its own account, or for the account of such an
institutional "accredited investor," for investment
purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of
the Securities Act of 1933, as amended; or
(4) [ ] transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933, as amended; or
(5) [ ] transferred pursuant to an effective Registration
Statement.
Unless one of the boxes is checked, the Registrar will refuse to register any
of the Capital Securities evidenced by this certificate in the name of any
Person other than the registered Holder thereof; provided, however, that if box
(3) or (4) is checked, the Registrar may require, prior to registering any such
transfer of the Capital Securities, such legal opinions, certifications and
other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended, such as the exemption provided by Rule 144 under such Act; provided,
further, that (i) if box (2) is checked, the transferee must also certify in
the form attached hereto that it is a "qualified institutional buyer" as
defined in Rule 144A or (ii) if box (3) is checked, the transferee must also
provide to the Registrar a Transferee Letter of Representation in the form
attached to the Offering Memorandum of the Trust dated August 21, 1997;
provided, further, that after the date that a Registration Statement has been
filed and so long as such Registration Statement continues to be effective, the
Registrar may only permit transfers for which box (5) has been checked.
------------------------------------
Signature
A1-9
<PAGE> 100
CERTIFICATE OF QUALIFIED INSTITUTIONAL BUYER
The undersigned transferee of Capital Securities hereby certifies that
(i) the undersigned is a "qualified institutional buyer" (a "QIB") as defined
in Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) the undersigned is aware that the transfer
of the Capital Securities to the undersigned is being made in reliance on Rule
144A and (iii) the undersigned is acquiring the Capital Securities for its own
account or for the account of another QIB over which the undersigned exercises
its sole investment discretion.
The undersigned also understands and acknowledges that the Capital
Securities have not been registered under the Securities Act or any other
applicable securities law, are being offered for resale in transactions not
requiring registration under the Securities Act and may not be offered, sold,
pledged or otherwise transferred except in compliance with the registration
requirements of the Securities Act or any other applicable securities laws,
pursuant to an exemption therefrom or in a transaction not subject thereto and,
in each case, in compliance with the terms of the Capital Securities and the
terms of the Amended and Restated Declaration of Trust of First Keystone
Capital Trust I, dated as of August 26, 1997, as the same may be amended from
time to time.
----------------------------------------------
Signature
A1-10
<PAGE> 101
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH FIRST
KEYSTONE FINANCIAL, INC. (THE "COMPANY") OR ANY "AFFILIATE" OF THE COMPANY WAS
THE OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL
SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS
COMMON SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THIS COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
TRUST AND THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (D), TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS COMMON SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEREE TO THE TRUST. SUCH HOLDER
A2-1
<PAGE> 102
FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON SECURITY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THIS COMMON SECURITY IS NOT TRANSFERABLE EXCEPT AS SET FORTH IN
SECTION 9.1(c) OF THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE FIRST
KEYSTONE CAPITAL TRUST I, DATED AS OF AUGUST 26, 1997, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME.
A2-2
<PAGE> 103
Certificate Evidencing Common Securities
of
First Keystone Capital Trust I
9.70% Common Securities
(liquidation amount $1,000 per Common Security)
First Keystone Capital Trust I, a statutory business trust
created under the laws of the State of Delaware (the "Trust"), hereby certifies
that _____________________ (the "Holder") is the registered owner of 502 common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the 9.70% Common Securities (liquidation amount
$1,000 per Common Security) (the "Common Securities"). Subject to the
limitations in Section 9.1(c) of the Declaration (as defined below), the Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities represented hereby are issued and shall in all respects be subject
to the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of August 26, 1997, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Common Securities
as set forth in Annex I to the Declaration. Capitalized terms used but not
defined herein shall have the meaning given them in the Declaration. The
Sponsor will provide a copy of the Declaration, the Common Securities
Guarantee, the Capital Securities Guarantee (as may be appropriate) and the
Indenture (including any supplemental indenture) to a Holder without charge
upon written request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Debentures.
A2-3
<PAGE> 104
IN WITNESS WHEREOF, the Trust has executed this certificate
this 26th day of August, 1997.
First Keystone Capital Trust I
By:
--------------------------------
Name: Thomas M. Kelly
Administrative Trustee
A2-4
<PAGE> 105
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of 9.70% (the "Coupon Rate") of the liquidation amount of
$1,000 per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for
more than one semi-annual period will bear interest thereon compounded
semi-annually at the Coupon Rate (to the extent permitted by applicable law).
Pursuant to the Registration Rights Agreement, in certain limited circumstances
the Debenture Issuer will be required to pay Liquidated Damages (as defined in
the Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any such
interest and such Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor.
Distributions on the Common Securities will be cumulative,
will accrue from the most recent date to which Distributions have been paid or
duly provided for or, if no Distributions have been paid or duly provided for,
from August 26, 1997 and will be payable semi-annually in arrears, on February
15 and August 15 of each year, commencing on February 15, 1998, except as
otherwise described below. Distributions will be computed on the basis of a
360-day year consisting of twelve 30-day months and, for any period less than a
full calendar month, the number of days elapsed in such month. As long as no
Event of Default has occurred and is continuing under the Indenture, the
Debenture Issuer has the right under the Indenture to defer payments of
interest by extending the interest payment period at any time and from time to
time on the Debentures for a period not exceeding 10 consecutive calendar
semi-annual periods, including the first such semi-annual period during such
extension period (each an "Extension Period"), provided that no Extension
Period shall end on a date other than an Interest Payment Date for the
Debentures or extend beyond the Maturity Date of the Debentures. As a
consequence of such deferral, Distributions also will be deferred. Despite
such deferral, Distributions will continue to accumulate with interest thereon
(to the extent permitted by applicable law, but not at a rate exceeding the
rate of interest then accruing on the Debentures) at the Coupon Rate compounded
semi-annually during any such Extension Period. Prior to the termination of
any such Extension Period, the Debenture Issuer may further defer payments of
interest by further extending such Extension Period; provided that such
Extension Period, together with all such previous and further extensions within
such Extension Period, may not exceed 10 consecutive semi-annual periods,
including the first semi-annual period during such Extension Period, or end on
a date other than an Interest Payment Date for the Debentures or extend beyond
the Maturity Date of the Debentures. Payments of accrued Distributions will be
payable to Holders as they appear on the books and records of the Trust on the
first record date after the end of the Extension Period. Upon the termination
of any Extension Period and the payment of all amounts then due, the Debenture
Issuer may commence a new Extension Period, subject to the above requirements.
A2-5
<PAGE> 106
Subject to the receipt of any required regulatory approval and
to certain other conditions set forth in the Declaration and the Indenture, the
Property Trustee may, at the direction of the Sponsor, at any time dissolve the
Trust and, after satisfaction of liabilities to creditors of the Trust, cause
the Debentures to be distributed to the holders to the Securities in
liquidation of the Trust or, simultaneous with any redemption of the
Debentures, cause a Like Amount of the Securities to be redeemed by the Trust.
Under certain circumstances, the right of the holders of the
Common Securities shall be subordinate to the rights of the holders of the
Capital Securities (as defined in the Declaration), as provided in the
Declaration.
The Common Securities shall be redeemable as provided in the
Declaration.
A2-6
<PAGE> 107
--------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
___________________________________________________________ agent to transfer
this Common Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.
Date:
-----------------------
Signature:
------------------
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
A2-7
<PAGE> 108
In connection with any transfer of any of the Common Securities evidenced by
this certificate, the undersigned confirms that such Common Securities are
being:
CHECK ONE BOX BELOW
(1) [ ] exchanged for the undersigned's own account without
transfer; or
(2) [ ] transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933, as amended; or
(3) [ ] transferred to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3)
or (7) of Rule 501 under the Securities Act of 1933,
as amended, that is acquiring the Common Securities
for its own account, or for the account of such an
institutional "accredited investor," for investment
purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of
the Securities Act of 1933; or
(4) [ ] transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933, as amended; or
(5) [ ] transferred pursuant to an effective Registration
Statement.
Unless one of the boxes is checked, the Registrar will refuse to register any
of the Common Securities evidenced by this certificate in the name of any
Person other than the registered Holder thereof; provided, however, that if box
(3) or (4) is checked, the Registrar may require, prior to registering any such
transfer of the Common Securities, such legal opinions, certifications and
other information as the Trust has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended, such as the exemption provided by Rule 144 under such Act; provided,
further, that (i) if box (2) is checked, the transferee must also certify in
the form attached that it is a "qualified institutional buyer" as defined in
Rule 144A or (ii) if box (3) is checked, the transferee must also provide to
the Registrar a Transferee Letter of Representation in the form attached to the
Offering Memorandum of the Trust, dated August 21, 1997 (as modified to reflect
the transfer of Common Securities).
------------------------------------
Signature
A2-8
<PAGE> 109
CERTIFICATE OF QUALIFIED INSTITUTIONAL BUYER
The undersigned transferee of Common Securities hereby certifies that
(i) the undersigned is a "qualified institutional buyer" (a "QIB") as defined
in Rule 144A ("Rule 144A") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) the undersigned is aware that the transfer
of the Common Securities to the undersigned is being made in reliance on Rule
144A and (iii) the undersigned is acquiring the Common Securities for its own
account or for the account of another QIB over which the undersigned exercises
its sole investment discretion.
The undersigned also understands and acknowledges that the Common
Securities have not been registered under the Securities Act or any other
applicable securities law, are being offered for resale in transactions not
requiring registration under the Securities Act and may not be offered, sold,
pledged or otherwise transferred except in compliance with the registration
requirements of the Securities Act or any other applicable securities laws,
pursuant to an exemption therefrom or in a transaction not subject thereto and,
in each case, in compliance with the terms of the Common Securities and the
terms of the Amended and Restated Declaration of Trust of First Keystone
Capital Trust I, dated as of August 26, 1997, as the same may be amended from
time to time.
---------------------------------------
Signature
A2-9
<PAGE> 110
EXHIBIT B
SPECIMEN OF DEBENTURE
B-1
<PAGE> 111
EXHIBIT C
PURCHASE AGREEMENT
C-1
<PAGE> 112
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
C-2
<PAGE> 1
EXHIBIT 4.2
================================================================================
FIRST KEYSTONE FINANCIAL, INC.
-------------------------------
-------------------------------
INDENTURE
DATED AS OF AUGUST 26, 1997
-------------------------------
THE BANK OF NEW YORK
AS TRUSTEE
-------------------------------
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
================================================================================
<PAGE> 2
TIE-SHEET
of provisions of Trust Indenture Act of 1939 with Indenture dated as
of August 26, 1997 between First Keystone Financial, Inc. and The Bank of New
York, Trustee:
<TABLE>
<CAPTION>
ACT SECTION INDENTURE SECTION
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
310(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
310(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
310(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
310(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10, 6.11
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13
311(a) and (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.01, 4.02(a)
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02
312(b) and (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
313(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
313(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
314(c)(1) and (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
314(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
315(a)(c) and (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.08
315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.09
316(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.07
316(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
316(a) last sentence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.02
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.05
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.08
</TABLE>
- -----------------
THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED.
<PAGE> 3
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Sums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Treasury Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capital Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Capital Securities Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Common Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Securities Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Comparable Treasury Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Comparable Treasury Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Compounded Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Deferred Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dissolution Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Extended Interest Payment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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* THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A
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Federal Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
First Keystone Capital Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indebtedness Ranking on a Parity with the Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indebtedness Ranking Junior to the Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Initial Optional Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Make Whole Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Non Book-Entry Capital Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Optional Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Other Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Other Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Principal Office of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Property Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Quotation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reference Treasury Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reference Treasury Dealer Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Regulatory Capital Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Restricted Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Securityholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
holder of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Series A Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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Series B Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Event Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Tax Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Treasury Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Trust Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.01. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.03. Form and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.04. Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.05. Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.06 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.07. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.08. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.09. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.10. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.11. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . 20
SECTION 3.01. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.02. Offices for Notices and Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.04. Provision as to Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.05. Certificate to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.06. Compliance with Consolidation Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.07. Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.08. Covenants as to First Keystone Capital Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.09. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.10. Payment Upon Resignation or Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.01. Securityholders' Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.02. Preservation and Disclosure of Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.03. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.04. Reports by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.02. Payment of Securities on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.03. Application of Moneys Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 5.04. Proceedings by Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.05. Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.06. Remedies Cumulative and Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by Majority of Securityholders . . . . . . . . . 34
SECTION 5.08. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.09. Undertaking to Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI
CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.01. Duties and Responsibilities of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.02. Reliance on Documents, Opinions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.03. No Responsibility for Recitals, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents, Transfer Agents or Registrar
May Own Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.05. Moneys to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.06. Compensation and Expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.07. Officers' Certificate as Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.08. Conflicting Interest of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.09. Eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.10. Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.11. Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.12. Succession by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.13. Limitation on Rights of Trustee as a Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.14. Authenticating Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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ARTICLE VII
CONCERNING THE SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . 46
SECTION 7.01. Action by Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.02. Proof of Execution by Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.03. Who Are Deemed Absolute Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.04. Securities Owned by Company Deemed Not Outstanding . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.05. Revocation of Consents; Future Holders Bound . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII
SECURITYHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.01. Purposes of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.02. Call of Meetings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.03. Call of Meetings by Company or Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.04. Qualifications for Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.05. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.06. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IX
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 9.01. Without Consent of Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 9.02. With Consent of Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures . . . . . . . . . . . . . 53
SECTION 9.04. Notation on Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be Furnished Trustee . . . . . . . . . . . . 54
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE . . . . . . . . . . . . . . 54
SECTION 10.01. Company May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . . . . . . . 54
SECTION 10.02. Successor Corporation to be Substituted for Company . . . . . . . . . . . . . . . . . . 55
SECTION 10.03. Opinion of Counsel to be Given Trustee . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . 55
SECTION 11.01. Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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SECTION 11.02. Deposited Moneys and U.S. Government Obligations to be
Held in Trust by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 11.03. Paying Agent to Repay Moneys Held . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.04. Return of Unclaimed Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government Obligations . . . . . . . . . . . 57
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . 59
SECTION 12.01. Indenture and Securities Solely Corporate Obligations . . . . . . . . . . . . . . . . . 59
ARTICLE XIII
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.01. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.02. Official Acts by Successor Corporation . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 13.03. Surrender of Company Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.04. Addresses for Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.05. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 13.06. Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . . 60
SECTION 13.07. Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 13.08. Trust Indenture Act to Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 13.09. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 13.10. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 13.11. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 13.12. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 13.13. Acknowledgement of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND
OPTIONAL SINKING FUND . . . . . . . . . . . . . . . . . . . . . 62
SECTION 14.01. Special Event Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 14.02. Optional Redemption by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 14.03. No Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 14.04. Notice of Redemption; Selection of Securities . . . . . . . . . . . . . . . . . . . . . 64
SECTION 14.05. Payment of Securities Called for Redemption . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
vi
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE XV
SUBORDINATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . 66
SECTION 15.01. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 15.02. Default on Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 15.03. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 15.04. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 15.05. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 15.06. Notice by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . 70
SECTION 15.08. Subordination May Not Be Impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD . . . . . . . . . . . . . . . . . . 72
SECTION 16.01. Extension of Interest Payment Period . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 16.02. Notice of Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
Testimonium
Signatures
Acknowledgements
vii
<PAGE> 10
THIS INDENTURE, dated as of August 26, 1997, between First
Keystone Financial, Inc., a Pennsylvania corporation (hereinafter sometimes
called the "Company"), and The Bank of New York, a New York banking
corporation, as trustee (hereinafter sometimes called the "Trustee"),
W I T N E S E T H :
In consideration of the premises, and the purchase of the
Securities by the holders thereof, the Company covenants and agrees with the
Trustee for the equal and proportionate benefit of the respective holders from
time to time of the Securities, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture shall have the respective meanings specified in this
Section 1.01. All other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or which
are by reference therein defined in the Securities Act, shall (except as herein
otherwise expressly provided or unless the context otherwise requires) have the
meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of this Indenture as originally
executed. The following terms have the meanings given to them in the
Declaration: (i) Clearing Agency; (ii) Delaware Trustee; (iii) Property
Trustee; (iv) Administrative Trustees; (v) Series A Capital Securities; (vi)
Series B Capital Securities; (vii) Direct Action; and (viii) Distributions.
All accounting terms used herein and not expressly defined shall have the
meanings assigned to such terms in accordance with generally accepted
accounting principles and the term "generally accepted accounting principles"
means such accounting principles as are generally accepted at the time of any
computation. The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision. Headings are used for convenience of
reference only and do not affect interpretation. The singular includes the
plural and vice versa.
"Additional Sums" shall have the meaning set forth in Section
2.06(c).
"Adjusted Treasury Rate" means, with respect to any redemption
date pursuant to Section 14.01, 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
<PAGE> 11
for such redemption date plus (i) 3.04% if such redemption date occurs on or
prior to August 15, 1998 and (ii) 2.49% in all other cases.
"Affiliate" shall have the meaning given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"Authenticating Agent" shall mean any agent or agents of the
Trustee which at the time shall be appointed and acting pursuant to Section
6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or any
similar federal or state law for the relief of debtors.
"Board of Directors" shall mean either the Board of Directors
of the Company or any duly authorized committee of that board.
"Board Resolution" shall mean a copy of a resolution certified
by the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" shall mean, with respect to any series of
Securities, any day other than a Saturday or a Sunday or a day on which banking
institutions in The City of New York or Media, Pennsylvania are authorized or
required by law or executive order to close.
"Capital Securities" shall mean undivided beneficial interests
in the assets of First Keystone Capital Trust which rank pari passu with the
Common Securities issued by First Keystone Capital Trust; provided, however,
that if an Event of Default has occurred and is continuing, no payments in
respect of Distributions on, or payments upon liquidation, redemption or
otherwise with respect to, the Common Securities shall be made until the
holders of the Capital Securities shall be paid in full the Distributions and
the liquidation, redemption and other payments to which they are entitled.
References to "Capital Securities" shall include collectively any Series A
Capital Securities and Series B Capital Securities.
"Capital Securities Guarantee" shall mean any guarantee that
the Company may enter into with The Bank of New York or other Persons that
operates directly or indirectly for the benefit of holders of Capital
Securities of First Keystone Capital Trust and shall include a Series A Capital
Securities Guarantee and a Series B Capital Securities Guarantee with respect
to the Series A Capital Securities and the Series B Capital Securities,
respectively.
"Commission" shall mean the Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act,
or if at any time after the
2
<PAGE> 12
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" shall mean undivided beneficial interests
in the assets of First Keystone Capital Trust which rank pari passu with
Capital Securities issued by First Keystone Capital Trust; provided, however,
that if an Event of Default has occurred and is continuing, no payments in
respect of Distributions on, or payments upon liquidation, redemption or
otherwise with respect to, the Common Securities shall be made until the
holders of the Capital Securities shall be paid in full the Distributions and
the liquidation, redemption and other payments to which they are entitled.
"Common Securities Guarantee" shall mean any guarantee that
the Company may enter into with any Person or Persons that operates directly or
indirectly for the benefit of holders of Common Securities of First Keystone
Capital Trust.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company or any other class of stock resulting from changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
"Company" shall mean First Keystone Financial, Inc., a
Pennsylvania corporation, and, subject to the provisions of Article X, shall
include its successors and assigns.
"Company Request" or "Company Order" shall mean a written
request or order signed in the name of the Company by the Chairman, the Chief
Executive Officer, the President, a Vice Chairman, a Vice President, the
Comptroller, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to the
remaining term to maturity of the Junior Subordinated Debentures (the
"Remaining Life") to be prepaid that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining.
If no United States Treasury security has a maturity which is within a period
from three months before to three months after the Remaining Life, the two most
closely corresponding United States Treasury securities as selected by the
Quotation Agent shall be used as the Comparable Treasury Issue, and the
Treasury Rate shall be interpolated or extrapolated on a straight-line basis,
rounding to the nearest month.
"Comparable Treasury Price" means, with respect to any
redemption date pursuant to Section 14.01, (i) the average of the bid and asked
prices for the Comparable
3
<PAGE> 13
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 Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Compounded Interest" shall have the meaning set forth in
Section 16.01.
"Custodian" shall mean any receiver, trustee, assignee,
liquidator, or similar official under any Bankruptcy Law.
"Declaration" means the Amended and Restated Declaration of
Trust of First Keystone Capital Trust, dated as of August 26, 1997, as amended
from time to time.
"Default" means any event, act or condition that with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulted Interest" shall have the same meaning set forth in
Section 2.11.
"Deferred Interest" shall have the meaning set forth in
Section 16.01.
"Definitive Securities" shall mean those securities issued in
fully registered certificated form not otherwise in global form.
"Depositary" shall mean, with respect to Securities, for which
the Company shall determine that such Securities will be issued as a Global
Security, The Depository Trust Company, New York, New York, another clearing
agency, or any successor registered as a clearing agency under the Exchange Act
or other applicable statute or regulation, which, in each case, shall be
designated by the Company pursuant to Section 2.05(d).
"Dissolution Event" means the liquidation of First Keystone
Capital Trust pursuant to the Declaration, and the distribution of the
Securities held by the Property Trustee to the holders of the Trust Securities
issued by First Keystone Capital Trust pro rata in accordance with the
Declaration.
"Event of Default" shall mean any event specified in Section
5.01, continued for the period of time, if any, and after the giving of the
notice, if any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
4
<PAGE> 14
"Exchange Offer" means the offer that may be made pursuant to
the Registration Rights Agreement (i) by the Company to exchange Series B
Securities for Series A Securities and to exchange a Series B Capital
Securities Guarantee for a Series A Capital Securities Guarantee and (ii) by
First Keystone Capital Trust to exchange Series B Capital Securities for Series
A Capital Securities.
"Extended Interest Payment Period" shall have the meaning set
forth in Section 16.01.
"Federal Reserve" shall mean the Board of Governors of the
Federal Reserve System.
"First Keystone Capital Trust" or the "Trust" shall mean First
Keystone Capital Trust I, a Delaware business trust created for the purpose of
issuing its undivided beneficial interests in connection with the issuance of
Securities under this Indenture.
"Global Security" means, with respect to the Securities, a
Security executed by the Company and delivered by the Trustee to the Depositary
or pursuant to the Depositary's instruction, all in accordance with the
Indenture, which shall be registered in the name of the Depositary or its
nominee.
"Indebtedness" shall mean (i) every obligation of the Company
for money borrowed; (ii) every obligation of the Company evidenced by bonds,
debentures, notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or businesses; (iii)
every reimbursement obligation of the Company with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
the Company; (iv) every obligation of the Company issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business); (v)
every capital lease obligation of the Company; (vi) all indebtedness of the
Company whether incurred on or prior to the date of the Indenture or thereafter
incurred, for claims in respect of derivative products, including interest
rate, foreign exchange rate and commodity forward contracts, options and swaps
and similar arrangements; and (vii) every obligation of the type referred to in
clauses(i) through (vi) of another Person and all dividends of another Person
the payment of which, in either case, the Company has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Indebtedness Ranking on a Parity with the Securities" shall
mean (i) Indebtedness, whether outstanding on the date of execution of this
Indenture or hereafter created, assumed or incurred, to the extent such
indebtedness specifically by its terms ranks equally with and not prior to the
Securities in the right of payment upon the happening of any dissolution or
winding up or liquidation or reorganization of the Company, and (ii) all other
debt securities, and guarantees in respect of those debt securities, issued to
any trust other than First Keystone Capital Trust, or a trustee of such trust,
partnership or other
5
<PAGE> 15
entity affiliated with the Company that is a financing vehicle of the Company
(a "financing entity") in connection with the issuance by such financing entity
of equity securities or other securities guaranteed by the Company pursuant to
an instrument that ranks pari passu with or junior in right of payment to the
Capital Securities Guarantee. The securing of any Indebtedness, otherwise
constituting Indebtedness Ranking on a Parity with the Securities, shall not be
deemed to prevent such Indebtedness from constituting Indebtedness Ranking on a
Parity with the Securities.
"Indebtedness Ranking Junior to the Securities" shall mean any
Indebtedness, whether outstanding on the date of execution of this Indenture or
hereafter created, assumed or incurred, to the extent such indebtedness
specifically by its terms ranks junior to and not equally with or prior to the
Securities (and any other Indebtedness Ranking on a Parity with the Securities)
in right of payment upon the happening of any dissolution or winding up or
liquidation or reorganization of the Company. The securing of any
Indebtedness, otherwise constituting Indebtedness Ranking Junior to the
Securities, shall not be deemed to prevent such Indebtedness from constituting
Indebtedness Ranking Junior to the Securities.
"Indenture" shall mean this instrument as originally executed
or, if amended as herein provided, as so amended.
"Initial Optional Redemption Date" means August 15, 2007.
"Interest Payment Date" shall have the meaning set forth in
Section 2.06(a).
"Liquidated Damages" shall have the meaning set forth in the
Registration Rights Agreement.
"Make Whole Amount" shall mean an amount equal to the greater
of (i) 100% of the principal amount of the Securities to be redeemed or (ii)
the sum, as determined by a Quotation Agent, of the present values of remaining
scheduled payments of principal and interest on the Securities, discounted to
the prepayment date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus, in the case of
each of clauses (i) and (ii), accrued and unpaid interest thereon, including
Compounded Interest and Additional Sums, if any, to the date of such
redemption.
"Maturity Date" shall mean August 15, 2027.
"Mortgage" shall mean and include any mortgage, pledge, lien,
security interest, conditional sale or other title retention agreement or other
similar encumbrance.
"Non Book-Entry Capital Securities" shall have the meaning set
forth in Section 2.05(a)(ii).
6
<PAGE> 16
"Officers" shall mean any of the Chairman, a Vice Chairman,
the Chief Executive Officer, the President, a Vice President, the Comptroller,
the Secretary or an Assistant Secretary of the Company.
"Officers' Certificate" shall mean a certificate signed by two
Officers and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel,
who may be an employee of the Company, and who shall be acceptable to the
Trustee.
"Optional Redemption Price" shall have the meaning set forth
in Section 14.02(a).
"Other Debentures" means all junior subordinated debentures
issued by the Company from time to time and sold to trusts to be established by
the Company (if any), in each case similar to the Trust.
"Other Guarantees" means all guarantees to be issued by the
Company with respect to capital securities (if any) and issued to other trusts
to be established by the Company (if any), in each case similar to the Trust.
The term "outstanding" when used with reference to Securities,
shall, subject to the provisions of Section 7.04, mean, as of any particular
time, all Securities authenticated and delivered by the Trustee or the
Authenticating Agent under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or
the Authenticating Agent or delivered to the Trustee
for cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount
shall have been deposited in trust with the Trustee
or with any paying agent (other than the Company) or
shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own
paying agent); provided that, if such Securities, or
portions thereof, are to be redeemed prior to
maturity thereof, notice of such redemption shall
have been given as in Article XIV provided or
provision satisfactory to the Trustee shall have been
made for giving such notice; and
(c) Securities in lieu of or in substitution for which
other Securities shall have been authenticated and
delivered pursuant to the terms of Section 2.08
unless proof satisfactory to the Company and the
Trustee is presented that any such Securities are
held by bona fide holders in due course.
7
<PAGE> 17
"Person" shall mean any individual, corporation, estate,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt and as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 2.08 in lieu
of a lost, destroyed or stolen Security shall be deemed to evidence the same
debt as the lost, destroyed or stolen Security.
"Principal Office of the Trustee", or other similar term,
shall mean the office of the Trustee, at which at any particular time its
corporate trust business shall be administered.
"Purchase Agreement" shall mean the Purchase Agreement dated
August 21, 1997 among the Company, First Keystone Capital Trust and the Initial
Purchaser named therein.
"Property Trustee" shall have the same meaning as set forth in
the Declaration.
"Quotation Agent" means the Reference Treasury Dealer appointed
by the Company.
"Redemption Price" means the Special Event Redemption Price or
the Optional Redemption Price, as the context requires.
"Reference Treasury Dealer" means a nationally recognized U.S.
Government securities dealer in New York City selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer and any redemption date pursuant to Section
14.01, the average, as determined by the Trustee, 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 Trustee by such Reference
Treasury Dealer at 5:00 p.m. New York City time on the third Business Day
preceding such redemption date.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of August 26, 1997, by and among the Company, the Trust and
the Initial Purchaser named therein, as such agreement may be amended, modified
or supplemented from time to time.
A "Regulatory Capital Event" means that the Company shall have
received an opinion of independent bank regulatory counsel experienced in such
matters to the effect that, as a result of (a) any amendment to, or change
(including any announced prospective
8
<PAGE> 18
change) in, the laws (or any regulations thereunder) of the United States or
any rules, guidelines or policies of the Federal Reserve or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after August 26, 1997, the Capital
Securities do not constitute, or within 90 days of the date thereof, will not
constitute, Tier I Capital (or its then equivalent); provided, however, that
the distribution of the Junior Subordinated Debentures in connection with a
termination of the Trust by the Company shall not in and of itself constitute a
Regulatory Capital Event.
"Responsible Officer" shall mean any officer of the Trustee
with direct responsibility for the administration of the Indenture and also
means, with respect to a particular corporate trust matter, any other officer
to whom such matter is referred because of his knowledge of and familiarity
with the particular subject.
"Restricted Security" shall mean Securities that bear or are
required to bear the legends relating to transfer restrictions under the
Securities Act set forth in Exhibit A hereto.
"Rule 144A" means Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or under any similar rule or regulation
hereafter adopted by the Commission.
"Securities" means, collectively, the Series A Securities and
the Series B Securities.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Securityholder", "holder of Securities", or other similar
terms, shall mean any Person in whose name at the time a particular Security is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof.
"Security Register" shall mean (i) prior to a Dissolution
Event, the list of holders provided to the Trustee pursuant to Section 4.01 and
(ii) following a Dissolution Event, any security register maintained by a
security registrar for the Securities appointed by the Company following the
execution of a supplemental indenture providing for transfer procedures as
provided for in Section 2.07(a).
"Senior Indebtedness" shall mean all Indebtedness, whether
outstanding on the date of execution of this Indenture or hereafter created,
assumed or incurred, except Indebtedness Ranking on a Parity with the
Securities or Indebtedness Ranking Junior to the Securities, and any deferrals,
renewals or extensions of such Senior Indebtedness.
9
<PAGE> 19
"Series A Securities" means the Company's Series A 9.70%
Junior Subordinated Deferrable Interest Debentures due August 15, 2027, as
authenticated and issued under this Indenture.
"Series B Securities" means the Company's Series B 9.70%
Junior Subordinated Deferrable Interest Debentures due August 15, 2027, as
authenticated and issued under this Indenture.
"Special Event" means either a Regulatory Capital Event or a
Tax Event.
"Special Event Redemption Price" shall mean, with respect to
any redemption of the Securities following a Special Event, an amount in cash
equal to the Make Whole Amount.
"Subsidiary" shall mean with respect to any Person, (i) any
corporation at least a majority of the outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any
general partnership, joint venture or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned
by such Person, or by one or more of its Subsidiaries, or by such Person and
one or more of its Subsidiaries and (iii) any limited partnership of which such
Person or any of its Subsidiaries is a general partner. For the purposes of
this definition, "voting stock" means shares, interests, 1participations or
other equivalents in the equity interest (however designated) in such Person
having ordinary voting power for the election of a majority of the directors
(or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.
"Tax Event" shall mean the receipt by First Keystone Capital
Trust and the Company of an opinion of counsel experienced in such matters to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws or any regulations thereunder of the
United States or any political subdivision or taxing authority thereof or
therein or as a result of any official administrative pronouncement or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or which pronouncement or decision is announced on or after
August 26, 1997, there is more than an insubstantial risk that (i) First
Keystone Capital Trust is, or will be within 90 days of the date of such
opinion, subject to United States Federal income tax with respect to income
received or accrued on the Securities, (ii) interest payable by the Company on
the Securities is not, or within 90 days of the date of such opinion, will not
be, deductible by the Company, in whole or in part, for United States Federal
income tax purposes or (iii) First Keystone Capital Trust is, or will be within
90 days of the date of such opinion, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
10
<PAGE> 20
"Treasury Rate" means (i) the yield, under the heading which
represents the average for the immediately prior week, appearing in the most
recently published statistical release designated "H.15(519)" or successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities"
for the maturity corresponding to the Remaining Life (if no maturity is within
three months before or after the Remaining Life, yields for the two published
maturities most closely corresponding to the Remaining Life shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight-line basis, rounding to the nearest month), or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated equal to the Comparable Treasury Price for such prepayment date.
The Treasury Rate shall be calculated on a third Business Day preceding the
prepayment date.
"Trustee" shall mean the Person identified as "Trustee" in the
first paragraph hereof, and, subject to the provisions of Article VI hereof,
shall also include its successors and assigns as Trustee hereunder. The term
"Trustee" as used with respect to a particular series of the Securities shall
mean the trustee with respect to that series.
"Trust Indenture Act of 1939" shall mean the Trust Indenture
Act of 1939 as in force at the date of execution of this Indenture; provided,
however, that, in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act of 1939" shall mean, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Securities" shall mean the Capital Securities and the
Common Securities, collectively.
"U.S. Government Obligations" shall mean securities that are
(i) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (ii) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United
States of America the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case under clauses (i) or (ii) are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a
bank or trust company as custodian with respect to any such U.S. Government
Obligation or a specific payment of interest on or principal of any such U.S.
Government Obligation held by such custodian for the account of the holder of a
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of interest on or
principal of the U.S. Government Obligation evidenced by such depository
receipt.
11
<PAGE> 21
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally.
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A, the terms of which are
incorporated in and made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company is subject or usage. Each Security shall be
dated the date of its authentication. The Securities shall be issued in
denominations of $1,000 and integral multiples thereof.
SECTION 2.02. Execution and Authentication.
The Securities shall be executed on behalf of the Company by a
duly authorized officer and attested by a Secretary or an Assistant Secretary.
The signature of any such person on the Securities may be manual or facsimile.
If an Officer whose signature is on a Security no longer holds that office at
the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Security has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Securities shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a Company Order, authenticate for
original issue up to, and the aggregate principal amount of Securities
outstanding at any time may not exceed $16,702,000 aggregate principal amount
of the Securities, except as provided in Sections 2.07, 2.08, 2.09 and 14.05.
The series of Securities to be initially issued hereunder shall be the Series A
Securities.
SECTION 2.03. Form and Payment.
Except as provided in Section 2.05, the Securities shall be
issued in fully registered certificated form without interest coupons.
Principal of, premium, if any, and interest on the Securities issued in
certificated form will be payable, the transfer of such Securities will be
registrable and such Securities will be exchangeable for Securities bearing
identical terms and provisions at the office or agency of the Company
maintained for such purpose under Section 3.02; provided, however, that payment
of interest with respect to Securities (other than a Global Security) may be
made at the option of the Company (i) by check mailed to the holder at such
address as shall appear in the Security Register or (ii) by transfer to an
account maintained by the Person entitled thereto, provided that proper
transfer instructions have been received in writing by the relevant record
date. Notwith-
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standing the foregoing, so long as the holder of any Securities is the Property
Trustee, the payment of the principal of, premium, if any, and interest
(including Compounded Interest and Additional Sums, if any) and Liquidated
Damages, if any, on such Securities held by the Property Trustee will be made
at such place and to such account as may be designated by the Property Trustee.
SECTION 2.04. Legends.
(a) Except as permitted by subsection (b) of this Section
2.04 or as otherwise determined by the Company in accordance with applicable
law, each Security shall bear the applicable legends relating to restrictions
on transfer pursuant to the securities laws in substantially the form set forth
on Exhibit A hereto.
(b) In the event of an Exchange Offer, the Company shall
issue and the Trustee, upon Company Order, shall authenticate Series B
Securities in exchange for Series A Securities accepted for exchange in the
Exchange Offer, which Series B Securities shall not bear the legends required
by subsection (a) above (other than the legend dealing with the restriction
referred to in Section 2.07(a)(ii) of this Indenture), in each case unless the
holder of such Series A Securities is either (A) a broker dealer who purchased
such Series A Securities directly from the Company for resale pursuant to Rule
144A or any other available exemption under the Securities Act, (B) a Person
participating in the distribution of the Series A Securities or (C) a Person
who is an Affiliate of the Company.
SECTION 2.05. Global Security.
(a) In connection with a Dissolution Event,
(i) if any Capital Securities are held in
book-entry form, the related Definitive Securities shall be presented
to the Trustee (if an arrangement with the Depositary has been
maintained) by the Property Trustee in exchange for one or more Global
Securities (as may be required pursuant to Section 2.07) in an
aggregate principal amount equal to the aggregate principal amount of
all outstanding Securities, to be registered in the name of the
Depositary, or its nominee, and delivered by the Trustee to the
Depositary for crediting to the accounts of its participants pursuant
to the instructions of the Administrative Trustees; the Company upon
any such presentation shall execute one or more Global Securities in
such aggregate principal amount and deliver the same to the Trustee
for authentication and delivery in accordance with this Indenture; and
payments on the Securities issued as a Global Security will be made to
the Depositary; and
(ii) if any Capital Securities are held in
certificated form, the related Definitive Securities may be presented
to the Trustee by the Property Trustee and any Capital Security
certificate which represents Capital Securities other than Capital
Securities in book-entry form ("Non Book-Entry Capital Securities")
will be deemed
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to represent beneficial interests in Securities presented to the
Trustee by the Property Trustee having an aggregate principal amount
equal to the aggregate liquidation amount of the Non Book-Entry
Capital Securities until such Capital Security certificates are
presented to the Security Registrar for transfer or reissuance, at
which time such Capital Security certificates will be cancelled and a
Security, registered in the name of the holder of the Capital Security
certificate or the transferee of the holder of such Capital Security
certificate, as the case may be, with an aggregate principal amount
equal to the aggregate liquidation amount of the Capital Security
certificate cancelled, will be executed by the Company and delivered
to the Trustee for authentication and delivery in accordance with this
Indenture. Upon the issuance of such Securities, Securities with an
equivalent aggregate principal amount that were presented by the
Property Trustee to the Trustee will be cancelled.
(b) The Global Securities shall represent the aggregate
amount of outstanding Securities from time to time endorsed thereon; provided,
that the aggregate amount of outstanding Securities represented thereby may
from time to time be reduced or increased, as appropriate, to reflect exchanges
and redemptions. Any endorsement of a Global Security to reflect the amount of
any increase or decrease in the amount of outstanding Securities represented
thereby shall be made by the Trustee, in accordance with instructions given by
the Company as required by this Section 2.05.
(c) The Global Securities may be transferred, in whole
but not in part, only to the Depositary, another nominee of the Depositary, or
to a successor Depositary selected or approved by the Company or to a nominee
of such successor Depositary.
(d) If at any time the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary or the Depositary has
ceased to be a clearing agency registered under the Exchange Act, and a
successor Depositary is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such condition, as the case
may be, the Company will execute, and the Trustee, upon receipt of a Company
Order, will authenticate and make available for delivery the Definitive
Securities, in authorized denominations, and in an aggregate principal amount
equal to the principal amount of the Global Security in exchange for such
Global Security. If there is an Event of Default, the Depositary shall have
the right to exchange the Global Securities for Definitive Securities. In
addition, the Company may at any time determine that the Securities shall no
longer be represented by a Global Security. In the event of such an Event of
Default or such a determination, the Company shall execute, and subject to
Section 2.07, the Trustee, upon receipt of an Officers' Certificate evidencing
such determination by the Company and a Company Order, will authenticate and
make available for delivery the Definitive Securities, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global Security. Upon the
exchange of the Global Security for such Definitive Securities, in authorized
denominations, the Global Security shall be cancelled by the Trustee. Such
Definitive Securities issued in exchange for the Global Security shall be
registered in such names and
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in such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Definitive Securities to the
Depositary for delivery to the Persons in whose names such Definitive
Securities are so registered.
SECTION 2.06 Interest.
(a) Each Security will bear interest at the rate of 9.70%
per annum (the "Coupon Rate") from the most recent date to which interest has
been paid or duly provided for or, if no interest has been paid or duly
provided for, from August 26, 1997, until the principal thereof becomes due and
payable, and at the Coupon Rate on any overdue principal (and premium, if any)
and (to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest, compounded
semi-annually, payable (subject to the provisions of Article XVI) semi-annually
in arrears on February 15 and August 15 of each year (each, an "Interest
Payment Date") commencing on February 15, 1998, to the Person in whose name
such Security or any predecessor Security is registered, at the close of
business on the regular record date for such interest installment, which shall
be the first day of the month in which the relevant Interest Payment Date
falls.
(b) Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months and, for any period of less than a full
calendar month, the number of days lapsed in such month based on a 30-day
month. In the event that any Interest Payment Date falls on a day that is not
a Business Day, then payment of interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that if such next
succeeding Business Day falls in the next succeeding calendar year, then such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
(c) During such time as the Property Trustee is the
holder of any Securities, the Company shall pay any additional amounts on the
Securities as may be necessary in order that the amount of Distributions then
due and payable by First Keystone Capital Trust on the outstanding Trust
Securities shall not be reduced as a result of any additional taxes, duties and
other governmental charges to which First Keystone Capital Trust has become
subject as a result of a Tax Event ("Additional Sums").
SECTION 2.07. Transfer and Exchange.
(a) Transfer Restrictions. (i) The Series A Securities,
and those Series B Securities with respect to which any Person described in
Section 2.04(b)(A), (B) or (C) is the beneficial owner, may not be transferred
except in compliance with the legends contained in Exhibit A unless otherwise
determined by the Company in accordance with applicable law. Upon any
distribution of the Securities following a Dissolution Event, the
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Company and the Trustee shall enter into a supplemental indenture pursuant to
Section 9.01 to provide for the transfer restrictions and procedures with
respect to the Securities substantially similar to those contained in the
Declaration to the extent applicable in the circumstances existing at such
time.
(ii) The Securities will be issued and may be
transferred only in blocks having an aggregate principal amount of not less
than $100,000. Any such transfer of the Securities in a block having an
aggregate principal amount of less than $100,000 shall be deemed to be voided
and of no legal effect whatsoever. Any such transferee shall be deemed not to
be a holder of such Securities for any purpose, including, but not limited to
the receipt of payments on such Securities, and such transferee shall be deemed
to have no interest whatsoever in such Securities.
(b) General Provisions Relating to Transfers and
Exchanges. To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive Securities and
Global Securities at the Security Registrar's request. All Definitive
Securities and Global Securities issued upon any registration of transfer or
exchange of Definitive Securities or Global Securities shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Definitive Securities or Global
Securities surrendered upon such registration of transfer or exchange.
No service charge shall be made to a holder for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
The Company shall not be required to (i) issue, register the
transfer of or exchange Securities during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption or any
notice of selection of Securities for redemption under Article XIV hereof and
ending at the close of business on the day of such mailing; or (ii) register
the transfer of or exchange any Security so selected for redemption in whole or
in part, except the unredeemed portion of any Security being redeemed in part.
Prior to due presentment for the registration of a transfer of
any Security, the Trustee, the Company and any agent of the Trustee or the
Company may deem and treat the Person in whose name any Security is registered
as the absolute owner of such Security for the purpose of receiving payment of
principal of and premium, if any, and interest on such Securities, neither the
Trustee, nor the Company nor any agent of the Trustee or the Company shall be
affected by notice to the contrary.
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(c) Exchange of Series A Securities for Series B Securities.
The Series A Securities may be exchanged for Series B Securities pursuant to
the terms of the Exchange Offer. The Trustee shall make the exchange as
follows:
The Company shall present the Trustee with an Officers'
Certificate certifying the following:
(A) upon issuance of the Series B Securities, the
transactions contemplated by the Exchange Offer have
been consummated; and
(B) the principal amount of Series A Securities properly
tendered in the Exchange Offer that are represented
by a Global Security and the principal amount of
Series A Securities properly tendered in the Exchange
Offer that are represented by Definitive Securities,
the name of each holder of such Definitive
Securities, the principal amount properly tendered in
the Exchange Offer by each such holder and the name
and address to which Definitive Securities for Series
B Securities shall be registered and sent for each
such holder.
The Trustee, upon receipt of (i) such Officers' Certificate,
(ii) an Opinion of Counsel (x) to the effect that the Series B Securities have
been registered under Section 5 of the Securities Act and the Indenture has
been qualified under the Trust Indenture Act and (y) with respect to the
matters set forth in Section 3(p) of the Registration Rights Agreement and
(iii) a Company Order, shall authenticate (A) a Global Security representing
Series B Securities in aggregate principal amount equal to the aggregate
principal amount of Series A Securities represented by a Global Security
indicated in such Officers' Certificate as having been properly tendered and
(B) Definitive Securities representing Series B Securities registered in the
names of, and in the principal amounts indicated in, such Officers'
Certificate.
If the principal amount of the Global Security for the Series
B Securities is less than the principal amount of the Global Security for the
Series A Securities, the Trustee shall make an endorsement on such Global
Security for Series A Securities indicating a reduction in the principal amount
represented thereby.
The Trustee shall deliver such Definitive Securities
representing Series B Securities to the holders thereof as indicated in such
Officers' Certificate.
SECTION 2.08. Replacement Securities.
If any mutilated Security is surrendered to the Trustee, or
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. An indemnity bond
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must be supplied by the holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any agent thereof
or any authenticating agent from any loss that any of them may suffer if a
Security is replaced. The Company or the Trustee may charge for its expenses
in replacing a Security.
Every replacement Security is an obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
SECTION 2.09. Temporary Securities.
Pending the preparation of Definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the Definitive Securities in lieu
of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities
may determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company shall cause
Definitive Securities to be prepared without unreasonable delay. The
Definitive Securities shall be printed, lithographed or engraved, or provided
by any combination thereof, or in any other manner permitted by the rules and
regulations of any applicable securities exchange, all as determined by the
officers executing such Definitive Securities. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at the office
or agency maintained by the Company for such purpose pursuant to Section 3.02
hereof, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Securities, the Company shall execute, and the Trustee
shall authenticate and make available for delivery, in exchange therefor the
same aggregate principal amount of Definitive Securities of authorized
denominations. Until so exchanged, the temporary Securities shall in all
respects be entitled to the same benefits under this Indenture as Definitive
Securities.
SECTION 2.10. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall retain or dispose of cancelled Securities in accordance
with its normal practices (subject to the record retention requirement of the
Exchange Act) unless the Company directs them to be returned to it. The
Company may not issue new Securities to replace Securities that have been
redeemed or paid or that have been delivered to the Trustee for cancellation.
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SECTION 2.11. Defaulted Interest.
Any interest on any Security that is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the holder
on the relevant regular record date by virtue of having been such holder; and
such Defaulted Interest shall be paid by the Company, at its election, as
provided in clause (a) or clause (b) below:
(a) The Company may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered at the close of
business on a special record date for the payment of such Defaulted
Interest, which shall be fixed in the following manner: the Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each such Security and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix
a special record date for the payment of such Defaulted Interest which
shall not be more than 15 nor less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such special record date and, in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the special record
date therefor to be mailed, first class postage prepaid, to each
Securityholder at his or her address as it appears in the Security
Register, not less than 10 days prior to such special record date.
Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names such
Securities (or their respective Predecessor Securities) are registered
on such special record date and shall be no longer payable pursuant to
the following clause (b).
(b) The Company may make payment of any Defaulted Interest on
any Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may
be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
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SECTION 2.12. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers
in notices of redemption as a convenience to Securityholders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of the
holders of the Securities that it will duly and punctually pay or cause to be
paid the principal of, premium, if any, and interest on the Securities at the
place, at the respective times and in the manner provided herein. Except as
provided in Section 2.03, each installment of interest on the Securities may be
paid by mailing checks for such interest payable to the order of the holder of
Security entitled thereto as they appear in the Security Register. The Company
further covenants to pay any and all amounts, including, without limitation,
Additional Sums, as may be required pursuant to Section 2.06(c), Liquidated
Damages, if any, on the dates and in the manner required under the Registration
Rights Agreement and Compounded Interest, as may be required pursuant to
Section 16.01.
SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Securities remain outstanding, the
Company will maintain in the Borough of Manhattan, The City of New York, an
office or agency where the Securities may be presented for payment, an office
or agency where the Securities may be presented for registration of transfer
and for exchange as in this Indenture provided and an office or agency where
notices and demands to or upon the Company in respect of the Securities or of
this Indenture may be served. The Company will give to the Trustee written
notice of the location of any such office or agency and of any change of
location thereof. Until otherwise designated from time to time by the Company
in a notice to the Trustee, any such office or agency for all of the above
purposes shall be the Principal Office of the Trustee. In case the Company
shall fail to maintain any such office or agency in the Borough of Manhattan,
The City of New York, or shall fail to give such notice of the location or of
any change in the location thereof, presentations and demands may be made and
notices may be served at the Principal Office of the Trustee.
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In addition to any such office or agency, the Company may from
time to time designate one or more offices or agencies outside the Borough of
Manhattan, The City of New York, where the Securities may be presented for
payment, registration of transfer and for exchange in the manner provided in
this Indenture, and the Company may from time to time rescind such designation,
as the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Borough of Manhattan,
The City of New York, for the purposes above mentioned. The Company will give
to the Trustee prompt written notice of any such designation or rescission
thereof.
SECTION 3.03. Appointments to Fill Vacancies in Trustee's
Office.
The Company, whenever necessary to avoid or fill a vacancy in
the office of Trustee, will appoint, in the manner provided in Section 6.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Company shall appoint a paying agent other
than the Trustee with respect to the Securities, it
will cause such paying agent to execute and deliver
to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the
provision of this Section 3.04,
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and
premium, if any, or interest on the
Securities (whether such sums have been paid
to it by the Company or by any other obligor
on the Securities) in trust for the benefit
of the holders of the Securities; and
(2) that it will give the Trustee notice of any
failure by the Company (or by any other
obligor on the Securities) to make any
payment of the principal of and premium or
interest (including Additional Sums and
Compounded Interest, if any) and Liquidated
Damages, if any, on the Securities when the
same shall be due and payable.
(b) If the Company shall act as its own paying agent, it
will, on or before each due date of the principal of
and premium, if any, or interest on the Securities,
set aside, segregate and hold in trust for the
benefit of the holders of the Securities a sum
sufficient to pay such principal, premium or interest
so becoming due and will notify the Trustee of any
failure to take such action and of any failure by the
Company (or by any other obligor under the
Securities) to make any payment of the
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principal of and premium, if any, or interest on the
Securities when the same shall become due and payable.
(c) Anything in this Section 3.04 to the contrary
notwithstanding, the Company may, at any time, for
the purpose of obtaining a satisfaction and discharge
with respect to the Securities hereunder, or for any
other reason, pay or cause to be paid to the Trustee
all sums held in trust for such Securities by the
Trustee or any paying agent hereunder, as required by
this Section 3.04, such sums to be held by the
Trustee upon the trusts herein contained.
(d) Anything in this Section 3.04 to the contrary
notwithstanding, the agreement to hold sums in trust
as provided in this Section 3.04 is subject to
Sections 11.03 and 11.04.
SECTION 3.05. Certificate to Trustee.
The Company will deliver to the Trustee on or before 120 days
after the end of each fiscal year in each year, commencing with the first
fiscal year ending after the date hereof, so long as Securities are outstanding
hereunder, an Officers' Certificate, one of the signers of which shall be the
principal executive, principal financial or principal accounting officer of the
Company, stating that in the course of the performance by the signers of their
duties as officers of the Company they would normally have knowledge of any
default by the Company in the performance of any covenants contained herein,
stating whether or not they have knowledge of any such default and, if so,
specifying each such default of which the signers have knowledge and the nature
thereof.
SECTION 3.06. Compliance with Consolidation Provisions.
The Company will not, while any of the Securities remain
outstanding, consolidate with, or merge into, or merge into itself, or sell or
convey all or substantially all of its property to any other Person unless the
provisions of Article X hereof are complied with.
SECTION 3.07. Limitation on Dividends.
The Company will not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (which includes common and
preferred stock), (ii) make any payment of principal, premium, if any, or
interest on or repay or repurchase or redeem any debt securities of the Company
(including Other Debentures) that rank pari passu with or junior in right of
payment to the Securities or (iii) make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any Subsidiary of the
Company (including Other Guarantees) if such guarantee ranks pari passu or
junior in right
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of payment to the Securities (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock of the Company, (b) any declaration of a dividend in
connection with the implementation of a stockholder's rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Capital
Securities Guarantee, (d) as a result of a reclassification of the Company's
capital stock or the exchange or the conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (e) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged and (f) purchases of Common
Stock related to the issuance of Common Stock or rights under any of the
Company's benefit plans for its directors, officers or employees or any of the
Company's dividend reinvestment plans) if at such time (1) there shall have
occurred any event of which the Company has actual knowledge that (a) is or,
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (2) if such Securities are held by the Property
Trustee, the Company shall be in default with respect to its payment
obligations under the Capital Securities Guarantee or (3) the Company shall
have given notice of its election of the exercise of its right to extend the
interest payment period pursuant to Section 16.01 and any such extension shall
be continuing.
SECTION 3.08. Covenants as to First Keystone Capital Trust
In the event Securities are issued to First Keystone Capital
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by First Keystone Capital Trust, for so long as such Trust
Securities remain outstanding, the Company (i) will maintain 100% direct or
indirect ownership of the Common Securities of First Keystone Capital Trust;
provided, however, that any successor of the Company, permitted pursuant to
Article X, may succeed to the Company's ownership of such Common Securities,
(ii) will use its reasonable efforts to cause First Keystone Capital Trust (a)
to remain a business trust, except in connection with a distribution of
Securities to the holders of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities of First Keystone Capital Trust or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration of First Keystone Capital Trust, and (b) to otherwise continue to
be treated as a grantor trust and not an association taxable as a corporation
for United States federal income tax purposes and (iii) use its reasonable
efforts to cause each holder of Trust Securities to be treated as owning an
undivided beneficial interest in the Securities.
SECTION 3.09. Payment of Expenses.
In connection with the offering, sale and issuance of the
Securities to First Keystone Capital Trust and in connection with the sale of
the Trust Securities by First Keystone Capital Trust, the Company, in its
capacity as borrower with respect to the Securities, shall:
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(a) pay all costs and expenses relating to the offering,
sale and issuance of the Securities, including commissions and expenses and
indemnification obligations, if any, to or for the benefit of the Initial
Purchaser (as defined in the Purchase Agreement) payable pursuant to the
Purchase Agreement, fees and expenses in connection with any exchange offer,
filing of a shelf registration statement or other action to be taken pursuant
to the Registration Rights Agreement and compensation of the Trustee in
accordance with the provisions of Section 6.06;
(b) pay all costs and expenses of the Trust (including,
but not limited to, costs and expenses relating to the organization of First
Keystone Capital Trust, the offering, sale and issuance of the Trust Securities
(including commissions to the initial purchasers in connection therewith), the
fees and expenses of the Property Trustee and the Delaware Trustee, the costs
and expenses relating to the operation of First Keystone Capital Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the acquisition,
financing, and disposition of assets of First Keystone Capital Trust;
(c) be primarily and fully liable for any indemnification
obligations arising with respect to the Declaration;
(d) pay any and all taxes (other than United States
withholding taxes attributable to First Keystone Capital Trust or its assets)
and all liabilities, costs and expenses with respect to such taxes of the
Trust; and
(e) pay all other fees, expenses, debts and obligations
(other than in respect of principal, interest and premium, if any, on the Trust
Securities) related to First Keystone Capital Trust.
SECTION 3.10. Payment Upon Resignation or Removal.
Upon termination of this Indenture or the removal or
resignation of the Trustee, unless otherwise stated, the Company shall pay to
the Trustee all amounts accrued and owing to the date of such termination,
removal or resignation. Upon termination of the Declaration or the removal or
resignation of the Delaware Trustee or the Property Trustee, as the case may
be, pursuant to Section 5.7 of the Declaration, the Company shall pay to the
Delaware Trustee or the Property Trustee, as the case may be, all amounts
accrued and owing to the date of such termination, removal or resignation.
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ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE
COMPANY AND THE TRUSTEE
SECTION 4.01. Securityholders' Lists.
The Company covenants and agrees that it will furnish or cause
to be furnished to the Trustee:
(a) on a semi-annual basis on each regular record date
for the Securities, a list, in such form as the
Trustee may reasonably require, of the names and
addresses of the Securityholders as of such record
date; and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the
Company, of any such request, a list of similar form
and content as of a date not more than 15 days prior
to the time such list is furnished,
except that, no such lists need be furnished so long as the
Trustee is in possession thereof by reason of its acting as
Security registrar.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as
is reasonably practicable, all information as to the
names and addresses of the holders of the Securities
(1) contained in the most recent list furnished to it
as provided in Section 4.01 or (2) received by it in
the capacity of Securities registrar (if so acting)
hereunder. The Trustee may destroy any list
furnished to it as provided in Section 4.01 upon
receipt of a new list so furnished.
(b) In case three or more holders of Securities
(hereinafter referred to as "applicants") apply in
writing to the Trustee and furnish to the Trustee
reasonable proof that each such applicant has owned a
Security for a period of at least six months
preceding the date of such application, and such
application states that the applicants desire to
communicate with other holders of Securities or with
holders of all Securities with respect to their
rights under this Indenture and is accompanied by a
copy of the form of proxy or other communication
which such applicants propose to transmit, then the
Trustee shall within five Business Days after the
receipt of such application, at its election, either:
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(1) afford such applicants access to the information
preserved at the time by the Trustee in accordance
with the provisions of subsection (a) of this Section
4.02, or
(2) inform such applicants as to the approximate number
of holders of all Securities, whose names and
addresses appear in the information preserved at the
time by the Trustee in accordance with the provisions
of subsection (a) of this Section 4.02, and as to the
approximate cost of mailing to such Securityholders
the form of proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such
applicants access to such information, the Trustee
shall, upon the written request of such applicants,
mail to each Securityholder whose name and address
appear in the information preserved at the time by
the Trustee in accordance with the provisions of
subsection (a) of this Section 4.02 a copy of the
form of proxy or other communication which is
specified in such request with reasonable promptness
after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment,
of the reasonable expenses of mailing, unless within
five days after such tender, the Trustee shall mail
to such applicants and file with the Commission,
together with a copy of the material to be mailed, a
written statement to the effect that, in the opinion
of the Trustee, such mailing would be contrary to the
best interests of the holders of Securities of such
series or all Securities, as the case may be, or
would be in violation of applicable law. Such
written statement shall specify the basis of such
opinion. If the Commission, after opportunity for a
hearing upon the objections specified in the written
statement so filed, shall enter an order refusing to
sustain any of such objections or if, after the entry
of an order sustaining one or more of such
objections, the Commission shall find, after notice
and opportunity for hearing, that all the objections
so sustained have been met and shall enter an order
so declaring, the Trustee shall mail copies of such
material to all such Securityholders with reasonable
promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such
applicants respecting their application.
(c) Each and every holder of Securities, by receiving and
holding the same, agrees with the Company and the
Trustee that neither the Company nor the Trustee nor
any paying agent shall be held accountable by reason
of the disclosure of any such information as to the
names and addresses of the holders of Securities in
accordance with the provisions of subsection (b) of
this Section 4.02, regardless of the
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source from which such information was derived, and
that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request
made under said subsection (b).
SECTION 4.03. Reports by Company.
(a) The Company covenants and agrees to file with the
Trustee, within 15 days after the date on which the
Company is required to file the same with the
Commission, copies of the annual reports and of the
information, documents and other reports (or copies
of such portions of any of the foregoing as said
Commission may from time to time by rules and
regulations prescribe) which the Company may be
required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act; or,
if the Company is not required to file information,
documents or reports pursuant to either of such
sections, then to file with the Trustee and the
Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such
of the supplementary and periodic information,
documents and reports which may be required pursuant
to Section 13 of the Exchange Act in respect of a
security listed and registered on a national
securities exchange as may be prescribed from time to
time in such rules and regulations.
(b) The Company covenants and agrees to file with the
Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by
said Commission, such additional information,
documents and reports with respect to compliance by
the Company with the conditions and covenants
provided for in this Indenture as may be required
from time to time by such rules and regulations.
(c) The Company covenants and agrees to transmit by mail
to all holders of Securities, as the names and
addresses of such holders appear upon the Security
Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information,
documents and reports required to be filed by the
Company pursuant to subsections (a) and (b) of this
Section 4.03 as may be required by rules and
regulations prescribed from time to time by the
Commission.
(d) Delivery of such reports, information and documents
to the Trustee is for informational purposes only and
the Trustee's receipt of such shall not constitute
constructive notice of any information contained
therein or determinable from information contained
therein, including the Company's compliance with any
of its covenants hereunder (as to
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which the Trustee is entitled to rely exclusively on
Officers' Certificates).
(e) So long as is required for an offer or sale of the
Securities to qualify for an exemption under Rule
144A under the Securities Act, the Company shall,
upon request, provide the information required by
clause (d)(4) thereunder to each Securityholder and
to each beneficial owner and prospective purchaser of
Securities identified by each Securityholder of
Restricted Securities, unless such information is
furnished to the Commission pursuant to Section 13 or
15(d) of the Exchange Act.
SECTION 4.04. Reports by the Trustee.
(a) The Trustee shall transmit to Securityholders such
reports concerning the Trustee and its actions under
this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner
provided pursuant thereto. If required by Section
313(a) of the Trust Indenture Act, the Trustee shall,
within sixty days after each May 15 following the
date of this Indenture, commencing May 15, 1998,
deliver to Securityholders a brief report, dated as
of such May 15, which complies with the provisions of
such Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the
Trustee with each stock exchange, if any, upon which
the Securities are listed, with the Commission and
with the Company. The Company will promptly notify
the Trustee when the Securities are listed on any
stock exchange.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01. Events of Default.
One or more of the following events of default shall
constitute an Event of Default hereunder:
(a) default in the payment of any interest (including
Compounded Interest or Additional Sums, if any) or
Liquidated Damages, if any, upon any Security or any
Other Debentures when it becomes due and payable, and
continuance of such default for a period of 30 days;
provided,
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however, that a valid extension of an interest payment
period by the Company in accordance with the terms
hereof shall not constitute a default in the payment
of interest for this purpose; or
(b) default in the payment of all or any part of the
principal of (or premium, if any, on) any Security or
any Other Debentures as and when the same shall
become due and payable either at maturity, upon
redemption, by declaration of acceleration of
maturity or otherwise; or
(c) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture
(other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this
Section specifically dealt with), and continuance of
such default or breach for a period of 90 days after
there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in
aggregate principal amount of the outstanding
Securities a written notice specifying such default
or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder;
or
(d) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the
Company in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or
for any substantial part of its property, or ordering
the winding-up or liquidation of its affairs and such
decree or order shall remain unstayed and in effect
for a period of 90 consecutive days; or
(e) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, shall consent to the
entry of an order for relief in an involuntary case
under any such law, or shall consent to the
appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the
Company or of any substantial part of its property,
or shall make any general assignment for the benefit
of creditors, or shall fail generally to pay its
debts as they become due.
If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in every such case the Trustee or
the holders of not less than 25% in aggregate principal amount of the
Securities then outstanding may declare the principal amount of all Securities
to be due and payable immediately, by a notice in writing to the
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Company (and to the Trustee if given by the holders of the outstanding
Securities), and upon any such declaration the same shall become immediately
due and payable.
The foregoing provisions, however, are subject to the
condition that if, at any time after the principal of the Securities shall have
been so declared due and payable, and before any judgment or decree for the
payment of the moneys due shall have been obtained or entered as hereinafter
provided, (i) the Company shall pay or shall deposit with the Trustee a sum
sufficient to pay (A) all matured installments of interest (including
Compounded Interest and Additional Sums, if any) and Liquidated Damages, if
any, upon all the Securities and the principal of and premium, if any, on any
and all Securities which shall have become due otherwise than by acceleration
(with interest upon such principal and premium, if any, and, to the extent that
payment of such interest is enforceable under applicable law, on overdue
installments of interest, at the same rate as the rate of interest specified in
the Securities to the date of such payment or deposit) and (B) such amount as
shall be sufficient to cover compensation due to the Trustee and each
predecessor Trustee, their respective agents, attorneys and counsel, pursuant
to Section 6.06, and (ii) any and all Events of Default under the Indenture,
other than the non-payment of the principal of the Securities which shall have
become due solely by such declaration of acceleration, shall have been cured,
waived or otherwise remedied as provided herein, then, in every such case, the
holders of a majority in aggregate principal amount of the Securities then
outstanding, by written notice to the Company and to the Trustee, may rescind
and annul such declaration and its consequences, but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default
or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such rescission or annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such
case the Company, the Trustee and the holders of the Securities shall be
restored respectively to their several positions and rights hereunder, and all
rights, remedies and powers of the Company, the Trustee and the holders of the
Securities shall continue as though no such proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit
Therefor.
The Company covenants that (a) in case default shall be made
in the payment of any installment of interest (including Compounded Interest
and Additional Sums, if any) and Liquidated Damages, if any, upon any of the
Securities as and when the same shall become due and payable, and such default
shall have continued for a period of 30 days, or (b) in case default shall be
made in the payment of the principal of or premium, if any, on any of the
Securities as and when the same shall have become due and payable, whether at
maturity of the Securities or upon redemption or by declaration or otherwise,
then, upon demand of the Trustee, the Company will pay to the Trustee, for the
benefit of the holders of the Securities, the whole amount that then shall have
become due and payable on all such Securities for principal and premium, if
any, or interest (including Compounded
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Interest and Additional Sums, if any) and Liquidated Damages, if any, or both,
as the case may be, with interest upon the overdue principal and premium, if
any, and (to the extent that payment of such interest is enforceable under
applicable law and, if the Securities are held by First Keystone Capital Trust
or a trustee of such trust, without duplication of any other amounts paid by
First Keystone Capital Trust or a trustee in respect thereof) upon the overdue
installments of interest (including Compounded Interest and Additional Sums, if
any) and Liquidated Damages, if any, at the rate borne by the Securities; and,
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including a reasonable compensation to the
Trustee, its agents, attorneys and counsel, and any other amount due to the
Trustee pursuant to Section 6.06.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any actions or proceedings
at law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or any other
obligor on the Securities and collect in the manner provided by law out of the
property of the Company or any other obligor on the Securities wherever
situated the moneys adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy
or for the reorganization of the Company or any other obligor on the Securities
under Title 11, United States Code, or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of the Company
or such other obligor, or in the case of any other similar judicial proceedings
relative to the Company or other obligor upon the Securities, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand pursuant to the provisions of
this Section 5.02, shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the Securities
and, in case of any judicial proceedings, to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for amounts due to the Trustee
pursuant to 6.06) and of the Securityholders allowed in such judicial
proceedings relative to the Company or any other obligor on the Securities, or
to the creditors or property of the Company or such other obligor, unless
prohibited by applicable law and regulations, to vote on behalf of the holders
of the Securities in any election of a trustee or a standby trustee in
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or person performing similar functions in comparable proceedings,
and to collect and receive any moneys or other property payable or deliverable
on any such claims, and to distribute the same after the deduction of its
charges and expenses; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the Securityholders to make such
payments to the Trustee, and, in the event that the Trustee shall consent to
the making of
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such payments directly to the Securityholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and counsel,
and all other amounts due to the Trustee pursuant to Section 6.06.
Nothing herein contained shall be construed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
All rights of action and of asserting claims under this
Indenture, or under any of the Securities, may be enforced by the Trustee
without the possession of any of the Securities, or the production thereof on
any trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit of
the holders of the Securities.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the holders of the Securities, and it shall not be necessary to make any
holders of the Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected by Trustee.
Any moneys collected by the Trustee shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such moneys, upon presentation of the Securities in respect of which moneys
have been collected, and stamping thereon the payment, if only partially paid,
and upon surrender thereof if fully paid:
First: To the payment of costs and expenses of collection
applicable to the Securities and all other amounts due to the Trustee under
Section 6.06;
Second: To the payment of all Senior Indebtedness of the
Company if and to the extent required by Article XV;
Third: In case the principal of the outstanding Securities in
respect of which moneys have been collected shall not have become due and be
unpaid, to the payment of the amounts then due and unpaid upon Securities for
principal of (and premium, if any) and interest (including Compounded Interest
and Additional Sums, if any) and Liquidated Damages, if any, on the Securities,
in respect of which or for the benefit of which money has been collected,
ratably, without preference of priority of any kind, according to the amounts
due on such Securities for principal (and premium, if any) and interest,
respectively; and
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Fourth: To the Company.
SECTION 5.04. Proceedings by Securityholders.
No holder of any Security shall have any right by virtue of or
by availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless such holder previously shall have given to the Trustee
written notice of an Event of Default and of the continuance thereof with
respect to the Securities specifying such Event of Default, as hereinbefore
provided, and unless also the holders of not less than 25% in aggregate
principal amount of the Securities then outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its
own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action, suit or proceeding, it being understood
and intended, and being expressly covenanted by the taker and holder of every
Security with every other taker and holder and the Trustee, that no one or more
holders of Securities shall have any right in any manner whatever by virtue of
or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of any other holder of Securities, or to obtain or seek to
obtain priority over or preference to any other such holder, or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Securities.
Notwithstanding any other provisions in this Indenture,
however, the right of any holder of any Security to receive payment of the
principal of (premium, if any) and interest (including Compounded Interest and
Additional Sums, if any) and Liquidated Damages, if any, on such Security, on
or after the same shall have become due and payable, or to institute suit for
the enforcement of any such payment, shall not be impaired or affected without
the consent of such holder and by accepting a Security hereunder it is
expressly understood, intended and covenanted by the taker and holder of every
Security with every other such taker and holder and the Trustee, that no one or
more holders of Securities shall have any right in any manner whatsoever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of the holders of any other Securities, or to obtain or
seek to obtain priority over or preference to any other such holder, or to
enforce any right under this Indenture, except in the manner herein provided
and for the equal, ratable and common benefit of all holders of Securities.
For the protection and enforcement of the provisions of this Section, each and
every Securityholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
The Company and the Trustee acknowledge that pursuant to the
Declaration, the holders of Capital Securities are entitled, in the
circumstances and subject to the limitations set forth therein, to commence a
Direct Action with respect to any Event of Default under this Indenture and the
Securities.
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SECTION 5.05. Proceedings by Trustee.
In case an Event of Default occurs with respect to Securities
and is continuing, the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either by suit in equity or by action at law or by proceeding
in bankruptcy or otherwise, whether for the specific enforcement of any
covenant or agreement contained in this Indenture or in aid of the exercise of
any power granted in this Indenture, or to enforce any other legal or equitable
right vested in the Trustee by this Indenture or by law.
SECTION 5.06. Remedies Cumulative and Continuing.
All powers and remedies given by this Article V to the Trustee
or to the Securityholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any other powers and remedies available to the
Trustee or the holders of the Securities, by judicial proceedings or otherwise,
to enforce the performance or observance of the covenants and agreements
contained in this Indenture or otherwise established with respect to the
Securities, and no delay or omission of the Trustee or of any holder of any of
the Securities to exercise any right or power accruing upon any Event of
Default occurring and continuing as aforesaid shall impair any such right or
power, or shall be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of Section 5.04, every
power and remedy given by this Article V or by law to the Trustee or to the
Securityholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of
Defaults by Majority of Securityholders.
The holders of a majority in aggregate principal amount of the
Securities at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided,
however, that (subject to the provisions of Section 6.01) the Trustee shall
have the right to decline to follow any such direction if the Trustee shall
determine that the action so directed would be unjustly prejudicial to the
holders not taking part in such direction or if the Trustee being advised by
counsel determines that the action or proceeding so directed may not lawfully
be taken or if the Trustee in good faith by its board of directors or trustees,
executive committee, or a trust committee of directors or trustees and/or
Responsible Officers shall determine that the action or proceedings so directed
would involve the Trustee in personal liability. Prior to any declaration
accelerating the maturity of the Securities, the holders of a majority in
aggregate principal amount of the Securities at the time outstanding may on
behalf of the holders of all of the Securities waive any past default or Event
of Default and its consequences except a default (a) in the payment of
principal of or premium, if any, or interest (including Compounded
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Interest and Additional Sums, if any) or Liquidated Damages, if any, on any of
the Securities or (b) in respect of covenants or provisions hereof which cannot
be modified or amended without the consent of the holder of each Security
affected; provided, however, that if the Securities are held by the Property
Trustee, such waiver or modification to such waiver shall not be effective
until the holders of a majority in aggregate liquidation amount of Trust
Securities shall have consented to such waiver or modification to such waiver;
provided further, that if the consent of the holder of each outstanding
Security is required, such waiver shall not be effective until each holder of
the Trust Securities shall have consented to such waiver. Upon any such
waiver, the default covered thereby shall be deemed to be cured for all
purposes of this Indenture and the Company, the Trustee and the holders of the
Securities shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon. Whenever any default or Event
of Default hereunder shall have been waived as permitted by this Section 5.07,
said default or Event of Default shall for all purposes of the Securities and
this Indenture be deemed to have been cured and to be not continuing.
SECTION 5.08. Notice of Defaults.
The Trustee shall, within 90 days after the occurrence of a
default with respect to the Securities known to a Responsible Officer of the
Trustee, mail to all Securityholders, as the names and addresses of such
holders appear upon the Security Register, notice of all defaults known to the
Trustee, unless such defaults shall have been cured before the giving of such
notice (the term "defaults" for the purpose of this Section 5.08 being hereby
defined to be the events specified in clauses (a), (b), (c), (d) and (e) of
Section 5.01, not including periods of grace, if any, provided for therein, and
irrespective of the giving of written notice specified in clause (c) of Section
5.01); and provided that, except in the case of default in the payment of the
principal of or premium, if any, or interest (including Compounded Interest or
Additional Sums, if any) or Liquidated Damages, if any, on any of the
Securities, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee
of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interests of the
Securityholders; and provided further, that in the case of any default of the
character specified in Section 5.01(c) no such notice to Securityholders shall
be given until at least 60 days after the occurrence thereof but shall be given
within 90 days after such occurrence.
SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
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court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 5.09 shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Securityholder,
or group of Securityholders, holding in the aggregate more than 10% in
aggregate principal amount of the Securities outstanding, or to any suit
instituted by any Securityholder for the enforcement of the payment of the
principal of (or premium, if any) or interest (including Compounded Interest
and Additional Sums, if any) or Liquidated Damages, if any, on any Security
against the Company on or after the same shall have become due and payable.
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee.
With respect to the holders of the Securities issued
hereunder, the Trustee, prior to the occurrence of an Event of Default and
after the curing or waiving of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (which has
not been cured or waived) the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and
after the curing or waiving of all Events of Default
which may have occurred,
(1) the duties and obligations of the Trustee
shall be determined solely by the express
provisions of this Indenture, and the Trustee
shall not be liable except for the
performance of such duties and obligations as
are specifically set forth in this Indenture,
and no implied covenants or obligations shall
be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively
rely, as to the truth of the statements and
the correctness of the opinions expressed
therein, upon any
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certificates or opinions furnished to the
Trustee and conforming to the requirements of
this Indenture; but, in the case of any such
certificates or opinions which by any
provision hereof are specifically required to
be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to
determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer
or Officers, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent
facts; and
(c) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good
faith, in accordance with the direction of the
Securityholders pursuant to Section 5.07, relating to
the time, method and place of conducting any
proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the
Trustee, under this Indenture.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing
that the repayment of such funds or liability is not reasonably assured to it
under the terms of this Indenture or adequate indemnity against such risk is
not reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note,
debenture or other paper or document believed by it
to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request, direction, order or demand of the
Company mentioned herein may be sufficiently
evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically
prescribed); and any Board Resolution may be
evidenced to the Trustee by a copy thereof certified
by the Secretary or an Assistant Secretary of the
Company;
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(c) the Trustee may consult with counsel of its selection
and any advice or Opinion of Counsel shall be full
and complete authorization and protection in respect
of any action taken or suffered omitted by it
hereunder in good faith and in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this
Indenture at the request, order or direction of any
of the Securityholders, pursuant to the provisions of
this Indenture, unless such Securityholders shall
have offered to the Trustee reasonable and sufficient
security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken
or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or
powers conferred upon it by this Indenture; nothing
contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of
Default (that has not been cured or waived), to
exercise such of the rights and powers vested in it
by this Indenture, and to use the same degree of care
and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the
conduct of his own affairs;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order,
approval, bond, debenture, coupon or other paper or
document, unless requested in writing to do so by the
holders of a majority in aggregate principal amount
of the outstanding Securities; provided, however,
that if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely
to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either
directly or by or through agents (including any
Authenticating Agent) or attorneys, and the Trustee
shall not be responsible for any misconduct or
negligence on the part of any such agent or attorney
appointed by it with due care;
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(h) the Trustee shall not be charged with knowledge of
any Default or Event of Default with respect to the
Securities unless (1) such default is a default under
Sections 5.01(a) (other than a default with respect
to the payment of Compounded Interest, Liquidated
Damages or Additional Sums) and 5.01(b) of the
Indenture, (2) a Responsible Officer shall have
actual knowledge of such Default or Event of Default
or (3) written notice of such Default or Event of
Default shall have been given to the Trustee by the
Company or any other obligor on the Securities or by
any holder of the Securities; and
(i) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith, without
negligence or willful misconduct and believed by it
to be authorized or within the discretion or rights
or powers conferred upon it by this Indenture.
SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Securities (except in
the certificate of authentication of the Trustee or the Authenticating Agent)
shall be taken as the statements of the Company and the Trustee and the
Authenticating Agent assume no responsibility for the correctness of the same.
The Trustee and the Authenticating Agent make no representations as to the
validity or sufficiency of this Indenture or of the Securities. The Trustee
and the Authenticating Agent shall not be accountable for the use or
application by the Company of any Securities or the proceeds of any Securities
authenticated and delivered by the Trustee or the Authenticating Agent in
conformity with the provisions of this Indenture. The Trustee shall not be
charged with knowledge of any default or Event of Default under Section 5.01
(a) or (b) relating to Other Debentures unless (i) a Responsible Officer of the
Trustee assigned to its Principal Office shall have actual knowledge thereof or
(ii) the Corporation, any Securityholder or the holder of any Other Debenture
shall have given the Trustee written notice thereof in accordance with Section
13.04.
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own
Securities.
The Trustee or any Authenticating Agent or any paying agent or
any transfer agent or any Security registrar, in its individual or any other
capacity, may become the owner or pledgee of Securities with the same rights it
would have if it were not Trustee, Authenticating Agent, paying agent, transfer
agent or Security registrar.
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SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 11.04, all moneys
received by the Trustee or any paying agent shall, until used or applied as
herein provided, be held in trust for the purpose for which they were received,
but need not be segregated from other funds except to the extent required by
law. The Trustee and any paying agent shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed in writing
with the Company. So long as no Event of Default shall have occurred and be
continuing, all interest allowed on any such moneys shall be paid from time to
time upon the written order of the Company, signed by the Chairman of the Board
of Directors, the President, a Vice President, the Treasurer or an Assistant
Treasurer of the Company.
SECTION 6.06. Compensation and Expenses of Trustee.
The Company, as issuer of Securities under this Indenture,
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, such compensation as shall be agreed to in writing
between the Company and the Trustee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust), and the Company will pay or reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify each of the Trustee or any predecessor
Trustee (and its officers, agents, directors and employees) for, and to hold it
harmless against, any and all loss, damage, claim, liability or expense
including taxes (other than taxes based on the income of the Trustee) incurred
without negligence or bad faith on the part of the Trustee and arising out of
or in connection with the acceptance or administration of this trust, including
the costs and expenses of defending itself against any claim of liability in
the premises. The obligations of the Company under this Section 6.06 to
compensate and indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall constitute additional indebtedness
hereunder. Such additional indebtedness shall be secured by a lien prior to
that of the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(d) or Section
5.01(e), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the resignation
or removal of the Trustee and the defeasance or other termination of this
Indenture.
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SECTION 6.07. Officers' Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02,
whenever in the administration of the provisions of this Indenture the Trustee
shall deem it necessary or desirable that a matter be proved or established
prior to taking or omitting any action hereunder, such matter (unless other
evidence in respect thereof is herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to
the Trustee, and such certificate, in the absence of negligence or bad faith on
the part of the Trustee, shall be full warrant to the Trustee for any action
taken or omitted by it under the provisions of this Indenture upon the faith
thereof.
SECTION 6.08. Conflicting Interest of Trustee.
If the Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee
and the Company shall in all respects comply with the provisions of Section
310(b) of the Trust Indenture Act.
SECTION 6.09. Eligibility of Trustee.
The Trustee hereunder shall at all times be a corporation
organized and doing business under the laws of the United States of America or
any state or territory thereof or of the District of Columbia or a corporation
or other Person permitted to act as trustee by the Commission authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000) and subject to
supervision or examination by federal, state, territorial, or District of
Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 6.09
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published.
The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation or Removal of Trustee.
(a) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign by giving written
notice of such resignation to the Company and by
mailing notice thereof to the holders of the
Securities at their
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addresses as they shall appear on the Security
register. Upon receiving such notice of resignation,
the Company shall promptly appoint a successor trustee
or trustees by written instrument, in duplicate, one
copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 60 days
after the mailing of such notice of resignation to the
affected Securityholders, the resigning Trustee may
petition any court of competent jurisdiction for the
appointment of a successor trustee, or any
Securityholder who has been a bona fide holder of a
Security for at least six months may, subject to the
provisions of Section 5.09, on behalf of himself and
all others similarly situated, petition any such court
for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the
provisions of Section 6.08 after written
request therefor by the Company or by any
Securityholder who has been a bona fide
holder of a Security or Securities for at
least six months, or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section
6.09 and shall fail to resign after written
request therefor by the Company or by any
such Securityholder, or
(3) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent,
or a receiver of the Trustee or of its
property shall be appointed, or any public
officer shall take charge or control of the
Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or
liquidation,
then, in any such case, the Company may remove the
Trustee and appoint a successor trustee by written
instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or,
subject to the provisions of Section 5.09, any
Securityholder who has been a bona fide holder of a
Security for at least six months may, on behalf of
himself and all others similarly situated, petition
any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor
trustee. Such court may thereupon, after such
notice, if any, as it may
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deem proper and prescribe, remove the Trustee and
appoint a successor trustee.
(c) The holders of a majority in aggregate principal
amount of the Securities at the time outstanding may
at any time remove the Trustee and nominate a
successor trustee, which shall be deemed appointed as
successor trustee unless within 10 days after such
nomination the Company objects thereto or if no
successor trustee shall have been so appointed and
shall have accepted appointment within 30 days after
such removal, in which case the Trustee so removed or
any Securityholder, upon the terms and conditions and
otherwise as in subsection (a) of this Section 6.10
provided, may petition any court of competent
jurisdiction for an appointment of a successor
trustee.
(d) Any resignation or removal of the Trustee and
appointment of a successor trustee pursuant to any of
the provisions of this Section 6.10 shall become
effective upon acceptance of appointment by the
successor trustee as provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Trustee.
Any successor trustee appointed as provided in Section 6.10
shall execute, acknowledge and deliver to the Company and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the retiring trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Company or of the successor
trustee, the trustee ceasing to act shall, upon payment of any amounts then due
it pursuant to the provisions of Section 6.06, execute and deliver an
instrument transferring to such successor trustee all the rights and powers of
the trustee so ceasing to act and shall duly assign, transfer and deliver to
such successor trustee all property and money held by such retiring trustee
thereunder. Upon request of any such successor trustee, the Company shall
execute any and all instruments in writing for more fully and certainly vesting
in and confirming to such successor trustee all such rights and powers. Any
trustee ceasing to act shall, nevertheless, retain a lien upon all property or
funds held or collected by such trustee to secure any amounts then due it
pursuant to the provisions of Section 6.06.
No successor trustee shall accept appointment as provided in
this Section 6.11 unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as
provided in this Section 6.11, the Company shall mail notice of the succession
of such trustee hereunder to
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the holders of Securities at their addresses as they shall appear on the
Security register. If the Company fails to mail such notice within 10 days
after the acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Company.
SECTION 6.12. Succession by Merger, etc.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder without the execution or filing of any paper or any further act on
the part of any of the parties hereto.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor trustee, and deliver such
Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor trustee; and in all such cases such certificates
shall have the full force which the Securities or this Indenture elsewhere
provides that the certificate of the Trustee shall have; provided, however,
that the right to adopt the certificate of authentication of any predecessor
Trustee or authenticate Securities in the name of any predecessor Trustee shall
apply only to its successor or successors by merger, conversion or
consolidation.
SECTION 6.13. Limitation on Rights of Trustee as a
Creditor.
The Trustee shall comply with Section 311(a) of the Trust
Indenture Act, excluding any creditor relationship described in Section 311(b)
of the Trust Indenture Act. A Trustee who has resigned or been removed shall
be subject to Section 311(a) of the Trust Indenture Act to the extent included
therein.
SECTION 6.14. Authenticating Agents.
There may be one or more Authenticating Agents appointed by
the Trustee upon the request of the Company with power to act on its behalf and
subject to its direction in the authentication and delivery of Securities
issued upon exchange or transfer thereof as fully to all intents and purposes
as though any such Authenticating Agent had been expressly authorized to
authenticate and deliver Securities; provided, that the Trustee shall have no
liability to the Company for any acts or omissions of the Authenticating Agent
with respect to the authentication and delivery of Securities. Any such
Authenticating Agent shall at all times be a corporation organized and doing
business under the laws of the United States or of any state or territory
thereof or of the District of Columbia authorized under such laws
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to act as Authenticating Agent, having a combined capital and surplus of at
least $50,000,000 and being subject to supervision or examination by federal,
state, territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually pursuant to law or the
requirements of such authority, then for the purposes of this Section 6.14 the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, consolidation or conversion to which any
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate trust business of any Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, if such successor corporation is otherwise
eligible under this Section 6.14 without the execution or filing of any paper
or any further act on the part of the parties hereto or such Authenticating
Agent.
Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee
may at any time terminate the agency of any Authenticating Agent by giving
written notice of termination to such Authenticating Agent and to the Company.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time any Authenticating Agent shall cease to be eligible under this
Section 6.14, the Trustee may, and upon the request of the Company shall,
promptly appoint a successor Authenticating Agent eligible under this Section
6.14, shall give written notice of such appointment to the Company and shall
mail notice of such appointment to all Securityholders as the names and
addresses of such holders appear on the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all rights, powers, duties and responsibilities of its predecessor
hereunder, with like effect as if originally named as Authenticating Agent
herein.
The Company, as borrower, agrees to pay to any Authenticating
Agent from time to time reasonable compensation for its services. Any
Authenticating Agent shall have no responsibility or liability for any action
taken by it as such in accordance with the directions of the Trustee.
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ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of
a specified percentage in aggregate principal amount of the Securities may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action) the fact that at
the time of taking any such action the holders of such specified percentage
have joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by such Securityholders in person or by
agent or proxy appointed in writing, or (b) by the record of such holders of
Securities voting in favor thereof at any meeting of such Securityholders duly
called and held in accordance with the provisions of Article VIII, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of such Securityholders.
If the Company shall solicit from the Securityholders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Securityholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Company shall have
no obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the Securityholders of record at the
close of business on the record date shall be deemed to be Securityholders for
the purposes of determining whether Securityholders of the requisite proportion
of outstanding Securities have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the outstanding Securities shall be computed as of
the record date; provided, however, that no such authorization, agreement or
consent by such Securityholders on the record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Section 6.01, 6.02 and 8.05,
proof of the execution of any instrument by a Securityholder or his agent or
proxy shall be sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The ownership of Securities shall be proved by
the Security Register or by a certificate of the Security registrar. The
Trustee may require such additional proof of any matter referred to in this
Section as it shall deem necessary.
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The record of any Securityholders' meeting shall be proved in
the manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any
Security, the Company, the Trustee, any Authenticating Agent, any paying agent,
any transfer agent and any Security registrar may deem the person in whose name
such Security shall be registered upon the Security Register to be, and may
treat him as, the absolute owner of such Security (whether or not such Security
shall be overdue) for the purpose of receiving payment of or on account of the
principal of and premium, if any, and (subject to Section 2.06) interest on
such Security and for all other purposes; and neither the Company nor the
Trustee nor any Authenticating Agent nor any paying agent nor any transfer
agent nor any Security registrar shall be affected by any notice to the
contrary. All such payments so made to any holder for the time being or upon
his order shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Security.
SECTION 7.04. Securities Owned by Company Deemed Not
Outstanding.
In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Company or any
other obligor on the Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any other obligor on the Securities shall be disregarded and
deemed not to be outstanding for the purpose of any such determination;
provided that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, consent or waiver, only Securities
which a Responsible Officer of the Trustee actually knows are so owned shall be
so disregarded. Securities so owned which have been pledged in good faith may
be regarded as outstanding for the purposes of this Section 7.04 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Securities and that the pledgee is not the Company or any such other
obligor or Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any such other obligor.
In the case of a dispute as to such right, any decision by the Trustee taken
upon the advice of counsel shall be full protection to the Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the
Trustee, as provided in Section 7.01, of the taking of any action by the
holders of the percentage in aggregate principal amount of the Securities
specified in this Indenture in connection with such action, any holder of a
Security (or any Security issued in whole or in part in exchange or
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substitution therefor), subject to Section 7.01, the serial number of which is
shown by the evidence to be included in the Securities the holders of which
have consented to such action may, by filing written notice with the Trustee at
its principal office and upon proof of holding as provided in Section 7.02,
revoke such action so far as concerns such Security (or so far as concerns the
principal amount represented by any exchanged or substituted Security). Except
as aforesaid any such action taken by the holder of any Security shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Security, and of any Security issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon such Security or any Security issued in exchange or substitution therefor.
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings.
A meeting of Securityholders may be called at any time and
from time to time pursuant to the provisions of this Article VIII for any of
the following purposes:
(a) to give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to
consent to the waiving of any default hereunder and
its consequences, or to take any other action
authorized to be taken by Securityholders pursuant to
any of the provisions of Article V;
(b) to remove the Trustee and nominate a successor
trustee pursuant to the provisions of Article VI;
(c) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the
provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or
on behalf of the holders of any specified aggregate
principal amount of such Securities under any other
provision of this Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Trustee.
The Trustee may at any time call a meeting of Securityholders
to take any action specified in Section 8.01, to be held at such time and at
such place in the Borough of Manhattan, The City of New York, as the Trustee
shall determine. Notice of every meeting of the Securityholders, setting forth
the time and the place of such meeting and in general terms the action proposed
to be taken at such meeting, shall be mailed to holders
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of Securities at their addresses as they shall appear on the Securities
Register. Such notice shall be mailed not less than 20 nor more than 180 days
prior to the date fixed for the meeting.
SECTION 8.03. Call of Meetings by Company or
Securityholders.
In case at any time the Company pursuant to a resolution of
the Board of Directors, or the holders of at least 10% in aggregate principal
amount of the Securities then outstanding, shall have requested the Trustee to
call a meeting of Securityholders, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 20 days after
receipt of such request, then the Company or such Securityholders may determine
the time and the place in said Borough of Manhattan for such meeting and may
call such meeting to take any action authorized in Section 8.01, by mailing
notice thereof as provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
To be entitled to vote at any meeting of Securityholders a
Person shall (a) be a holder of one or more Securities or (b) a Person
appointed by an instrument in writing as proxy by a holder of one or more
Securities. The only Persons who shall be entitled to be present or to speak
at any meeting of Securityholders shall be the Persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Securityholders, in regard to proof of the holding of Securities and
of the appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Securityholders as provided in Section 8.03, in which case
the Company or the Securityholders calling the meeting, as the case may be,
shall in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by majority vote of the
meeting.
Subject to the provisions of Section 8.04, at any meeting each
holder of Securities or proxy therefor shall be entitled to one vote for each
$1,000 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or
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counted at any meeting in respect of any Security challenged as not outstanding
and ruled by the chairman of the meeting to be not outstanding. The chairman
of the meeting shall have no right to vote other than by virtue of Securities
held by him or instruments in writing as aforesaid duly designating him as the
person to vote on behalf of other Securityholders. Any meeting of
Securityholders duly called pursuant to the provisions of Section 8.02 or 8.03
may be adjourned from time to time by a majority of those present, and the
meeting may be held as so adjourned without further notice.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of
holders of Securities shall be by written ballots on which shall be subscribed
the signatures of such holders or of their representatives by proxy and the
serial number or numbers of the Securities held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports in triplicate of all votes cast at the meeting. A record in duplicate
of the proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
mailed as provided in Section 8.02. The record shall show the serial numbers
of the Securities voting in favor of or against any resolution. The record
shall be signed and verified by the affidavits of the permanent chairman and
secretary of the meeting and one of the duplicates shall be delivered to the
Company and the other to the Trustee to be preserved by the Trustee, the latter
to have attached thereto the ballots voted at the meeting. The holders of the
Series A Capital Securities and the Series B Capital Securities shall vote for
all purposes as a single class.
Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders.
The Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time amend the Indenture, without the
consent of the Securityholders, for one or more of the following purposes:
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(a) to evidence the succession of another Person to the
Company, or successive successions, and the
assumption by the successor Person of the covenants,
agreements and obligations of the Company pursuant to
Article X hereof;
(b) to add to the covenants of the Company such further
covenants, restrictions or conditions for the
protection of the Securityholders as the Board of
Directors and the Trustee shall consider to be for
the protection of the Securityholders, and to make
the occurrence, or the occurrence and continuance, of
a default in any of such additional covenants,
restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of
the remedies provided in this Indenture as herein set
forth; provided, however, that in respect of any such
additional covenant, restriction or condition such
amendment may provide for a particular period of
grace after default (which period may be shorter or
longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement
upon such default or may limit the remedies available
to the Trustee upon such default;
(c) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities
registrable as to principal only) and to provide for
exchangeability of such Securities with the
Securities issued hereunder in fully registered form
and to make all appropriate changes for such purpose;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental
indenture which may be defective or inconsistent with
any other provision contained herein or in any
supplemental indenture, or to make such other
provisions in regard to matters or questions arising
under this Indenture; provided that any such action
shall not materially adversely affect the interests
of the holders of the Securities;
(e) to evidence and provide for the acceptance of
appointment hereunder by a successor trustee with
respect to the Securities;
(f) to make provision for transfer procedures,
certification, book-entry provisions, the form of
restricted securities legends, if any, to be placed
on Securities, and all other matters required
pursuant to Section 2.07 or otherwise necessary,
desirable or appropriate in connection with the
issuance of Securities to holders of Capital
Securities in the event of a distribution of
Securities by First Keystone Capital Trust following
a Dissolution Event;
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(g) to qualify or maintain qualification of this
Indenture under the Trust Indenture Act;
(h) to enable the Company and the Trust to conduct an
Exchange Offer as contemplated by the Registration
Rights Agreement, provided that any such action shall
not materially adversely affect the interests of the
holders of the Securities; or
(i) to make any change that does not adversely affect the
rights of any Securityholder in any material respect.
The Trustee is hereby authorized to join with the Company in
the execution of any supplemental indenture to effect such amendment, to make
any further appropriate agreements and stipulations which may be therein
contained and to accept the conveyance, transfer and assignment of any property
thereunder, but the Trustee shall not be obligated to, but may in its
discretion, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any amendment to the Indenture authorized by the provisions of
this Section 9.01 may be executed by the Company and the Trustee without the
consent of the holders of any of the Securities at the time outstanding,
notwithstanding any of the provisions of Section 9.02.
SECTION 9.02. With Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of
the holders of a majority in aggregate principal amount of the Securities at
the time outstanding, the Company, when authorized by a Board Resolution, and
the Trustee may from time to time and at any time amend the Indenture for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the
rights of the holders of the Securities; provided, however, that no such
amendment shall without the consent of the holders of each Security then
outstanding and affected thereby (i) change the Maturity Date of any Security,
or reduce the rate or extend the time of payment of interest thereon (except as
contemplated by Article XVI), or reduce the principal amount thereof, or reduce
any amount payable on redemption thereof, or make the principal thereof or any
interest or premium thereon payable in any coin or currency other than that
provided in the Securities, or impair or affect the right of any Securityholder
to institute suit for payment thereof, or (ii) reduce the aforesaid percentage
of Securities the holders of which are required to consent to any such
amendment to the Indenture, provided, however, that if the Securities are held
by First Keystone Capital Trust, such amendment shall not be effective until
the holders of a majority in liquidation amount of Trust Securities shall have
consented to such amendment; provided, further, that if the consent of the
holder of each outstanding Security is required, such amendment shall not be
effective until each holder of the Trust Securities shall have consented to
such amendment.
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Upon the request of the Company accompanied by a copy of a
resolution of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any supplemental indenture affecting
such amendment, and upon the filing with the Trustee of evidence of the consent
of Securityholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Trustee shall transmit by mail, first class postage prepaid, a notice, prepared
by the Company, setting forth in general terms the substance of such
supplemental indenture, to the Securityholders as their names and addresses
appear upon the Security Register. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
It shall not be necessary for the consent of the
Securityholders under this Section 9.02 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures.
Any supplemental indenture executed pursuant to the provisions
of this Article IX shall comply with the Trust Indenture Act. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article IX, this Indenture shall be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Securities shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments and all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of this Indenture
for any and all purposes.
SECTION 9.04. Notation on Securities.
Securities authenticated and delivered after the execution of
any supplemental indenture affecting such series pursuant to the provisions of
this Article IX may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company or the
Trustee shall so determine, new Securities so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may be prepared and
executed by the Company, authenticated by the Trustee or the Authenticating
Agent and delivered in exchange for the Securities then outstanding.
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SECTION 9.05. Evidence of Compliance of Supplemental
Indenture to be Furnished Trustee.
The Trustee, subject to the provisions of Sections 6.01 and
6.02, may receive, in addition to the document required by Section 13.06, an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant hereto complies with the requirements
of this Article IX. The Trustee may received an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant to this
Article is authorized or permitted by, and conforms to, the terms of this
Article and that it is proper for the Trustee under the provisions of this
Article to join in the execution thereof.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Company May Consolidate, etc., on Certain
Terms.
Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of the Company with or
into any other Person (whether or not affiliated with the Company, as the case
may be), or successive consolidations or mergers in which the Company or its
successor or successors, as the case may be, shall be a party or parties, or
shall prevent any sale, conveyance, transfer or lease of the property of the
Company, or its successor or successors as the case may be, as an entirety, or
substantially as an entirety, to any other Person (whether or not affiliated
with the Company, or its successor or successors, as the case may be)
authorized to acquire and operate the same; provided, that (a) the Company is
the surviving Person, or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
conveyance, transfer or lease of property is made is a Person organized and
existing under the laws of the United States or any State thereof or the
District of Columbia, and (b) upon any such consolidation, merger, sale,
conveyance, transfer or lease, the due and punctual payment of the principal of
(and premium, if any) and interest on the Securities according to their tenor
and the due and punctual performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the Company shall be
expressly assumed, by supplemental indenture (which shall conform to the
provisions of the Trust Indenture Act, as then in effect) satisfactory in form
to the Trustee executed and delivered to the Trustee by the Person formed by
such consolidation, or into which the Company shall have been merged, or by the
Person which shall have acquired such property, as the case may be, (c) after
giving effect to such consolidation, merger, sale, conveyance, transfer or
lease, no Default or Event of Default shall have occurred and be continuing and
(d) such consolidation, merger, sale, conveyance, transfer or lease does not
cause the Securities to be downgraded by a nationally recognized statistical
rating organization.
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SECTION 10.02. Successor Corporation to be Substituted for
Company.
In case of any such consolidation, merger, conveyance or
transfer and upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in form to
the Trustee, of the due and punctual payment of the principal of and premium,
if any, and interest on all of the Securities and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed or observed by the Company, such successor Person
shall succeed to and be substituted for the Company, with the same effect as if
it had been named herein as the party of the first part, and the Company
thereupon shall be relieved of any further liability or obligation hereunder or
upon the Securities. Such successor Person thereupon may cause to be signed,
and may issue either in its own name or in the name of First Keystone
Financial, Inc., any or all of the Securities issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee or the Authenticating Agent; and, upon the order of such successor
Person instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee or the Authenticating
Agent shall authenticate and deliver any Securities which previously shall have
been signed and delivered by the officers of the Company to the Trustee or the
Authenticating Agent for authentication, and any Securities which such
successor Person thereafter shall cause to be signed and delivered to the
Trustee or the Authenticating Agent for that purpose. All the Securities so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Securities theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Indentures had been issued at
the date of the execution hereof.
SECTION 10.03. Opinion of Counsel to be Given Trustee.
The Trustee, subject to the provisions of Sections 6.01 and
6.02, may receive an Opinion of Counsel as conclusive evidence that any
consolidation, merger, sale, conveyance, transfer or lease, and any assumption,
permitted or required by the terms of this Article X complies with the
provisions of this Article X.
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture.
When (a) the Company shall deliver to the Trustee for
cancellation all Securities theretofore authenticated (other than any
Securities which shall have been destroyed, lost or stolen and which shall have
been replaced as provided in Section 2.08) and not theretofore cancelled, or
(b) all the Securities not theretofore cancelled or delivered to the Trustee
for cancellation shall have become due and payable, or are by their terms to
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become due and payable within one year or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption, and the Company shall deposit with the Trustee, in
trust, funds sufficient to pay on the Maturity Date or upon redemption all of
the Securities (other than any Securities which shall have been destroyed, lost
or stolen and which shall have been replaced as provided in Section 2.08) not
theretofore cancelled or delivered to the Trustee for cancellation, including
principal and premium, if any, and interest (including Compounded Interest and
Additional Sums, if any) and Liquidated Damages, if any, due or to become due
to the Maturity Date or redemption date, as the case may be, but excluding,
however, the amount of any moneys for the payment of principal of or premium,
if any, or interest (including Compounded Interest and Additional Sums, if any)
or Liquidated Damages, if any, on the Securities (1) theretofore repaid to the
Company in accordance with the provisions of Section 11.04, or (2) paid to any
State or to the District of Columbia pursuant to its unclaimed property or
similar laws, and if in either case the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect except for the provisions of Sections 2.02, 2.07,
2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof, which shall survive until
such Securities shall mature and be paid. Thereafter, Sections 6.06, 6.10 and
11.04 shall survive, and the Trustee, on demand of the Company accompanied by
any Officers' Certificate and an Opinion of Counsel and at the cost and expense
of the Company, shall execute proper instruments acknowledging satisfaction of
and discharging this Indenture, the Company, however, hereby agreeing to
reimburse the Trustee for any costs or expenses thereafter reasonably and
properly incurred by the Trustee in connection with this Indenture or the
Securities.
SECTION 11.02. Deposited Moneys and U.S. Government
Obligations to be Held in Trust by Trustee.
Subject to the provisions of Section 11.04, all moneys and
U.S. Government Obligations deposited with the Trustee pursuant to Sections
11.01 or 11.05 shall be held in trust and applied by it to the payment, either
directly or through any paying agent (including the Company if acting as its
own paying agent), to the holders of the particular Securities for the payment
of which such moneys or U.S. Government Obligations have been deposited with
the Trustee, of all sums due and to become due thereon for principal, premium,
if any, and interest.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 11.05 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the holders of outstanding Securities.
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SECTION 11.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture all
moneys then held by any paying agent of the Securities (other than the Trustee)
shall, upon written demand of the Company, be repaid to it or paid to the
Trustee, and thereupon such paying agent shall be released from all further
liability with respect to such moneys.
SECTION 11.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Trustee or any paying
agent for payment of the principal of or premium, if any, or interest on
Securities and not applied but remaining unclaimed by the holders of Securities
for two years after the date upon which the principal of or premium, if any, or
interest (including Compounded Interest and Additional Sums, if any) or
Liquidated Damages, if any, on such Securities, as the case may be, shall have
become due and payable, shall be repaid to the Company by the Trustee or such
paying agent on written demand; and the holder of any of the Securities shall
thereafter look only to the Company for any payment which such holder may be
entitled to collect and all liability of the Trustee or such paying agent with
respect to such moneys shall thereupon cease.
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations.
The Company shall be deemed to have been Discharged (as
defined below) from its obligations with respect to the Securities on the 91st
day after the applicable conditions set forth below have been satisfied:
(1) the Company shall have deposited or caused to be
deposited irrevocably with the Trustee or the
Defeasance Agent (as defined below) as trust funds in
trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of
the Securities (i) money in an amount, or (ii) U.S.
Government Obligations which through the payment of
interest and principal in respect thereof in
accordance with their terms will provide, not later
than one day before the due date of any payment,
money in an amount, or (iii) a combination of (i) and
(ii), sufficient, in the opinion (with respect to
(ii) and (iii)) of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee and
the Defeasance Agent, if any, to pay and discharge
each installment of principal of and interest and
premium, if any, on the outstanding Securities on the
dates such installments of principal, interest or
premium are due;
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(2) if the Securities are then listed on any national
securities exchange, the Company shall have delivered
to the Trustee and the Defeasance Agent, if any, an
Opinion of Counsel to the effect that the exercise of
the option under this Section 11.05 would not cause
such Securities to be delisted from such exchange;
(3) no Default or Event of Default with respect to the
Securities shall have occurred and be continuing on
the date of such deposit; and
(4) the Company shall have delivered to the Trustee and
the Defeasance Agent, if any, an Opinion of Counsel
to the effect that holders of the Securities will not
recognize income, gain or loss for United States
federal income tax purposes as a result of the
exercise of the option under this Section 11.05 and
will be subject to United States federal income tax
on the same amount and in the same manner and at the
same times as would have been the case if such option
had not been exercised, and such opinion shall be
based on a statute so providing or be accompanied by
a private letter ruling to that effect received from
the United States Internal Revenue Service or a
revenue ruling pertaining to a comparable form of
transaction to that effect published by the United
States Internal Revenue Service.
"Discharged" means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities and to have satisfied all the obligations under this
Indenture relating to the Securities (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except (A)
the rights of holders of Securities to receive, from the trust fund described
in clause (1) above, payment of the principal of and the interest and premium,
if any, on the Securities when such payments are due; (B) the Company's
obligations with respect to the Securities under Sections 2.07, 2.08, 5.02 and
11.04; and (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder.
"Defeasance Agent" means another financial institution which
is eligible to act as Trustee hereunder and which assumes all of the
obligations of the Trustee necessary to enable the Trustee to act hereunder.
In the event such a Defeasance Agent is appointed pursuant to this Section, the
following conditions shall apply:
(1) The Trustee shall have approval rights over the
document appointing such Defeasance Agent and the
document setting forth such Defeasance Agent's rights
and responsibilities;
(2) The Defeasance Agent shall provide verification to
the Trustee acknowledging receipt of sufficient money
and/or U. S. Government
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Obligations to meet the applicable conditions set
forth in this Section 11.05.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely Corporate
Obligations.
No recourse for the payment of the principal of or premium, if
any, or interest on any Security, or for any claim based thereon or otherwise
in respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture, or in any Security, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor Person to the Company, either
directly or through the Company or any successor Person to the Company, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that all
such liability is hereby expressly waived and released as a condition of, and
as a consideration for, the execution of this Indenture and the issue of the
Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.
All the covenants, stipulations, promises and agreements in
this Indenture contained by the Company shall bind its successors and assigns
whether so expressed or not.
SECTION 13.02. Official Acts by Successor Corporation.
Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
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SECTION 13.03. Surrender of Company Powers.
The Company by instrument in writing executed by authority of
2/3 (two-thirds) of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company, and thereupon such power
so surrendered shall terminate both as to the Company, as the case may be, and
as to any successor Person.
SECTION 13.04. Addresses for Notices, etc.
Any notice or demand which by any provision of this Indenture
is required or permitted to be given or served by the Trustee or by the holders
of Securities on the Company may be given or served by being deposited postage
prepaid by first class mail, registered or certified mail, overnight courier
service or conformed telecopy addressed (until another address is filed by the
Company with the Trustee for the purpose) to the Company at 22 West State
Street, Media, Pennsylvania 19063, Attention: Thomas M. Kelly, Executive Vice
President and Chief Financial Officer. Any notice, direction, request or
demand by any Securityholder to or upon the Trustee shall be deemed to have
been sufficiently given or made, for all purposes, if given or made in writing
at the office of the Trustee, 101 Barclay Street, 21st Floor West, New York,
New York 10286, Attention: Corporate Trust, Trustee Administration (unless
another address is provided by the Trustee to the Company for such purpose).
Any notice or communication to a Securityholder shall be mailed by first class
mail to his or her address shown on the register kept by the Security
Registrar. Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
SECTION 13.05. Governing Law.
This Indenture and each Security shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of said State,
without regard to conflicts of laws principles thereof.
SECTION 13.06. Evidence of Compliance with Conditions
Precedent.
Upon any application or demand by the Company to the Trustee
to take any action under any of the provisions of this Indenture, the Company
shall furnish to the Trustee an Officers' Certificate stating that in the
opinion of the signers all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture (except certificates delivered pursuant
to Section 3.05) shall include (1) a state-
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ment that the Person making such certificate or opinion has read such covenant
or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based; (3) a statement that, in the opinion of
such Person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
SECTION 13.07. Business Days.
In any case where the date of payment of principal of or
premium, if any, or interest on the Securities will not be a Business Day, the
payment of such principal of or premium, if any, or interest on the Securities
need not be made on such date but may be made on the next succeeding Business
Day, with the same force and effect as if made on the date of payment and no
interest shall accrue for the period from and after such date, except that if
such next succeeding Business Day falls in the next succeeding calendar year,
then such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
SECTION 13.08. Trust Indenture Act to Control.
If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, such imposed duties shall
control.
SECTION 13.09. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the
articles and sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.10. Execution in Counterparts.
This Indenture may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
SECTION 13.11. Separability.
In case any one or more of the provisions contained in this
Indenture or in the Securities shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of
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this Indenture or of the Securities, but this Indenture and the Securities
shall be construed as if such invalid or illegal or unenforceable provision had
never been contained herein or therein.
SECTION 13.12. Assignment.
The Company will have the right at all times to assign any of
its respective rights or obligations under this Indenture to a direct or
indirect wholly owned Subsidiary of the Company, provided that, in the event of
any such assignment, the Company will remain primarily liable for all such
obligations. Subject to the foregoing, the Indenture is binding upon and
inures to the benefit of the parties thereto and their respective successors
and assigns. This Indenture may not otherwise be assigned by the parties
thereto.
SECTION 13.13. Acknowledgement of Rights.
The Company acknowledges that, with respect to any Securities
held by First Keystone Capital Trust or a trustee of such trust, if the
Property Trustee of such Trust fails to enforce its rights under this Indenture
as the holder of the Securities held as the assets of First Keystone Capital
Trust any holder of Capital Securities may institute legal proceedings directly
against the Company to enforce such Property Trustee's rights under this
Indenture without first instituting any legal proceedings against such Property
Trustee or any other person or entity. Notwithstanding the foregoing, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay principal of or premium, if any, or
interest on the Securities when due, the Company acknowledges that a holder of
Capital Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or premium, if any, or interest on
the Securities having a principal amount equal to the aggregate liquidation
amount of the Capital Securities of such holder on or after the respective due
date specified in the Securities.
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND
OPTIONAL SINKING FUND
SECTION 14.01. Special Event Redemption.
If, prior to the Initial Optional Redemption Date, a Special
Event has occurred and is continuing then, notwithstanding Section 14.02(a) but
subject to Section 14.02(c), the Company shall have the right, at any time
within 90 days following the occurrence of such Special Event and prior to the
Initial Optional Redemption Date, upon (i) not less than 45 days written notice
to the Trustee and (ii) not less than 30 days nor more than 60 days written
notice to the Securityholders, to redeem the Securities, in whole (but not in
part), at the Special Event Redemption Price. Following a Special Event, the
Company
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shall take such action as is necessary to promptly determine the Special Event
Redemption Price, including without limitation the appointment by the Company
of a Quotation Agent. The Special Event Redemption Price shall be paid prior
to 12:00 noon, New York time, on the date of such redemption or such earlier
time as the Company determines, provided that the Company shall deposit with
the Trustee an amount sufficient to pay the Special Event Redemption Price by
10:00 a.m., New York time, on the date such Special Event Redemption Price is
to be paid. The Company shall provide the Trustee with written notice of the
Special Event Redemption Price promptly after the calculation thereof, which
notice shall include any calculation made by the Quotation Agent in connection
with the determination of the Special Event Redemption Price.
SECTION 14.02. Optional Redemption by Company.
(a) Subject to the provisions of this Article XIV, the
Company shall have the right to redeem the Securities, in whole or in part,
from time to time, on or after the Initial Optional Redemption Date, at the
redemption prices set forth below (expressed as percentages of principal) plus,
in each case, accrued and unpaid interest thereon (including Compounded
Interest and Additional Sums, if any) and Liquidated Damages, if any, to the
applicable date of redemption (the "Optional Redemption Price") if redeemed
during the 12-month period beginning August 15, of the years indicated below.
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2007 104.850%
2008 104.365%
2009 103.880%
2010 103.395%
2011 102.910%
2012 102.425%
2013 101.940%
2014 101.455%
2015 100.970%
2016 100.485%
2017 and thereafter 100.000%
</TABLE>
If the Securities are only partially redeemed pursuant to this
Section 14.02, the Securities to be redeemed shall be selected on a pro rata
basis, by lot or other method utilized by the Trustee, not more than 60 days
prior to the date fixed for redemption from
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the outstanding Securities not previously called for redemption, provided,
however, that with respect to Securityholders that would be required to hold
Securities with an aggregate principal amount of less than $100,000 but more
than an aggregate principal amount of zero as a result of such pro rata
redemption, the Company shall redeem Securities of each such Securityholder so
that after such redemption such Securityholder shall hold Securities either
with an aggregate principal amount of at least $100,000 or such Securityholder
no longer holds any Securities and shall use such method (including, without
limitation, by lot) as the Company shall deem fair and appropriate, provided,
further, that any such method of selection may be made on the basis of the
aggregate principal amount of Securities held by each Securityholder and may be
made by making such adjustments as the Company deems fair and appropriate in
order that only Securities in denominations of $1,000 or integral multiples
thereof shall be redeemed. The Optional Redemption Price shall be paid prior
to 12:00 noon, New York time, on the date of such redemption or at such earlier
time as the Company determines, provided that the Company shall deposit with
the Trustee an amount sufficient to pay the Optional Redemption Price by 10:00
a.m., New York time, on the date such Optional Redemption Price is to be paid.
(b) Notwithstanding the first sentence of Section 14.02,
upon the entry of an order for dissolution of First Keystone Capital Trust by a
court of competent jurisdiction, the Securities thereafter will be subject to
optional redemption, in whole only, but not in part, on or after August 15,
2007, at the optional redemption prices set forth in Section 14.02 and
otherwise in accordance with this Article XIV.
(c) Any redemption of Securities pursuant to Section
14.01 or Section 14.02 shall be subject to the receipt by the Company of any
required regulatory approval.
SECTION 14.03. No Sinking Fund.
The Securities are not entitled to the benefit of any sinking
fund.
SECTION 14.04. Notice of Redemption; Selection of
Securities.
In case the Company shall desire to exercise the right to
redeem all, or, as the case may be, any part of the Securities in accordance
with their terms, it shall fix a date for redemption and shall mail a notice of
such redemption at least 30 and not more than 60 days prior to the date fixed
for redemption to the holders of Securities so to be redeemed as a whole or in
part at their last addresses as the same appear on the Security Register. Such
mailing shall be by first class mail. The notice if mailed in the manner
herein provided shall be conclusively presumed to have been duly given, whether
or not the holder receives such notice. In any case, failure to give such
notice by mail or any defect in the notice to the holder of any Security
designated for redemption as a whole or in part shall not affect the validity
of the proceedings for the redemption of any other Security.
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Each such notice of redemption shall specify the CUSIP number
of the Securities to be redeemed, the date fixed for redemption, the redemption
price at which the Securities are to be redeemed (or the method by which such
redemption price is to be calculated), the place or places of payment that
payment will be made upon presentation and surrender of the Securities, that
interest accrued to the date fixed for redemption will be paid as specified in
said notice, and that on and after said date interest thereon or on the
portions thereof to be redeemed will cease to accrue. If less than all the
Securities are to be redeemed the notice of redemption shall specify the
numbers of the Securities to be redeemed. In case any Security is to be
redeemed in part only, the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof will be
issued.
By 10:00 a.m. New York time on the redemption date specified
in the notice of redemption given as provided in this Section, the Company will
deposit with the Trustee or with one or more paying agents an amount of money
sufficient to redeem on the redemption date all the Securities so called for
redemption at the appropriate Redemption Price, together with accrued interest
to the date fixed for redemption.
The Company will give the Trustee notice not less than 45 days
prior to the redemption date as to the aggregate principal amount of Securities
to be redeemed and the Trustee shall select, in such manner as in its sole
discretion it shall deem appropriate and fair, the Securities or portions
thereof (in integral multiples of $1,000, except as otherwise set forth in the
applicable form of Security) to be redeemed.
SECTION 14.05. Payment of Securities Called for Redemption.
If notice of redemption has been given as provided in Section
14.04, the Securities or portions of Securities with respect to which such
notice has been given shall become due and payable on the date and at the place
or places stated in such notice at the applicable Redemption Price, together
with interest accrued to the date fixed for redemption (subject to the rights
of holders of Securities on the close of business on a regular record date in
respect of an Interest Payment Date occurring on or prior to the redemption
date), and on and after said date (unless the Company shall default in the
payment of such Securities at the Redemption Price, together with interest
accrued to said date) interest (including Compounded Interest and Additional
Sums, if any) and Liquidated Damages, if any, on the Securities or portions of
Securities so called for redemption shall cease to accrue. On presentation and
surrender of such Securities at a place of payment specified in said notice,
the said Securities or the specified portions thereof shall be paid and
redeemed by the Company at the applicable Redemption Price, together with
interest (including Compounded Interest and Additional Sums, if any) and
Liquidated Damages, if any, accrued thereon to the date fixed for redemption
(subject to the rights of holders of Securities on the close of business on a
regular record date in respect of an Interest Payment Date occurring on or
prior to the redemption date).
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Upon presentation of any Security redeemed in part only, the
Company shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Security
or Securities of authorized denominations, in principal amount equal to the
unredeemed portion of the Security so presented.
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Company covenants and agrees, and each holder of
Securities issued hereunder likewise covenants and agrees, that the Securities
shall be issued subject to the provisions of this Article XV; and each holder
of a Security, whether upon original issue or upon transfer or assignment
thereof, accepts and agrees to be bound by such provisions.
The payment by the Company of the principal of, premium, if
any, and interest (including Compounded Interest and Additional Sums, if any)
and Liquidated Damages, if any, on all Securities issued hereunder shall, to
the extent and in the manner hereinafter set forth, be subordinated and junior
in right of payment to all Senior Indebtedness, whether outstanding at the date
of this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the occurrence
of any Default or Event of Default hereunder.
SECTION 15.02. Default on Senior Indebtedness.
In the event and during the continuation of any default by the
Company in the payment of principal, premium, interest or any other payment due
on any Senior Indebtedness, or in the event that the maturity of any Senior
Indebtedness has been accelerated because of a default, then, in either case,
no payment shall be made by the Company with respect to the principal
(including redemption payments) of or premium, if any, or interest on the
Securities.
In the event of the acceleration of the maturity of the
Securities, then no payment shall be made by the Company with respect to the
principal (including redemption payments) of or premium, if any, or interest on
the Securities until the holders of all Senior Indebtedness outstanding at the
time of such acceleration shall receive payment in full of such Senior
Indebtedness (including any amounts due upon acceleration).
In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding paragraphs of this Section
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15.02, such payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as
their respective interests may appear, but only to the extent that the holders
of the Senior Indebtedness (or their representative or representatives or a
trustee) notify the Trustee in writing, within 90 days of such payment of the
amounts then due and owing on such Senior Indebtedness and only the amounts
specified in such notice to the Trustee shall be paid to the holders of such
Senior Indebtedness.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any dissolution or winding-up or liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness of the Company shall first be paid in full, or payment thereof
provided for in money in accordance with its terms, before any payment is made
by the Company on account of the principal (and premium, if any) or interest
(including Compounded Interest and Additional Sums, if any) and Liquidated
Damages, if any, on the Securities; and upon any such dissolution or winding-up
or liquidation or reorganization, any payment by the Company, or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, to which the Securityholders or the Trustee would be entitled to
receive from the Company, except for the provisions of this Article XV, shall
be paid by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Securityholders or by the Trustee under the Indenture if received by them or
it, directly to the holders of Senior Indebtedness of the Company (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness held
by such holders, as calculated by the Company) or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
such Senior Indebtedness in full, in money or money's worth, after giving
effect to any concurrent payment or distribution to or for the holders of such
Senior Indebtedness, before any payment or distribution is made to the
Securityholders or to the Trustee.
In the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received by
the Trustee before all Senior Indebtedness is paid in full, or provision is
made for such payment in money in accordance with its terms, such payment or
distribution shall be held in trust for the benefit of and shall be paid over
or delivered to the holders of such Senior Indebtedness or their representative
or representatives, or to the trustee or trustees under any indenture pursuant
to which any instruments evidencing such Senior Indebtedness may have been
issued, as their respective interests may appear, as calculated by the Company,
for application to the payment of all
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Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full in money in accordance with its terms, after giving
effect to any concurrent payment or distribution to or for the benefit of the
holders of such Senior Indebtedness.
For purposes of this Article XV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article XV with respect to the Securities to the payment of Senior Indebtedness
that may at the time be outstanding, provided that (i) such Senior Indebtedness
is assumed by the new corporation, if any, resulting from any such
reorganization or readjustment, and (ii) the rights of the holders of such
Senior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment. The consolidation of the Company with, or
the merger of the Company into, another Person or the liquidation or
dissolution of the Company following the sale, conveyance, transfer or lease of
its property as an entirety, or substantially as an entirety, to another Person
upon the terms and conditions provided for in Article X of this Indenture shall
not be deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section 15.03 if such other Person shall, as a part of such
consolidation, merger, sale, conveyance, transfer or lease, comply with the
conditions stated in Article X of this Indenture. Nothing in Section 15.02 or
in this Section 15.03 shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 6.06 of this Indenture.
SECTION 15.04. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the
rights of the Securityholders shall be subrogated to the rights of the holders
of such Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company, as the case may be, applicable to such
Senior Indebtedness until the principal of (and premium, if any) and interest
on the Securities shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the Securityholders
or the Trustee would be entitled except for the provisions of this Article XV,
and no payment over pursuant to the provisions of this Article XV to or for the
benefit of the holders of such Senior Indebtedness by Securityholders or the
Trustee, shall, as between the Company, its creditors other than holders of
Senior Indebtedness of the Company, and the holders of the Securities, be
deemed to be a payment by the Company to or on account of such Senior
Indebtedness. It is understood that the provisions of this Article XV are and
are intended solely for the purposes of defining the relative rights of the
holders of the Securities, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
Nothing contained in this Article XV or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company, its creditors other than
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the holders of Senior Indebtedness of the Company, and the holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the holders of the Securities the principal of (and premium, if any)
and interest (including Compounded Interest and Additional Sums, if any) and
Liquidated Damages, if any, on the Securities as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the holders of the Securities and creditors of
the Company, as the case may be, other than the holders of Senior Indebtedness
of the Company, as the case may be, nor shall anything herein or therein
prevent the Trustee or the holder of any Security from exercising all remedies
otherwise permitted by applicable law upon default under the Indenture, subject
to the rights, if any, under this Article XV of the holders of such Senior
Indebtedness in respect of cash, property or securities of the Company, as the
case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company
referred to in this Article XV, the Trustee, subject to the provisions of
Article VI of this Indenture, and the Securityholders shall be entitled to
conclusively rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the Trustee or to the Securityholders,
for the purposes of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, as the case may be, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article XV.
SECTION 15.05. Trustee to Effectuate Subordination.
Each Securityholder by such Securityholder's acceptance
thereof authorizes and directs the Trustee on such Securityholder's behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article XV and appoints the Trustee such
Securityholder's attorney-in-fact for any and all such purposes.
SECTION 15.06. Notice by the Company.
The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article XV. Notwithstanding the
provisions of this Article XV or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Securities pursuant to the provisions of this Article XV, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company or a holder or holders of Senior Indebtedness
or from any trustee therefor; and before the receipt of any such written
notice, the Trustee, subject to the provisions of Article VI of this
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Indenture, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the
notice provided for in this Section 15.06 at least two Business Days prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (or
premium, if any) or interest (including Compounded Interest and Additional
Sums, if any) and Liquidated Damages, if any, on any Security), then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purposes
for which they were received, and shall not be affected by any notice to the
contrary that may be received by it within two Business Days prior to such
date.
The Trustee, subject to the provisions of Article VI of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company (or a trustee on behalf of such holder), as the
case may be, to establish that such notice has been given by a holder of such
Senior Indebtedness or a trustee on behalf of any such holder or holders. In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of such Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article XV, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of such Senior
Indebtedness held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent to
the rights of such Person under this Article XV, and, if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Upon any payment or distribution of assets of the Company
referred to in this Article XV, the Trustee and the Securityholders shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
person making such payment or distribution, delivered to the Trustee or to the
Securityholders, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XV.
SECTION 15.07. Rights of the Trustee; Holders of Senior
Indebtedness.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article XV in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder.
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With respect to the holders of Senior Indebtedness of the
Company, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article XV, and
no implied covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Article VI of this
Indenture, the Trustee shall not be liable to any holder of such Senior
Indebtedness if it shall pay over or deliver to Securityholders, the Company or
any other Person money or assets to which any holder of such Senior
Indebtedness shall be entitled by virtue of this Article XV or otherwise.
Nothing in this Article XV shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior
Indebtedness of the Company to enforce subordination as herein provided shall
at any time in any way be prejudiced or impaired by any act or failure to act
on the part of the Company, as the case may be, or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company,
as the case may be, with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof that any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
Securityholders, without incurring responsibility to the Securityholders and
without impairing or releasing the subordination provided in this Article XV or
the obligations hereunder of the holders of the Securities to the holders of
such Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any
manner for the collection of such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company, as the case may be, and
any other Person.
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ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period.
So long as no Event of Default has occurred and is continuing,
the Company shall have the right, at any time and from time to time during the
term of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 10 consecutive
semi-annual periods, including the first such semi-annual period during such
extension period (the "Extended Interest Payment Period"), during which
Extended Interest Payment Period no interest shall be due and payable; provided
that no Extended Interest Payment Period shall end on a date other than an
Interest Payment Date or extend beyond the Maturity Date. To the extent
permitted by applicable law, interest, the payment of which has been deferred
because of the extension of the interest payment period pursuant to this
Section 16.01, will bear interest thereon at the Coupon Rate compounded
semi-annually for each semi-annual period of the Extended Interest Payment
Period ("Compounded Interest"). At the end of the Extended Interest Payment
Period, the Company shall pay all interest accrued and unpaid on the
Securities, including any Additional Sums and Compounded Interest (together,
"Deferred Interest") that shall be payable to the holders of the Securities in
whose names the Securities are registered in the Security Register on the first
record date preceding the end of the Extended Interest Payment Period. Before
the termination of any Extended Interest Payment Period, the Company may
further defer payments of interest by further extending such period, provided
that such period, together with all such previous and further extensions within
such Extended Interest Payment Period, shall not exceed 10 consecutive
semi-annual periods, including the first such semi-annual period during such
Extended Interest Payment Period, end on a date other than an Interest Payment
Date or extend beyond the Maturity Date of the Securities. Upon the
termination of any Extended Interest Payment Period and the payment of all
Deferred Interest then due, the Company may commence a new Extended Interest
Payment Period, subject to the foregoing requirements. No interest shall be
due and payable during an Extended Interest Payment Period, except at the end
thereof, but the Company may prepay at any time all or any portion of the
interest accrued during an Extended Interest Payment Period.
SECTION 16.02. Notice of Extension.
(a) If the Property Trustee is the only registered holder of
the Securities at the time the Company selects an Extended Interest Payment
Period, the Company shall give written notice to the Administrative Trustees,
the Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period five Business Days before the earlier of (i) the next succeeding
date on which Distributions on the Trust Securities issued by the Trust are
payable, or (ii) the date the Trust is required to give notice of the record
date, or the date such Distributions are payable, to any national securities
exchange or to holders
72
<PAGE> 82
of the Capital Securities issued by the Trust, but in any event at least five
Business Days before such record date.
(b) If the Property Trustee is not the only holder of the
Securities at the time the Company selects an Extended Interest Payment Period,
the Company shall give the holders of the Securities and the Trustee written
notice of its selection of such Extended Interest Payment Period at least 10
Business Days before the earlier of (i) the next succeeding Interest Payment
Date, or (ii) the date the Company is required to give notice of the record or
payment date of such interest payment to any national securities exchange.
(c) The semi-annual period in which any notice is given
pursuant to paragraphs (a) or (b) of this Section 16.02 shall be counted as one
of the 10 semi-annual periods permitted in the maximum Extended Interest
Payment Period permitted under Section 16.01.
73
<PAGE> 83
The Bank of New York hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed by their respective officers thereunto duly
authorized, as of the day and year first above written.
FIRST KEYSTONE FINANCIAL, INC.
By:
----------------------------------
Name: Thomas M. Kelly
Title: Executive Vice President
and Chief Financial Officer
THE BANK OF NEW YORK,
as Trustee
By:
----------------------------------
Name:
Title:
74
<PAGE> 84
EXHIBIT A
(FORM OF FACE OF SECURITY)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
"AFFILIATE" OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING
THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) OR
(E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
OTHER INFORMATION SATISFACTORY TO THE COMPANY, AND (ii) PURSUANT TO CLAUSE (D),
TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE REVERSE
OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE COMPANY.
SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON
A-1
<PAGE> 85
TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN
BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000 (100
SECURITIES). ANY SUCH TRANSFER OF SECURITIES IN A BLOCK HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO
LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE
HOLDER OF SUCH SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE
RECEIPT OF PRINCIPAL, PREMIUM (IF ANY) OR INTEREST OF SUCH SECURITIES, AND SUCH
TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH SECURITIES.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA") OR (ii) THE ACQUISITION AND HOLDING OF THIS SECURITY BY IT IS NOT
PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE U.S. INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR EXEMPT FROM ANY SUCH PROHIBITION.
A-2
<PAGE> 86
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE
ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY.
No. CUSIP No. 320655 AA 1
FIRST KEYSTONE FINANCIAL, INC.
9.70% SERIES A JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURE DUE AUGUST 15, 2027
First Keystone Financial, Inc., a Pennsylvania corporation
(the "Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to The
Bank of New York, as Property Trustee for First Keystone Capital Trust I or
registered assigns, the principal sum of $16,702,000 on August 15, 2027 (the
"Maturity Date"), unless previously redeemed, and to pay interest on the
outstanding principal amount hereof from August 26, 1997, or from the most
recent interest payment date (each such date, an "Interest Payment Date") to
which interest has been paid or duly provided for, semi-annually (subject to
deferral as set forth herein) in arrears on February 15 and August 15 of each
year, commencing February 15, 1998, at the rate of 9.70% per annum until the
principal hereof shall have become due and payable, and on any overdue
principal and premium, if any, and (without duplication and to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the same rate per annum compounded semi-annually.
The amount of interest payable on any Interest Payment Date shall be computed
on the basis of a 360-day year of twelve 30-day months and, for any period less
than a full calendar month, the number of days elapsed in such month based on a
30-day month. In the event that any date on which the principal of (or
premium, if any) or interest on this Security is payable is not a Business Day,
then the payment payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that if such next succeeding Business Day falls in the
next calendar year, then such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. Pursuant to the Indenture, in certain circumstances the Company
will be required to pay Additional Sums and Compounded Interest (each as
defined in the Indenture) with respect to this Security. Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Company
will be required to pay Liquidated Damages (as defined in the Registration
Rights Agreement) with respect to this Security.
A-3
<PAGE> 87
The interest installment so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities, as defined in said Indenture) is registered at the
close of business on the regular record date for such interest installment,
which shall be at the close of business on the first day of the month in which
the relevant interest payment date falls. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
holders on such regular record date and may be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is registered at the
close of business on a special record date to be fixed by the Trustee for the
payment of such defaulted interest, notice whereof shall be given to the
holders of Securities not less than 10 days prior to such special record date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Indenture.
The principal of (and premium, if any) and interest (including
Compounded Interest and Additional Sums, if any) and Liquidated Damages, if
any, on this Security shall be payable at the office or agency of the Trustee
maintained for that purpose in any coin or currency of the United States of
America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that, payment of interest may be made at the
option of the Company by (i) check mailed to the holder at such address as
shall appear in the Security Register or (ii) by transfer to an account
maintained by the Person entitled thereto, provided that proper written
transfer instructions have been received by the relevant record date.
Notwithstanding the foregoing, so long as the Holder of this Security is the
Property Trustee, the payment of the principal of (and premium, if any) and
interest (including Compounded Interest and Additional Sums, if any) and
Liquidated Damages, if any, on this Security will be made at such place and to
such account as may be designated by the Property Trustee.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each holder
of this Security, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee on his or her behalf to
take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Trustee his or
her attorney-in-fact for any and all such purposes. Each holder hereof, by his
or her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder
of Senior Indebtedness, whether now outstanding or hereafter incurred, and
waives reliance by each such holder upon said provisions.
This Security shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed
by or on behalf of the Trustee.
A-4
<PAGE> 88
The provisions of this Security are continued on the reverse
side hereof and such provisions shall for all purposes have the same effect as
though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed and sealed.
<TABLE>
<S> <C>
Dated: , 1997
----------------
FIRST KEYSTONE FINANCIAL, INC.
By:
----------------------------------
Name: Thomas M. Kelly
Title: Executive Vice President and
Chief Financial Officer
Attest:
By:
-----------------------
Name:
Title:
</TABLE>
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
<TABLE>
<S> <C> <C>
THE BANK OF NEW YORK, Dated: , 1997
as Trustee -------------------
By
---------------------
Authorized Signatory
</TABLE>
A-5
<PAGE> 89
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Company (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of August
26, 1997 (the "Indenture"), duly executed and delivered between the Company and
The Bank of New York, as Trustee (the "Trustee"), to which Indenture reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Securities.
Upon the occurrence and continuation of a Special Event prior
to August 15, 2007 (the "Initial Optional Redemption Date"), the Company shall
have the right, at any time within 90 days following the occurrence of such
Special Event, to redeem this Security in whole (but not in part) at the
Special Event Redemption Price. "Special Event Redemption Price" shall mean,
with respect to any redemption of the Securities following a Special Event, an
amount in cash equal to the Make Whole Amount. The "Make Whole Amount" shall
mean an amount equal to the greater of (i) 100% of the principal amount to be
redeemed or (ii) the sum, as determined by a Quotation Agent, of the present
values of remaining scheduled payments of principal and interest, discounted to
the prepayment date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus, in the case of
each of clauses (i) and (ii), any accrued and unpaid interest thereon
(including Compounded Interest and Additional Sums, if any) and Liquidated
Damages, if any, to the date of such redemption.
In addition, the Company shall have the right to redeem this
Security, in whole or in part, at any time on or after the Initial Optional
Redemption Date (an "Optional Redemption"), at the redemption prices set forth
below (expressed as percentages of principal to be redeemed) plus, in each
case, accrued and unpaid interest thereon (including Additional Sums and
Compounded Interest, if any) and Liquidated Damages, if any, to the applicable
date of redemption (the "Optional Redemption Price") if redeemed during the
12-month period beginning August 15 of the years indicated below.
A-6
<PAGE> 90
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2007 104.850%
2008 104.365%
2009 103.880%
2010 103.395%
2011 102.910%
2012 102.425%
2013 101.940%
2014 101.455%
2015 100.970%
2016 100.485%
2017 and thereafter 100.000%
</TABLE>
The Optional Redemption Price or the Special Event Redemption
Price, as the case requires, shall be paid prior to 12:00 noon, New York time,
on the date of such redemption or at such earlier time as the Company
determines, provided, that the Company shall deposit with the Trustee an amount
sufficient to pay the applicable Redemption Price by 10:00 a.m., New York City,
on the date such Redemption Price is to be paid. Any redemption pursuant to
this paragraph will be made upon not less than 30 days nor more than 60 days
notice. If the Securities are only partially redeemed by the Company pursuant
to an Optional Redemption, the particular Securities to be redeemed shall be
selected on a pro rata basis, by lot or such other method that the Trustee
shall utilize, not more than 60 days prior to the date fixed for redemption
from the outstanding Securities not previously called for redemption, provided,
however, that with respect to Securityholders that would be required to hold
Securities with an aggregate principal amount of less than $100,000 but more
than an aggregate principal amount of zero as a result of such pro rata
redemption, the Company shall redeem Securities of each such Securityholder so
that after such redemption such Securityholder shall hold Securities either
with an aggregate principal amount of at least $100,000 or such Securityholder
no longer holds any Securities and shall use such method (including, without
limitation, by lot) as the Company shall deem fair and appropriate, provided,
further, that any such method of selection may be made on the basis of the
aggregate principal amount of Securities held by each Securityholder thereof
and may be made by making such adjustments as the Company deems fair and
appropriate in order that only Securities in denominations of $1,000 or
integral multiples thereof shall be redeemed.
A-7
<PAGE> 91
In the event of redemption of this Security in part only, a
new Security or Securities for the unredeemed portion hereof will be issued in
the name of the holder hereof upon the cancellation hereof.
Notwithstanding the foregoing, any redemption of Securities by
the Company shall be subject to the receipt of any required regulatory
approval.
In case an Event of Default, as defined in the Indenture,
shall have occurred and be continuing, the principal of all of the Securities
may be declared, and upon such declaration shall become, due and payable, in
the manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of a majority in aggregate
principal amount of the Securities at the time outstanding, as defined in the
Indenture, to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the holders of the
Securities; provided, however, that no such supplemental indenture shall,
without the consent of each holder of Securities then outstanding and affected
thereby, (i) change the Maturity Date of any Securities, or reduce the
principal amount thereof, or reduce any amount payable on redemption thereof,
or reduce the rate or extend the time of payment of interest thereon (subject
to Article XVI of the Indenture), or make the principal of, or interest or
premium on, the Securities payable in any coin or currency other than U.S.
dollars, or impair or affect the right of any holder of Securities to institute
suit for the payment thereof, or (ii) reduce the aforesaid percentage of
Securities, the holders of which are required to consent to any such
supplemental indenture. The Indenture also contains provisions permitting the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding affected thereby, on behalf of all of the holders of the
Securities, to waive any past default in the performance of any of the
covenants contained in the Indenture, or established pursuant to the Indenture,
and its consequences, except a default in the payment of the principal of or
premium, if any, or interest on any of the Securities or a default in respect
of any covenant or provision under which the Indenture cannot be modified or
amended without the consent of each holder of Securities then outstanding. Any
such consent or waiver by the holder of this Security (unless revoked as
provided in the Indenture) shall be conclusive and binding upon such Holder and
upon all future holders and owners of this Security and of any Security issued
in exchange herefor or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest (including Compounded Interest and Additional
Sums, if any) and Liquidated Damages, if any, on this Security at the time and
place and at the rate and in the money herein prescribed.
A-8
<PAGE> 92
So long as no Event of Default shall have occurred and be
continuing, the Company shall have the right, at any time and from time to time
during the term of the Securities, to defer payments of interest by extending
the interest payment period of such Securities for a period not exceeding 10
consecutive semi-annual periods, including the first such semi-annual period
during such extension period, and not extending beyond the Maturity Date of the
Securities (an "Extended Interest Payment Period") or ending on a date other
than an Interest Payment Date, at the end of which period the Company shall pay
all interest then accrued and unpaid (together with interest thereon at the
rate specified for the Securities to the extent that payment of such interest
is enforceable under applicable law). Before the termination of any such
Extended Interest Payment Period, the Company may further defer payments of
interest by further extending such Extended Interest Payment Period, provided
that such Extended Interest Payment Period, together with all such previous and
further extensions within such Extended Interest Payment Period, (i) shall not
exceed 10 consecutive semi-annual periods, including the first semi-annual
period during such Extended Interest Payment Period, (ii) shall not end on any
date other than an Interest Payment Date, and (iii) shall not extend beyond the
Maturity Date of the Securities. Upon the termination of any such Extended
Interest Payment Period and the payment of all accrued and unpaid interest and
any additional amounts then due, the Company may commence a new Extended
Interest Payment Period, subject to the foregoing requirements.
The Company has agreed that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock), (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in right of
payment to the Securities or (iii) make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any Subsidiary of the
Company if such guarantee ranks pari passu or junior in right of payment to the
Securities (other than (a) dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock of the
Company, (b) any declaration of a dividend in connection with the
implementation of a stockholder's rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Capital Securities Guarantee, (d) as a
result of a reclassification of the Company's capital stock or the exchange or
the conversion of one class or series of the Company's capital stock, for
another class or series of the Company's capital stock, (e) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
exchange or conversion of such capital stock or the security being exchanged or
converted and (f) purchases of Common Stock related to the issuance of Common
Stock or rights under any of the Company's benefit plans for its directors,
officers or employees or any of the Company's dividend reinvestment plans) if
at such time (1) there shall have occurred any event of which the Company has
actual knowledge that (a) is or, with the giving of notice or the lapse of
time, or both, would be, an Event of Default and (b) in respect of which the
Company shall not have taken reasonable steps to cure, (2) if the Securities
are held by First Keystone Capital Trust, the Company shall be in default with
A-9
<PAGE> 93
respect to its payment obligations under the Capital Securities Guarantee or
(3) the Company shall have given notice of its election of the exercise of its
right to extend the interest payment period and any such extension shall be
continuing.
Subject to (i) the receipt of any required regulatory approval
and (ii) the receipt by the Company of an opinion of counsel to the effect that
such distribution will not be a taxable event to holders of Capital Securities,
the Company will have the right at any time to liquidate First Keystone Capital
Trust and cause the Securities to be distributed to the holders of the Trust
Securities in liquidation of the Trust.
The Securities are issuable only in registered form without
coupons in denominations of $1,000.00 and any integral multiple thereof. As
provided in the Indenture and subject to the transfer restrictions limitations
as may be contained herein and therein from time to time, this Security is
transferable by the holder hereof on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or
the Trustee duly executed by the holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Securities of authorized
denominations and for the same aggregate principal amount and series will be
issued to the designated transferee or transferees. No service charge will be
made for any such registration of transfer, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
relation thereto.
Prior to due presentment for registration of transfer of this
Security, the Company, the Trustee, any authenticating agent, any paying agent,
any transfer agent and the registrar may deem and treat the holder hereof as
the absolute owner hereof (whether or not this Security shall be overdue and
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Security Registrar) for the purpose of receiving payment of or on
account of the principal hereof and premium, if any, and (subject to the
Indenture) interest due hereon and for all other purposes, and neither the
Company nor the Trustee nor any authenticating agent nor any paying agent nor
any transfer agent nor any registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest on this Security, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture, against any incorporator, stockholder, officer or director, past,
present or future, as such, of the Company or of any predecessor or successor
Person, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.
A-10
<PAGE> 94
All terms used in this Security that are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAW PROVISIONS THEREOF.
A-11
<PAGE> 1
EXHIBIT 4.3
====================================
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
FIRST KEYSTONE FINANCIAL, INC.
Dated as of August 26, 1997
====================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------------------------
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--------------------------------
SECTION 2.2 Lists of Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------------------
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------------------------------------------
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . 6
--------------------------------------------------------
SECTION 2.5 Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------------------------------------------
SECTION 2.6 Events of Default; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------------
SECTION 2.7 Event of Default; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------------------
SECTION 2.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . 8
-------------------------------------------------------------
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee . . . . . . . . . . . . . . . . . . . . . . . 10
------------------------------------------------------
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A Capital Securities Guarantee . . . . . . . . . . . 12
---------------------------------------------------------------------------------
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------------------------------------------
SECTION 4.2 Appointment, Removal and Resignation of Capital Securities Guarantee Trustee . . . . . . . . . . . . . 13
----------------------------------------------------------------------------
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------
SECTION 5.2 Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------------------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 5.3 Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------
SECTION 5.4 Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------
SECTION 5.5 Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------------
SECTION 5.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------
SECTION 5.7 Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-----------------------
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
--------------------------
SECTION 6.2 Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------
ARTICLE VII
TERMINATION
SECTION 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----------
ARTICLE VIII
COMPENSATION AND EXPENSES OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 8.1 Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------------
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-----------
SECTION 9.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------------------
SECTION 10.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
SECTION 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
SECTION 10.4 Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------------
SECTION 10.5 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------
SECTION 10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------
</TABLE>
ii
<PAGE> 4
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Series A Capital Securities
Guarantee"), dated as of August 26, 1997, is executed and delivered by First
Keystone Financial, Inc., a Pennsylvania corporation (the "Guarantor"), and The
Bank of New York, a New York banking corporation, as trustee (the "Capital
Securities Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Series A Capital Securities (as defined
herein) of First Keystone Capital Trust I, a Delaware statutory business trust
(the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of August 26, 1997, among the trustees of
the Issuer, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 16,200 capital securities, having an aggregate
liquidation amount of $16,200,000, such capital securities being designated the
Series A 9.70% Capital Securities (collectively the "Series A Capital
Securities") and, in connection with an Exchange Offer (as defined in the
Declaration), has agreed to execute and deliver the Series B Capital Securities
Guarantee (as defined in the Declaration) for the benefit of holders of the
Series B Capital Securities (as defined in the Declaration); and
WHEREAS, as incentive for the Holders to purchase the Series A
Capital Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Series A Capital Securities Guarantee,
to pay to the Holders the Guarantee Payments (as defined below) and to make
certain other payments on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is executing and delivering a guarantee
agreement (the "Common Securities Guarantee"), with substantially identical
terms to this Series A Capital Securities Guarantee, for the benefit of the
holders of the Common Securities (as defined herein), except that if an Event
of Default (as defined in the Declaration) has occurred and is continuing, the
rights of holders of the Common Securities to receive Guarantee Payments under
the Common Securities Guarantee are subordinated, to the extent and in the
manner set forth in the Common Securities Guarantee, to the rights of holders
of Series A Capital Securities and the Series B Capital Securities to receive
Guarantee Payments under this Series A Capital Securities Guarantee and the
Series B Capital Securities Guarantee, as the case may be;
NOW, THEREFORE, in consideration of the purchase by each
Holder, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, the Guarantor executes and delivers this Series A Capital Securities
Guarantee for the benefit of the Holders.
<PAGE> 5
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Series A Capital Securities Guarantee, unless the
context otherwise requires:
(a) Capitalized terms used in this Series A Capital
Securities Guarantee but not defined in the preamble
above have the respective meanings assigned to them
in this Section 1.1;
(b) Terms defined in the Declaration as of the date of
execution of this Series A Capital Securities
Guarantee have the same meaning when used in this
Series A Capital Securities Guarantee unless
otherwise defined in this Series A Capital Securities
Guarantee;
(c) a term defined anywhere in this Series A Capital
Securities Guarantee has the same meaning throughout;
(d) all references to "the Series A Capital Securities
Guarantee" or "this Series A Capital Securities
Guarantee" are to this Series A Capital Securities
Guarantee as modified, supplemented or amended from
time to time;
(e) all references in this Series A Capital Securities
Guarantee to Articles and Sections are to Articles
and Sections of this Series A Capital Securities
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the
same meaning when used in this Series A Capital
Securities Guarantee, unless otherwise defined in
this Series A Capital Securities Guarantee or unless
the context otherwise requires; and
(g) a reference to the singular includes the plural and
vice versa.
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act of 1933, as amended, or any successor rule
thereunder.
"Business Day" means any day other than a Saturday or a
Sunday, or a day on which banking institutions in the City of New York or the
Town of Media, Pennsylvania are authorized or required by law or executive
order to close.
2
<PAGE> 6
"Capital Securities Guarantee Trustee" means The Bank of New
York, a New York banking corporation, until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Series A Capital Securities Guarantee and thereafter means
each such Successor Capital Securities Guarantee Trustee.
"Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Capital
Securities Guarantee Trustee at which the corporate trust business of the
Capital Securities Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of this
Agreement is located at 101 Barclay Street, New York, New York 10286.
"Covered Person" means any Holder of Series A Capital
Securities.
"Debentures" means the series of subordinated debt securities
of the Guarantor designated the Series A 9.70% Junior Subordinated Deferrable
Interest Debentures due August 15, 2027 held by the Property Trustee (as
defined in the Declaration) of the Issuer.
"Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Series A Capital Securities
Guarantee, provided, however, that except with respect to a default in payment
of any Guarantee Payment, the Guarantor shall have received notice of default
and shall not have cured such default within 60 days after receipt of such
notice.
"Guarantee Payments" means the following payments or
distributions, without duplication, with respect to the Series A Capital
Securities, to the extent not paid or made by the Issuer: (i) any accumulated
and unpaid Distributions (as defined in the Declaration) that are required to
be paid on such Series A Capital Securities to the extent the Issuer has funds
on hand legally available therefor at such time, (ii) the redemption price,
including all accumulated and unpaid Distributions to the date of redemption
(the "Redemption Price") to the extent the Issuer has funds on hand legally
available therefor at such time, with respect to any Series A Capital
Securities called for redemption by the Issuer and (iii) upon a voluntary or
involuntary termination and liquidation of the Issuer (other than in connection
with the distribution of Debentures to the Holders in exchange for Series A
Capital Securities as provided in the Declaration), the lesser of (a) the
aggregate of the liquidation amount and all accumulated and unpaid
Distributions on the Series A Capital Securities to the date of payment, to the
extent the Issuer has funds on hand legally available therefor, and (b) the
amount of assets of the Issuer remaining available for distribution to Holders
in liquidation of the Issuer. If an Event of Default has occurred and is
continuing, no Guarantee Payments under the Common Securities Guarantee with
respect to the Common Securities or any guarantee payment under any Other
Common Securities
3
<PAGE> 7
Guarantees shall be made until the Holders shall be paid in full the Guarantee
Payments to which they are entitled under this Series A Capital Securities
Guarantee.
"Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Series A Capital Securities; provided, however,
that, in determining whether the holders of the requisite percentage of Series
A Capital Securities have given any request, notice, consent or waiver
hereunder, "Holder" shall not include the Guarantor or any Person known to a
Responsible Officer of the Capital Securities Guarantee Trustee to be an
Affiliate of the Guarantor.
"Indemnified Person" means the Capital Securities Guarantee
Trustee, any Affiliate of the Capital Securities Guarantee Trustee, or any
officers, directors, shareholders, members, partners, employees,
representatives, nominees, custodians or agents of the Capital Securities
Guarantee Trustee.
"Indenture" means the Indenture dated as of August 26, 1997,
among the Guarantor (the "Debenture Issuer") and The Bank of New York, as
trustee (the "Indenture Trustee"), pursuant to which the Debentures are to be
issued to the Property Trustee of the Issuer.
"Indenture Event of Default" shall mean any event specified in
Section 5.01 of the Indenture.
"Majority in liquidation amount of the Series A Capital
Securities" means, except as provided by the Declaration or by the Trust
Indenture Act, a vote by Holder(s) of more than 50% of the aggregate
liquidation amount of all Series A Capital Securities.
"Officers' Certificate" means, with respect to the Guarantor,
a certificate signed by any of the Chairman, a Vice Chairman, the Chief
Executive Officer, the President, a Vice President, the Comptroller, the
Secretary or an Assistant Secretary of the Guarantor. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Series A Capital Securities Guarantee (other than pursuant
to Section 314(d)(4) of the Trust Indenture Act) shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions
relating thereto;
(b) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(c) a statement as to whether, in the opinion of each
such officer, such condition or covenant has been complied with.
4
<PAGE> 8
"Other Common Securities Guarantees" shall have the same
meaning as "Other Guarantees" as defined in the Common Securities Guarantee.
"Other Debentures" means all junior subordinated debentures
issued by the Guarantor from time to time and sold to trusts to be established
by the Guarantor (if any), in each case similar to the Issuer.
"Other Guarantees" means all guarantees to be issued by the
Guarantor with respect to capital securities (if any) similar to the Series A
Capital Securities issued by other trusts to be established by the Guarantor
(if any), in each case similar to the Issuer.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of August 26, 1997, by and among the Guarantor, the Issuer
and the initial purchasers named therein as such agreement may be amended,
modified or supplemented from time to time.
"Responsible Officer" means, with respect to the Capital
Securities Guarantee Trustee, any officer within the Corporate Trust Office of
the Capital Securities Guarantee Trustee with direct responsibility for the
administration of this Series A Capital Securities Guarantee and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and familiarity
with the particular subject.
"Successor Capital Securities Guarantee Trustee" means a
successor Capital Securities Guarantee Trustee possessing the qualifications to
act as Capital Securities Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trust Securities" means the Common Securities and the Series
A Capital Securities and Series B Capital Securities, collectively.
5
<PAGE> 9
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Series A Capital Securities Guarantee is subject
to the provisions of the Trust Indenture Act that are required to be part of
this Series A Capital Securities Guarantee and shall, to the extent applicable,
be governed by such provisions; and
(b) if and to the extent that any provision of this
Series A Capital Securities Guarantee limits, qualifies or conflicts with the
duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act,
such imposed duties shall control.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Capital Securities Guarantee
Trustee (unless the Capital Securities Guarantee Trustee is otherwise the
registrar of the Capital Securities) with a list, in such form as the Capital
Securities Guarantee Trustee may reasonably require, of the names and addresses
of the Holders ("List of Holders") as of such date, (i) within 14 days after
each Record Date, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
14 days before such List of Holders is given to the Capital Securities
Guarantee Trustee, provided, that the Guarantor shall not be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Capital Securities Guarantee
Trustee by the Guarantor. The Capital Securities Guarantee Trustee may destroy
any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Capital Securities Guarantee Trustee shall comply
with its obligations under Sections 311(a), 311(b) and Section 312(b) of the
Trust Indenture Act.
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee
Within 60 days after May 15 of each year, commencing May 15,
1998, the Capital Securities Guarantee Trustee shall provide to the Holders
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form and in the manner provided by Section 313 of the Trust Indenture
Act. The Capital Securities Guarantee Trustee shall also comply with the other
requirements of Section 313 of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee
The Guarantor shall provide to the Capital Securities
Guarantee Trustee such documents, reports and information as required by
Section 314 (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner
6
<PAGE> 10
and at the times required by Section 314 of the Trust Indenture Act, provided
that such compliance certificate shall be delivered on or before 120 days after
the end of each fiscal year of the Guarantor. Delivery of such reports,
information and documents to the Capital Securities Guarantee Trustee is for
informational purposes only and the Capital Securities Guarantee Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Guarantor's compliance with any of its covenants hereunder (as to which the
Capital Securities Guarantee Trustee is entitled to rely exclusively on
Officers' Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Capital Securities
Guarantee Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Series A Capital Securities Guarantee that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Series A
Capital Securities may, by vote, on behalf of all Holders, waive any past Event
of Default and its consequences. Upon such waiver, any such Event of Default
shall cease to exist, and any Event of Default arising therefrom shall be
deemed to have been cured, for every purpose of this Series A Capital
Securities Guarantee, but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 2.7 Event of Default; Notice
(a) The Capital Securities Guarantee Trustee shall,
within 90 days after the occurrence of a default with respect to this Capital
Securities Guarantee, mail by first class postage prepaid, to all Holders,
notices of all defaults actually known to a Responsible Officer, unless such
defaults have been cured before the giving of such notice, provided, that,
except in the case of default in the payment of any Guarantee Payment, the
Capital Securities Guarantee Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, or a
trust committee of directors and/or a Responsible Officer in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Capital Securities Guarantee Trustee shall not be
deemed to have knowledge of any Event of Default unless the Capital Securities
Guarantee Trustee shall have received written notice from the Guarantor, or a
Responsible Officer charged with the administration of this Series A Capital
Securities Guarantee shall have obtained actual knowledge, of such Event of
Default.
7
<PAGE> 11
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described
in this Series A Capital Securities Guarantee for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee
(a) This Series A Capital Securities Guarantee shall be
held by the Capital Securities Guarantee Trustee for the benefit of the
Holders, and the Capital Securities Guarantee Trustee shall not transfer this
Series A Capital Securities Guarantee to any Person except a Holder exercising
his or her rights pursuant to Section 5.4(b) or to a Successor Capital
Securities Guarantee Trustee on acceptance by such Successor Capital Securities
Guarantee Trustee of its appointment to act as Successor Capital Securities
Guarantee Trustee. The right, title and interest of the Capital Securities
Guarantee Trustee shall automatically vest in any Successor Capital Securities
Guarantee Trustee, and such vesting and succession of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to the appointment of such Successor Capital Securities Guarantee Trustee.
(b) If an Event of Default actually known to a
Responsible Officer has occurred and is continuing, the Capital Securities
Guarantee Trustee shall enforce this Series A Capital Securities Guarantee for
the benefit of the Holders.
(c) The Capital Securities Guarantee Trustee, before the
occurrence of any Event of Default and after the curing of all Events of
Default that may have occurred, shall undertake to perform only such duties as
are specifically set forth in this Series A Capital Securities Guarantee, and
no implied covenants shall be read into this Series A Capital Securities
Guarantee against the Series A Capital Securities Guarantee Trustee. In case
an Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) and is actually known to a Responsible Officer, the Capital
Securities Guarantee Trustee shall exercise such of the rights and powers
vested in it by this Series A Capital Securities Guarantee, and use the same
degree of care and skill in its exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Series A Capital Securities
Guarantee shall be construed to relieve the Capital Securities Guarantee
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
8
<PAGE> 12
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may
have occurred:
(A) the duties and obligations of the Capital
Securities Guarantee Trustee shall be determined solely by the
express provisions of this Series A Capital Securities
Guarantee, and the Capital Securities Guarantee Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Series A
Capital Securities Guarantee, and no implied covenants or
obligations shall be read into this Series A Capital
Securities Guarantee against the Capital Securities Guarantee
Trustee; and
(B) in the absence of bad faith on the part of
the Capital Securities Guarantee Trustee, the Capital
Securities Guarantee Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished
to the Capital Securities Guarantee Trustee and conforming to
the requirements of this Series A Capital Securities
Guarantee; but in the case of any such certificates or
opinions that by any provision hereof are specifically
required to be furnished to the Capital Securities Guarantee
Trustee, the Capital Securities Guarantee Trustee shall be
under a duty to examine the same to determine whether or not
they conform to the requirements of this Series A Capital
Securities Guarantee;
(ii) the Capital Securities Guarantee Trustee shall not be
liable for any error of judgment made in good faith by a Responsible
Officer, unless it shall be proved that the Capital Securities
Guarantee Trustee was negligent in ascertaining the pertinent facts
upon which such judgment was made;
(iii) the Capital Securities Guarantee Trustee shall not be
liable with respect to any action taken or omitted to be taken by it
in good faith in accordance with the direction of the Holders of a
Majority in liquidation amount of the Series A Capital Securities
relating to the time, method and place of conducting any proceeding
for any remedy available to the Capital Securities Guarantee Trustee,
or exercising any trust or power conferred upon the Capital Securities
Guarantee Trustee under this Series A Capital Securities Guarantee;
and
(iv) no provision of this Series A Capital Securities
Guarantee shall require the Capital Securities Guarantee Trustee to
expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if the Capital Securities Guarantee
Trustee shall have reasonable grounds for believing that the repayment
of such funds or liability is not reasonably assured to it under the
terms of this Series A Capital Securities Guarantee or indemnity,
reasonably satisfactory to the Capital Securities Guarantee Trustee,
against such risk or liability is not reasonably assured to it.
9
<PAGE> 13
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Capital Securities Guarantee Trustee may conclusively
rely, and shall be fully protected in acting or refraining from
acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Series A Capital Securities Guarantee may be sufficiently
evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Series A
Capital Securities Guarantee, the Capital Securities Guarantee Trustee
shall deem it desirable that a matter be proved or established before
taking, suffering or omitting any action hereunder, the Capital
Securities Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the
Guarantor.
(iv) The Capital Securities Guarantee Trustee shall have no
duty to see to any recording, filing or registration of any instrument
(or any rerecording, refiling or registration thereof).
(v) The Capital Securities Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such counsel
with respect to legal matters shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with such advice or
opinion. Such counsel may be counsel to the Guarantor or any of its
Affiliates and may include any of its employees. The Capital
Securities Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Series A Capital
Securities Guarantee from any court of competent jurisdiction.
(vi) The Capital Securities Guarantee Trustee shall be under
no obligation to exercise any of the rights or powers vested in it by
this Series A Capital Securities Guarantee at the request or direction
of any Holder, unless such Holder shall have provided to the Capital
Securities Guarantee Trustee such security and indemnity, reasonably
satisfactory to the Capital Securities Guarantee Trustee, against the
costs, expenses (including attorneys' fees and expenses and the
expenses of the Capital Securities Guarantee Trustee's agents,
nominees or custodians) and liabilities that
10
<PAGE> 14
might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the Capital
Securities Guarantee Trustee; provided that, nothing contained in this
Section 3.2(a)(vi) shall be taken to relieve the Capital Securities
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Series A Capital Securities Guarantee.
(vii) The Capital Securities Guarantee Trustee shall not be
bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Capital Securities Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may
see fit.
(viii) The Capital Securities Guarantee Trustee may execute
any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents, nominees, custodians or
attorneys, and the Capital Securities Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney appointed with due care by it hereunder.
(ix) Any action taken by the Capital Securities Guarantee
Trustee or its agents hereunder shall bind the Holders, and the
signature of the Capital Securities Guarantee Trustee or its agents
alone shall be sufficient and effective to perform any such action.
No third party shall be required to inquire as to the authority of the
Capital Securities Guarantee Trustee to so act or as to its compliance
with any of the terms and provisions of this Series A Capital
Securities Guarantee, both of which shall be conclusively evidenced by
the Capital Securities Guarantee Trustee's or its agent's taking such
action.
(x) Whenever in the administration of this Series A Capital
Securities Guarantee the Capital Securities Guarantee Trustee shall
deem it desirable to receive instructions with respect to enforcing
any remedy or right or taking any other action hereunder, the Capital
Securities Guarantee Trustee (i) may request instructions from the
Holders of a Majority in liquidation amount of the Series A Capital
Securities, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received and
(iii) shall be protected in conclusively relying on or acting in
accordance with such instructions.
(xi) The Capital Securities Guarantee Trustee shall not be
liable for any action taken, suffered, or omitted to be taken by it in
good faith, without negligence, and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Series A Capital Securities Guarantee.
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<PAGE> 15
(b) No provision of this Series A Capital Securities
Guarantee shall be deemed to impose any duty or obligation on the Capital
Securities Guarantee Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it in any jurisdiction in
which it shall be illegal, or in which the Capital Securities Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Capital
Securities Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A Capital
Securities Guarantee
The recitals contained in this Series A Capital Securities
Guarantee shall be taken as the statements of the Guarantor, and the Capital
Securities Guarantee Trustee does not assume any responsibility for their
correctness. The Capital Securities Guarantee Trustee makes no representation
as to the validity or sufficiency of this Series A Capital Securities
Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility
(a) There shall at all times be a Capital Securities
Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or Person
permitted by the Securities and Exchange Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined
capital and surplus of at least 50 million U.S. dollars ($50,000,000),
and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or
to the requirements of the supervising or examining authority referred
to above, then, for the purposes of this Section 4.1(a)(ii), the
combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Capital Securities Guarantee
Trustee shall cease to be eligible to so act under Section 4.1(a), the Capital
Securities Guarantee Trustee shall immediately resign in the manner and with
the effect set out in Section 4.2(c).
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(c) If the Capital Securities Guarantee Trustee has or
shall acquire any "conflicting interest" within the meaning of Section 310(b)
of the Trust Indenture Act, the Capital Securities Guarantee Trustee and
Guarantor shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act, subject to the penultimate paragraph thereof.
SECTION 4.2 Appointment, Removal and Resignation of Capital Securities
Guarantee Trustee
(a) Subject to Section 4.2(b), the Capital Securities
Guarantee Trustee may be appointed or removed without cause at any time by the
Guarantor except during an Event of Default.
(b) The Capital Securities Guarantee Trustee shall not be
removed in accordance with Section 4.2(a) until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Capital Securities Guarantee
Trustee and delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee shall hold
office until a Successor Capital Securities Guarantee Trustee shall have been
appointed or until its removal or resignation. The Capital Securities
Guarantee Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing executed by the Capital Securities
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Capital Securities Guarantee Trustee has been
appointed and has accepted such appointment by instrument in writing executed
by such Successor Capital Securities Guarantee Trustee and delivered to the
Guarantor and the resigning Capital Securities Guarantee Trustee.
(d) If no Successor Capital Securities Guarantee Trustee
shall have been appointed and accepted appointment as provided in this Section
4.2 within 60 days after delivery of an instrument of removal or resignation,
the Capital Securities Guarantee Trustee resigning or being removed may
petition any court of competent jurisdiction for appointment of a Successor
Capital Securities Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Capital Securities Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall be
liable for the acts or omissions to act of any Successor Capital Securities
Guarantee Trustee.
(f) Upon termination of this Series A Capital Securities
Guarantee or removal or resignation of the Capital Securities Guarantee Trustee
pursuant to this Section 4.2, the Guarantor shall pay to the Capital Securities
Guarantee Trustee all amounts due to the Capital Securities Guarantee Trustee
accrued to the date of such termination, removal or resignation.
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ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this
Series A Capital Securities Guarantee and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a
proceeding first against the Issuer or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor,
notice of redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the
Guarantor under this Series A Capital Securities Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of the
following:
(a) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the Series A Capital
Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer
of all or any portion of the Distributions, Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Series A Capital
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Series A Capital Securities
(other than an extension of time for payment of Distributions, Redemption
Price, Liquidation Distribution or other sum payable that results from the
extension of any interest payment period on the Debentures permitted by the
Indenture);
(c) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Holders pursuant to the terms of the Series A
Capital Securities, or any action on the part of the Issuer granting indulgence
or extension of any kind;
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(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of debt of, or other similar proceedings affecting,
the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Series A Capital Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred;
(g) the consummation of the Exchange Offer; or
(h) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it being
the intent of this Section 5.3 that the obligations of the Guarantor with
respect to the Guarantee Payments shall be absolute and unconditional under any
and all circumstances.
There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 Rights of Holders
(a) The Holders of a Majority in liquidation amount of
the Series A Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Capital
Securities Guarantee Trustee in respect of this Series A Capital Securities
Guarantee or exercising any trust or power conferred upon the Capital
Securities Guarantee Trustee under this Series A Capital Securities Guarantee.
(b) If the Capital Securities Guarantee Trustee fails to
enforce such Series A Capital Securities Guarantee, any Holder may institute a
legal proceeding directly against the Guarantor to enforce the Capital
Securities Guarantee Trustee's rights under this Series A Capital Securities
Guarantee, without first instituting a legal proceeding against the Issuer, the
Capital Securities Guarantee Trustee or any other person or entity. The
Guarantor waives any right or remedy to require that any action be brought
first against the Issuer or any other person or entity before proceeding
directly against the Guarantor.
SECTION 5.5 Guarantee of Payment
This Series A Capital Securities Guarantee creates a guarantee
of payment and not of collection.
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SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid to such Holders
by the Guarantor under this Series A Capital Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Series A Capital
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Series A Capital Securities Guarantee. If any amount
shall be paid to the Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders and to pay over
such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Series A
Capital Securities, and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this
Series A Capital Securities Guarantee notwithstanding the occurrence of any
event referred to in subsections (a) through (h), inclusive, of Section 5.3
hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Series A Capital Securities remain outstanding,
the Guarantor shall not (i) declare or pay any dividends or distributions on,
or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Guarantor's capital stock (which includes common and preferred
stock), (ii) make any payment of principal of, or premium, if any, or interest
on or repay, repurchase or redeem any debt securities of the Guarantor
(including any Other Debentures) that rank pari passu with or junior in right
of payment to the Debentures or (iii) make any guarantee payments with respect
to any guarantee by the Guarantor of the debt securities of any subsidiary of
the Guarantor (including Other Guarantees) if such guarantee ranks pari passu
with or junior in right of payment to the Debentures (other than (a) dividends
or distributions in shares of, or options, warrants, rights to subscribe for or
purchase shares of, common stock of the Guarantor, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Series A Capital Securities Guarantee and the Series B Capital Securities
Guarantee, (d) as a result of a reclassification of the Guarantor's capital
stock or the exchange or the conversion of one class or series of the
Guarantor's capital stock for another class or series of the Guarantor's
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<PAGE> 20
capital stock, (e) the purchase of fractional interests in shares of the
Guarantor's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged and (f)
purchases of common stock related to the issuance of common stock or rights
under any of the Guarantor's benefit plans for its directors, officers or
employees or any of the Guarantor's dividend reinvestment plans) if at such
time (i) there shall have occurred any event of which the Guarantor has actual
knowledge that (a) is, or with the giving of notice or the lapse of time, or
both, would be an Indenture Event of Default and (b) in respect of which the
Guarantor shall not have taken reasonable steps to cure, (ii) if such
Debentures are held by the Property Trustee, the Guarantor shall be in default
with respect to its payment of any obligations under this Series A Capital
Securities Guarantee or (iii) the Guarantor shall have given notice of its
election of the exercise of its right to extend the interest payment period
pursuant to Section 16.01 of the Indenture and any such extension shall be
continuing.
SECTION 6.2 Ranking
This Series A Capital Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate and junior
in right of payment to Senior Indebtedness (as defined in the Indenture), to
the same extent and in the same manner that the Debentures are subordinated to
Senior Indebtedness pursuant to the Indenture, (ii) pari passu with the
Debentures, the Other Debentures, the Series B Capital Securities Guarantee,
the Common Securities Guarantee and any Other Guarantee and any Other Common
Securities Guarantee, and (iii) senior to the Guarantor's capital stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Series A Capital Securities Guarantee shall terminate (i)
upon full payment of the Redemption Price (as defined in the Declaration) of
all Series A Capital Securities, (ii) upon liquidation of the Issuer, the full
payment of the amounts payable in accordance with the Declaration or the
distribution of the Debentures to the Holders and the holders of Common
Securities or (iii) upon exchange of all the Series A Capital Securities for
the Series B Capital Securities in the Exchange Offer and the execution and
delivery of the Series B Capital Securities Guarantee. Notwithstanding the
foregoing, this Series A Capital Securities Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid under the Series A Capital Securities or
under this Series A Capital Securities Guarantee.
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ARTICLE VIII
COMPENSATION AND EXPENSES OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 8.1 Compensation and Expenses
The Guarantor covenants and agrees to pay to the Capital
Securities Guarantee Trustee from time to time, and the Capital Securities
Guarantee Trustee shall be entitled to, such compensation as shall be agreed to
in writing between the Guarantor and the Capital Securities Guarantee Trustee
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), and the Guarantor will pay or
reimburse the Capital Securities Guarantee Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Capital
Securities Guarantee Trustee in accordance with any of the provisions of this
Capital Securities Guarantee (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Guarantor also covenants to indemnify each of
the Capital Securities Guarantee Trustee (and its officers, agents, directors
and employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Capital Securities Guarantee Trustee) incurred without negligence
or bad faith on the part of the Capital Securities Guarantee Trustee and
arising out of or in connection with the acceptance or administration of this
guarantee, including the costs and expenses of defending itself against any
claim of liability in the premises. The obligations of the Guarantor under
this Article VIII to compensate and indemnify the Capital Securities Guarantee
Trustee and to pay or reimburse the Capital Securities Guarantee Trustee for
expenses, disbursements and advances shall be secured by a lien prior to that
of the Series A Capital Securities upon all property and funds held or
collected by the Capital Securities Guarantee Trustee as such, except funds
held in trust for the benefit of the holders of particular Series A Capital
Securities.
The provisions of this Article shall survive the termination
of this Capital Securities Guarantee.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Guarantor or any Covered Person for
any loss, damage or claim incurred by reason of any act or omission performed
or omitted by such Indemnified Person in good faith in accordance with this
Series A Capital Securities Guarantee and in a manner that such Indemnified
Person reasonably believed to be within the scope of the authority
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conferred on such Indemnified Person by this Series A Capital Securities
Guarantee or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders might properly be paid.
SECTION 9.2 Indemnification
The Guarantor agrees to indemnify each Indemnified Person for,
and to hold each Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The obligation to
indemnify as set forth in this Section 8.2 shall survive the termination of
this Series A Capital Securities Guarantee.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns
All guarantees and agreements contained in this Series A
Capital Securities Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Guarantor and shall inure to the benefit of
the Holders then outstanding.
SECTION 10.2 Amendments
Except with respect to any changes that do not materially
adversely affect the rights of Holders (in which case no consent of Holders
will be required), this Series A Capital Securities Guarantee may only be
amended with the prior approval of the Holders of a Majority in liquidation
amount of the Series A Capital Securities (including the stated amount that
would be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined).
The provisions of the Declaration with respect to consents to amendments
thereof (whether at a meeting or otherwise) shall apply to the giving of such
approval.
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SECTION 10.3 Notices
All notices provided for in this Series A Capital Securities
Guarantee shall be in writing, duly signed by the party giving such notice, and
shall be delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Issuer, in care of the Administrative
Trustee at the Issuer's mailing address set forth below (or such other address
as the Issuer may give notice of to the Holders and the Capital Securities
Guarantee Trustee):
First Keystone Capital Trust I
c/o First Keystone Financial, Inc.
22 West State Street
Media, Pennsylvania 19063
Attention: Thomas M. Kelly
Administrative Trustee
Telecopy: (610) 892-5108
(b) If given to the Capital Securities Guarantee Trustee, at the
Capital Securities Guarantee Trustee's mailing address set forth below (or such
other address as the Capital Securities Guarantee Trustee may give notice of to
the Holders and the Issuer):
The Bank of New York
101 Barclay Street
21st Floor West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Telecopy: (212) 815-5917
(c) If given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may give notice
of to the Holders and the Capital Securities Guarantee Trustee):
First Keystone Financial, Inc.
22 West State Street
Media, Pennsylvania 19063
Attention: Thomas M. Kelly
Executive Vice President and
Chief Financial Officer
Telecopy: (610) 892-5108
(d) If given to any Holder, at the address set forth on
the books and records of the Issuer.
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All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 10.4 Exchange Offer
In the event an Exchange Offer Registration Statement (as
defined in the Registration Rights Agreement) becomes effective and the Issuer
issues any Series B Capital Securities in the Exchange Offer, the Guarantor
will enter into a new capital securities guarantee agreement, in substantially
the same form as this Series A Capital Securities Guarantee, with respect to
the Series B Capital Securities.
SECTION 10.5 Benefit
This Series A Capital Securities Guarantee is solely for the
benefit of the Holders and, subject to Section 3.1(a), is not separately
transferable from the Series A Capital Securities.
SECTION 10.6 Governing Law
THIS SERIES A CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
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THIS SERIES A CAPITAL SECURITIES GUARANTEE is executed as of
the day and year first above written.
FIRST KEYSTONE FINANCIAL, INC.,
as Guarantor
By:
------------------------------------------
Name: Thomas M. Kelly
Title: Executive Vice President and
Chief Financial Officer
THE BANK OF NEW YORK, as Capital
Securities Guarantee Trustee
By:
------------------------------------------
Name:
Title:
22
<PAGE> 1
EXHIBIT 4.4
====================================
COMMON SECURITIES GUARANTEE AGREEMENT
First Keystone Financial, Inc.
Dated as of August 26, 1997
====================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------------------------
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
---------
SECTION 2.2. Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
---------------------------
SECTION 2.3. Obligations Not Affected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------------
SECTION 2.4. Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------------
SECTION 2.5. Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------------
SECTION 2.6. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------
SECTION 2.7. Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------------
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------------------
SECTION 3.2. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------
ARTICLE IV
TERMINATION
SECTION 4.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------------
SECTION 5.2. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------
SECTION 5.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------
SECTION 5.4. Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------
SECTION 5.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------
</TABLE>
<PAGE> 3
COMMON SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Common Securities Guarantee"),
dated as of August 26, 1997, is executed and delivered by First Keystone
Financial, Inc., a Pennsylvania corporation (the "Guarantor"), for the benefit
of the Holders (as defined herein) from time to time of the Common Securities
(as defined herein) of First Keystone Capital Trust I, a Delaware business
trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of August 26, 1997, among the Trustees of
the Issuer named therein, the Guarantor, as sponsor, and the holders from time
to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing on the date hereof 502 common securities designated the 9.70%
Common Securities (the "Common Securities"), having an aggregate stated
liquidation amount of $502,000;
WHEREAS, as incentive for the Holders to purchase the Common
Securities, the Guarantor desires to irrevocably and unconditionally agree, to
the extent set forth in this Common Securities Guarantee, to pay to the Holders
the Guarantee Payments (as defined herein) and to make certain other payments
on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a
guarantee agreement (the "Series A Capital Securities Guarantee") for the
benefit of the holders of the Series A Capital Securities (as defined in the
Declaration) and upon consummation of the Exchange Offer (as defined in the
Declaration) will execute and deliver a guarantee agreement (the "Series B
Capital Securities Guarantee") for the benefit of the holders of the Series B
Capital Securities (as defined in the Declaration), each in substantially
identical terms to this Common Securities Guarantee, except that if an Event of
Default (as defined in the Declaration) has occurred and is continuing, the
rights of Holders to receive Guarantee Payments under this Common Securities
Guarantee are subordinated to the rights of holders of Capital Securities to
receive Guarantee Payments under the Series A Capital Securities Guarantee and
the Series B Capital Securities Guarantee, as the case may be;
NOW, THEREFORE, in consideration of the purchase by each
Holder, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, the Guarantor executes and delivers this Common Securities Guarantee
for the benefit of the Holders.
<PAGE> 4
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation
In this Common Securities Guarantee, unless the context
otherwise requires:
(a) Capitalized terms used in this Common Securities
Guarantee but not defined in the preamble above have the respective
meanings assigned to them in this Section 1.1;
(b) Terms defined in the Declaration as at the date of
execution of this Common Securities Guarantee have the same meaning
when used in this Common Securities Guarantee unless otherwise defined
in this Common Securities Guarantee;
(c) a term defined anywhere in this Common Securities
Guarantee has the same meaning throughout;
(d) all references to "the Common Securities Guarantee"
or "this Common Securities Guarantee" are to this Common Securities
Guarantee as modified, supplemented or amended from time to time;
(e) all references in this Common Securities Guarantee to
Articles and Sections are to Articles and Sections of this Common
Securities Guarantee unless otherwise specified; and
(f) a reference to the singular includes the plural and
vice versa.
"Guarantee Payments" means the following payments or
distributions, without duplication, with respect to the Common Securities, to
the extent not paid or made by the Issuer: (i) any accrued and unpaid
Distributions that are required to be paid on such Common Securities to the
extent the Issuer has funds on hand legally available therefor at such time,
(ii) the redemption price, including all accrued and unpaid Distributions to
the date of redemption (the "Redemption Price") to the extent the Issuer has
funds on hand legally available therefor at such time, with respect to any
Common Securities called for redemption by the Issuer and (iii) upon a
voluntary or involuntary termination and liquidation of the Issuer (other than
in connection with the distribution of Debentures to the Holders in exchange
for Common Securities as provided in the Declaration), the lesser of (a) the
aggregate of the liquidation amount and all accumulated and unpaid
Distributions on the Common Securities to the date of payment, to the extent
the Issuer has funds on hand legally available therefor, and (b) the amount of
assets of the Issuer remaining available for distribution to Holders in
liquidation of the Issuer (in either case, the "Liquidation Distribution"). If
an Event of Default has occurred and is continuing, no Guarantee Payments with
respect to the Common Securities shall be made until holders of Capital
2
<PAGE> 5
Securities shall be paid in full the Guarantee Payments to which they are
entitled under the Series A Capital Securities Guarantee and the Series B
Capital Securities Guarantee.
"Holder" means any holder, as registered on the books and
records of the Issuer, of any Common Securities.
"Other Guarantees" means all guarantees to be issued by the
Guarantor with respect to common securities (if any) similar to the Common
Securities issued by other trusts to be established by the Guarantor (if any),
in each case similar to the Issuer.
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim which the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
SECTION 2.2. Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this
Common Securities Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, any right to require a proceeding first
against the Issuer or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
SECTION 2.3. Obligations Not Affected
The obligations, covenants, agreements and duties of the
Guarantor under this Common Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the Common
Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of
all or any portion of the Distributions, Redemption Price, Liquidation
Distribution or any other sums
3
<PAGE> 6
payable under the terms of the Common Securities or the extension of
time for the performance of any other obligation under, arising out
of, or in connection with, the Common Securities (other than an
extension of time for payment of Distributions, Redemption Price,
Liquidation Distribution or other sum payable that results from the
extension of any interest payment period on the Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Common Securities, or any action on the part of the
Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Common Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 2.3 that the
obligations of the Guarantor with respect to the Guarantee Payments
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 2.4. Rights of Holders
The Guarantor expressly acknowledges that any Holder may
institute a legal proceeding directly against the Guarantor to enforce its
rights under this Common Securities Guarantee, without first instituting a
legal proceeding against the Issuer or any other Person.
SECTION 2.5. Guarantee of Payment
This Common Securities Guarantee creates a guarantee of payment
and not of collection.
4
<PAGE> 7
SECTION 2.6. Subrogation
The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid to such Holders
by the Guarantor under this Common Securities Guarantee; provided, however,
that the Guarantor shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any rights which it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Common Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Common Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the
Holders.
SECTION 2.7. Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Common
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Common
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 2.3 hereof.
ARTICLE III
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 3.1. Limitation of Transactions
So long as any Common Securities remain outstanding, the
Guarantor will not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
the Guarantor's capital stock (which includes common stock and preferred
stock), (ii) make any payment of principal of, or premium, if any, or interest
on or repay, repurchase or redeem any debt securities of the Guarantor
(including Other Debentures) that rank pari passu with or junior in right of
payment to the Debentures or (iii) make any guarantee payments with respect to
any guarantee by the Guarantor of the debt securities of any subsidiary of the
Guarantor (including under Other Guarantees) if such guarantee ranks pari passu
with or junior in right of payment to the Debentures (other than (a) dividends
or distributions in shares of, or options, warrants or rights to subscribe for
or purchase shares of, common stock of the Guarantor, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Series A Capital Securities Guarantee and the Series B Capital Securities
Guarantee, (d) as a result of a reclassification of the Guarantor's capital
stock or the exchange or conversion of one class or series of the
5
<PAGE> 8
Guarantor's capital stock for another class or series of the Guarantor's
capital stock, (e) the purchase of fractional interests in shares of the
Guarantor's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged and (f)
purchases of common stock related to the issuance of common stock or rights
under any of the Guarantor's benefit plans for its directors, officers or
employees or any of the Guarantor's dividend reinvestment plans) if at such
time (i) there shall have occurred any event of which the Guarantor has actual
knowledge that (a) is, or with the giving of notice or the lapse of time, or
both, would be, an Event of Default and (b) in respect of which the Guarantor
shall not have taken reasonable steps to cure, (ii) if such Debentures are held
by the Property Trustee, the Guarantor shall be in default with respect to its
payment of any obligations under the Capital Securities Guarantee or (iii) the
Guarantor shall have given notice of its election of the exercise of its right
to extend the interest payment period pursuant to Section 16.01 of the
Indenture and any such extension shall be continuing.
SECTION 3.2. Ranking
This Common Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right
of payment to Senior Indebtedness (as defined in the Indenture), to the same
extent and in the same manner that the Debentures are subordinated to Senior
Indebtedness pursuant to the Indenture, (ii) pari passu with the Debentures,
the Other Debentures and with any Other Guarantee, and (iii) senior to the
Guarantor's capital stock.
ARTICLE IV
TERMINATION
SECTION 4.1. Termination
This Common Securities Guarantee shall terminate (i) upon full
payment of the Redemption Price of all Common Securities, (ii) upon the
distribution of all of the Debentures to all the Holders and the holders of the
Capital Securities or (iii) upon full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Issuer.
Notwithstanding the foregoing, this Common Securities Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
Holder must restore payment of any sums paid under the Common Securities or
under this Common Securities Guarantee.
6
<PAGE> 9
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns
All guarantees and agreements contained in this Common
Securities Guarantee shall bind the successors, assigns, receivers, trustees
and representatives of the Guarantor and shall inure to the benefit of the
Holders then outstanding.
SECTION 5.2. Amendments
Except with respect to any changes which do not adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Common Securities Guarantee may only be amended with the prior
approval of the Holders of at least a majority in liquidation amount of all the
outstanding Common Securities. The provisions of Section 12.2 of the
Declaration with respect to meetings of holders of the Securities apply to the
giving of such approval.
SECTION 5.3. Notices
All notices provided for in this Common Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
(a) if given to the Issuer, in care of the Administrative
Trustee at the Issuer's mailing address set forth below (or such other
address as the Issuer may give notice of to the Holders):
First Keystone Capital Trust I
c/o First Keystone Financial, Inc.
22 West State Street
Media, Pennsylvania 19063
Attention: Thomas M. Kelly
Administrative Trustee
Telecopy: (610) 892-5108
(b) if given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may
give notice of to the Holders):
7
<PAGE> 10
First Keystone Financial, Inc.
22 West State Street
Media, Pennsylvania 19063
Attention: Thomas M. Kelly
Executive Vice President and
Chief Financial Officer
Telecopy: (610) 892-5108
(c) if given to any Holder, at the address set forth on
the books and records of the Issuer.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 5.4. Benefit
This Common Securities Guarantee is solely for the benefit of
the Holders and is not separately transferable from the Common Securities.
SECTION 5.5. Governing Law
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
8
<PAGE> 11
THIS COMMON SECURITIES GUARANTEE is executed as of the day and
year first above written.
FIRST KEYSTONE FINANCIAL, INC.
By:
-------------------------------------------------
Name: Thomas M. Kelly
Title: Executive Vice President and Chief
Financial Officer
9
<PAGE> 1
Exhibit 11.
Statement re: Computation of Earnings Per Share
Earnings per share for the years ended September 30, 1997 and 1996 is based on
net income of $2,637,000 and $885,000, respectively, divided by the weighted
average number of shares and equivalent shares outstanding during the periods of
1,161,885 and 1,191,583, respectively.
Earnings per share for the period from January 25, 1995 (the date of the initial
public offering) through September 30, 1995 is based on income of $928,000
divided by the weighted-average number of shares and equivalent shares
outstanding during the period of 1,254,237 . Since the initial offering was
completed on January 25, 1995, earnings per share information for prior years is
not applicable.
<PAGE> 1
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Selected Consolidated and Other Financial Data . . . . . 2
A Message to Our Shareholders . . . . . . . . . . . . . . 5
Business Features . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 9
Report of Independent Auditors . . . . . . . . . . . . 18
Consolidated Financial Statements
Consolidated Statements of Financial Condition . . 19
Consolidated Statements of Income . . . . . . . . 20
Consolidated Statements of
Changes in Stockholders' Equity . . . . . . 21
Consolidated Statements of Cash Flows . . . . . . 22
Notes to Consolidated Financial Statements . . . . . . 23
Corporate Information . . . . . . . . . . . . . . . . . 40
</TABLE>
1
<PAGE> 2
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
Return on Average Assets*
9/30/95 0.44%
9/30/96 0.64%
9/30/97 0.84%
*excludes SAIF assessment
The selected consolidated financial and other data of First Keystone Financial,
Inc. set forth below does not purport to be complete and should be read in
conjunction with, and is qualified in its entirety by, the more detailed
information, including the Consolidated Financial Statements and related Notes,
appearing elsewhere herein.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
===================================================================
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $373,430 $294,241 $280,979 $237,749 $233,516
- --------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 188,289 167,530 158,002 142,226 137,186
- --------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities, net 20,707 23,221 60,294 68,369 64,213
- --------------------------------------------------------------------------------------------------------------------------
Investment securities 10,000 16,532 10,710 12,145 11,238
- --------------------------------------------------------------------------------------------------------------------------
Assets held for sale:
Mortgage-related and equity securities 104,472 60,211 19,538 251 946
- --------------------------------------------------------------------------------------------------------------------------
Investment securities 10,211
- --------------------------------------------------------------------------------------------------------------------------
Loans 4,577 2,447 57 168 1,245
- --------------------------------------------------------------------------------------------------------------------------
Real estate owned 1,672 1,557 465 503 971
- --------------------------------------------------------------------------------------------------------------------------
Deposit accounts 227,918 219,205 223,753 216,065 218,361
- --------------------------------------------------------------------------------------------------------------------------
Borrowings 99,987 46,740 28,411 5,267 343
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 24,752 23,084 24,463 11,622 11,206
- --------------------------------------------------------------------------------------------------------------------------
Non-performing assets 3,749 6,909 3,621 5,879 6,455
==========================================================================================================================
SELECTED OPERATIONS DATA:
Interest income $ 22,750 $ 19,837 $ 18,295 $ 15,547 $ 16,573
- --------------------------------------------------------------------------------------------------------------------------
Interest expense 12,639 10,932 10,767 9,153 10,048
==========================================================================================================================
Net interest income 10,111 8,905 7,528 6,394 6,525
- --------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 239 1,250 52 416 390
- --------------------------------------------------------------------------------------------------------------------------
Net interest income
after provision for loan losses 9,872 7,655 7,476 5,978 6,135
- --------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Service charges and other fees 972 1,047 1,029 1,010 962
- --------------------------------------------------------------------------------------------------------------------------
Net gain on sales of interest-earning assets 285 203 113 350 778
- --------------------------------------------------------------------------------------------------------------------------
Net gain on sale of other assets 46
- --------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on real estate activities 7 2 (44) (47) 17
- --------------------------------------------------------------------------------------------------------------------------
Other 40 56 89 158 119
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses 6,921 8,645 7,036 7,728 6,918
==========================================================================================================================
Income (Loss) before income taxes,
extraordinary item and cumulative effect of
change in accounting principle 4,301 318 1,627 (279) 1,093
- --------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) 1,664 (567) 504 (95) 127
- --------------------------------------------------------------------------------------------------------------------------
Extraordinary item, utilization of state
tax carryforward 79
- --------------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
for income taxes 600
==========================================================================================================================
Net income $ 2,637 $ 885(1) $ 1,123 $ 416 $ 1,045
==========================================================================================================================
Earnings per common share $ 2.27 $ .74(1) $ .74 N/A N/A
==========================================================================================================================
</TABLE>
(1) Includes the effects of the one-time SAIF special assessment. The
effects of the assessment increased operating expenses and decreased
income before income taxes by $1.4 million. The effects of the
assessment also decreased net income and earnings per share by
$876,000 and $.74, respectively.
2
<PAGE> 3
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
=================================================================
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS:
Average yield earned on interest-earning assets 7.54% 7.45% 7.37% 6.84% 7.31%
- --------------------------------------------------------------------------------------------------------------------------
Average rate paid on interest-bearing liabilities 4.48 4.42 4.62 4.18 4.58
- --------------------------------------------------------------------------------------------------------------------------
Average interest rate spread 3.07 3.03 2.75 2.66 2.73
- --------------------------------------------------------------------------------------------------------------------------
Net interest margin 3.35 3.34 3.03 2.81 2.88
- --------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning assets to
interest-bearing liabilities 106.82 107.65 106.55 103.77 103.33
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses to operating expenses 142.64 88.55(2) 106.25 77.36 88.68
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses as a percent of average assets 2.21 3.14(2) 2.73 3.29 2.95
- --------------------------------------------------------------------------------------------------------------------------
Return on average assets 0.84 0.32(2) 0.44 .18 0.45
- --------------------------------------------------------------------------------------------------------------------------
Return on average equity 11.46 3.92(2) 5.59 3.60 10.07
- --------------------------------------------------------------------------------------------------------------------------
Ratio of average equity to average assets 7.36 8.20 7.80 4.91 4.42
- --------------------------------------------------------------------------------------------------------------------------
Full-service offices at end of period 5 5 5 5 5
==========================================================================================================================
ASSET QUALITY RATIOS: (3)
Non-performing loans as a
percent of gross loans receivable 1.09 3.15 1.98 3.74 3.92
- --------------------------------------------------------------------------------------------------------------------------
Non-performing assets as a
percent of total assets 1.00 2.35 1.29 2.47 2.76
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a
percent of gross loans receivable .86 1.54 .93 1.07 0.91
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a
percent of nonperforming loans 78.38 49.03 47.12 28.65 23.07
- --------------------------------------------------------------------------------------------------------------------------
Net loans charged-off to average
interest-earning loans receivable .68 0.07 0.07 0.10 0.89
==========================================================================================================================
CAPITAL RATIOS: (3)
Tangible capital ratio 8.12 7.67 8.23 4.88 4.80
- --------------------------------------------------------------------------------------------------------------------------
Core capital ratio 8.12 7.67 8.23 4.88 4.80
- --------------------------------------------------------------------------------------------------------------------------
Risk-based capital ratio 19.91 17.24 17.82 10.13 10.77
==========================================================================================================================
</TABLE>
(2) Includes the effects of the one-time SAIF special assessment of
$1.4 million. Excluding the one-time effects, the ratio of net
interest income after provision for loan losses to operating
expenses and operating expenses as a percent of average assets
ratios were 106.04% and 2.62%, respectively. In addition, return
of average assets and return on average equity were .64% and
7.79%, respectively, excluding the special assessment..
(3) Asset Quality Ratios and Capital Ratios are end of period ratios,
except for charge-offs to average loans. With the exception of end
of period ratios, all ratios are based on average daily balances
during the indicated periods.
Return on Average Equity*
9/30/95 5.59%
9/30/96 7.79%
9/30/97 11.46%
*excludes SAIF assessment
3
<PAGE> 4
NASDAQ STOCK PRICES
FISCAL YEAR 1997
The following table shows market price information for Company's Common Stock
(NASDAQ Symbol: FKFS). The prices set forth below represent the high and low
prices on the Nasdaq National Market System during the periods indicated.
For each quarter in fiscal 1997, a cash dividend of $0.05 per common share was
declared.
<TABLE>
<CAPTION>
MONTH HIGH LOW CLOSE
- ----- ---- --- -----
<S> <C> <C> <C>
Mar 1995 12.75 10.25 12.75
Jun 1995 14.75 12.25 14.25
Sep 1995 18.00 14.25 16.00
Dec 1995 21.00 15.25 20.875
Mar 1996 20.75 18.50 19.00
Jun 1996 19.00 17.00 17.25
Sep 1996 18.25 16.75 18.25
Dec 1996 20.00 19.25 19.25
Mar 1997 22.50 21.75 21.75
Jun 1997 23.375 22.50 23.375
Sep 1997 33.25 27.75 32.25
</TABLE>
4
<PAGE> 5
A
MESSAGE
TO OUR
SHAREHOLDERS
[PHOTO]
Donald S. Guthrie
President and
Chief Executive Officer
- - Significant increase in net income
- - Total assets increased by 27%
- - The establishment of a dividend policy
- - A successful second stock repurchase program to increase shareholder
value
- - Dramatic reduction in total non-performing assets
It is with great enthusiasm that I report our outstanding performance for
fiscal year 1997. With the completion of our second full year as a public
company, it is clear that our strong results are rooted in the fact that First
Keystone Financial, Inc., the holding company for First Keystone Federal
Savings Bank, was built from a solid foundation, with a sound strategic plan
that centered on its clear vision of the Company's future within the financial
services industry.
Although there is always room for improvement, it is appropriate to pause to
celebrate milestones achieved. The challenges facing us have been met
successfully, and I would like to take a moment to thank the team of
professionals and dedicated employees who enabled the Company to reach its
performance goals. We are proud of our performance, and are pleased to report
that the Company is poised to continue its mission to enhance shareholder value
by providing first-class products and services.
CORE EARNINGS UP SIGNIFICANTLY
For the year ended September 30, 1997, the Company earned $2.6 million or
$2.27 per share as compared to $1.8 million or $1.48 per share for fiscal 1996
reflecting a significant 53% increase (fiscal 1996 excludes the one-time
special assessment to recapitalize the Savings Association Insurance Fund).
Net interest income substantially increased by $1.2 million or 14% compared
to fiscal 1996. First Keystone Financial, Inc. also maintained its return on
average assets despite its notable growth of assets. However, and more
importantly, the Company increased its return on equity to 11.60% from 7.79%
for fiscal 1997 compared to fiscal 1996 (excluding the special assessment).
BUILDING THE COMPANY'S ASSETS
During the year, the Company's total assets grew to $373.4 million at
September 30, 1997 from $294.2 million at September 30, 1996. The Company's
growth strategies included increasing its portfolio of mortgage-related
securities available for sale which was funded by advances from the Federal
Home Loan Bank, securities sold under agreements to repurchase, and by core
deposits. The infusion of capital supporting the Company's asset growth was
accomplished through the successful completion of a preferred stock offering by
First Keystone Capital Trust I, a newly formed subsidiary of First Keystone
Financial, Inc.
MODERNIZING INFRASTRUCTURES
After an independent, in-depth, analysis of current and future demographics,
the newest First Keystone branch opened in November 1997 at the Willowdale
crossroads in Kennett Square, Chester County, to meet customers' needs in the
rapidly growing southern part of that county. As with the Company's
[PHOTO]
Donald Guthrie, State Senator Clarence Bell and Bank Director Edmund Jones
celebrate the opening of the newest First Keystone Federal branch at Willowdale
Town Center, Kennett Square.
5
<PAGE> 6
[PHOTO]
First Keystone Federal expanded its ATM network, including a free-standing
drive-through machine in a local shopping center.
other five branch offices, the Willowdale Office will provide superior customer
service, offer a full line of financial products, and focus on community
involvement.
In the fall of 1997, the Company also expanded its ATM network with the
opening of its first free-standing drive-through ATM in a new shopping center
in Upper Chichester Township, Delaware County.
As a Company that attributes much of its success to its strong foundation,
it is only natural as one begins the expansion of its franchise to also examine
its infrastructure of established offices. As a result, the Company renovated
its drive-in lanes at the Bank's largest office in Brookhaven with state-of-the
art equipment, added an additional lane and a drive-through ATM machine for
added customer convenience. A complete interior remodeling is scheduled to be
completed in 1998. The main office in Media was also remodeled including the
addition of a night depository and an ATM machine to assist customers in a more
efficient and professional manner as the Company looks to expand both its
retail and commercial base.
DRAMATIC REDUCTION IN NON-PERFORMING ASSETS
A high note for the year end was the successful negotiation of a
restructured debt that contributed greatly to the decline of the Company's
total non-performing assets by $2.8 million for fiscal 1997, which represents a
40.2% reduction. As a result of a settlement with a bankruptcy trustee of a
leasing company in Syracuse, New York, the Company's ratio of non-performing
assets and troubled debt restructuring to total assets declined from 2.35% at
September 30, 1996 to 1.11% at the close of fiscal 1997.
OUTSTANDING SHAREHOLDER VALUE
The Company's increased earnings, dividend policy and successful stock
repurchases were favorably received by the market, reflected in part by the
significant increase in the price of the Company's stock. The price of the
stock rose to $32.25 at September 30, 1997 from $18.25 at September 30, 1996.
This $14.00 increase per share represents an outstanding 77% increase in value.
A VISION TOWARD THE FUTURE
As evidenced by so many well-publicized transactions during this past year,
the bank merger mania continues. As these large regional banks continue to
expand into unfamiliar neighborhoods with corporate headquarters far removed
from their satellite offices, your Company welcomes the new business
opportunities that this presents. We clearly see our niche as a community bank
that understands the needs of its customers because our Board of Directors,
senior management, and employees live within the market area we serve.
The Company will continue to enhance its core earnings by increasing its
services to existing households through the use of new products and more
efficient technology, aggressive advertising campaigns directed to the market
segment that prefers doing business with a local bank, and expanding its
business accounts as our new commercial loan department becomes integrated into
the Company's operations. In addition, the Company will focus on increasing
market share by expanding its franchise within our market area and offering its
customers a full range of financial services.
On behalf of the Board of Directors, senior management, our employees and
myself, we thank you for the trust that you have placed in us. Strengthened by
our success, we move forward with renewed enthusiasm and dedication.
/s/ DONALD S. GUTHRIE
Donald S. Guthrie
President and Chief Executive Officer
6
<PAGE> 7
BUSINESS
FEATURES
COMMERCIAL LENDING MAKES STRONG DEBUT
In September of 1996, in accordance with the Company's strategic plan to
increase both core earnings and net interest margin, the commercial lending
department was formed. With seasoned professionals leading the efforts, after
one year, the Company's balance sheet is now comprised of $8.5 million in
secured and unsecured commercial loans. The Bank specializes in small to
moderate-sized businesses offering term loans and lines of credit ranging from
$10,000 to $1 million. The Bank is enjoying success in establishing
corresponding deposit relationships with its commercial businesses, resulting
in significant increases in these types of deposits.
As a value-added service to the Company's expanding commercial customer base,
the Bank now offers companies an employee package account which includes
discounted checking and other benefits. As customer needs are further defined,
new products will be developed that better enable small to moderate-sized
businesses to streamline their operations and maximize their cash flow.
BUILDING ON THE CONSTRUCTION LOAN PORTFOLIO
Taking a leadership role in the Home Builders Association of Delaware and
Chester Counties, the Company has a long standing reputation for serving on its
Board and various committees. With the Company's extensive experience in the
local construction market and its strong capital position, a renewed emphasis
is being placed on construction lending for the 1998 fiscal year as the Company
seeks to further strengthen this aspect of its loan portfolio mix.
CORRESPONDENT PROGRAM FLOURISHES
Building on the Company's solid reputation for providing single family
residential loans, significant benefits were seen in fiscal 1997 as the Company
expanded its loan production channels to include the origination for sale of
non-conforming and sub-prime credit loans both in-house and through a
correspondent program. These programs, in which the majority of the originated
loans are sold servicing released, have significantly added to fee income and
improved the mix of residential loan products in fiscal 1997.
[PHOTO]
The Bank provides financing to area businesses. First Keystone Federal
commercial loan officer Bud Amentt is shown a state-of-the-art planetarium
system by controller Paul Dailey of Spitz Space Systems.
7
<PAGE> 8
[PHOTO]
A renewed emphasis is being placed on construction lending for the coming
fiscal year as the Company looks to further expand this aspect of its loan
porfolio mix.
THE RIGHT PRODUCT MIX TO GROW MARKET SHARE
With the successful establishment of a commercial loan department, the
Company now offers more than the usual line of retail banking products, to
which a debit card will be added in the third quarter of this fiscal year.
Small to medium size business loans and lines of credit can be structured with
such flexibility that each one is a custom fit.
New products to further benefit the business customer include the Total
Treasury Manager which capabilities include payroll processing, account
reconciliation, and the transfer of funds both internally and externally for
total cash management optimization. This product was successfully introduced
as a pilot program in fiscal 1997 to serve a local municipality.
Fiscal 1997 also marked the introduction of the Company's website on the
Internet. When you log onto the Internet, you can find First Keystone Financial
at www.firstkeystone.com. You will be greeted by a user-friendly screen full of
information about special promotional rates, Company stock prices, and
financial press releases. You can also request an annual report or read about
an upcoming local event sponsored by the Bank. For added convenience, the
Company's webpage is linked to local, city, state and various government agency
sites. Correspondence may also be sent via e-mail to [email protected].
PREPARED FOR THE YEAR 2000
In recognition of the significant impact the Year 2000 could have on the
Company's system of operations, an internal committee was formed, nicknamed the
"Y2K Committee," to assess the situation and to formulate a plan of action.
The committee has completed its analysis of the Company's computerized systems
and has developed a plan to address the Company's software and hardware needs
in order to be prepared for the year 2000.
[PHOTO]
First Keystone Federal's user-friendly website on the internet is full of
information and links to other sites.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
First Keystone Financial, Inc. (the "Company") is the holding company of its
wholly owned subsidiary, First Keystone Federal Savings Bank (the "Bank"). For
purposes of this discussion, First Keystone Financial, Inc., including its
wholly-owned subsidiaries, will be referred to as the Company. The Company is
a community oriented banking organization that focuses on customer and business
services within its primary market area.
The following discussion should be read in conjunction with the Company's
consolidated financial statements presented elsewhere herein. Accordingly, the
discussion below with respect to results of operations relates primarily to the
Bank, and the financial data for the periods prior to the conversion to a
federally chartered stock savings bank, which was completed on January 25,
1995, also reflect financial data of the Bank.
The Company's results of operations depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, which principally consist of loans, mortgage-related securities and
investment securities, and interest expense on interest-bearing liabilities,
which principally consist of deposits and Federal Home Loan Bank ("FHLB")
advances. The Company's results of operations also are affected by the
provision for loan losses, resulting from management's assessment of the
adequacy of the allowance for loan losses; the level of its non-interest
income, including service charges and other fees as well as gains and losses
from the sale of certain assets, the level of its operating expenses; and
income tax expense.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset and liability management is to
evaluate the interest rate risk existing in certain assets and liabilities,
determine the level of risk appropriate given the Company's business focus,
operating environment, capital and liquidity requirements and performance
objectives, establish prudent asset concentration guidelines and manage the
risk consistent with Board approved guidelines. Through management, the Company
seeks to reduce both the vulnerability and volatility of its operations to
changes in interest rates and to manage the ratio of interest-rate sensitive
assets to interest-rate sensitive liabilities within specified maturities or
repricing periods. The Company's actions in this regard are taken under the
guidance of the Asset/Liability Committee ("ALCO"), which is chaired by the
Chief Financial Officer and comprised of members of the Company's senior
management. The ALCO meets at least quarterly to review, among other things,
the sensitivity to interest rate changes of the Company's assets and
liabilities, the book and market values of assets and liabilities, unrealized
gains and losses, purchase and sale activity and maturities of investments and
borrowings. In connection therewith, the ALCO generally reviews the Company's
liquidity, cash flow needs, maturities of investments, deposits and borrowings,
current market conditions and interest rates. In addition, the pricing of the
Company's residential loans and deposits is reviewed at least weekly while the
pricing of loans originated for sale in the secondary market is reviewed daily.
The ALCO reports to the Company's Board of Directors on a quarterly basis.
The Company's primary asset/liability monitoring tool consists of various
asset/liability simulation models, which are prepared on a quarterly basis and
are designed to capture the dynamics of the balance sheet as well as rate and
spread movements and to quantify variations in net interest income under
different interest rate scenarios. The Company also utilizes market value
analysis, which addresses the change in equity value arising from movements in
interest rates. The market value of equity is estimated by valuing the
Company's assets and liabilities. The extent to which assets have gained or
lost value in relation to the gains or losses of liabilities determines the
appreciation or depreciation in equity on a market value basis. Market value
analysis is intended to evaluate the impact of immediate and sustained shifts
of the current yield curve upon the market value of the current balance sheet.
A more conventional but limited Asset/Liability monitoring tool involves an
analysis of the extent to which assets and liabilities are interest rate
sensitive and measures an institution's interest rate sensitivity gap. An asset
or liability is said to be interest rate sensitive within a specific time
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
Total Assets
(dollars in thousands)
9/30/95 280,979
9/30/96 294,241
9/30/97 373,430
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between interest-earning assets
and interest-bearing liabilities maturing or repricing within a given time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
affect net interest income adversely. While a conventional gap measure may be
useful, it is limited in its ability to predict trends in future earnings. It
makes no presumptions about changes in prepayment tendencies, deposit or loan
maturity preferences or repricing time lags that may occur in response to a
change in the interest rate environment.
CHANGES IN FINANCIAL CONDITION
General. Total assets of the Company increased by $79.2 million, or 26.9%,
from $294.2 million at September 30, 1996 to $373.4 million at September 30,
1997. The increase occurred primarily in mortgage-related securities available
for sale, loans receivable and cash and cash equivalents. The asset growth was
funded by increases in advances from the FHLB, securities sold under agreements
to repurchase, customer deposits and the newly issued Corporation-obligated
mandatorily redeemable capital securities ("trust preferred securities"). See
Note 20 to the Consolidated Financial Statements for further information
regarding the trust preferred securities. Asset growth was also funded by an
increase in stockholders' equity despite the completion of a stock repurchase
program and the acquisition of stock for employee benefit plans and dividend
payouts.
Cash and Investments. Cash and investments (including investments available
for sale) increased by $13.6 million, or 48.0%, to $41.8 million at September
30, 1997 compared to $28.2 million at September 30, 1996. The increase was
primarily due to increased cash resulting from the Company's issuance of the
trust preferred securities in August 1997 prior to deployment of the proceeds
into various investment vehicles.
Loans Held For Sale and Loans Receivable, Net. Aggregate loans receivable
(loans receivable, net and loans held for sale) increased $22.9 million or
13.5% to $192.9 million at September 30, 1997 compared to $170.0 million at
September 30, 1996. The increase was the result of the Company's continued
emphasis on residential and consumer lending as well as increases in the
commercial real estate loan portfolio. Contributing to the increase was a $12.9
million or 10.5% increase in originated residential loans, a $7.2 million, or
64.5%, increase in originated commercial real estate loans and a $2.5 million
or 12.3% increase in originated home equity and lines of credit loans.
Mortgage-Related Securities and Mortgage-Related Securities Available For
Sale. Mortgage-related securities and mortgage-related securities available for
sale increased in the aggregate by $41.8 million, or 50.1%, to $125.2 million
at September 30, 1997 compared to $83.4 million at September 30, 1996. The
increase was the result of the Company's leveraging the proceeds resulting from
the issuance of the trust preferred securities and the subsequent increase in
equity, in conjunction with the expansion of its loans portfolio, in order to
increase interest income.
Non-Performing Assets. The Company's total non-performing assets was
primarily due to the resolution of certain lease financings purchased from the
Bennett Funding Group, Inc., a closely-held Syracuse, New York-based leasing
company ("Bennett Funding") and affiliated companies.
Real estate owned increased modestly by $115,000 to $1.7 million or .45% of
total assets at September 30, 1997 as compared to $1.6 million or .53% of total
assets at September 30, 1996. Non-performing assets consist primarily of
single-family residential loans.
Deposits. Deposits increased by $8.7 million, or 4.0%, from $219.2 million at
September 30, 1996 to $227.9 million at September 30, 1997. This increase was
primarily due to a $10.8 million increase in certificates of deposit and a $1.5
million,or 30.9%, increase in non-interest bearing accounts. Offsetting this
increase was a $3.5 million,or 4.1%, net decline in passbook, NOW and money
market accounts.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
CHANGES IN FINANCIAL CONDITION
(continued)
The shift in deposits accounts reflects general market conditions as customers
sought to invest in higher yielding certificates of deposit.
Borrowings. The Company's total borrowings increased $53.3 million to $100.0
million at September 30, 1997 from $46.7 million at September 30, 1996. The
FHLB advances and securities sold under agreements to repurchase were used to
fund loan and investment growth and had a weighted average interest rate of
5.8% at September 30, 1997.
Equity. At September 30, 1997, total stockholders' equity was $24.8 million
or 6.6% of total assets, compared to $23.1 million or 7.8% of total assets at
September 30, 1996. The $1.7 million increase was due to net income for the
year of $2.6 million and an increase of $902,000 in unrealized gain on
available for sale securities offset by the Company's stock repurchases, the
purchase of stock for employee benefit programs and dividends paid. The
decrease in the capital ratio was due to the increase in total assets as the
Company leveraged its capital using the proceeds from the issuance of the trust
preferred securities which are included in the capital for regulatory purposes.
Average Balances, Net Interest Income and Yields Earned and Rates Paid. The
following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------
1997 1996
YIELD/COST ======================================================================
AT AVERAGE Average
SEPT. 30, AVERAGE YIELD/ Average Yield/
1997 BALANCE INTEREST COST Balance Interest Cost
===================================================================================
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) 8.19% $179,566 $ 14,737 8.21% $ 164,359 $ 13,459 8.19%
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities(2) 6.95 92,393 6,197 6.71 80,539 5,229 6.49
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities 7.15 21,774 1,478 6.79 11,534 715 6.20
- -----------------------------------------------------------------------------------------------------------------------------------
Other interest-earning assets 6.31 7,793 338 4.34 9,930 434 4.37
===================================================================================================================================
Total interest-earning assets 7.59 301,526 22,750 7.54 266,362 19,837 7.45
===================================================================================================================================
Noninterest-earning assets 11,193 9,325
===================================================================================================================================
Total assets $312,719 $ 275,687
===================================================================================================================================
Interest-bearing liabilities:
Deposits 4.26 $221,140 9,182 4.15 $ 220,303 9,363 4.25
- -----------------------------------------------------------------------------------------------------------------------------------
FHLB advances and other borrowings 5.75 61,124 3,457 5.65 27,119 1,569 5.79
===================================================================================================================================
Total interest-bearing liabilities 4.84 282,264 12,639 5.91 247,422 10,932 4.42
===================================================================================================================================
Noninterest-bearing liabilities 7,453 5,210
===================================================================================================================================
Total liabilities 289,717 252,632
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 23,002 22,604
===================================================================================================================================
Total liabilities and stockholders' equity $312,719 $ 275,687
===================================================================================================================================
Net interest-earning assets $ 19,262 $ 18,940
===================================================================================================================================
Net interest income/interest rate spread 2.75% $ 10,111 3.07% $ 8,905 3.03%
===================================================================================================================================
Net yield on interest-earning assets(3) 3.35% 3.34%
===================================================================================================================================
Ratio of average interest-earning assets to
average interest-bearing liabilities 106.82% 107.65%
===================================================================================================================================
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1995
===================================
Average
Average Yield/
Balance Interest Cost
===================================
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 151,198 $ 12,472 8.25%
- -----------------------------------------------------------------------------------
Mortgage-related securities(2) 71,832 4,377 6.09
- -----------------------------------------------------------------------------------
Investment securities 12,844 756 5.89
- -----------------------------------------------------------------------------------
Other interest-earning assets 12,433 690 5.55
===================================================================================
Total interest-earning assets 248,307 18,295 7.37
===================================================================================
Noninterest-earning assets 9,198
===================================================================================
Total assets $ 257,505
===================================================================================
Interest-bearing liabilities:
Deposits $ 216,511 9,732 4.49
- -----------------------------------------------------------------------------------
FHLB advances and other borrowings 16,539 1,035 6.26
===================================================================================
Total interest-bearing liabilities 233,050 10,767 4.62
===================================================================================
Noninterest-bearing liabilities 4,382
===================================================================================
Total liabilities 237,432
- -----------------------------------------------------------------------------------
Stockholders' equity 20,073
===================================================================================
Total liabilities and stockholders' equity $ 257,505
===================================================================================
Net interest-earning assets $ 15,257
===================================================================================
Net interest income/interest rate spread $ 7,528 2.75%
===================================================================================
Net yield on interest-earning assets(3) 3.03%
===================================================================================
Ratio of average interest-earning assets to
average interest-bearing liabilities 106.55%
===================================================================================
</TABLE>
(1) Includes non-accrual loans.
(2) Includes assets classified as either available for sale or held for
sale.
(3) Net interest income divided by interest-earning assets.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
CHANGES IN FINANCIAL CONDITION
(continued)
Loans Receivable
(dollars in thousands)
9/30/95 158,002
9/30/96 167,530
9/30/97 188,289
Net Income
(dollars in thousands)
9/30/95 1,123
9/30/96 1,426 (before SAIF special assessment)
9/30/97 2,637
Rate/Volume Analysis. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume), and (iii)
total change in rate and volume. The combined effect of changes in both rate
and volume has been allocated proportionately to the change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
=========================================================================
INCREASE INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
=========================================================================
TOTAL INCREASE TOTAL INCREASE
RATE VOLUME (DECREASE) RATE VOLUME (DECREASE)
=========================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans receivable(1) $ 30 $1,248 $ 1,278 $ (90) $ 1,077 $ 987
- ---------------------------------------------------------------------------------------------------------------------
Mortgage-related securities(1) 178 790 968 298 554 852
- ---------------------------------------------------------------------------------------------------------------------
Investment securities 74 689 763 44 (85) (41)
- ---------------------------------------------------------------------------------------------------------------------
Other interest-earning assets (3) (93) (96) (132) (124) (256)
=====================================================================================================================
Total interest-earning assets 279 2,634 2,913 120 1,422 1,542
=====================================================================================================================
Interest-bearing liabilities:
Deposits (217) 36 (181) (543) 174 (369)
- ---------------------------------------------------------------------------------------------------------------------
FHLB advances on other borrowings 34 1,922 1,888 (71) 605 534
=====================================================================================================================
Total interest-bearing liabilities (251) 1,958 1,707 (614) 779 165
=====================================================================================================================
Increase (decrease) in net interest income $ 530 $ 676 $ 1,206 $ 734 $ 643 $ 1,377
=====================================================================================================================
</TABLE>
(1) Includes assets classified as either available for sale or held for sale.
RESULTS OF OPERATIONS
General. The Company reported net income of $2.6 million, $885,000, and $1.1
million for the years ended September 30, 1997, 1996 and 1995, respectively.
The $1.7 million increase in net income for the year ended September 30, 1997
compared to the year ended September 30, 1996 was primarily due to a $1.2
million, or 13.5%, increase in net interest income, a $1.7 million, or 19.9%,
decrease in operating expenses and a $1.0 million decrease in the provision for
loan losses offset by a $2.2 million increase in income taxes. The decrease in
operating expenses for the year ended September 30, 1997 was primarily due to
the one-time $1.4 million special assessment on Savings Association Insurance
Fund ("SAIF") insured deposits in fiscal 1996 of $1.4 million. The special
assessment was effected in order to recapitalize the SAIF.
The $238,000, or 21.2%, decrease in net income for the year ended September
30, 1996 compared to the year ended September 30, 1995 was primarily due to a
$1.6 million, or 22.9%, increase in operating expenses and a $1.2 million
increase in the provision for loan losses offset by a $1.4 million, or 18.3%,
increase in net interest income, a $1.1 million decrease in income taxes and a
$121,000,or 10.2%, increase in other income. The increase in operating
expenses for the year ended September 30, 1996 was primarily due to the
one-time SAIF special assessment. Excluding this assessment, net income
increased $638,000 to $1.8 million in fiscal 1996, an increase of 56.8%.
Net Interest Income. Net interest income is determined by interest rate
spread (i.e., the difference between the yields earned on interest-earning
assets and the rates paid on interest-bearing liabilities) and the relative
amounts of interest-earning assets and interest-bearing liabilities. The
Company's average interest-rate spread was 3.07%, 3.03% and 2.75% during the
years ended September 30, 1997, 1996 and 1995, respectively. The Company's
interest-rate spread was 2.75% at September 30, 1997. The
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
(continued)
Net Interest Income
(dollars in thousands)
9/30/95 7,528
9/30/96 8,905
9/30/97 10,111
Company's net interest margin (i.e., net interest income as a percentage of
average interest-earning assets) was 3.35%, 3.34% and 3.03% during the years
ended September 30, 1997, 1996 and 1995, respectively.
Net interest income increased by $1.2 million, or 13.5%, in the year ended
September 30, 1997 to $10.1 million compared to $8.9 million in fiscal 1996.
The reason for such increase was a $2.9 million, or 14.7%, increase in interest
income partially offset by a $1.7 million, or 15.6%, increase in interest
expense. Net interest income increased by $1.4 million, or 18.3%, in fiscal
1996 compared to fiscal 1995 due to a $1.5 million, or 8.4%, increase in total
interest income offset by a $165,000, or 1.5%, increase in total interest
expense.
Interest Income. Total interest income amounted to $22.8 million for the year
ended September 30, 1997 compared to $19.8 million for the year ended September
30, 1996. The primary reason for the increase in the 1997 period was a $1.6
million, or 25.6%, increase in interest income on mortgage-related securities,
investments and other interest-earning assets as a result of a $20.0 million,
or 19.6%, increase in the average balance thereof and a 32 basis point (with
100 basis points being equal to 1.0%) increase in the yield earned thereon.
The increase in the average balances and the yield was due to increased
leveraging of the Company;s capital base and investment in higher yielding
assets. Additionally, interest income on loans increased $1.3 million, or
9.5%, due to a $15.2 million, or 9.3%, increase in the average loan balance and
a 3 basis point increase in the yield earned thereon. The increase in the
average balance of the loan portfolio in fiscal 1997 reflects increased
originations of both fixed and adjustable-rate loans held in portfolio.
The $1.5 million, or 8.4%, increase in total interest income during the year
ended September 30, 1996 over 1995 was primarily due to a $987,000, or 7.9%,
increase in interest on loans as a result of a $13.2 million, or 8.7%, increase
in the average balance of the loan portfolio partially offset by a 6 basis
point decrease in the average yield earned thereon. The increase in the average
balance of the loan portfolio in fiscal 1996 reflects increased origination of
both fixed- and adjustable-rate mortgage loans while the decrease in the yield
reflects the effects of lower market rates of interest earned during fiscal
1996. Additionally, interest income on mortgage-related securities, investments
and other interest-earning assets increased $555,000, or 9.5% due to a $4.9
million, or 5.0% increase in the aggregate average balances thereof and a 25
basis point increase in the yield earned reflecting increases in the general
market interest rate environment.
Interest Expense. Total interest expense increased by $1.7 million, or 15.6%,
in the year ended September 30, 1997 compared to fiscal 1996. The reason for
such increase was a $1.9 million increase in interest expense on borrowings
offset by a $181,000 decrease in interest expense on deposits. The increase in
interest expense on borrowings was due to a $34.0 million increase in the
average balance of total borrowings partially offset by a 13 basis point
decline in the average rate paid thereon. The decrease in interest paid on
deposits was due to a 10 basis point decline in the average rate paid offset in
part by a $837,000 increase in the average balance of deposits. The increase in
the average balances of deposits and borrowings was used to fund loan
originations and purchases of investment securities. The decrease in the rates
paid on deposits and borrowings was due to general market interest rate
fluctuations.
Total interest expense amounted to $10.9 million for the year ended September
30, 1996 as compared to $10.8 million for fiscal 1995. The $165,000, or 1.5%,
increase in interest expense in fiscal 1996 compared to fiscal 1995 was due to
a $534,000 increase in interest expense on borrowings offset partially by a
$369,000 decrease in interest expense on deposits. The increase in interest
expense on borrowings was due to a $10.6 million increase in the average
balance partially offset by a 47 basis point decline in the average rate paid
on borrowings. The decrease in interest paid on deposits was due to an 24
basis point decline in the average rate paid on deposits offset in part by a
$3.8 million increase in the average balance of deposits. The increase in the
average balances of borrowings and deposits was used to fund mortgage
originations and the purchase of mortgage-related and investment securities.
The decrease in the average
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
(continued)
Operating Expenses to Average Total Assets
9/30/95 2.73%
9/30/96 2.62%
9/30/97 2.21%
rate paid on deposits reflected, in part, the maturing of some long-term high
interest rate deposits. Interest rates on borrowing also declined due to a
decline in short-term interest rates.
Provisions for Loan Losses. Provisions for loan losses are charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the volume and type
of lending conducted by the Company, the amount of the Company's classified
assets, the status of past due principal and interest payments, general
economic conditions, particularly as they relate to the Company's market area,
and other factors related to the collectibility of the Company's loan
portfolio. Management of the Company assesses the allowance for loan losses on
a monthly basis and makes provisions for loan losses as deemed appropriate in
order to maintain the adequacy of the allowance for loan losses. For the year
ended September 30, 1997, the provision for loan losses amounted to $239,000 as
compared to $1.2 million for fiscal 1996. The decrease in the provision
reflected the more normalized credit risk associated with the Bank's portfolio
as the non-performing Bennett funding credits were resolved in fiscal 1997.
For the year ended September 30, 1995, the provision for loan losses was
$52,000. The increase in the provision for fiscal 1996 reflected an increased
amount established for potential losses related to the Bennett Funding
bankruptcies. (See "-Changes in Financial Condition-Non-Performing Assets"). At
September 30, 1997, the Company's allowance for loan losses amounted to 78.4%
of total non-performing loans and .82% of gross loans receivable.
Although management of the Company believes that the Company's allowance for
loan losses was adequate at September 30, 1997, based on facts and
circumstances available to it, there can be no assurances that additions to
such allowance will not be necessary in future periods, which would adversely
affect the Company's results of operations for such periods. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's provision for loan losses and the carrying
value of its other non-performing assets based on their judgments about
information available to them at the time of their examination. The Company was
last examined by the Office of Thrift Supervision ("OTS") as of May 1997. The
Company was not required to increase its provision for loan losses or adjust
the carrying value of its other non-performing assets as a result of such
examination.
Other Income. For the year ended September 30, 1997, the Company reported
other income of $1.4 million compared to $1.3 million of other income for the
year ended September 30, 1996. The primary reason for the $42,000 or 3.2%
increase in other income in fiscal 1997 was a $76,000 increase in net gain on
sales of mortgage loans held for sale and a $46,000 gain on the sale of other
assets partially offset by a decrease of $75,000 in service charges and other
fees. The $121,000, or 10.2%, increase in other income for the year ended
September 30, 1996 as compared to fiscal 1995 was due to increases in gains on
sales of mortgage loans of $156,000, partially offset by an decrease of $66,000
on gains on sales of investments and mortgage-related securities. The increase
in gains on sales of loans for fiscal 1997 and 1996 reflected the Company's
increased emphasis on the origination and sale, servicing released, of
non-conforming loans.
Operating Expenses. Operating expenses include compensation and employee
benefits, occupancy and equipment expense, FDIC premiums, data processing
expense and other items. Operating expenses decreased $1.7 million, or 19.9%,
for the year ended September 30, 1997 compared to the year ended September 30,
1996 and amounted to $6.9 million in fiscal 1997 compared to $8.6 million in
fiscal 1996. The primary reason for the substantially higher level of
operating expenses for fiscal 1996 was the one-time SAIF special assessment of
$1.4 million relating to deposit insurance charged in such period. The special
assessment was the result of legislation enacted in the fall of 1996 which was
designed to recapitalize the SAIF insurance fund to the 1.25% of total insured
deposits required by the Federal Deposit Insurance Corporation ("FDIC"). The
recapitalization decreased the amount of insurance that
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
(continued)
the Company now pays to insure deposit accounts from $.23 per $100 of deposits
to $.065 per $100, which amount effectively reflects the amount required to be
paid by SAIF-insured institutions to pay the debt service on the Financing
Corporation bonds. FDIC insurance premium expense was reduced by $323,000, or
60.9% for fiscal 1997. Also contributing to the decrease in operating expenses
was a $311,000 charge to earnings in fiscal 1996 for certain costs relating to
the restructuring that the Company commenced in the first fiscal quarter of
1996. Offsetting these decreases were modest increases in advertising, other
expenses and a $153,000 expense for minority interests in expense of
subsidiaries which relates to expenses incurred from the issuance of the
Company's trust preferred securities. Operating expenses increased $1.6
million, or 22.9%, to $8.6 million for the year ended September 30, 1996
compared to the year ended September 30, 1995. The primary reason for the
increase in operating expenses in fiscal 1996 was the SAIF special assessment
and the restructuring charge. In addition, professional fees increased
$257,000, or 47.9%, due to increased costs relating to litigation involving the
Company as well as increased professional costs during the first full year of
operation as a public company.
Income Taxes. The Company recognized income tax expenses of $1.7 million, or
38.7% of pre-tax income, for the year ended September 30, 1997, compared to an
income tax benefit of $567,000 for fiscal 1996. The benefit in fiscal 1996 was
the result of an adjustment for prior year tax contingencies of approximately
$700,000. Excluding this benefit, the income tax expense would have been
$133,000, or 41.8% of pre-tax income. The Company incurred income tax expense
of $504,000 for the year ended September 30, 1995 which resulted in an
effective tax rate of 31.0%. The higher percentage in fiscal 1997 and 1996
related to the expiration of state tax net operating loss carryforwards during
fiscal 1995 which were used to offset taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Federal legislation enacted in August 1996 repealed the percentage of taxable
income method of accounting for bad debts for thrift institutions effective for
years beginning after December 31, 1995. The Company was required as of October
1, 1996 to adopt the experience method computation for bad debts and to provide
for taxes relating to excess bad debts reserves over the base year of December
1987. As of September 30, 1996, the Company has provided deferred income taxes
totalling $85,000 on its excess bad debt reserves.
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, amortization, prepayments and maturities
of outstanding loans and mortgage-related securities, sales of loans,
maturities of investment securities and other short-term investments,
borrowings and funds provided from operations. While scheduled payments from
the amortization of loans and mortgage-related securities and maturing
investment securities and short-term investments are relatively predictable
sources of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Company invests excess funds in overnight deposits and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
The Company has the ability to obtain advances from the FHLB of Pittsburgh
through several credit programs and in addition, has established a line of
credit with the FHLB in an amount not to exceed 10% of assets and subject to
certain conditions, including holding a predetermined amount of FHLB stock as
collateral. This line of credit is used from time to time for liquidity
purposes. As an additional source of funds, the Company has access to the
Federal Reserve discount window, but only after it has exhausted its access to
the FHLB of Pittsburgh. At September 30, 1997, the Company had $75.4 million of
outstanding advances from the FHLB of Pittsburgh.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer term basis, the Company maintains a
strategy of investing in various lending products and mortgage-related
securities.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
(continued)
The Company uses its sources of funds primarily to meet its ongoing
commitments, to pay maturing savings certificates and savings withdrawals, fund
loan commitments and maintain a portfolio of mortgage-backed and investment
securities. At September 30, 1997, the total of approved loan commitments
outstanding amounted to $7.7 million. At the same date, commitments under
unused lines of credit and loans in process on construction loans amounted to
$11.8 million. Certificates of deposit scheduled to mature in one year or less
at September 30, 1997 totalled $78.1 million. Based upon its historical
experience, management believes that a significant portion of maturing deposits
will remain with the Company.
The Company is required by the OTS to maintain average daily balances of
liquid assets and short-term liquid assets (as defined) in amount equal to 5%
and 1%, respectively, of net withdrawable deposits and borrowings payable in
one year or less to assure its ability to meet demand for withdrawals and
repayment of short-term borrowings. The liquidity requirements may vary from
time to time at the direction of the OTS depending upon economic conditions and
deposit flows. The Company's average monthly liquidity ratio and short-term
liquid assets for September 1997 were 9.74% and 8.56%, respectively.
The OTS requires that the Bank meet minimum regulatory tangible, core, tier 1
risk-based and total risk-based capital requirements. At September 30, 1997,
the Bank exceeded all regulatory capital requirements and was deemed a well
capitalized institution for regulatory purposes. See Note 13 to the
Consolidated Financial Statements.
The Company, as a separately incorporated holding company, has no significant
operations other than serving as the sole stockholder of the Bank and paying
interest to its subsidiary for junior subordinated debt in conjunction with the
issuance of trust preferred securities. On an unconsolidated basis, the Company
has no paid employees. The Company's assets consist primarily of its investment
in the Bank and its only material source of income consists of earnings from
its investment in the Bank. The expenses incurred by the Company relate to its
reporting obligations under the Securities Exchange Act of 1934, related
expenses incurred as a publicly traded company, and expenses relating to the
issuance of the trust preferred securities. Management believes that the
Company has adequate liquidity available to respond to its liquidity demands.
Under applicable federal regulations, the Bank may pay dividends within certain
limits after notice to the OTS. See Note 21 to the Consolidated Financial
Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share." This
statement, which supersedes APB Opinion No. 15, establishes standards for
computing and presenting earnings per share ("EPS") and applies to publicly
held common stock or potential common stock. This statement is effective for
financial statements issued for periods ending after December 15, 1997, and
requires restatement of all prior period EPS data presented. The Company does
not expect the adoption of this statement to have a material impact on the
Company's results of operations or financial position when adopted.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires an entity to present, as a component of comprehensive income,
the amounts from transactions and other events which currently are excluded
from the statement of income and are recorded directly to stockholder's equity.
Also in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which is effective for years beginning
after December 15, 1997. This statement requires an entity to disclose
information in a manner consistent to internally used information and requires
more detailed disclosure of operating and reporting segments than are currently
in practice.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
Management has not completed an analysis of the impact the adoption of SFAS
Nos. 130 and 131 will have on the Company's financial condition or results of
operations.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements of the Company and related notes
presented herein have been prepared in accordance with generally accepted
accounting principles 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, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution'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
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Company's assets and liabilities
are critical to the maintenance of acceptable performance levels.
17
<PAGE> 18
[DELOITTE & TOUCHE LLP LOGO]
Board of Directors
First Keystone Financial, Inc. and Subsidiaries
Media, Pennsylvania 19063
We have audited the accompanying consolidated statements of financial
condition of First Keystone Financial, Inc. and Subsidiaries (the "Company") as
of September 30, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended September 30, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First Keystone Financial, Inc. and Subsidiaries at September 30, 1997 and
1996 and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in accordance with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 7, 1997
- -----------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- -----------------
18
<PAGE> 19
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------
SEPTEMBER 30
--------------------------------
1997 1996
--------------------------------
ASSETS
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,832 $ 1,870
- -------------------------------------------------------------------------------------------------------
Interest-bearing deposits with depository institutions 19,729 9,824
=======================================================================================================
Total cash and cash equivalents 21,561 11,694
Investment securities available for sale 10,211 16,532
- -------------------------------------------------------------------------------------------------------
Mortgage-related securities available for sale 104,472 60,211
- -------------------------------------------------------------------------------------------------------
Loans held for sale 4,577 2,447
- -------------------------------------------------------------------------------------------------------
Investment securities held to maturity--at amortized
cost (approximate fair value of $9,960) 10,000
- -------------------------------------------------------------------------------------------------------
Mortgage-related securities held to maturity--at
amortized cost (approximate fair value of $20,200
and $22,060 at September 30, 1997 and 1996,
respectively) 20,707 23,221
- -------------------------------------------------------------------------------------------------------
Loans receivable--net 188,289 167,530
- -------------------------------------------------------------------------------------------------------
Accrued interest receivable 2,565 2,404
- -------------------------------------------------------------------------------------------------------
Real estate owned 1,672 1,557
- -------------------------------------------------------------------------------------------------------
Federal Home Loan Bank stock--at cost 3,769 2,337
- -------------------------------------------------------------------------------------------------------
Office properties and equipment--net 2,552 2,507
- -------------------------------------------------------------------------------------------------------
Deferred income taxes 680 2,111
- -------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 2,375 1,690
=======================================================================================================
TOTAL ASSETS $ 373,430 $ 294,241
=======================================================================================================
LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES
AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 227,918 $ 219,205
- -------------------------------------------------------------------------------------------------------
Advances from Federal Home Loan Bank 75,387 46,740
- -------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase 24,600
- -------------------------------------------------------------------------------------------------------
Accrued interest payable 1,575 1,501
- -------------------------------------------------------------------------------------------------------
Advances from borrowers for taxes and insurance 913 921
- -------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 2,085 2,790
=======================================================================================================
Total liabilities 332,478 271,157
=======================================================================================================
Guaranteed preferred beneficial interest in
subordinated debt 16,200
=======================================================================================================
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; none issued
- -------------------------------------------------------------------------------------------------------
Common stock, $.01 par value, 20,000,000 shares authorized; issued
and outstanding; September 30, 1997 and 1996, 1,228,419
and 1,292,500 shares, respectively 14 14
- -------------------------------------------------------------------------------------------------------
Additional paid in capital 12,896 12,659
- -------------------------------------------------------------------------------------------------------
Common stock acquired by stock benefit plans (2,038) (1,437)
- -------------------------------------------------------------------------------------------------------
Treasury stock at cost, 132,125 and 67,500 shares
at September 30, 1997 and 1996, respectively (2,545) (1,288)
- -------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on available for
sale securities--net of tax 408 (494)
- -------------------------------------------------------------------------------------------------------
Retained earnings--partially restricted 16,017 13,630
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 24,752 23,084
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES
AND STOCKHOLDERS' EQUITY $ 373,430 $ 294,241
=======================================================================================================
</TABLE>
19
<PAGE> 20
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30
--------------------------------------------
1997 1996 1995
============================================
INTEREST INCOME:
<S> <C> <C> <C>
Interest on:
Loans $ 14,737 $13,459 $12,472
- ----------------------------------------------------------------------------------------------------------
Mortgage-related securities 6,197 5,229 4,377
- ----------------------------------------------------------------------------------------------------------
Investments 1,478 715 756
- ----------------------------------------------------------------------------------------------------------
Interest-bearing deposits 338 434 690
==========================================================================================================
TOTAL INTEREST INCOME 22,750 19,837 18,295
==========================================================================================================
INTEREST EXPENSE:
Interest on:
Deposits 9,182 9,363 9,732
- ----------------------------------------------------------------------------------------------------------
Federal Home Loan Bank advances 3,381 1,569 1,035
- ----------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase 76
==========================================================================================================
TOTAL INTEREST EXPENSE 12,639 10,932 10,767
==========================================================================================================
Net interest income 10,111 8,905 7,528
- ----------------------------------------------------------------------------------------------------------
Provision for loan losses 239 1,250 52
==========================================================================================================
Net interest income after provision for loan losses 9,872 7,655 7,476
==========================================================================================================
OTHER INCOME (LOSS):
Service charges and other fees 972 1,047 1,029
- ----------------------------------------------------------------------------------------------------------
Net (loss) gain on sale of:
Investments and mortgage-related securities (6) 60
- ----------------------------------------------------------------------------------------------------------
Loans 285 209 53
- ----------------------------------------------------------------------------------------------------------
Real estate owned 32 34 (3)
- ----------------------------------------------------------------------------------------------------------
Other assets 46
- ----------------------------------------------------------------------------------------------------------
Real estate operations (25) (32) (41)
- ----------------------------------------------------------------------------------------------------------
Other income 40 56 89
==========================================================================================================
TOTAL OTHER INCOME 1,350 1,308 1,187
==========================================================================================================
OPERATING EXPENSES:
Salaries and employee benefits 3,174 3,236 3,289
- ----------------------------------------------------------------------------------------------------------
Occupancy and equipment 858 1,022 911
- ----------------------------------------------------------------------------------------------------------
Professional fees 733 793 536
- ----------------------------------------------------------------------------------------------------------
Federal deposit insurance premium 207 530 550
- ----------------------------------------------------------------------------------------------------------
SAIF special assessment 1,426
- ----------------------------------------------------------------------------------------------------------
Bank service charges 384 401 434
- ----------------------------------------------------------------------------------------------------------
Data processing 335 337 371
- ----------------------------------------------------------------------------------------------------------
Advertising 280 201 195
- ----------------------------------------------------------------------------------------------------------
Minority interest in expense of subsidiaries 153
- ----------------------------------------------------------------------------------------------------------
Other 797 699 750
==========================================================================================================
TOTAL OPERATING EXPENSES 6,921 8,645 7,036
==========================================================================================================
Income before income tax expense (benefit) 4,301 318 1,627
- ----------------------------------------------------------------------------------------------------------
Income tax expense (benefit) 1,664 (567) 504
==========================================================================================================
NET INCOME $ 2,637 $ 885 $ 1,123
==========================================================================================================
EARNINGS PER COMMON SHARE: PRIMARY AND FULLY DILUTED $ 2.27 $ .74 $ .74
==========================================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
UNREALIZED
COMMON GAIN (LOSS)ON
STOCK SECURITIES TOTAL
ADDITIONAL ACQUIRED BY AVAILABLE STOCK-
COMMON PAID-IN STOCK BENEFIT TREASURY FOR SALE RETAINED HOLDERS'
STOCK CAPITAL PLANS STOCK (NET OF TAX) EARNINGS EQUITY
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ 11,622 $11,622
- --------------------------------------------------------------------------------------------------------------------------
Common stock issued $14 $12,539 12,553
- --------------------------------------------------------------------------------------------------------------------------
Common stock acquired
by stock benefit plans $(1,088) (1,088)
- --------------------------------------------------------------------------------------------------------------------------
ESOP stock committed
to be released 82 82
- --------------------------------------------------------------------------------------------------------------------------
Excess of fair value above
cost of ESOP shares
committed to be released 29 29
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on
securities available for
sale, net of tax $ 142 142
- --------------------------------------------------------------------------------------------------------------------------
Net income 1,123 1,123
==========================================================================================================================
Balance at September 30, 1995 14 12,568 (1,006) 142 12,745 24,463
- --------------------------------------------------------------------------------------------------------------------------
Common stock acquired
by stock benefit plans (704) (704)
- --------------------------------------------------------------------------------------------------------------------------
ESOP stock committed
to be released 109 109
- --------------------------------------------------------------------------------------------------------------------------
Excess of fair value above
cost of ESOP shares
committed to be released 91 91
- --------------------------------------------------------------------------------------------------------------------------
RRP amortization 164 164
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized loss relating to
transfer of securities from held
to maturity to available for sale,
net of tax (227) (227)
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized loss on securities
available for sale, net of tax (409) (409)
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock $(1,288) (1,288)
- --------------------------------------------------------------------------------------------------------------------------
Net income 885 885
==========================================================================================================================
Balance at September 30, 1996 14 12,659 (1,437) (1,288) (494) 13,630 23,084
- --------------------------------------------------------------------------------------------------------------------------
Common stock acquired
by stock benefit plans (775) (775)
- --------------------------------------------------------------------------------------------------------------------------
ESOP stock committed
to be released 33 33
- --------------------------------------------------------------------------------------------------------------------------
Excess of fair value above
cost of ESOP shares
committed to be released 237 237
- --------------------------------------------------------------------------------------------------------------------------
RRP amortization 141 141
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on securities
available for sale, net of tax 902 902
- --------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 11 11
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (1,268) (1,268)
- --------------------------------------------------------------------------------------------------------------------------
Dividends paid ($0.20 per share) (250) (250)
- --------------------------------------------------------------------------------------------------------------------------
Net income 2,637 2,637
==========================================================================================================================
Balance at September 30, 1997 $14 $12,896 $(2,038) $(2,545) $408 $16,017 $24,752
==========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------
Year Ended September 30
----------------------------------------------------
1997 1996 1995
====================================================
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,637 $ 885 $ 1,123
- ------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
- ------------------------------------------------------------------------------------------------------------------
Provision for depreciation and amortization 364 520 408
- ------------------------------------------------------------------------------------------------------------------
Amortization of discounts (872) (161) (54)
- ------------------------------------------------------------------------------------------------------------------
Gain (Loss) on sales of:
Loans (285) (209) (53)
- ------------------------------------------------------------------------------------------------------------------
Investments and mortgage-related
securities available for sale 6 (60)
- ------------------------------------------------------------------------------------------------------------------
Real estate owned (32) (34) 3
- ------------------------------------------------------------------------------------------------------------------
Other assets (46)
- ------------------------------------------------------------------------------------------------------------------
Provision for loan losses 239 1,250 52
- ------------------------------------------------------------------------------------------------------------------
Amortization of stock benefit plans 422 364 111
- ------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities which provided (used) cash:
- ------------------------------------------------------------------------------------------------------------------
Origination of loans held for sale (37,209) (30,239) (5,501)
- ------------------------------------------------------------------------------------------------------------------
Loans sold in the secondary market 35,079 27,849 5,612
- ------------------------------------------------------------------------------------------------------------------
Deferred income taxes 862 (700) 146
- ------------------------------------------------------------------------------------------------------------------
Accrued interest receivable (161) 3 (117)
- ------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets (740) (297) (252)
- ------------------------------------------------------------------------------------------------------------------
Accrued interest payable 74 405 (136)
- ------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses (705) 569 (344)
==================================================================================================================
Net cash (used in) provided by operating activities (373) 211 938
==================================================================================================================
INVESTING ACTIVITIES:
Loans originated or acquired (56,049) (52,056) (51,976)
- ------------------------------------------------------------------------------------------------------------------
Purchases of:
Investments held to maturity (12,000) (5,065)
- ------------------------------------------------------------------------------------------------------------------
Investments available for sale (6,030) (18,000)
- ------------------------------------------------------------------------------------------------------------------
Mortgage-related securities held to maturity (4,013)
- ------------------------------------------------------------------------------------------------------------------
Mortgage-related securities available for sale (51,654) (25,770) (21,919)
- ------------------------------------------------------------------------------------------------------------------
Purchase of FHLB stock (1,432) (845) (122)
- ------------------------------------------------------------------------------------------------------------------
Proceeds from sales of investment and
mortgage-related securities available for sale 17,790 3,247
- ------------------------------------------------------------------------------------------------------------------
Proceeds from sales of real estate owned 944 1,009 579
- ------------------------------------------------------------------------------------------------------------------
Proceeds from sales of other assets 101
- ------------------------------------------------------------------------------------------------------------------
Principal collected on loans 35,418 40,160 35,073
- ------------------------------------------------------------------------------------------------------------------
Proceeds from maturities, calls or repayments of:
Investment securities available for sale 12,500 3,065
- ------------------------------------------------------------------------------------------------------------------
Mortgage-related securities available for sale 9,243 3,908 578
- ------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity 2,000 4,000 6,500
- ------------------------------------------------------------------------------------------------------------------
Mortgage-related securities held to maturity 2,483 8,347 7,881
- ------------------------------------------------------------------------------------------------------------------
Purchase of property and equipment (409) (84) (765)
- ------------------------------------------------------------------------------------------------------------------
Net expenditures on real estate acquired through
foreclosure and in development (734) (371) (69)
==================================================================================================================
Net cash used in investing activities (65,619) (22,860) (26,058)
==================================================================================================================
FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts 8,713 (4,548) 7,688
- ------------------------------------------------------------------------------------------------------------------
Net proceeds from FHLB and other borrowings 53,247 18,329 23,144
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in advances from
borrowers for taxes and insurance (8) (114) 37
- ------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of capital securities 16,200
- ------------------------------------------------------------------------------------------------------------------
Common stock acquired by stock benefit plans (775) (704)
- ------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (1,268) (1,288)
- ------------------------------------------------------------------------------------------------------------------
Cash dividends (250)
- ------------------------------------------------------------------------------------------------------------------
Proceeds from the sale of stock, net of conversion costs 11,465
==================================================================================================================
Net cash provided by financing activities 75,859 11,675 42,334
==================================================================================================================
Increase (Decrease) in cash and cash equivalents 9,867 (10,974) 17,214
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 11,694 22,668 5,454
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 21,561 $ 11,694 $ 22,668
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest on deposits and borrowings $ 12,600 $ 10,500 $ 10,900
- ------------------------------------------------------------------------------------------------------------------
Cash payments (refunds) of income taxes 630 720 (47)
- ------------------------------------------------------------------------------------------------------------------
Transfers of loans receivable into real estate owned 411 1,768 507
- ------------------------------------------------------------------------------------------------------------------
Transfers of investment securities to investment
securities available for sale 6,710
- ------------------------------------------------------------------------------------------------------------------
Transfers of mortgage-related securities to
mortgage-related securities available for sale 43,823
- ------------------------------------------------------------------------------------------------------------------
Conversion of loans into mortgage-related
securities available for sale 993
==================================================================================================================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
1. NATURE OF OPERATIONS AND ORGANIZATION STRUCTURE
On September 21, 1994, the Board of Directors of First Keystone Federal
Savings Bank (the "Bank") adopted a plan of conversion to convert from a
federally chartered mutual savings bank to a federally chartered capital stock
savings bank with the concurrent formation of a holding company (the
"Conversion").
The Conversion was completed on January 25, 1995 with the issuance by the
holding company, First Keystone Financial, Inc. (the "Company"), of 1,360,000
shares of its common stock in a public offering to the Bank's eligible
depositors and borrowers, members of the general public and the Bank's employee
stock ownership plan (the "ESOP"). In exchange for the net conversion proceeds
of $11.5 million, less $1.0 million retained by the Company, the Company
acquired 100% of the issued and outstanding capital stock of the Bank.
The Bank is principally in the business of attracting deposits through its
branch offices and investing those deposits together with funds from borrowings
and operations in single-family residential, commercial real estate and
commercial business loans. The Bank is primarily supervised and regulated by
the Office of Thrift Supervision ("OTS").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, the Bank, and the Bank's wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Securities Held to Maturity and Securities Available for Sale
Securities held to maturity are carried at amortized cost only if the Company
has the positive intent and ability to hold these securities to maturity.
Securities available for sale are carried at fair value with resulting
unrealized gains or losses recorded to equity, net of tax. At September 30,
1997 and 1996, there were no securities held in a trading account.
In November 1995, the Financial Accounting Standards Board (the "FASB")
issued a special report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" (the
"Questions and Answers Guide"). In December 1995, in accordance with the
provisions of the Questions and Answers Guide, the Company reclassified certain
securities with an aggregate amortized cost of $50.5 million from held to
maturity to available for sale. The Questions and Answers Guide provided that
reclassifications from the held-to-maturity category that resulted from this
one-time reassessment would not call into question the intent of an enterprise
to hold other debt securities to maturity in the future.
Allowance for Loan Losses
An allowance for loan losses is maintained at a level that management
considers adequate to provide for probable losses based upon an evaluation of
known and inherent risks in the loan portfolio. Management's evaluation of the
portfolio is based upon past loss experience, current economic conditions and
other relevant factors. While management uses the best information available to
make such evaluation, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114
23
<PAGE> 24
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
"Accounting by Creditors for Impairment of a Loan" and No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
Impaired loans are predominantly measured based on the fair value of the
collateral. The provision for loan losses charged to expense is based upon past
loan loss experience and an evaluation of possible losses and impairment
existing in the current loan and lease portfolio. A loan is considered to be
impaired when, based upon current information and events, it is probable that
the Company will be unable to collect all amounts due according to the original
contractual terms of the loan. An insignificant delay or insignificant
shortfall in amounts of payments does not necessarily result in the loan being
identified as impaired. For this purpose, delays less than 90 days are
considered to be insignificant. Large groups of smaller balance homogeneous
loans, including residential real estate and consumer loans, are collectively
evaluated for impairment, except for loans restructured under a troubled debt
restructuring. At September 30, 1997 and 1996, the Company's impaired loans
consisted of smaller balance consumer and residential real estate loans.
Mortgage Banking Activities
The Company originates mortgage loans held for investment and for sale. At
origination, the mortgage loan is identified as either held for sale or for
investment purposes. Mortgage loans held for sale are carried at the lower of
cost or forward committed contracts (which approximates market), determined on
a net aggregate basis.
At September 30, 1997, 1996, and 1995, loans serviced for others totalled
approximately $114,554, $127,229 and $134,600, respectively. Servicing loans
for others consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors, and foreclosure processing. Loan
servicing income is recorded on the cash basis and includes servicing fees from
investors and certain charges collected from borrowers, such as late payment
fees. The Company has fiduciary responsibility for related escrow and custodial
funds aggregating approximately $793 and $998 at September 30, 1997 and 1996,
respectively.
The Company adopted SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinquishments of Liabilities" at January 1, 1997. This
statement requires an entity which sells loans with servicing retained to
assess the retained interest in the servicing asset or liability associated
with the sold loans based on the relative fair values. The servicing asset or
liability is amortized in proportion to and over the period of estimated net
servicing income and net servicing loss, as appropriate. Assessment of the
fair value of the retained interest is performed on a continuing basis. The
adoption of this statement did not have a material impact on the Company's
financial position or results of operations.
Income Recognition on Loans
Interest on loans is credited to income when earned. Accrual of loan interest
is discontinued and a reserve established on existing accruals if management
believes after considering, among other things, economic and business
conditions and collection efforts, that the borrowers' financial condition is
such that collection of interest is doubtful.
Real Estate Owned
Real estate owned consists of properties acquired by foreclosure or deed
in-lieu-of foreclosure. These assets are initially recorded at the lower of
carrying value of the loan or estimated fair value less selling costs at the
time of foreclosure and at the lower of the new cost basis or net realizable
value thereafter. The amounts recoverable from real estate owned could differ
materially from the amounts used in arriving at the net carrying value of the
assets at the time of foreclosure because of future market factors beyond the
control of the Company. Costs relating to the development and improvement of
real estate owned properties are capitalized and those relating to holding the
property are charged to expense.
Office Properties and Equipment
Office properties and equipment are recorded
24
<PAGE> 25
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
at cost. Depreciation is computed using the straight-line method over the
expected useful lives of the assets. The costs of maintenance and repairs are
expensed as they are incurred, and renewals and betterments are capitalized.
Income Taxes
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Interest Rate Risk
At September 30, 1997 and 1996, the Company's assets consist primarily of
assets that earned interest at either adjustable or fixed interest rates and
the average life of which is long term. Those assets were funded primarily with
medium-term liabilities that have interest rates which vary over time with
market rates. Since the assets and liabilities reprice at different times, the
Company is exposed to interest rate risk.
Earnings Per Share
Earnings per common share is computed based on the weighted average number of
shares of common stock outstanding and common stock equivalents.
Accounting for Stock Options
Effective October 1, 1995, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation," which allows an entity to choose between the
intrinsic value method, as defined in Accounting Principals Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" or the fair value
method of accounting for stock based compensation described in SFAS No. 123. An
equity using the intrinsic value method must disclose proforma net income and
earnings per share as if the stock based compensation was accounted for using
the fair value method. The Company continues to account for stock based
compensation using the intrinsic value method and has not recognized
compensation expense under this method.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
and amounts due from depository institutions and interest-bearing deposits with
depository institutions.
New Accounting Pronouncements Not Yet Adopted
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share." This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to publicly held common stock or potential common stock.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, and requires restatement of all prior-period EPSdata
presented. The Company does not expect the adoption of this statement to have a
material impact on the Company's financial statements.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires an entity to present, as a component of comprehensive income,
the amounts from transactions and other events which currently are excluded
from the statement of income and are recorded directly to stockholders' equity.
Also in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" requires an entity to disclose
information in a manner consistent to internally used information and requires
more detailed disclosures of operating and reporting segments than are
currently in practice. These statements are effective for years beginning after
December 15, 1997. Management has not completed an analysis of the effect the
adoption of two statements will have on the Company's financial condition or
results of operations.
Reclassifications
Certain reclassifications have been made to the September 30, 1996 and 1995
consolidated financial statements to conform with the September 30, 1997
presentation. Such reclassifications had no impact on the reported net income.
25
<PAGE> 26
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
3. INVESTMENT SECURITIES
The amortized cost and approximate fair value of investment securities, by
contractual maturities, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAIN LOSS FAIR VALUE
================================================================================================
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities and securities
of U.S. Government agencies:
1 to 5 years $ 4,000 $15 $ 4,015
- ------------------------------------------------------------------------------------------------
5 to 10 years 3,000 $17 2,983
- ------------------------------------------------------------------------------------------------
Municipal obligations 3,138 75 3,213
================================================================================================
Total $10,138 $90 $17 $ 10,211
================================================================================================
Held to Maturity:
U.S. Treasury securities and securities
of U.S. Government agencies:
Over 10 years $10,000 40 $ 9,960
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAIN LOSS FAIR VALUE
================================================================================================
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities and securities
of U.S. Government agencies:
1 to 5 years $13,500 $48 $ 30 $13,518
- ------------------------------------------------------------------------------------------------
5 to 10 years 3,000 130 2,870
- ------------------------------------------------------------------------------------------------
Municipal obligations 145 1 144
================================================================================================
Total $16,645 $48 $161 $16,532
================================================================================================
</TABLE>
4. MORTGAGE-RELATED SECURITIES
Mortgage-related securities available for sale and mortgage-related
securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAIN LOSS FAIR VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale:
FHLMC pass-through certificates $ 17,540 $213 $ 9 $ 17,744
- ------------------------------------------------------------------------------------------------
FNMA pass-through certificates 14,587 149 21 14,715
- ------------------------------------------------------------------------------------------------
GNMA pass-through certificates 28,938 133 17 29,054
- ------------------------------------------------------------------------------------------------
Collateralized mortgage obligations 42,814 376 231 42,959
================================================================================================
Total $ 103,879 $871 $278 $104,472
================================================================================================
Held to Maturity:
FHLMC pass-through certificates $ 2,747 $ 15 $ 52 $ 2,710
- ------------------------------------------------------------------------------------------------
FNMA pass-through certificates 10,053 29 272 9,810
- ------------------------------------------------------------------------------------------------
Collateralized mortgage obligations 7,907 17 244 7,680
================================================================================================
Total $ 20,707 $ 61 $568 $ 20,200
================================================================================================
</TABLE>
26
<PAGE> 27
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAIN LOSS FAIR VALUE
================================================================================================
<S> <C> <C> <C> <C>
Available for Sale:
FHLMC pass-through certificates $ 12,852 $ 93 $ 144 $12,801
- ------------------------------------------------------------------------------------------------
FNMA pass-through certificates 11,079 8 162 10,925
- ------------------------------------------------------------------------------------------------
GNMA pass-through certificates 8,355 230 8,125
- ------------------------------------------------------------------------------------------------
Collateralized mortgage obligations 28,616 102 358 28,360
================================================================================================
Total $ 60,902 $ 203 $ 894 $60,211
================================================================================================
Held to Maturity:
FHLMC pass-through certificates $ 3,631 $ 161 $ 3,470
- ------------------------------------------------------------------------------------------------
FNMA pass-through certificates 11,383 $ 27 510 10,900
- ------------------------------------------------------------------------------------------------
Collateralized mortgage obligations 8,207 517 7,690
================================================================================================
Total $ 23,221 $ 27 $1,188 $22,060
================================================================================================
</TABLE>
The collateralized mortgage obligations contain both fixed and adjustable
classes of securities which are repaid in accordance with a predetermined
priority. The underlying collateral of the securities are loans which are
primarily insured by FHLMC, FNMA, and GMNA.
Mortgage-related securities with a carrying value of $21,923 and $6,467 were
pledged as collateral for public funds on deposit, treasury tax and loan
processing and financings as September 30, 1997 and 1996, respectively (see
Notes 9 to 11).
5. ACCRUED INTEREST RECEIVABLE
The following is a summary of accrued interest receivable by category:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1997 1996
==========================
<S> <C> <C>
Loans $ 1,593 $1,724
- --------------------------------------------------------------------
Mortgage-related securities 726 476
- --------------------------------------------------------------------
Investment securities 246 204
====================================================================
Total $ 2,565 $2,404
====================================================================
</TABLE>
6. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1997 1996
==========================
<S> <C> <C>
Real estate loans:
Single-family $ 135,168 $122,270
- --------------------------------------------------------------------
Construction and land 16,400 17,682
- --------------------------------------------------------------------
Multi-family and commercial 18,305 11,129
- --------------------------------------------------------------------
Consumer loans:
Home equity and lines of credit 22,964 20,444
- --------------------------------------------------------------------
Deposit 348 457
- --------------------------------------------------------------------
Education 365 917
- --------------------------------------------------------------------
Other 1,690 2,212
- --------------------------------------------------------------------
Commercial loans 2,000 2,923
====================================================================
Total loans 197,240 178,044
====================================================================
Loans in process (5,670) (6,368)
- --------------------------------------------------------------------
Allowance for loan losses (1,628) (2,624)
- --------------------------------------------------------------------
Deferred loan fees (1,653) (1,512)
====================================================================
Loans receivable--net $ 188,289 $167,530
====================================================================
</TABLE>
27
<PAGE> 28
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
The Company originates loans primarily in its local market area of Delaware
and Chester Counties, Pennsylvania to borrowers that share similar attributes.
This concentration of credit exposes the Company to a higher degree of risk
associated with this economic region.
The Company offers loans to its directors and senior officers on terms
permitted by OTS regulations. There were approximately $440 and $454 of loans
outstanding to senior officers and directors as of September 30, 1997 and 1996,
respectively. The amount of repayments during the years ended September 30,
1997 and 1996 totalled $266 and $62, respectively. There was $271 and $41 of
new loans granted during fiscal year 1997 and 1996, respectively.
The Company has undisbursed portions under consumer and commercial lines of
credit as of September 30, 1997 of $3,621 and $2,497, respectively.
The Company originates both adjustable and fixed interest rate loans and
purchases mortgage-backed securities and collateralized mortgage obligations in
the secondary market. The originated adjustable-rate loans have interest rate
adjustment limitations and are generally indexed to U.S. Treasury securities
plus a fixed margin. Future market factors may affect the correlation of the
interest rate adjustment with rates the Company pays on the short-term deposits
that have been primarily utilized to fund these loans. The adjustable-rate
mortgage-related securities adjust to various national indices plus a fixed
margin. At September 30, 1997, the composition of these loans and
mortgage-related securities follows:
<TABLE>
<CAPTION>
FIXED-RATE ADJUSTABLE-RATE
===========================================================================================
TERM TO
TERM TO MATURITY BOOK VALUE RATE ADJUSTMENT BOOK VALUE
===========================================================================================
<S> <C> <C> <C>
1 month to 1 year $ 3,133 1 month to 1 year $ 77,007
- -------------------------------------------------------------------------------------------
1 year to 3 years 4,780 1 year to 3 years 21,613
- -------------------------------------------------------------------------------------------
3 years to 5 years 11,012 3 years to 5 years 3,504
- -------------------------------------------------------------------------------------------
5 years to 10 years 20,461
- -------------------------------------------------------------------------------------------
Over 10 years 166,288
===========================================================================================
Total $ 205,674 $ 102,124
===========================================================================================
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------
1997 1996 1995
===========================================================================================
<S> <C> <C> <C>
Beginning balance $ 2,624 $1,487 $1,540
- -------------------------------------------------------------------------------------------
Provisions charged to income 239 1,250 52
- -------------------------------------------------------------------------------------------
Charge-offs (1,252) (113) (168)
- -------------------------------------------------------------------------------------------
Recoveries 17 63
===========================================================================================
Total $ 1,628 $2,624 $1,487
===========================================================================================
</TABLE>
At September 30, 1997 and 1996, non-performing loans (which include loans in
excess of 90 days delinquent) amounted to approximately $2,077 and $5,352,
respectively.
7. REAL ESTATE OWNED
Real estate owned is comprised of:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------
1997 1996
===========================
<S> <C> <C>
Real estate acquired in settlement of loans $ 168 $ 365
- -------------------------------------------------------------------------------------------
Real estate acquired and in development 1,504 1,192
===========================================================================================
Total $ 1,672 $1,557
===========================================================================================
</TABLE>
In fiscal year 1996, First Pointe, Inc., a subsidiary of the Company,
accepted a deed in lieu of
28
<PAGE> 29
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
foreclosure on a construction loan for the acquisition and improvement of a
106-lot real estate development project located in Pennsylvania. As of
September 30, 1997, seventy eight of the townhouses were completed and sold.
Work-in-process consists of 13 units of which two consist of a sample home and
a sales office.
8. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1997 1996
==========================
<S> <C> <C>
Land and buildings $4,045 $3,878
- -------------------------------------------------------------------------------------------
Furniture, fixtures and equipment 3,448 3,333
===========================================================================================
Total 7,493 7,211
- -------------------------------------------------------------------------------------------
Accumulated depreciation and amortization (4,941) (4,704)
===========================================================================================
Net $2,552 $2,507
===========================================================================================
</TABLE>
9. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------------------------------
1997 1996
==================================================
AMOUNT PERCENT Amount Percent
===========================================================================================
<S> <C> <C> <C> <C>
Non-interest bearing accounts $ 6,165 2.7% $ 4,710 2.2%
- -------------------------------------------------------------------------------------------
NOW accounts 27,754 12.2 28,085 12.8
- -------------------------------------------------------------------------------------------
Passbook accounts 38,035 16.7 41,504 18.9
- -------------------------------------------------------------------------------------------
Money market demand accounts 16,429 7.2 16,159 7.2
- -------------------------------------------------------------------------------------------
Certificate accounts 139,535 61.2 128,747 58.7
===========================================================================================
Total $ 227,918 100.0% $219,205 100.0%
===========================================================================================
</TABLE>
The weighted average interest rates paid on deposits were 4.15% and 4.05% at
September 30, 1997 and 1996, respectively.
Included in deposits as of September 30, 1997 are deposits greater than
$100,000 of approximately $34,500.
At September 30, 1997 and 1996, the Company had pledged certain
mortgage-related securities aggregating approximately $2,870 and $3,415,
respectively, as collateral for government deposits.
A summary of scheduled maturities of certificates is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997
================
<S> <C>
Within one year $ 78,135
- ---------------------------------------------------------------------------------
One to two years 32,785
- ---------------------------------------------------------------------------------
Two to three years 14,163
- ---------------------------------------------------------------------------------
Thereafter 14,452
=================================================================================
Total $ 139,535
=================================================================================
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------------------
1997 1996 1995
==============================================
<S> <C> <C> <C>
NOW accounts $ 360 $ 372 $ 436
==========================================================================================
Passbook accounts 949 1,030 1,169
- ------------------------------------------------------------------------------------------
Money market demand accounts 450 487 536
- ------------------------------------------------------------------------------------------
Certificate accounts 7,423 7,474 7,591
==========================================================================================
Total $ 9,182 $9,363 $9,732
==========================================================================================
</TABLE>
29
<PAGE> 30
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
10. ADVANCES FROM FEDERAL HOME LOAN BANK
A summary of advances from the Federal Home Loan Bank ("FHLB") of Pittsburgh
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------------------
1997 1996
==============================================
WEIGHTED Weighted
AVERAGE average
INTEREST interest
AMOUNT RATE Amount rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advances from FHLB due by
September 30,
1997 $39,200 5.8%
- ------------------------------------------------------------------------------------------
1998 $ 33,200 5.7% 6,700 5.9
- ------------------------------------------------------------------------------------------
1999 11,325 5.7
- ------------------------------------------------------------------------------------------
2000 257 6.0 350 6.0
- ------------------------------------------------------------------------------------------
Thereafter 30,605 5.6 490 6.2
==========================================================================================
Total $ 75,387 5.7% $46,740 5.8%
==========================================================================================
</TABLE>
The advances are collateralized by Federal Home Loan Bank stock and
substantially all first mortgage loans.
11. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
The Company sold, under agreements to repurchase, mortgage-related securities
to broker-dealers. Securities underlying the agreements with broker-dealers
were delivered to the dealer who arranged the transaction. Securities delivered
to broker-dealers may have been sold, loaned, or otherwise disposed of, such
securities to other parties in the normal course of their operations.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
=============
1997
- --------------------------------------------------------------------------------
<S> <C>
Average balance for months outstanding $11,179
- --------------------------------------------------------------------------------
Average interest rate for months outstanding 5.90%
- --------------------------------------------------------------------------------
Maximum month-end balance during the year $24,600
- --------------------------------------------------------------------------------
Mortgage-related securities underlying the agreements at year-end:
Carrying value $27,255
- --------------------------------------------------------------------------------
Estimated fair value $27,267
- --------------------------------------------------------------------------------
</TABLE>
12. INCOME TAXES
In August 1996, the Small Business Job Protection Act (the "Act") was signed
into law. The Act repealed the percentage of taxable income method of
accounting for bad debts for thrift institutions effective for years beginning
after December 31, 1995. Prior to October 1, 1996, the Company was permitted
under the Internal Revenue Code (the "Code") to deduct an annual addition to
the reserve for bad debts in determining taxable income, subject to certain
limitations. The Company's deduction was based upon the percentage of taxable
income method as defined by the Code. The bad debt deduction allowable under
this method equaled 8% of taxable income determined without regard to that
deduction and with certain adjustments. This addition differs from the bad debt
experience used for financial accounting purposes. The Act required the
Company, as of October 1, 1996, to change its method of computing reserves for
bad debts to the experience method. The bad debt deduction allowable under this
method is available to small banks with assets less than $500 million.
Generally, this method allowed the Company to deduct an annual addition to the
reserve for bad debts equal to the increase in the balance of the Company's
reserve for bad debts at the end of the year to an amount equal to the
percentage of total loans at the end of the year, computed using the ratio of
the previous six years net chargeoffs divided by the sum of the previous six
years total outstanding loans at year end.
30
<PAGE> 31
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
The Company treated such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first
taxable year beginning after December 31, 1995. The timing of this recapture
may be delayed for a two-year period provided certain residential lending
requirements are met. For financial reporting purposes, the Company will not
incur any additional tax expense. At September 30, 1997, under SFAS No. 109,
deferred taxes were provided on the difference between the book reserve at
September 30, 1997 and the applicable excess reserve in the amount equal to the
Bank's increase in the tax reserve from December 31, 1987 to September 30,
1996. Retained earnings at September 30, 1997, 1996 and 1995 included
approximately $2.5 million representing bad debt deductions for which no
deferred income taxes have been provided.
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------
1997 1996 1995
===============================
<S> <C> <C> <C>
Current
Federal $ 489 $ 30 $307
- -----------------------------------------------------------------------------------------------
State 313 103 51
===============================================================================================
Subtotal 802 133 358
- -----------------------------------------------------------------------------------------------
Deferred 862 (700) 146
===============================================================================================
Total $ 1,664 $(567) $504
===============================================================================================
</TABLE>
The Company's effective tax rate is less than the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------------------------------------
1997 1996 1995
========================================================
PERCENTAGE Percentage Percentage
OF PRETAX of Pretax of Pretax
AMOUNT INCOME Amount Income Amount Income
========================================================
<S> <C> <C> <C> <C>
Tax at statutory rate $1,462 34.0% $ 108 34.0% $553 34.0%
- -------------------------------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
Adjustment for resolution
of tax contingency (700) (220.2)
- -------------------------------------------------------------------------------------------------
State tax--net of federal tax effect 207 4.8 68 21.3 33 2.0
- -------------------------------------------------------------------------------------------------
Other (5) (0.1) (43) (13.4) (82) (5.1)
=================================================================================================
Total $1,664 38.7% $(567) (178.3)% $504 30.9%
=================================================================================================
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax accounts, calculated at 34%, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1997 1996
==========================
<S> <C> <C>
Accelerated depreciation $ 221 $ 209
- ---------------------------------------------------------------------------------------
Allowance for loan losses 525 851
- ---------------------------------------------------------------------------------------
Deferred loan fees (43) 25
- ---------------------------------------------------------------------------------------
Accrued expenses 185 678
- ---------------------------------------------------------------------------------------
Unrealized gain (loss) on available for sale securities (258) 311
- ---------------------------------------------------------------------------------------
Other 50 37
=======================================================================================
Total deferred tax asset $ 680 $2,111
=======================================================================================
</TABLE>
31
<PAGE> 32
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
13. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible and core capital (as defined in the regulations) to adjusted
assets (as defined), and of Tier I and total capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1997, that the
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1997, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum tangible, core and risk-based ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
At September 30, 1997 and 1996, risk-based capital, for regulatory
requirements, is increased by $1,578 and $1,775, respectively, of general loan
loss reserves and decreased by $55 for equity investments for fiscal 1996, for
a total of $31,832 and $24,328, respectively. During fiscal 1997, regulatory
capital was increased by a $6.0 million capital contribution by the holding
company in conjunction with the issuance of junior subordinated debentures (see
Note 20).
<TABLE>
<CAPTION>
REQUIRED TO BE
REQUIRED FOR WELL CAPITALIZED
CAPITAL ADEQUACY UNDER PROMPT
ACTUAL PURPOSES CORRECTIVE ACTION
===================================================================
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
===================================================================
<S> <C> <C> <C> <C> <C> <C>
AT SEPTEMBER 30, 1997:
Core (Leverage) 30,254 8.1% 11,188 3.0% 14,735 5.0%
- ------------------------------------------------------------------------------------------------------
Tier I risk-based 30,254 18.9 N/A N/A 9,594 6.0
- ------------------------------------------------------------------------------------------------------
Total risk-based 31,832 19.9 12,792 8.0 15,990 10.0
- ------------------------------------------------------------------------------------------------------
Tangible 30,254 8.1 5,594 1.5
- ------------------------------------------------------------------------------------------------------
At September 30, 1996:
Core (Leverage) 22,608 7.7% 8,841 3.0% 14,735 5.0%
- ------------------------------------------------------------------------------------------------------
Tier I risk-based 22,608 16.0 N/A N/A 8,467 6.0
- ------------------------------------------------------------------------------------------------------
Total risk-based 24,328 17.2 11,289 8.0 14,111 10.0
- ------------------------------------------------------------------------------------------------------
Tangible 22,608 7.7 4,421 1.5
- ------------------------------------------------------------------------------------------------------
</TABLE>
At the date of the Conversion, the Bank established a liquidation account in
an amount equal to its retained income as of August 31, 1995. The liquidation
account is maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their accounts
at the Bank after the Conversion. The liquidation account is reduced annually
to the extent that eligible account holders and supplemental eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's or
supplemental eligible account holder's interest in the liquidation account. In
the event of a complete liquidation of the Bank, each eligible account holder
and supplemental eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held.
The Bank may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause equity to be reduced
below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.
32
<PAGE> 33
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
14. LEASE COMMITMENTS
The future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
September 30:
<S> <C>
1998 $116
---------------------------------------------------------------------
1999 119
---------------------------------------------------------------------
2000 121
---------------------------------------------------------------------
2001 53
---------------------------------------------------------------------
2002 36
---------------------------------------------------------------------
Thereafter 87
=====================================================================
Total minimum future rental payments $532
=====================================================================
</TABLE>
Leasehold expense was approximately $148, $155 and $137 for the years ended
September 30, 1997, 1996 and 1995, respectively.
15. EMPLOYEE BENEFITS
401(k) Profit Sharing Plan
The Bank's 401(k) profit sharing plan covers substantially all full-time
employees of the Company and provides for pre-tax contributions by the
employees with matching contributions at the discretion of the Board of
Directors determined at the beginning of the calendar year. All amounts are
fully vested. For calendar year 1997, the Board approved an 1% of salary profit
sharing contribution of all contributing participants. For calendar years 1996
and 1995, a salary match up to 2.5% and 5%, respectively, was approved by the
Board. Pension expense was $35, $88 and $142 for the years ended September 30,
1997, 1996 and 1995, respectively.
Common Stock Acquired By The Employee Stock Ownership Plan
In connection with the Conversion, the Company established an ESOP for the
benefit of eligible employees. The ESOP purchased 108,800 shares of common
stock in the Conversion. During November 1996, the ESOP purchased an additional
38,775 shares of common stock. At September 30, 1997, 29,920 shares of the
total number of shares held by the ESOP were committed to be released. The
Company accounts for its ESOP in accordance with AICPA Statement of Position
93-6, "Employers Accounting for Employee Stock Ownership Plans," which requires
the Company to recognize compensation expense equal to the fair value of the
ESOP shares during the periods in which they become committed to be released.
To the extent that the fair value of the ESOP shares differs from the cost of
such shares, this differential will be charged or credited to equity as
additional paid-in-capital. Management expects the recorded amount of expense
to fluctuate as continuing adjustments are made to reflect changes in the fair
value of the ESOP shares. The Company's ESOP, which is internally leveraged,
does not report the loan receivable from the ESOP as an asset and does not
report the ESOP debt from the employer as a liability. The Company recorded
compensation and employee benefit expense related to the ESOP of $275, $200 and
$111 for the years ended September 30, 1997, 1996 and 1995, respectively.
Recognition and Retention Plan
At a Special Meeting of the Stockholders held on July 26, 1995, the 1995
Recognition and Retention Plan and Trust (the "RRP") was approved by the
Company's stockholders. As of September 30, 1997, the Company had outstanding
awards aggregating 23,018 shares to the Company's Board of Directors and
executive officers subject to vesting and other provisions of the RRP.
At September 30, 1997 and 1996, the deferred cost of unearned RRP shares
totaled $399 and $540, respectively, and is recorded as a charge against
stockholders' equity. Compensation expense will be recognized ratably over the
five year vesting period for shares awarded. For the fiscal years ended
September 30, 1997, 1996 and 1995, the Company recorded compensation and
employee benefit expense of $141, $137 and $27, respectively, relating to the
RRP.
33
<PAGE> 34
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
Stock Option Plan
At a Special Meeting of the Stockholders held on July 26, 1995, the 1995
Stock Option Plan (the "Plan") was approved by the Company's stockholders.
Common Stock totaling 136,000 shares has been reserved for issuance for the
Plan. An aggregate of 126,480 stock options have been granted to the Company's
executive officers, nonemployee directors and other key employees, subject to
vesting and other provisions of the Plan. Such options were not materially
dilutive during the years ended September 30, 1996 and 1995. During the year
ended September 30, 1997, 544 shares were exercised at an exercise price of
$15.00.
The following is a summary of transactions under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
NUMBER OF PRICE EXERCISE PRICE
OPTION SHARES RANGE PER SHARE
=============================================
<S> <C> <C> <C> <C>
Outstanding at September 30, 1995 119,680 $15.00 - 15.00 $ 15.00
- ----------------------------------------------------------------------------------------------
Granted 3,400 17.00 - 17.00 17.00
- ----------------------------------------------------------------------------------------------
Canceled (4,896) 15.00 - 15.00 15.00
==============================================================================================
Outstanding at September 30, 1996 118,184 15.00 - 17.00 15.06
- ----------------------------------------------------------------------------------------------
Granted 7,860 24.75 - 28.50 27.04
- ----------------------------------------------------------------------------------------------
Canceled (2,516) 15.00 - 17.00 15.27
- ----------------------------------------------------------------------------------------------
Exercised (544) 15.00 - 15.00 15.00
==============================================================================================
Outstanding at September 30, 1997 122,984 $15.00 - 28.50 $ 15.82
==============================================================================================
</TABLE>
A summary of the exercise price range at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
EXERCISE AVERAGE AVERAGE
PRICE NUMBER OF REMAINING EXERCISE PRICE
RANGE OPTION SHARES CONTRACTUAL LIFE PER SHARE
===================================================================================
<S> <C> <C> <C>
$15.00 - 17.00 115,124 8.03 $15.05
-----------------------------------------------------------------------------------
24.75 - 28.50 7,860 10.00 27.04
===================================================================================
$15.00 - 28.50 122,984 8.16 $15.82
===================================================================================
</TABLE>
The Company applies APB Opinion No. 25 in accounting for stock options and,
accordingly, no compensation expense has been recognized in the financial
statements. Had the Company determined compensation expense based on the fair
value at the grant date for its stock options under SFAS 123, the Company's net
income and income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------
1997 1996
==========================
<S> <C> <C>
Net income:
As reported $2,637 $885
- --------------------------------------------------------------------------------------------
Pro forma 2,624 882
- --------------------------------------------------------------------------------------------
Net income per common and common equivalent share:
Earnings per common share- As reported $2.27 $.74
- --------------------------------------------------------------------------------------------
- Pro forma 2.26 .74
- --------------------------------------------------------------------------------------------
Weighted average fair value of options granted
during the period $10.55 $6.80
- --------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
Significant assumptions used to calculate the above fair value of the awards
are as follows:
<TABLE>
<CAPTION>
1997 1996
=======================
<S> <C> <C>
Risk free interest rate of return 6.12% 6.64%
- -------------------------------------------------------------------------------------
Expected option life (months) 60 60
- -------------------------------------------------------------------------------------
Expected volatility 37% 37%
- -------------------------------------------------------------------------------------
Expected Dividends 1% 1%
- -------------------------------------------------------------------------------------
</TABLE>
Other
The Company established an expense accrual in connection with the anticipated
funding of a trust to be created to formalize the Company's deferred
compensation arrangements with four former officers of the Company. A total of
$448 and $532 was included in the Company's liabilities at September 30, 1997
and 1996.
16. COMMITMENTS AND CONTINGENCIES
The Company has outstanding loan commitments, excluding undisbursed portion
of loans in process and equity lines of credit, of approximately $7,651 and
$5,651 as of September 30, 1997 and 1996, respectively, which are all expected
to be funded within four months. Of these commitments outstanding, the
breakdown between fixed and adjustable rate loans is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------
1997 1996
===========================
<S> <C> <C>
Fixed-rate (ranging from 5.75% to 15.99%) $ 4,073 $ 3,551
- -------------------------------------------------------------------------------------------
Adjustable-rate 3,578 2,100
===========================================================================================
Total $ 7,651 $ 5,651
===========================================================================================
</TABLE>
Generally, non-conforming loans are sold in the secondary market, depending
on cash flow, interest rate, risk management and other considerations. There
were approximately $5,324 and $3,653 in outstanding commitments to sell loans
at September 30, 1997 and 1996, respectively.
17. RELATED PARTY TRANSACTIONS
The Company retains the services of a law firm in which one of the Company's
Directors is a member. In addition to providing general legal counsel to the
Company, the firm also prepares mortgage documents and attends loan closings
for which it is paid directly by the borrower.
18. SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, the Economic Growth and Paperwork Reduction Act of
1996, which includes the recapitalization of the Savings Association Insurance
Fund ("SAIF"), became law. Accordingly, all depository institutions with
SAIF-insured deposits were charged a one-time special assessment on their
SAIF-assessible deposits as of March 31, 1995 at the rate of 65.7 basis points,
which was paid on November 27, 1996. The Bank accrued $1.4 million for this
special assessment at September 30, 1996.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures about
the Fair Value of Financial Instruments." The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
the Company could realize in a current market exchange. The use of different
35
<PAGE> 36
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------------------------------
1997 1996
=================================================
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
=================================================
<S> <C> <C> <C> <C>
Assets:
Cash and interest-earning deposits $ 21,561 $ 21,561 $ 11,694 $ 11,694
Investment securities 20,211 20,171 16,532 16,532
Loans 192,866 205,382 169,977 177,320
Mortgage-related securities 125,179 124,672 83,432 82,271
Liabilities:
Savings deposits 38,035 38,035 41,504 41,504
NOW and MMDA deposits 50,348 50,348 48,954 48,954
Certificates of deposit 139,535 139,741 128,747 127,915
Borrowed funds 99,987 108,130 46,740 48,016
Off balance sheet commitments 19,439 19,439 15,529 15,529
</TABLE>
The fair value of cash and interest-earning deposits is their carrying value
due to their short term nature. The fair value of investments and
mortgage-related securities is based on quoted market prices, dealer quotes,
and prices obtained from independent pricing services. The fair value of loans
is estimated, based on present values using approximate current entry-value
interest rates, applicable to each category of such financial instruments.
The fair value of NOW deposits, MMDA deposits, and savings deposits is the
amount reported in the financial statements. The fair value of certificates of
deposit and FHLB advances is based on a present value estimate, using rates
currently offered for deposits of similar remaining maturity.
No adjustment was made to the entry-value interest rates for changes in
credit performing commercial loans, construction loans, and land loans for
which there are no known credit concerns. Management believes that the risk
factor embedded in the entry-value interest rates, along with the general
reserves applicable to the performing commercial, construction, and land loan
portfolios for which there are no known credit concerns, result in a fair
valuation of such loans on an entry-value basis. The fair value of
non-performing loans, with a recorded book value of approximately $2,077 and
$5,352 (which are collateralized by real estate properties with property values
in excess of carrying amounts) as of September 30, 1997 and 1996, respectively,
was not estimated because it is not practicable to reasonably assess the credit
adjustment that would be applied in the marketplace for such loans. The fair
value estimates presented herein are based on pertinent information available
to management as of September 30, 1997 and 1996. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
20. CAPITAL SECURITIES
On August 21, 1997, First Keystone Capital Trust I ("the Trust"), a trust
formed under Delaware law, that is a subsidiary of the Company, issued $16.2
million of preferred securities at an interest rate of 9.7%, with a scheduled
maturity of August 15, 2027. The Company owns all the common stock of the
Trust. The proceeds from the issue were invested in Junior Subordinated
Debentures (the "Debentures") issued by the Company. The Debentures are
unsecured and rank subordinate and junior in right of payment to all
indebtedness, liabilities and obligations of the Company. The Debentures
represent the sole assets of the
36
<PAGE> 37
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
Trust. Interest on the Preferred Securities is cumulative and payable
semi-annually in arrears. The Company has the option, subject to required
regulatory approval, to prepay the securities beginning August 15, 2007.
The securities are shown on the liability side of the balance sheet as
"Guaranteed preferred beneficial interest in subordinate debt." The Company
has, under the terms of the Debentures and the related Indenture as well as the
other operative corporate documents, agreed to irrevocably and unconditionally
guarantee the Trust's obligations under the Debentures. The Company contributed
approximately $6.0 million of the net proceeds to the Bank to support the
Bank's lending activities. The interest cost associated with this issue is
treated as a non-interest expense on the consolidated statement of operations
rather than interest expense.
21. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements of First Keystone Financial, Inc. are as
follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------
1997 1996
============================
<S> <C> <C>
ASSETS
Interest-bearing deposits $ 9,832 $ 1,008
- ---------------------------------------------------------------------------------------------
Investment in subsidiaries 31,168 22,115
- ---------------------------------------------------------------------------------------------
Other assets 712 35
=============================================================================================
Total assets $ 41,712 $23,158
=============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other borrowed money $ 16,702
- ---------------------------------------------------------------------------------------------
Other liabilities 258 $ 74
=============================================================================================
Total liabilities 16,960 74
=============================================================================================
Stockholders' Equity:
Common stock 14 14
- ---------------------------------------------------------------------------------------------
Preferred stock
- ---------------------------------------------------------------------------------------------
Additional paid-in capital 12,896 12,659
- ---------------------------------------------------------------------------------------------
Common stock acquired by stock benefit plans (2,038) (1,437)
- ---------------------------------------------------------------------------------------------
Treasury stock (2,545) (1,288)
- ---------------------------------------------------------------------------------------------
Unrealized gain (loss) on mortgage-related available for sale 408 (494)
- ---------------------------------------------------------------------------------------------
Retained earnings 16,017 13,630
=============================================================================================
Total stockholders' equity 24,752 23,084
=============================================================================================
Total liabilities and stockholders' equity $41,712 $23,158
=============================================================================================
</TABLE>
37
<PAGE> 38
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED PERIOD FROM
SEPTEMBER 30, JANUARY 25, 1995
----------------------- THROUGH
1997 1996 SEPTEMBER 30, 1995
=================================================
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary $ 1,000 $1,350
- -------------------------------------------------------------------------------------------------
Loan to Employee Stock Ownership Plan 129 88 $ 70
- -------------------------------------------------------------------------------------------------
Interest on deposits 48 20 18
=================================================================================================
Total income 1,177 1,458 88
Operating expenses 179 13 8
=================================================================================================
Income before income taxes and equity in
undistributed income of subsidiaries 998 1,445 80
- -------------------------------------------------------------------------------------------------
Income tax expense 10 39 32
=================================================================================================
Income before equity in undistributed
income of subsidiary bank 988 1,406 48
- -------------------------------------------------------------------------------------------------
Equity in (return of) undistributed income
of subsidiaries 1,649 (521) 880
=================================================================================================
NET INCOME $ 2,637 $ 885 $928
=================================================================================================
</TABLE>
38
<PAGE> 39
FIRST KEYSTONE FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (DOLLARS IN THOUSANDS)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED PERIOD FROM
SEPTEMBER 30, JANUARY 25, 1995
----------------------- THROUGH
1997 1996 SEPTEMBER 30, 1995
==============================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,637 $ 885 $ 928
- -------------------------------------------------------------------------------------------------
Adjustments to reconcile net income
to cash provided by operations:
(Equity in) Return of undistributed
earnings of subsidiaries (1,649) 521 (880)
- -------------------------------------------------------------------------------------------------
Increase in investment of subsidiaries (1,000) (1,350)
- -------------------------------------------------------------------------------------------------
Amortization of common stock acquired
by stock option plans 411 364 111
- -------------------------------------------------------------------------------------------------
Increase in other assets (677) (35)
- -------------------------------------------------------------------------------------------------
Increase in other liabilities 184 36 38
=================================================================================================
Net cash (used in) provided
by operating activities (94) 456 162
=================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of common stock of subsidiaries (10,433)
- -------------------------------------------------------------------------------------------------
Dividends received from subsidiaries 1,000 1,350
=================================================================================================
Net cash provided (used in)
by investing activities 1,000 1,350 (10,433)
=================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debentures 16,200
- -------------------------------------------------------------------------------------------------
Net proceeds from
issuance of common stock 12,553
- -------------------------------------------------------------------------------------------------
Capital contribution to subsidiary (6,000)
- -------------------------------------------------------------------------------------------------
Common stock acquired by
stock benefit plans (775) (704) (1,088)
- -------------------------------------------------------------------------------------------------
Purchase of treasury stock (1,257) (1,288)
- -------------------------------------------------------------------------------------------------
Dividends paid (250)
=================================================================================================
Net cash (used in) provided by
financing activities 7,918 (1,992) 11,465
=================================================================================================
Increase (Decrease) in cash 8,824 (186) 1,194
=================================================================================================
Cash at beginning of period 1,008 1,194
=================================================================================================
Cash at end of period $9,832 $1,008 $ 1,194
=================================================================================================
</TABLE>
39
<PAGE> 40
[FIRST KEYSTONE LOGO]
DIRECTORS
Donald A. Purdy, Esquire
Chairman of the Board
William K. Betts; retired
Former Senior Vice President of Human Resources,
First Keystone Federal Savings Bank
Edward Calderoni
President of Century-21 Calderon Brothers
Silvio F. D'Ignazio
Owner of the Towne House Restaurant
Olive J. Faulkner; retired
Former Vice President and Corporate Secretary,
First Keystone Federal Savings Bank
Donald S. Guthrie, Esquire
President/CEO
Edmund Jones, Esquire
Chairman Emeritus
Member Jones, Guthrie & Strohm, P.C.
Thomas M. Kelly
Executive Vice President and Chief Financial Officer
Willard F. Letts
President and Principal Stockholder
Eastern Flame Hardening Company
Walter J. Lewicki; retired
Former associate of Looker, Lees and Melcher, Inc.
Joan G. Taylor; retired
Former Executive Director of the Young Women's Christian Association (YWCA)
SENIOR OFFICERS
Donald S. Guthrie,
President/CEO
Thomas M. Kelly,
Executive Vice President/CFO
Stephen J. Henderson,
Senior Vice President/Lending
Elizabeth M. Mulcahy,
Senior Vice President/Human Resources
Carol Walsh,
Corporate Secretary
COUNSEL
Lawrence G. Strohm, Jr. Esquire
10 Beatty Road
Media, PA 19063
SPECIAL COUNSEL
Elias, Matz, Tiernan and Herrick L.L.P.
Suite 1200
734 15th Street, N.W.
Washington, DC 20005
TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
EXECUTIVE OFFICES
22 West State Street
Media, PA 19063
(610) 565-6210
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Twenty-Fourth Floor
1700 Market Street
Philadelphia, PA 19103-3984
INVESTOR INFORMATION
Thomas M. Kelly
Executive Vice President/CFO
(610) 565-6210
SHAREHOLDER INFORMATION
Carol Walsh
Corporate Secretary
(610) 565-6210
STOCK INFORMATION
First Keystone Financial is traded on the Nasdaq National Market under the
symbol of "FKFS." There were approximately 463 shareholders of record, not
including the number of persons or entities whose stock is held in nominee or
street name through various brokerage firms or banks.
The Annual Meeting of Shareholders is scheduled for Wednesday, January 28,
1998, at 2:00 p.m. to be held at the Towne House Restaurant, 117 Veterans
Square, Media, Pennsylvania.
First Keystone Financial, Inc. is a unitary savings and loan holding company
conducting business through its wholly-owned subsidiary, First Keystone Federal
Savings Bank. The savings bank is a federally chartered SAIF-insured savings
institution operating through six full-service offices located in Delaware
County, Pennsylvania. The Company's headquarters is located at 22 West State
Street, Media, PA 19063.
40
<PAGE> 1
Exhibit 23.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
First Keystone Financial, Inc. on Form S-8 (Registration Nos. 333-09565 and
33-97562) of our report dated November 7, 1997, appearing in this Annual Report
on Form 10-KSB of First Keystone Financial, Inc. for the year ended September
30, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 9, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,832
<INT-BEARING-DEPOSITS> 19,729
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 114,683
<INVESTMENTS-CARRYING> 30,707
<INVESTMENTS-MARKET> 30,160
<LOANS> 194,494
<ALLOWANCE> (1,628)
<TOTAL-ASSETS> 373,430
<DEPOSITS> 227,918
<SHORT-TERM> 33,200
<LIABILITIES-OTHER> 4,573
<LONG-TERM> 82,987
0
0
<COMMON> 8,327
<OTHER-SE> 16,425
<TOTAL-LIABILITIES-AND-EQUITY> 373,430
<INTEREST-LOAN> 3,989
<INTEREST-INVEST> 2,059
<INTEREST-OTHER> 143
<INTEREST-TOTAL> 6,191
<INTEREST-DEPOSIT> 2,407
<INTEREST-EXPENSE> 3,441
<INTEREST-INCOME-NET> 2,750
<LOAN-LOSSES> 66
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,895
<INCOME-PRETAX> 1,145
<INCOME-PRE-EXTRAORDINARY> 1,145
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 696
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<YIELD-ACTUAL> 7.67
<LOANS-NON> 2,072
<LOANS-PAST> 5
<LOANS-TROUBLED> 384
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,570
<CHARGE-OFFS> 11
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,628
<ALLOWANCE-DOMESTIC> 914
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 714
</TABLE>
