<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-59435 REGISTRATION NO. 333-59435-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 2
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
ARGO BANCORP, INC. ARGO CAPITAL TRUST CO.
(exact name of registrant as specified (exact name of registrant as specified
in its certificate of incorporation) in its certificate of incorporation)
DELAWARE DELAWARE
(state or other jurisdiction (state or other jurisdiction
of incorporation or organization) of incorporation or organization)
36-3620612 BEING APPLIED FOR
(IRS Employer Identification No.) (IRS Employer Identification No.)
6035 N/A
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
7600 WEST 63RD STREET 7600 WEST 63RD STREET
SUMMIT, ILLINOIS 60501 SUMMIT, ILLINOIS 60501
(708) 496-6010 (708) 496-6010
(Address, including zip code, and (Address, including zip code, and
telephone number, including area code, of telephone number, including area code, of
registrants' principal executive offices) registrants' principal executive offices)
</TABLE>
------------------------
JOHN G. YEDINAK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARGO BANCORP, INC.
7600 WEST 63RD STREET
SUMMIT, ILLINOIS 60501
(708) 496-6010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
MARY M. SJOQUIST, ESQUIRE
PHILIP FEIGEN, ESQUIRE
PATTON BOGGS LLP
2550 M STREET, N.W.
WASHINGTON, D.C. 20037
(202) 457-6000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Capital Securities of ARGO Capital Trust Co. $15,000,000 100% $15,000,000(2) $4,425
Junior Subordinated Deferrable Interest
Debentures of ARGO Capital Trust Co. (3) N/A N/A N/A N/A
ARGO Bancorp, Inc. Guarantee with respect to
Capital Securities (4) N/A N/A N/A N/A
Total $15,000,000 100% $15,000,000 $4,425
</TABLE>
(1) Such amount represents the liquidation amount of the ARGO Capital Trust Co.
and ARGO Bancorp Capital Securities to be exchanged hereunder and the
principal amount of Junior Subordinated Debentures that may be distributed
to holders of such Capital Securities upon any liquidation of ARGO Capital
Trust Co.
(2) No separate consideration will be received for the % Junior Subordinated
Deferrable Interest Debentures of ARGO Bancorp, Inc. (the "Junior
Subordinated Debentures") distributed upon any liquidation of ARGO Capital
Trust Co.
(3) No separate consideration will be received for the ARGO Bancorp, Inc.
Guarantee.
(4) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE CAPITAL SECURITIES MAY NOT BE SOLD, NOR
MAY OFFERS TO BUY BE ACCEPTED, PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE CAPITAL
SECURITIES IN THOSE STATES IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH STATES.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
PROSPECTUS
$15,000,000
ARGO CAPITAL TRUST CO.
[LOGO]
% CAPITAL SECURITIES
(LIQUIDATION AMOUNT OF $10.00 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
ARGO BANCORP, INC.
The % Capital Securities, liquidation amount $10.00 per security (the
"Capital Securities" or the "Securities") offered hereby represent undivided
beneficial interests in the assets of Argo Capital Trust Co., a statutory
business trust formed under the laws of the State of Delaware (the "Trust"). The
Capital Securities will be fully and unconditionally guaranteed, as described
herein, by Argo Bancorp, Inc. (the "Company"). (The offering of the Capital
Securities may hereinafter be referred to as the "Offering.") The Wilmington
Trust Co. will act as Property Trustee (as defined herein) for the Trust.
The Company and the Trust have applied to have the Capital Securities listed
on the American Stock Exchange under the symbol " ."
-------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR.
-------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNTS (1) THE TRUST (2)
<S> <C> <C> <C>
Per Capital Security.............................. $10.00 (2) $10.00
Total Offering (3)................................ $15,000,000 (2) $15,000,000
</TABLE>
(1) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) The Company has agreed to pay expenses of the Offering estimated to be $ .
Additionally, in view of the fact that the proceeds of the sale of the
Capital Securities will be invested in the Junior Subordinated Debentures,
the Company, as issuer of the Junior Subordinated Debentures, has agreed to
pay the Underwriters, as compensation, $ per Capital Security or $ in
the aggregate ($ in the aggregate if the over-allotment option is
exercised in full). See "Underwriting."
(3) The Company and Trust have granted the Underwriters a 30-day option to
purchase up to $2,250,000 of Capital Securities, solely to cover
overallotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional Capital Securities at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public and Proceeds to the Trust will each be $17,250,000. See
"Underwriting."
The Capital Securities are being offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Capital Securities will be made on or about , 1998.
-------------------
TUCKER ANTHONY
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
The Capital Securities offered by the Underwriters in the Offering are
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to withdraw, modify, correct and reject
orders in whole or in part. It is expected that delivery of the certificates
representing such shares of Capital Securities will be made against payment
therefore at the offices of Tucker Anthony Incorporated, in book entry form, or
through the facilities of the Depository Trust Company ("DTC") on or about
, 1998.
Except as provided below, the Capital Securities will be represented by
certificates in fully registered form deposited with a custodian for and
registered in the name of a nominee of DTC. Beneficial interests in the Capital
Securities will be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants. Beneficial interests in such
Capital Securities will trade in DTC's Same-Day Funds Settlement System and
secondary market trading activity in such interests will therefore settle in
immediately available funds.
The Capital Securities offered hereby will represent beneficial interests in
the Trust. The Company will be the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities" and,
together with the Capital Securities, the "Trust Securities"). The Trust exists
for the exclusive purpose of issuing the Trust Securities and investing the
proceeds thereof in the % Junior Subordinated Deferrable Interest Debentures
(the "Junior Subordinated Debentures") to be issued by the Company, and certain
other limited activities described herein. The Junior Subordinated Debentures
are scheduled to mature on October , 2028 (the "Stated Maturity Date"). See
"Description of Junior Subordinated Debentures--General." The Capital Securities
will have a preference over the Common Securities under certain circumstances
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise. See "Description of the Capital
Securities--Subordination of Common Securities."
Holders of the Trust Securities will be entitled to receive cumulative cash
distributions arising from the payment of interest on the Junior Subordinated
Debentures, accruing from the date of original issuance and payable quarterly in
arrears on April 15th, July 15th, October 15th and January 15th of each year
(subject to possible deferral as described below), commencing January 15, 1999
at the annual rate of % of the Liquidation Amount (as defined herein) per
Trust Security ("Distributions"). So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing, the Company will have the right
to defer payments of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding twenty (20) consecutive
quarterly periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity Date (as defined herein). Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin a
new Extension Period subject to the requirements set forth herein. If and for so
long as interest payments on the Junior Subordinated Debentures are so deferred,
Distributions on the Trust Securities also will be deferred and the Company will
not be permitted, subject to certain exceptions described herein, to declare or
pay any cash distributions with respect to its capital stock, or to make any
payment with respect to debt securities of the Company that rank PARI PASSU with
or junior to the Junior Subordinated Debentures. DURING THE EXTENSION PERIOD,
INTEREST ON THE JUNIOR SUBORDINATED DEBENTURES WILL CONTINUE TO ACCRUE (AND THE
AMOUNT OF DISTRIBUTIONS TO WHICH HOLDERS OF THE TRUST SECURITIES ARE ENTITLED
WILL CONTINUE TO ACCUMULATE) AT THE RATE OF % PER ANNUM, COMPOUNDED QUARTERLY
AND HOLDERS OF THE TRUST SECURITIES WILL BE REQUIRED TO INCLUDE DEFERRED
INTEREST INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES PRIOR TO THE
RECEIPT OF THE CASH ATTRIBUTABLE TO SUCH INCOME ON THAT INCOME. See "Description
of Junior Subordinated Debentures--Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences with Respect to the Issuance of the
Capital Securities--Interest Income and Original Issue Discount."
The Company will, through the Guarantee, the Common Guarantee, the Trust
Agreement, the Junior Subordinated Debentures, and the Indenture (each as
defined herein) taken together, fully, irrevocably and unconditionally,
guarantee all of the Trust's obligations under the Trust Securities. See
"Relationship
2
<PAGE>
Among the Capital Securities, the Junior Subordinated Debentures and the
Guarantee--Full and Unconditional Guarantee." The Guarantee and the Common
Guarantee will guarantee payments of Distributions and payments upon liquidation
of the Trust or redemption of the Trust Securities, but in each case only to the
extent that the Trust has funds legally available therefore and has failed to
make such payments, as described herein. See "Description of Guarantee." If the
Company fails to make a required payment on the Junior Subordinated Debentures,
the Trust will not have sufficient funds to make the related payments, including
Distributions, on the Trust Securities. The Guarantee and the Common Guarantee
will not cover any such payment when the Trust does not have sufficient funds
legally available therefore. In such event, a holder of Capital Securities may
institute a legal proceeding directly against the Company to enforce its rights
in respect of such payment. See "Distribution of Junior Subordinated
Debentures--Enforcement of Certain Rights by the Company of Capital Securities."
The obligations of the Company under the Guarantee, the Common Guarantee and the
Junior Subordinated Debentures will be unsecured and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in
"Description of Junior Subordinated Debentures--Subordination"). The ability of
the Company to make required payments on the Junior Subordinated Debentures will
depend, in large part, on its receipt of dividends from the subsidiaries of the
Company. See "Use of Proceeds" and "Risk Factors--Ranking of Subordinated
Obligations Under the Guarantee and the Junior Subordinated Debentures;
Limitations on Sources of Funds."
The Trust Securities will be subject to mandatory redemption in a Like
Amount (as defined herein): (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Junior Subordinated Debentures at a redemption price
equal to the principal amount of, plus accrued and unpaid interest on, the
Junior Subordinated Debentures (the "Maturity Redemption Price"); (ii) in whole
but not in part, at any time prior to October , 2003 (the "Initial Optional
Prepayment Date"), contemporaneously with the optional prepayment of the Junior
Subordinated Debentures by the Company, upon the occurrence and continuation of
a Special Event (as defined herein) at a redemption price equal to, for each
Capital Security, the Special Event Prepayment Price (as defined herein) for a
corresponding $10.00 principal amount of Junior Subordinated Debenture (the
"Special Event Redemption Price"); and (iii) in whole or in part, on or after
the Initial Optional Prepayment Date, contemporaneously with the optional
prepayment by the Company of all or part of the Junior Subordinated Debentures,
at a redemption price equal to, for each Capital Security to be redeemed, the
Optional Prepayment Price (as defined herein) for a corresponding $10.00
principal amount of Junior Subordinated Debentures (the "Optional Redemption
Price"). Any of the Maturity Redemption Price, the Special Event Redemption
Price and the Optional Redemption Price may be referred to herein as the
"Redemption Price." See "Description of Capital Securities--Redemption."
Subject to the Company having received any required regulatory approval, the
Junior Subordinated Debentures will be prepayable prior to the Stated Maturity
Date at the option of the Company; (i) on or after the Initial Optional
Prepayment Date, in whole or in part, at 100% of the principal amount thereof,
plus accrued and unpaid interest thereon to the date of prepayment (the
"Optional Prepayment Price"); or (ii) at any time prior to the Initial Optional
Prepayment Date, in whole but not in part, upon the occurrence and continuation
of a Special Event, at a prepayment price (the "Special Event Prepayment Price")
equal to the Make-Whole Amount (as defined below). The "Make-Whole Amount" shall
be equal to the greater of (a) 100% of the principal amount of the Junior
Subordinated Debentures or (b) the sum, as determined by a Quotation Agent (as
defined herein), of the present values of the scheduled payments of principal
and interest on the Junior Subordinated Debentures from the date of prepayment
to the Initial Optional Prepayment Date, discounted to the prepayment date on a
quarterly basis (assuming a 360-day year consisting of twelve 30-day months) at
the Adjusted Treasury Rate (as defined herein) plus, in the case of each of
clauses (a) and (b), accrued and unpaid interest thereon to the date of
prepayment. Either of the Optional Prepayment Price or the Special Event
Prepayment Price may be referred to herein as the "Prepayment Price." See
"Description of Junior Subordinated Debentures--Optional Prepayment" and
"--Special Event Prepayment."
3
<PAGE>
The Company will have the right at any time, including without limitation
upon the occurrence of a Tax Event (as defined herein) to terminate the Trust
and, after satisfaction of liabilities of creditors of the Trust as required by
applicable law, to cause a Like Amount of the Junior Subordinated Debentures to
be distributed to the holders of the Trust Securities in liquidation of the
Trust, subject to (i) the Company having received an opinion of counsel to the
effect that such distribution will not be a taxable event to holders of Capital
Securities and (ii) the receipt of any required regulatory approvals. Unless the
Junior Subordinated Debentures are distributed to the holders of the Trust
Securities, in the event of a liquidation of the Trust as described herein,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, the holders of the Trust Securities generally will be entitled
to receive $10.00 per Trust Security plus accumulated and unpaid Distributions
thereon to the date of payment. See "Description of Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SYNDICATE SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY BIDS, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE SECURITIES OFFERED HEREBY ON THE AMERICAN
STOCK EXCHANGE IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTIONS WILL NOT BE EXERCISED, AND GIVES EFFECT TO THE ISSUANCE
BY THE COMPANY OF A FOUR-TO-ONE STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND OF
THREE SHARES OF COMMON STOCK FOR EACH SHARE OF COMMON STOCK ISSUED AND
OUTSTANDING (THE "STOCK SPLIT"), WHICH WILL TAKE PLACE PRIOR TO THE DATE OF THIS
OFFERING. UNLESS OTHERWISE INDICATED ALL REFERENCES TO THE COMPANY SHALL BE
DEEMED TO INCLUDE THE COMPANY AND ITS SUBSIDIARIES.
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE PURCHASERS OF THE CAPITAL SECURITIES OFFERED HEREBY ARE CAUTIONED
THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE PURCHASERS OF THE
CAPITAL SECURITIES SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED
IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER "RISK FACTORS," WHICH
WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH
FORWARD-LOOKING STATEMENTS.
THE COMPANY
The Company was incorporated in Delaware in 1987 primarily for the purpose
of acquiring all of the issued and outstanding stock of Argo Federal Savings
Bank, F.S.B. (the "Bank"). Unlike many savings and loan holding companies, the
Company is an active holding company with only a portion of its future
anticipated operating income dependent upon the Bank. On a consolidated basis at
June 30, 1998, the Company's total assets were $259.8 million, total liabilities
were $241.0 million and stockholders' equity was $18.7 million. At June 30,
1998, on an unconsolidated basis, the Company's assets included a $14.6 million
investment in the Bank, a $5.7 million investment in On-Line Financial Services,
Inc. ("On-Line"), and a $1.1 million investment in Empire/Argo, LLC ("Empire").
As the Company's primary subsidiary, the Bank's principal business is
attracting deposits from the general public and originating or purchasing loans
primarily secured by one- to four- family residential real estate. To a much
lesser extent, the Bank also originates multi-family and commercial real estate
mortgage loans, home equity loans, deposit account loans and other consumer
loans. Historically, the Bank's lending portfolio primarily consisted of one- to
four-family residential mortgage loans. Since 1992, the Bank has acquired
portfolios of loans consisting primarily of performing seasoned one- to
four-family residential mortgage loans. The Bank has also originated loans
through its branch network. From time to time and in limited amounts, the Bank
has purchased, through Argo Mortgage Corp., a wholly-owned subsidiary of the
Bank ("Argo Mortgage"), and through Empire, which is 98.4% owned by the Company,
discounted mortgage loans, generally for less than 90% of their principal
balance, most of which were non-performing when acquired ("Discounted Loans").
Discounted Loans are purchased with a view toward either bringing such loans
current for the Bank's portfolio, for resale in the secondary market or
foreclosure and liquidation. Since mid-1997, the Company has significantly
reduced its emphasis on the purchase of Discounted Loans. At June 30, 1998, the
Company had $17.0 million of loans classified as Discounted Loans, or 8.46% of
total loans compared to $37.3 million or 21.47% at June 30, 1997. Primarily as a
result of higher levels of real estate acquired through foreclosure or deed in
lieu of foreclosure or in judgment ("REO") resulting from its Discounted Loan
activities, the Bank's level of non-performing assets has been historically
higher than that of its peers. At June 30, 1998, non-performing loans to total
loans, exclusive of Discounted Loans, were 2.78% and non-performing assets to
total assets, exclusive of Discounted Loans, totaled 3.58%. The Bank has also
originated loans through its branch network.
In order to expand its level of loan originations and purchases, in 1996 the
Bank established a 50.1% ownership interest in Margo Financial Services, LLC
("MARGO"), a mortgage banking subsidiary. Since August 1996, the Bank has
engaged in both wholesale and retail lending activities primarily through MARGO.
MARGO focuses on the origination, purchase and sale of mortgage loans generally
on a "servicing released" basis into the secondary market. Through MARGO, the
Bank has originated loans
5
<PAGE>
through a network of brokers and correspondents (the "Correspondents") located
in various states throughout the country. These loans generally fall into three
categories: (1) Conventional Loans--loans which conform to all of the
underwriting guidelines of FannieMae and FreddieMac ("Agency Qualified"); (2)
Expanded Criteria Loans--loans which are (a) not Agency Qualified, generally due
to the borrowers credit profile, (b) are not as readily saleable in the
secondary market as Conventional Loans or Portfolio Loans and (c) are generally
fixed-rate loans which are originated at interest rates higher than those of
fixed-rate Conventional Loans; and (3) Portfolio Loans--adjustable-rate mortgage
("ARM") loans which (a) are not Agency Qualified but are readily saleable in the
secondary market, (b) are originated under specific criteria set forth by the
Bank, and (c) are not Conventional or Expanded Criteria Loans. ARM loans
originated by MARGO are generally retained by the Bank for its portfolio, while
fixed-rate loans originated by MARGO are generally not retained in the Bank's
portfolio but are immediately sold in the secondary market.
The primary sources of revenue to the Bank are interest and fee income
derived from lending and mortgage activities and, to a lesser extent, income
generated from investments in purchased mortgage servicing rights ("PMSRs").
Additionally, the Bank invests in United States Government and federal agency
obligations, mortgage-backed securities, time deposits, federal funds and other
types of liquid investments as permitted by federal law. More recently, the Bank
has also generated revenue from automatic teller machine ("ATM") and service
fees.
The overall strategy of the Bank is to increase stockholder value.
Specifically the Bank intends to focus on traditional banking activities while
non-traditional functions, such as activities related to Discounted Loan
purchases, will be maintained at the Company level. Management expects to meet
its goals by:
- DEVELOPING A STRONG BRANCH NETWORK. Management intends to prudently expand
the operations of the Bank by strategically opening economically efficient
branches which become available due to consolidation in the financial
institution industry, while streamlining its existing branch network as
necessary.
- EXPANDING ONE- TO FOUR-FAMILY LENDING. The Bank will continue to expand
the origination of one-to four-family loans through MARGO primarily on a
wholesale basis through its network of Correspondents. To a lesser extent,
the Bank also plans to expand its origination of one-to four-family loans
on a retail basis through its branch network.
- CONTINUING STRATEGIC PURCHASES AND SALES OF LOANS. The Bank will continue
to actively seek to purchase loans which the Bank believes to be
undervalued relative to the market and which the Bank believes can be
later resold at a profit.
- MAINTAINING COMMUNITY ORIENTATION. Management intends to maintain the
Bank's community orientation by continuing to emphasize traditional
deposit products, loan products consisting of primarily one- to
four-family residential mortgages, and active community lending and
development activities such as affordable housing.
- REDUCING NON-PERFORMING ASSETS. The Bank intends to reduce non-performing
assets by continuing to decrease its emphasis on the purchase of
Discounted Loans and reduce its REO by moving the responsibility to
service REO in-house from a third party servicer and hiring experienced
staff to manage such processes.
- INCREASING FEE INCOME. Management plans to increase fee income through the
expansion of its ATM network, both in the Greater Chicago Metro area
(hereinafter referred to as its "Primary Market Area") and outside the
Primary Market Area.
- INCREASING THE BANK'S CORE DEPOSIT BASE. The Bank intends to develop its
core deposit base through the use of specific marketing relationships.
6
<PAGE>
The Company also operates through its wholly-owned subsidiary, On-Line,
which was purchased by the Company in October 1995. On-Line is a third-party
provider of electronic data processing services to primarily financial
institution clients located throughout the Midwest. Since On-Line's acquisition,
the Company has promoted a corporate commitment to implementation of advanced
technologies sufficient to remain competitive in the rapidly changing financial
services marketplace. The Company's business plan has been to enhance On-Line's
foundation as a data processing and communications network provider by
implementing tools to continue supporting existing services, as well as evolve
into a provider of electronic commerce, intranet and Internet services,
technical training services, and document management and imaging services. Since
its acquisition, management has streamlined and restructured On-Line's
organization to deploy and implement its business strategies. Currently, On-Line
maintains two fully-integrated application software systems for its clients.
On-Line has targeted new potential sales markets both within and outside the
financial services industry, in order to expand and diversify its revenues.
On-Line's services also include computer output laser disc storage technology
utilizing a high-speed document storage and retrieval system, integrated check
and document imaging systems, as well as the planning and deployment of local
and wide area network architectural design and implementation services, the sale
of all related hardware and software, consultation, and training.
BUSINESS STRATEGY OF ON-LINE. The primary objectives of On-Line's strategic
planning have been to increase the Company's shareholder value by implementing
data processing platforms capable of continuously evolving to meet the needs of
the rapidly changing financial services industry and to attract and develop
skilled management and technical personnel. Principal steps taken include:
- DEVELOPING MANAGEMENT AND PERSONNEL. Since its acquisition in 1995,
On-Line has streamlined and re-structured its entire organization to
deploy and implement its revised business strategies.
- IMPLEMENTATION OF ADVANCED TECHNOLOGIES. Since On-Line's acquisition, the
Company has promoted a corporate commitment to implementation of advanced
technologies sufficient to remain competitive in the future marketplace.
On-Line's open system architecture allows the Company to take advantage of
rapidly changing technologies and gain certain operating efficiencies. As
a result of this architecture, On-Line has gained available capacity in
its hardware system and intends to use the increased capacity as an
additional avenue of generating income.
- NEW PRODUCT LINES. In order to become a full service out-sourcing business
partner to its clients, On-Line has upgraded and increased its product and
service offerings. On-Line is now actively offering the
BANKFORCE-Registered Trademark- system, an integrated application system
developed by Information Technology Incorporated ("ITI"), and On-Line
introduced and implemented a Computer Output Information Server ("COINS")
product, which is a high-speed optical storage and retrieval system.
- RELATIONSHIP DEVELOPMENT. On-Line seeks to initiate, develop and
strengthen its business relationships with its clients by offering new
products and services designed to provide technologically advanced
solutions for improving client profitability, performance, growth, and
competitive position in the marketplace.
- INTERNAL GROWTH AND SALES. On-Line seeks to grow internally by selling
services and products to new clients and cross-selling additional services
to existing clients. On-Line also seeks to develop and sell new services
to clients to help them retain existing customers and attract additional
customers from new markets.
7
<PAGE>
STRUCTURE OF THE COMPANY
[LOGO]
- ------------------------
* Denotes inactive subsidiary.
The Company's principal executive office and home office are located at 7600
West 63rd Street, Summit, Illinois and its telephone number is (708) 496-6010.
8
<PAGE>
THE TRUST
The Trust is a statutory business trust formed under Delaware law upon the
filing of a Certificate of Trust with the Delaware Secretary of State. The
Trust's business and affairs are conducted by the Issuer Trustees: the Property
Trustee, the Delaware Trustee and individual Administrative Trustees who are
officers of either the Bank or the Company. The Trust exists for the exclusive
purpose of (i) issuing and selling the Trust Securities, (ii) using the proceeds
from the sale of the Trust Securities to acquire the Junior Subordinated
Debentures issued by the Company, and (iii) engaging in only those other
activities necessary, advisable or incidental thereto. Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Trust, and payments by
the Company under the Junior Subordinated Debentures will be the sole revenues
of the Trust. All of the Common Securities will be owned by the Company.
The Trust's principal offices are located at 7600 West 63rd Street, Summit,
Illinois and its telephone number is (708) 496-6010.
9
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.............. $15.0 million aggregate liquidation amount of Capital
Securities.
Participation by Management..... Management does not intend to purchase any Capital
Securities in the Offering.
Price to Public................. $10.00 per Capital Security.
Distribution Dates.............. April 15th, July 15th, October 15th and January 15th of
each year, commencing on January 15, 1999.
Extension Periods............... So long as no Debenture Event of Default (as defined
herein) has occurred and is continuing, Distributions on
Capital Securities will be deferred for the duration of
any Extension Period elected by the Company with respect
to the payment of interest on the Junior Subordinated
Debentures. No Extension Period will exceed twenty (20)
consecutive quarterly periods, end on a date other than an
Interest Payment Date or extend beyond the Stated Maturity
Date. During an Extension Period, the holders of Capital
Securities will be required to include deferred interest
income in their gross income for United States federal
income tax purposes in advance of any corresponding cash
distributions. See; "Description, of Junior Subordinated
Debentures--Option to Extend Interest Payment Date" and
"Certain Federal Income Tax Consequences with Respect to
the Issuance of the Capital Securities--Interest Income
and Original Issue Discount."
Redemption...................... The Trust Securities will be subject to mandatory
redemption in a Like Amount: (i) in whole but not in part,
on the Stated Maturity Date upon repayment of the Junior
Subordinated Debentures; (ii) in whole but not in part, at
any time prior to October , 2003, contemporaneously with
the optional prepayment of the Junior Subordinated
Debentures by the Company upon the occurrence and
continuation of a Special Event (as defined herein); and
(iii) in whole or in part , on or after October , 2003,
contemporaneously with the optional prepayment by the
Company of all or part of the Junior Subordinated
Debentures, at the Optional Redemption Price . See
"Description of Capital Securities--Redemption" and
"Description of Junior Subordinated Debentures--Special
Event Prepayment."
Ranking and Subordination....... The Capital Securities will rank PARI PASSU, and payments
thereon will be made pro rata, with the Common Securities,
except as described under "Description of Capital
Securities--Subordination of Common Securities." The
Junior Subordinated Debentures will rank PARI PASSU with
all other junior subordinated debentures, if any issued by
the Company (the "Other Debentures"), which are issued and
sold, if at all, to other trusts established by the
Company if any, in each case similar to the Trust ("Other
Trusts"), and will constitute unsecured obligations of the
Company and will rank subordinate and junior in right of
payment to all Senior Indebtedness (as defined herein) to
the extent and in the manner
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
set forth in the Indenture. The Guarantee will rank PARI
PASSU with all other guarantees, if any, issued by the
Company with respect to Capital Securities, if any, issued
by Other Trusts ("Other Guarantees") and will constitute
an unsecured obligation of the Company and will rank
subordinate and junior in right of payment to all Senior
Indebtedness to the extent and in the manner set forth in
the Guarantee, including the Bank's deposit liabilities.
See "Description of Guarantee." In addition, because the
Company is a holding company, the Junior Subordinated
Debentures and the Guarantee will be effectively
subordinated to all existing and future liabilities of the
Company's subsidiaries, including the Bank's deposit
liabilities. See "Description of Junior Subordinated
Debentures--Subordination."
Guarantee....................... Taken together, the Company's obligations under various
documents described herein, including the Guarantee
Agreement, provide a full guarantee of payments by the
Trust of Distributions and other amounts due on the
Capital Securities. Under the Guarantee Agreement, the
Company guarantees the payment of Distributions by the
Trust and payments on liquidation of or redemption of the
Capital Securities (subordinate to the right to payment of
Senior Indebtedness of the Company), in each case to the
extent of funds legally available and held by the Trust.
If the Trust has insufficient funds to pay Distributions
on the Capital Securities (i.e., if the Company has failed
to make required payments under the Junior Subordinated
Debentures), a holder of the Capital Securities would have
the right to institute a legal proceeding directly against
the Company to enforce payment of such Distributions to
such holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of
the Capital Securities," "--Debenture Events of Default"
and "Description of Guarantee."
Voting Rights................... The holders of the Capital Securities will generally have
limited voting rights relating only to the modification of
the Capital Securities, the dissolution, wind-up or
liquidation of the Trust and certain other matters
described herein. See "Description of Capital
Securities--Voting Rights; Amendment of the Trust
Agreement."
ERISA Considerations............ For a discussion of certain restrictions on purchases, see
"ERISA Considerations."
Use of Proceeds................. All of the proceeds from the sale of the Capital
Securities will be used by the Trust to purchase Junior
Subordinated Debentures. Proceeds from the sale of such
Junior Subordinated Debentures will be used (a) by the
Bank for general lending purposes and enhancements of
operational capabilities and (b) by the Company for
general corporate purposes, the enhancement of operational
capabilities and the potential purchase of loans.
Absence of Market for the
Capital Securities............ The Capital Securities will be a new issue of securities
for which
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
there is no market. Accordingly, there can be no assurance
as to the development or liquidity of any market for the
Capital Securities.
American Stock Exchange Symbol
for the Capital Securities.... The Company and Trust have applied for listing of the
Capital Securities on the American Stock Exchange under
the symbol " ".
Risk Factors.................... Prospective investors are urged to carefully review the
matters discussed under "Risk Factors."
</TABLE>
AVAILABLE INFORMATION
No separate financial statements of the Trust have been included herein. The
Company and the Trust do not consider that such financial statements would be
material to holders of the Trust Securities because the Trust is a newly-formed
special purpose entity, has no operating history or independent operations and
is not engaged in and does not propose to engage in any activity other than
holding as trust assets the Junior Subordinated Debentures and issuing the Trust
Securities.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth summary consolidated historical financial
data for the Company during the periods ended and at the dates indicated. The
selected consolidated historical financial data gives effect to a four-to-one
stock split in the form of a stock dividend which will take place prior to the
date of the Offering. This information should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
----------- ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (DOLLARS IN THOUSANDS)
FINANCIAL CONDITION DATA:
Loans receivable, net......................... $ 200,879 $ 184,358 $ 173,429 $ 142,380 $ 118,063 $ 90,139
FHLB of Chicago Stock, at cost................ 1,847 3,271 3,428 2,669 2,576 2,576
Securities.................................... 4,993 4,974 5,788 7,573 12,491 15,009
Cash and cash equivalents..................... 18,626 8,677 13,276 11,061 9,286 6,905
Mortgage loan servicing rights................ 6,349 6,706 5,264 4,033 3,641 2,508
Foreclosed real estate, net................... 4,179 4,251 3,913 2,234 359 554
Other assets.................................. 22,885 24,061 24,186 16,518 9,601 8,038
----------- ---------- ---------- ---------- ---------- ----------
Total assets.............................. $ 259,758 $ 236,298 $ 229,284 $ 186,468 $ 156,017 $ 125,729
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
Deposits...................................... $ 201,463 $ 172,469 $ 150,627 $ 123,484 $ 100,697 $ 88,220
Borrowed money................................ 28,388 34,156 50,879 38,181 30,820 9,064
Custodial escrow balances for loans
serviced.................................... 5,891 6,400 5,782 9,696 14,691 20,031
Other liabilities............................. 5,291 5,169 5,436 4,228 835 619
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities......................... 241,033 218,194 212,724 175,589 147,043 117,934
Stockholders' equity.......................... 18,725 18,104 16,560 10,879 8,974 7,795
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity.................................. $ 259,758 $ 236,298 $ 229,284 $ 186,468 $ 156,017 $ 125,729
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELECTED OPERATING DATA:
Interest income............................... $ 8,561 $ 10,090 $ 18,266 $ 16,074 $ 13,987 $ 10,282 $ 9,477
Interest expense.............................. 5,651 5,824 11,286 9,083 8,341 5,012 3,822
--------- --------- --------- --------- --------- --------- ---------
Net interest income....................... 2,910 4,266 6,980 6,991 5,646 5,270 5,655
Provision for loan losses..................... 235 60 210 248 55 48 270
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan losses............................. 2,675 4,206 6,770 6,743 5,591 5,222 5,385
Non-interest income........................... 8,817 6,658 15,585 14,194 4,479 1,838 1,738
Non-interest expense.......................... 10,865 10,083 21,409 19,260 7,662 5,383 4,587
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative
effect of change in accounting
principle............................... 627 781 946 1,677 2,408 1,677 2,536
Income tax expense (benefit).................. (40) 157 123 343 667 281 952
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of change
in accounting principle (1)............. 667 624 823 1,334 1,741 1,396 1,584
Cumulative effect of change in accounting for
income taxes (1)............................ -- -- -- -- -- -- 460
--------- --------- --------- --------- --------- --------- ---------
Net income................................ $ 667 $ 624 $ 823 $ 1,334 $ 1,741 $ 1,396 $ 2,044
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share........................ $ .34 $ .33 $ .43 $ 1.07 $ 1.47 $ 1.16 $ 1.70
Diluted earnings per share...................... $ .32 $ .31 $ .39 $ .90 $ 1.24 $ 1.02 $ 1.55
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1998 1997 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:(2)
Return on average assets.............................. .55% .52% .35% .68% 1.00% 1.00%
Return on average equity.............................. 7.21 7.06 4.62 10.89 17.09 16.17
Average equity to average assets...................... 7.69 7.29 7.53 6.26 5.85 6.14
Stockholders' equity to total assets.................. 7.21 7.92 7.66 7.22 5.83 5.75
Interest rate spread during period.................... 3.07 4.38 3.80 4.62 3.69 4.25
Net interest margin................................... 2.87 4.17 3.54 4.29 3.65 4.24
Non-interest expense to average assets................ 9.03 8.32 9.05 9.83 4.40 3.83
Non-interest expense (exclusive of On-Line) to average
assets.............................................. 3.98 3.97 4.28 4.99 3.61 --
Non-performing loans to net loans receivable (3)...... 2.78 3.81 3.57 3.12 1.54 1.93
Non-performing assets to total assets (4)............. 3.58 4.00 4.14 3.43 2.26 1.72
Allowance for loan losses to non-performing loans
(3)................................................. 17.19 15.10 14.73 16.87 29.54 26.38
Allowances for loan losses to net loans receivable
(3)................................................. .48 .47 .53 .53 .45 .52
Ratio of net charge-offs during the period to average
loans outstanding, excluding Discounted Loans....... .01 -- .01 .08 .03 --
Average interest-earning assets to average
interest-bearing liabilities........................ .96x .96x .95x .94x .99x 1.00x
Book value per share.................................. $ 9.41 $ 9.30 $ 9.25 $ 9.28 $ 8.82 $ 7.73
Full-service customer service branches................ 5 5 5 5 5 4
<CAPTION>
1993
---------
<S> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:(2)
Return on average assets.............................. 1.59%
Return on average equity.............................. 27.88
Average equity to average assets...................... 5.71
Stockholders' equity to total assets.................. 6.20
Interest rate spread during period.................... 4.82
Net interest margin................................... 4.93
Non-interest expense to average assets................ 3.58
Non-interest expense (exclusive of On-Line) to average
assets.............................................. --
Non-performing loans to net loans receivable (3)...... 1.19
Non-performing assets to total assets (4)............. 1.31
Allowance for loan losses to non-performing loans
(3)................................................. 55.88
Allowances for loan losses to net loans receivable
(3)................................................. .68
Ratio of net charge-offs during the period to average
loans outstanding, excluding Discounted Loans....... .01
Average interest-earning assets to average
interest-bearing liabilities........................ 1.03x
Book value per share.................................. $ 6.85
Full-service customer service branches................ 3
</TABLE>
- ------------------------
(1) On January 1, 1993 the Company adopted Statement of Financial Accounting
Standard No. 109 "Accounting for Income Taxes," (Statement 109) on a
prospective basis which changed the Company's method of accounting for
income taxes from the deferred method required under APB No. 11 to the asset
and liability method. The cumulative effect of this change in accounting of
$460,000 was reported in the 1993 consolidated statement of operations.
(2) Average balances are derived from month end balances. Performance ratios at
and for the six months ended June 30, 1998 and 1997 are annualized, where
appropriate.
(3) The formula used to calculate the ratios excludes balances related to the
portfolio of Discounted Loans receivable from both the numerator and the
denominator.
(4) The formula used to calculate the ratios excludes from the numerator the
balances related to the portfolio of Discounted Loans receivable.
14
<PAGE>
RECENT DEVELOPMENTS
BRANCH SALE
On May 4, 1998, the Bank entered into an agreement to sell its Gurnee branch
to CIB Bank. The transaction consisted of the sale of $13.2 million in deposits
and also included furniture, fixtures, and equipment with a net book value of
$149,000. The sale closed on July 16, 1998, and resulted in a pre-tax gain of
approximately $995,000, which will be recorded by the Bank in the third quarter
of 1998.
GOODWILL CONVERTIBLE PREFERRED STOCK
On July 28, 1998, the Company declared a stock dividend of $0.005 Goodwill
Convertible Preferred Stock ("Goodwill Preferred Stock") to all holders of
common stock of the Company, par value $0.01 ("Common Stock") as of August 24,
1998 on a share for share basis. As a result, 592,681 shares of Goodwill
Preferred Stock were issued to holders of Common Stock on August 31, 1998. The
Goodwill Preferred Stock entitles the holders thereof to 75% of any settlement
damages awarded upon a final judgment to the Bank, net of expenses and certain
other items, as a result of the Bank's lawsuit against the United States seeking
damages for breach of contract related to the limitation and exclusion of
supervisory goodwill in the computation of the Bank's regulatory capital in
connection with the Company's acquisition of the Bank in November 1987
("Goodwill Litigation"). At the time of the final judgment and award of damages,
if any, the Goodwill Preferred Stock will either be (i) redeemed by the Company
for cash or (ii) become convertible into Common Stock. The Company will be
entitled to retain the remaining 25% of any damages awarded to the Bank, net of
expenses and certain other items, in the Goodwill Litigation. See "Description
of Capital Stock of the Company--Goodwill Convertible Preferred Stock."
BRANCH OPENING
On September 1, 1998, the Bank opened a new branch at Dearborn Station
located in the south Loop business district of downtown Chicago. The branch was
opened as a DE NOVO and currently includes 3 ATMs. The Bank entered into a
5-year lease on the Dearborn Station property which will expire in June 2003.
PURCHASED MORTGAGE SERVICING RIGHTS
At June 30, 1998, the Bank owned, directly and indirectly, $6.3 million in
Purchased Mortgage Servicing Rights ("PMSRs"). The Bank's principal investment
in PMSRs is through a $5.7 million equity investment in three limited
partnerships. The three limited partnerships were established for the sole
purpose of purchasing mortgage servicing rights. The Bank's ownership of PMSRs
carries interest rate risk because the total amount of servicing fees earned, as
well as the amortization of the investment in the servicing rights, fluctuates
based on loan prepayments (affecting the expected average life of a portfolio of
PMSRs). The rate of prepayment of mortgage loans may be influenced by changing
national and regional economic trends, prevailing mortgage rates and the housing
market in general. During periods of declining interest rates, as currently
exists, many borrowers refinance their mortgage loans. Accordingly, prepayments
of mortgage loans increase and the loan administration income related to the
mortgage loan servicing rights corresponding to a mortgage loan ceases as
underlying loans are prepaid. Consequently, the market value of PMSRs tends to
decrease during periods of declining interest rates, since greater prepayments
can be expected. The income derived from and the market value of the Bank's
PMSRs, therefore, may be adversely affected during periods of declining interest
rates. The Bank accounts for its investment in the three limited partnerships
using the equity method. Income or loss is recorded based upon information
received from Dovenmuehle Mortgage, Inc. ("DMI"), which is a Delaware
corporation engaged principally in mortgage servicing activities. DMI obtains
quarterly valuations from an independent appraiser for each limited partnership.
At June 30, 1998, the valuation of one of the Bank's three limited partnerships
had a market value lower than the current book value. The general partner
recorded a
15
<PAGE>
valuation allowance during the quarter. The Bank's proportionate share of the
valuation allowance of $392,000 was recorded by the Bank as part of their
partnership loss for the quarter.
There can be no assurances that such reserve is adequate or that additional
reserves will not be required in the future. Given the current interest rate
environment and prepayment activity within the industry, Bank management expects
the valuation allowance in this partnership to increase during the quarter ended
September 30, 1998. Although management is unable to determine the amount of any
such increase at this time, the amount will likely equal or exceed the valuation
allowance of $392,000 recorded in the quarter ended June 30, 1998. Furthermore,
valuation allowances may also be required for the Bank's investments in the
other two partnerships. Such additional valuation reserves could be material to
the results of operations during the third and fourth quarters of 1998 and in
future periods. See "Business of the Bank-Purchased Mortgage Servicing Rights."
16
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS, SHOULD BE CONSIDERED BY INVESTORS IN DECIDING WHETHER TO PURCHASE
THE SECURITIES OFFERED HEREBY.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING
MATTERS. INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," "PROJECTED,"
"CONTEMPLATES" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS
THEREON OR COMPARABLE TERMINOLOGY. NO ASSURANCE CAN BE GIVEN THAT THE FUTURE
RESULTS COVERED BY THE FORWARD-LOOKING STATEMENTS WILL BE ACHIEVED. THE
FOLLOWING MATTERS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS
WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FUTURE RESULTS COVERED IN SUCH FORWARD-LOOKING STATEMENTS. OTHER FACTORS, SUCH
AS THE GENERAL STATE OF THE ECONOMY, COULD ALSO CAUSE ACTUAL RESULTS TO VARY
MATERIALLY FROM THE FUTURE RESULTS COVERED IN SUCH FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO THE CAPITAL SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES; LIMITATIONS ON SOURCES OF FUNDS. The obligations of
the Company under the Guarantee issued by it for the benefit of the holders of
Capital Securities, as well as under the Junior Subordinated Debentures will be
unsecured and will rank subordinate and junior in right of payment to all Senior
Indebtedness to the extent and in the manner set forth in the Guarantee and the
Indenture, respectively. No payment may be made of the principal or premium, if
any, or interest on the Junior Subordinated Debentures, or in respect of any
redemption, retirement, purchase or other acquisition of any of the Junior
Subordinated Debentures, at any time when (i) there shall have occurred and be
continuing a default in any payment in respect of any Senior Indebtedness, or
there has been an acceleration of the maturity thereof because of a default, or
(ii) in the event of the acceleration of the maturity of the Junior Subordinated
Debentures, until payment has been made on all Senior Indebtedness. Because the
Company is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution) is subject to the prior
claims of creditors of that subsidiary (including depositors, in the case of the
Bank), except to the extent that the Company may itself be recognized as a
creditor of that subsidiary. At June 30, 1998, the subsidiaries of the Company
had total liabilities (excluding liabilities owed to the Company) of $234.8
million. Accordingly, the Junior Subordinated Debentures effectively will be
subordinated to all existing and future liabilities of the Company's
subsidiaries (including the Bank's deposit liabilities, which aggregated $201.7
million at June 30, 1998) and holders of Junior Subordinated Debentures should
look only to the assets of the Company for payments on the Junior Subordinated
Debentures. The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior
Indebtedness in the same manner as the Junior Subordinated Debentures. None of
the Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, that may be
incurred by the Company or any of its subsidiaries. See "Description of
Guarantee-- Status of the Guarantee" and "Description of Junior Subordinated
Debentures--General" and "--Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required.
The Company is a holding company and almost all of the operating assets of
the Company are owned by the Company's subsidiaries. There are regulatory
limitations on the payment of dividends directly or indirectly to the Company
from the Bank. As of June 30, 1998, under regulations of the OTS, the total
capital available for payment of dividends by the Bank to the Company was
approximately $2.7 million. In addition to restrictions on the payment of
dividends, the Bank is subject to certain restrictions imposed by
17
<PAGE>
federal law on any extensions of credit to, and certain other transactions with,
the Company and certain other affiliates, and on investments in stock or other
securities thereof. Such restrictions prevent the Company and such other
affiliates from borrowing from the Bank unless the loans are secured by various
types of collateral. Further, such secured loans, other transactions and
investments by the Bank are generally limited in amount as to the Company and as
to each of such other affiliates to 10% of the Bank's capital and surplus and as
to the Company and all of such other affiliates to an aggregate of 20% of the
Bank's capital and surplus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD. So long as no Debenture Event of
Default (as defined herein) shall have occurred and be continuing, the Company
will have the right under the Indenture to defer payments of interest on the
Junior Subordinated Debentures at any time or from time to time for a period not
exceeding twenty (20) consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period shall end on a date other
than an Interest Payment Date or extend beyond the Stated Maturity Date. As a
consequence of any such deferral, quarterly Distributions on the Trust
Securities by the Trust will be deferred (and the amount of Distributions to
which holders of the Trust Securities are entitled will accumulate additional
Distributions thereon at the rate of % per annum, compounded quarterly, but
not exceeding the interest rate then accruing on the Junior Subordinated
Debentures) from the relevant payment date for such Distributions during any
such Extension Period. During the pendency of any Extension Period, the Company
generally will be prohibited from declaring or paying dividends on the Company's
capital stock, including the Common Stock. See "Description of Capital
Securities--Distributions."
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed twenty (20) consecutive quarterly periods,
end on a date other than an Interest Payment Date or to extend beyond the Stated
Maturity Date. Upon the termination of any Extension Period and the payment of
all interest then accrued and unpaid on the Junior Subordinated Debentures
(together with interest thereon at the annual rate of %, compounded
quarterly, to the extent permitted by applicable law), the Company may elect to
begin a new Extension Period, subject to the above requirements. There is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Capital Securities--Distributions" and
"Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Date."
TAX CONSEQUENCES. The Company has no current plan to exercise its right to
defer payments of interest on the Junior Subordinated Debentures. However,
should the Company exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of Trust Securities will be required
to accrue income (as original issue discount ("OID")) in respect of the deferred
stated interest allocable to its Trust Securities for United States federal
income tax purposes, which will be allocated but not distributed to holders of
Trust Securities. As a result, each holder of Capital Securities will recognize
income for United States federal income tax purposes in advance of the receipt
of cash and will not receive the cash related to such income from the Trust if
the holder disposes of the Capital Securities prior to the record date for the
payment of Distributions thereafter. See "Certain Federal Income Tax
Consequences with Respect to the Issuance of the Capital Securities--Interest
Income and Original Issue Discount" and "--Sales of Capital Securities."
MARKET PRICE CONSEQUENCES. Should the Company elect to exercise its right
to defer payments of interest on the Junior Subordinated Debentures in the
future, the market price of the Capital Securities is likely to be affected. A
holder that disposes of its Capital Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Capital Securities. In addition, the Company's right to
defer payments of interest on the Junior Subordinated Debentures may cause the
market price of the Capital Securities to be more volatile than the market
prices of other securities on which OID accrues and that are not subject to such
deferrals.
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SPECIAL EVENT REDEMPTION. Upon the occurrence and continuation of a Special
Event, including a Tax Event or a Regulatory Capital Event (in each case as
defined under "Description of Junior Subordinated Debentures--Special Event
Prepayment" and when referred to together (the "Special Event")), prior to the
Initial Optional Prepayment Date, the Company will have the right to prepay the
Junior Subordinated Debentures in whole (but not in part) at the Special Event
Prepayment Price within 90 days following the occurrence of such Special Event
and therefore cause a mandatory redemption of the Trust Securities at the
Special Event Redemption Price. The exercise of such right is subject to the
Company having received any required regulatory approval. See "Description of
Capital Securities--Redemption."
LIQUIDATION DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES. The Company
will have the right at any time to terminate the Trust and, after satisfaction
of liabilities to creditors of the Trust as required by applicable law, to cause
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust. The exercise of such right is subject
to: (i) the Company having received an opinion of counsel to the effect that
such distribution will not be a taxable event to the holders of Capital
Securities; and (ii) receipt of any required regulatory approval. Under current
United States federal income tax law, a distribution of Junior Subordinated
Debentures upon the dissolution of the Trust would not be a taxable event to
holders of the Capital Securities. Upon the occurrence of a Special Event, a
dissolution of the Trust in which holders of the Capital Securities receive cash
would be a taxable event to such holders. See "Certain Federal Income Tax
Consequences with Respect to the Issuance of the Capital Securities--Receipt of
Junior Subordinated Debentures or Cash Upon Liquidation of the Trust."
Under current United States federal income tax law and interpretations, and
assuming that the Trust is classified as a grantor trust for such purposes, a
distribution of the Junior Subordinated Debentures upon a liquidation of the
Trust should not be a taxable event to holders of the Capital Securities.
However, if a Special Event were to occur which would cause the Trust to be
subject to United States federal income tax with respect to income received or
accrued on the Junior Subordinated Debentures, a distribution of the Junior
Subordinated Debentures by the Trust could be a taxable event to the Trust and
the holders of the Capital Securities. See "Certain Federal Income Tax
Consequences with Respect to the Issuance of the Capital Securities--Receipt of
Junior Subordinated Debentures or Cash Upon Liquidation of the Trust."
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES. The
Company will have the right at any time to shorten the maturity of the Junior
Subordinated Debentures to a date not earlier than October , 2003, and thereby
cause the Capital Securities to be redeemed on such earlier date. The exercise
of such right is subject to the Company having received prior regulatory
approval if then required under applicable capital guidelines or policies. See
"Description of Junior Subordinated Debentures-- Redemption."
UNDER THE GUARANTEE. The Guarantee will provide assurances to the holders
of the Capital Securities for the following payments, to the extent not paid by
or on behalf of the Trust: (i) any accumulated and unpaid Distributions required
to be paid on the Capital Securities, to the extent that the Trust has funds
legally available therefore at such time, (ii) the applicable Redemption Price
with respect to the Capital Securities called for redemption, to the extent that
the Trust has funds legally available therefore at any such time, and (iii) upon
a voluntary or involuntary dissolution, winding-up or liquidation of the Trust
(unless the Junior Subordinated Debentures are distributed to holders of the
Capital Securities), the lesser of (a) the aggregate of the Liquidation Amount
and all accumulated and unpaid Distributions to the date of payment, to the
extent that the Trust has funds on hand available therefore at such time and (b)
the amount of assets of the Trust remaining available for distribution to
holders of the Capital Securities after satisfaction of liabilities to creditors
of the Trust as required by applicable law.
The holders of not less than a majority in aggregate Liquidation Amount of
the Capital Securities will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of the Guarantee or to direct the exercise of any trust power
conferred
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upon the Guarantee Trustee under the Guarantee. Any holder of the Capital
Securities may institute a legal proceeding directly against the Company to
enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to remit amounts
payable under the Junior Subordinated Debentures, the Trust would not have
sufficient funds for the payment of Distributions or amounts payable on
redemption of the Capital Securities or otherwise, and, in such event, holders
of the Capital Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing and such event is attributable to the
failure of the Company to pay principal (or premium, if any) or interest
(including Additional Sums (as defined below) and Compounded Interest (as
defined below), if any) on the Junior Subordinated Debentures on the payment
date on which such payment is due and payable, then a holder of Capital
Securities may institute a legal proceeding directly against the Company for
enforcement of payment to such holder of the principal (or premium, if any) or
interest (including Additional Sums and Compounded Interest, if any) on such
Junior Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct Action").
Notwithstanding any payments made to a holder of Capital Securities by the
Company in connection with a Direct Action, the Company shall remain obligated
to pay the principal (and premium, if any) and interest (including Additional
Sums and Compounded Interest, if any) on the Junior Subordinated Debentures, and
the Company shall be subrogated to the rights of the holder of such Capital
Securities with respect to payments on the Capital Securities to the extent of
any payments made by the Company to such holder in any Direct Action. Except as
described herein, holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures or to assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities,"
"--Debenture Events of Default" and "Description of Guarantee." The Trust
Agreement will provide that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Indenture. Wilmington Trust Company will
act as Guarantee Trustee and will hold the Guarantee for the benefit of the
holders of the Capital Securities. Wilmington Trust Company will also act as
Property Trustee and as Debenture Trustee under the Indenture. Wilmington Trust
Company will act as Delaware Trustee under the Trust Agreement.
LIMITED VOTING RIGHTS. Holders of Capital Securities will generally have
limited voting rights relating only to the modification of the Capital
Securities, the dissolution, winding-up or liquidation of the Trust, and the
exercise of the Trust's rights as holder of Junior Subordinated Debentures.
Holders of Capital Securities will not be entitled to vote to appoint, remove or
replace the Property Trustee or the Delaware Trustee, and such voting rights are
vested exclusively in the holder of the Common Securities except upon the
occurrence of certain events described herein. In no event will the holders of
the Capital Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in the holder
of the Common Securities. The Property Trustee, the Administrative Trustees and
the Company may amend the Trust Agreement without the consent of holders of
Capital Securities to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust, even if such action adversely
affects the interests of such holders. See "Description of Capital
Securities-Voting Rights; Amendment of the Trust Agreement" and "--Removal of
Issuer Trustees."
TRADING CHARACTERISTICS OF THE CAPITAL SECURITIES. The Capital Securities
may trade at a price that does not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. A holder
who uses the accrual method of accounting for tax purposes (and a cash method
holder, if the Junior Subordinated Debentures are deemed to have been issued
with OID) and who disposes of its Capital Securities between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest on the Junior Subordinated Debentures through the date of disposition
in income as ordinary income (i.e., interest or, possible, OID), and to add such
amount to its adjusted tax basis in its share of the underlying Junior
Subordinated Debentures deemed disposed of. To
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the extent the selling price is less than the holder's adjusted tax basis (which
will include all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences with Respect to the Issuance of the
Capital Securities--Interest Income and Original Issue Discount" and "--Sales of
Capital Securities."
MARKET PRICE OF CAPITAL SECURITIES. There can be no assurance as to the
market prices for the Capital Securities or Junior Subordinated Debentures that
may be distributed in exchange for Capital Securities if a liquidation of the
Trust occurs. Accordingly, the Capital Securities that a purchaser may purchase,
whether pursuant to this Offering or in the secondary market, or the Junior
Subordinated Debentures that a holder of the Capital Securities may receive on
liquidation of the Trust, may trade at a discount to the price that the
purchaser paid to purchase the Capital Securities offered hereby.
Future trading prices of the Capital Securities will depend on many factors
including, among other things, prevailing interest rates, the operating results
and financial condition of the Company, and the market for similar securities.
As a result of the existence of the Company's right to defer interest payments
on or, subject to any prior regulatory approval then required under applicable
capital guidelines or policies, shorten the Stated Maturity Date of the Junior
Subordinated Debentures, the market price of the Capital Securities may be more
volatile than the market prices of debt securities that are not subject to such
optional deferrals or reduction in maturity. There can be no assurance as to the
market prices for the Capital Securities, or the Junior Subordinated Debentures
that may be distributed in exchange for the Capital Securities, if the Company
exercises its right to terminate the Trust. Accordingly, the Capital Securities
that an investor may purchase, or the Junior Subordinated Debentures that a
holder of the Capital Securities may receive in liquidation of the Trust, may
trade at a discount from the price that the investor paid to purchase the
Capital Securities offered hereby.
ABSENCE OF PUBLIC MARKET AND RATINGS. The Capital Securities have not been
rated by any rating agency. In addition, there is no existing market for the
Capital Securities. Consequently, there can be no assurance as to the liquidity
of any markets that may develop for the Capital Securities, the ability of the
holders to sell their Capital Securities or at what price holders of the Capital
Securities will be able to sell their Capital Securities, as the case may be.
Future trading prices of the Capital Securities will depend on many factors
including, among other things, prevailing interest rates, the Company's
operating results, and the market for similar securities. Although the Company
and Trust have applied to have the Capital Securities approved for quotation on
the American Stock Exchange, there can be no assurance that such application
will be approved, that an active trading market for the Capital Securities will
develop or, if one does develop, that it will be maintained.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
Like most banks, the Bank realizes income primarily from the spread between
interest earned on loans and investments and the interest paid on deposits and
borrowings. It is expected that the Bank, from time to time, will experience
"gaps" in the interest rate sensitivities of its assets and liabilities, meaning
that either its interest-bearing liabilities will be more sensitive to changes
in market interest rates than its interest-earning assets, or vice versa. In
either event, if market interest rates should move contrary to the Bank's
position, the "gap" will adversely affect the Bank's earnings and the Net
Present Value ("NPV") of the Bank's interest sensitive assets and liabilities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk."
NO ASSURANCE AS TO THE ADEQUACY OF ALLOWANCES FOR LOAN LOSSES AND REO
At June 30, 1998, the Company's allowance for loan losses amounted to
$880,000 or 17.19% of total non-performing loans (excluding Discounted Loans)
and .48% of net loans receivable (excluding Discounted Loans). The Company's
allowance for loan losses is maintained at a level considered adequate by
management to absorb inherent losses in its loan portfolio. The amount of
inherent loan losses which
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could be ultimately realized is susceptible to changes in economic, operating,
and other conditions, including changes in interest rates, that could be beyond
the Company's control. Such losses could exceed current estimates. In addition,
the Company maintains a separate allowance for losses on REO which amounted to
$272,000 or 6.51% of REO at June 30, 1998. Although management believes that the
Company's allowances are adequate, there can be no assurance that the allowances
will prove sufficient to cover actual losses should such losses be realized or
that the Company will not have to increase its allowances in the future.
NON-PERFORMING ASSETS
As of June 30, 1998, total non-performing assets (excluding Discounted
Loans) were $9.3 million or 3.58% of total assets as of that date. As of June
30, 1998, the Company had $5.1 million of loans and $4.2 million of REO
classified as Substandard or Doubtful.
The level of non-performing assets (excluding Discounted Loans) may remain
high in the future and the levels of nonaccrual loans and REO may fluctuate from
period to period as problem loans are worked out and/or properties are taken
into REO. Further, depending on real estate values, the overall economy and
other circumstances, the resolution of problem loans and liquidation of REO may
be more costly than presently anticipated, and may require the Company to
increase its allowances and incur additional REO-related expenses.
The Company believes that its policies and procedures related to its
monitoring and resolution of problem assets are adequate. In this regard, the
Company monitors its problem assets, and based on information known to
management at such time, establishes allowances against foreseeable losses
related to such assets. While the Company believes it has established adequate
reserves against such loans or written down the value of the properties in REO
to reflect the current estimated fair values of such properties, no assurances
can be provided that the properties in REO will not further decrease in value or
can be sold for their estimated fair values.
RISKS ASSOCIATED WITH MORTGAGE ORIGINATION, PURCHASE AND SALE ACTIVITIES
The Bank is actively involved in the origination, purchase and sale of real
estate secured loans. Generally, the profitability of such mortgage banking
operations depends on maintaining a sufficient volume of loans for sale and the
availability of loan purchasers. Changes in the level of interest rates and
economic factors may affect the amount of loans originated or available for
purchase by the Bank, and thus the availability of net gains from mortgage
banking operations. Changes in the purchasing policies of loan purchasers or
increases in defaults after funding could substantially reduce the amount of
loans sold to such loan purchasers. Any such changes could have a material
adverse effect on the Bank's results of operations and financial condition.
Therefore, between the time the Bank originates loans and purchase commitments
are issued, the Bank is exposed to downward movements in the market price of
such loans due to upward movements in interest rates or default by the borrower.
Management believes that this risk is mitigated to a certain extent as ARM loans
are generally originated for the portfolio while fixed-rate loans, excluding
Expanded Criteria Loans, are generally originated after receipt of a firm
commitment from a buyer to acquire such loans from the Bank. Fixed-rate Expanded
Criteria Loans are generally retained for portfolio due to their higher yielding
interest rates. See "Business of the Bank--Lending Activities--Loan Originations
and Purchases."
In addition to its lending activity in Illinois, the Bank has originated or
purchased a number of one- to four-family residential mortgage loans on a
nationwide basis through its network of Correspondents. At June 30, 1998, $123.5
million, or 70.3%, of the Bank's one- to four-family loan portfolio was secured
by property located outside of Illinois. Management believes that originating
and purchasing loans secured by properties located across the country results in
a geographically diversified lending operation which reduces certain risks
associated with loan concentrations in a single area. However, there are certain
other risks involved in nationwide lending. The Bank may not have the same depth
of experience or knowledge about particular markets in which it lends as other
lenders with staff physically located in such market
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areas. Additionally, the Bank has historically experienced a greater level of
non-performing loans with respect to loans purchased rather than originated
through its Correspondents. Some of the properties may be located in states
which are experiencing adverse economic conditions, including a general
softening in real estate markets and the local economies, which may result in
increased loan delinquencies and loan losses. Further, regulations and practices
regarding the liquidation of properties (e.g., foreclosure) and the rights of
mortgagors in default vary greatly from state to state, and these restrictions
may impact the Bank's ability to foreclose on a property or seek other recovery.
See "Business of the Bank--Lending Activities--Use and Qualifications of
Correspondents."
RISKS ASSOCIATED WITH PORTFOLIO AND EXPANDED CRITERIA LENDING
The Bank actively originates Portfolio and Expanded Criteria Loans on one-
to four-family residential properties. These loans are originated, in many
instances, when the borrower's credit profile, or some aspect of the loan, does
not meet Agency criteria. Since the Bank retains in its portfolio a portion of
these Portfolio and Expanded Criteria Loans that it originates, such loans may
expose the Bank to additional risk of default by the borrower because the Bank
cannot as readily transfer the credit risk to a third party by sale of the loan.
To offset the possible additional risks of Portfolio and Expanded Criteria
Loans, the Bank may require a lower loan-to-value ratio, a co-signer, mortgage
insurance and/or other compensating factors. However, these loans provide the
Bank with higher yields and prepayment penalty fees. See "Business of the
Bank--Lending Activities -- Loan Approval and Underwriting."
COMPETITION
As a purchaser and originator of mortgage loans, the Bank faces intense
competition, primarily from mortgage banking companies, commercial banks, credit
unions, thrift institutions, credit card issuers and finance companies. Many of
these competitors in the financial services business are substantially larger
and have more capital and other resources than the Bank. Certain large national
finance companies and conforming mortgage originators have announced their
intention to revise their conforming origination programs and allocate resources
to the origination of loans similar to the Bank's Expanded Criteria Loans.
Certain of these larger mortgage companies and commercial banks have begun to
offer products similar to those offered by the Bank, targeting customers similar
to those of the Bank. In addition, it is anticipated that the participation of
government-sponsored entities with substantial capital resources in the
origination of loans similar to the Bank's Portfolio and Expanded Criteria Loans
will further intensify competition. FreddieMac recently announced its intention
to support such originations by purchasing, guaranteeing and securitizing loans
similar to the Bank's Portfolio and Expanded Criteria Loans originated by
qualified institutions. Other government-sponsored entities, such as the
FannieMae or Ginnie Mae may also enter into the market for loans similar to the
Bank's Portfolio and Expanded Criteria Loans. The offering by these competitors,
some of which are anticipated to receive support from government-sponsored
entities, of products similar to those of the Bank's, could have a material
adverse effect on the Bank's results of operations and financial condition. The
Bank depends largely on Correspondents with whom the Bank's competitors also
seek to establish relationships. The Bank's future results may become
increasingly sensitive to fluctuations in the volume and cost of its wholesale
loan purchases resulting from competition from other purchasers for such loans.
In addition, as the Bank expands into new geographic markets, it will face
competition from lenders with established positions in these locations. There
can be no assurance that the Bank will be able to continue to compete
successfully in the markets it serves.
AVAILABILITY OF FUNDING SOURCES
The Bank funds substantially all of the loans which it originates and
purchases through deposits, internally generated funds or Federal Home Loan Bank
("FHLB") advances. The Bank competes for deposits primarily on the basis of
rates, and as a consequence the Bank could experience difficulties in attracting
deposits to fund its operations if it does not continue to offer deposit rates
at levels that are competitive with other financial institutions. Certificate of
deposit accounts constituted $154.6 million, or
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76.8% of total deposits at June 30, 1998, of which $71.0 million mature or
reprice in one-year or less. Increases in short-term certificate accounts, which
tend to be more sensitive to movements in market interest rates than core
deposits, may result in the Bank's deposit base being less stable than if it had
a large amount of core deposits which, in turn, may result in increases in the
Bank's cost of funds. The Bank also uses the cash proceeds generated by the Bank
in selling loans in the secondary market to fund subsequent originations and
purchases. On an ongoing basis, the Company explores opportunities to access
credit lines as an additional source of funds. To the extent the Company is not
able to maintain its currently available funding sources or to access new
funding sources, it may have to curtail its loan investment activities. Any such
event would have a material adverse effect on the Bank's results of operations
and financial condition. See "Business of the Bank--Sources of Funds and
Borrowings."
CONTINGENT RISKS
Substantially all of the mortgage loans sold by the Bank are sold without
recourse. In connection with its loan sales, the Bank enters agreements which
generally require the Bank to repurchase or substitute loans in the event of a
breach of a representation or warranty made by the Bank to the loan purchaser,
any misrepresentation during the mortgage loan origination process or, in some
cases, upon any fraud or early default on such mortgage loans. The remedies
available to a loan purchaser from the Bank are generally broader than those
available to the Bank against the sellers of such loans, and if a loan purchaser
enforces its remedies against the Bank, the Bank may not be able to enforce
whatever remedies the Bank may have against such sellers. If the loans were
originated directly by the Bank, the Bank would be solely responsible for any
breaches of representations or warranties. For loans originated through its
network of Correspondents, the Bank utilizes contract underwriters who provide
the Company with certain representations and warranties that such loans meet the
Bank's underwriting guidelines. For loans retained by the Bank in its portfolio,
credit risk may be incurred with respect to Expanded Criteria Loans in which the
borrower may have an impaired credit profile. The rates of delinquencies,
foreclosures and losses on Expanded Criteria Loans could be higher under adverse
economic conditions than on Agency Qualified loans. In addition, during the
period of time that the loans are held for sale, the Bank is subject to various
business risks associated with the lending business, including borrower default,
foreclosure and the risk that a rapid increase in interest rates would result in
a decline of the value of loans held for sale to potential purchasers. See
"Business of the Bank--Lending Activities--Loan Approval and Underwriting."
RISKS RELATING TO GOODWILL LITIGATION
From the commencement of the Goodwill Litigation to June 30, 1998, the
Company has incurred legal, accounting, consulting and other fees of $210,000.
To the extent the Company continues to engage in such litigation, the Company
will continue to incur legal, accounting, consulting and other expenses in the
future. There can be no assurances as to whether the legal, accounting,
consulting and other fees and expenses related to the Goodwill Litigation may
become substantial. There can also be no assurance as to whether there will be a
recovery in the Goodwill Litigation or whether the recovery will be sufficient
to offset the fees and expenses for which the Company will be liable. The
dilutive effect of this transaction cannot be determined until the final outcome
of the litigation.
RISKS ASSOCIATED WITH PURCHASED MORTGAGE SERVICING RIGHTS
At June 30, 1998, the Bank owned, directly and indirectly, $6.3 million in
PMSRs. The Bank's principal investment in PMSRs is through a $5.7 million equity
investment in three limited partnerships. The Bank's ownership of PMSRs carries
interest rate risk because the total amount of servicing fees earned, as well as
the amortization of the investment in the servicing rights, fluctuates based on
loan prepayments (affecting the expected average life of a portfolio of PMSRs).
The rate of prepayment of mortgage loans may be influenced by changing national
and regional economic trends, prevailing mortgage rates and the housing market
in general. During periods of declining interest rates, as currently exists,
many borrowers refinance their mortgage loans. Accordingly, prepayments of
mortgage loans increase and
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the loan administration income related to the mortgage loan servicing rights
corresponding to a mortgage loan ceases as underlying loans are prepaid.
Consequently, the market value of PMSRs tends to decrease during periods of
declining interest rates, since greater prepayments can be expected. The income
derived from and the market value of the Bank's PMSRs, therefore, may be
adversely affected during periods of declining interest rates. The Bank accounts
for its investment in the three limited partnerships using the equity method.
Income or loss is recorded based upon information received from DMI. DMI obtains
quarterly valuations from an independent appraiser for each limited partnership.
At June 30, 1998, the valuation of one of the Bank's three limited partnerships
had a market value lower than the current book value. The general partner
recorded a valuation allowance during the quarter. The Bank's proportionate
share of the valuation allowance of $392,000 was recorded by the Bank as part of
their partnership loss for the quarter.
There can be no assurances that such reserve is adequate or that additional
reserves will not be required in the future. Given the current interest rate
environment and prepayment activity within the industry, Bank management expects
the valuation allowance in this partnership to increase during the quarter ended
September 30, 1998. Although management is unable to determine the amount of any
such increase at this time, the amount will likely equal or exceed the valuation
allowance of $392,000 recorded in the quarter ended June 30, 1998. Furthermore,
valuation allowances may also be required for the Bank's investments in the
other two partnerships. Such additional valuation reserves could be material to
the results of operations during the third and fourth quarters of 1998 and in
future periods.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a considerable degree on the contributions of a
limited number of key management personnel who have had, and will continue to
have, a significant role in the development and management of the Company. The
continued development of the Company's business strategy depends to a large
extent upon the continued employment of Mr. John Yedinak, President and Chief
Executive Officer of both the Company and the Bank. Additionally, the Company
maintains lines of credit with various lending institutions, some of which are
personally guaranteed by Mr. Yedinak. Mr. Yedinak receives no additional
compensation for his guarantee. Should Mr. Yedinak no longer be employed by the
Company, there is no assurance such lines of credit would continue to be
available. However, it is anticipated that following the Offering such lines of
credit will no longer require a personal guarantee. The Company and Bank have
entered into renewable employment agreements, providing for five and three year
terms, respectively, with Mr. Yedinak, effective November 1, 1996. The Company
and the Bank also maintain a total of $2.5 million in key-man life insurance
policies with respect to Mr. Yedinak. See "The Board of Directors and Management
of the Bank--Executive Compensation--Employment Agreements."
SHARES AVAILABLE FOR FUTURE SALE
The Company, the Trust, and the Company's directors and executive officers
have agreed that, for a period of 90 days from the closing of the Offering, such
person or entity will not offer for sale, sell or grant any options, rights or
warrants with respect to any capital securities of the Company or the Trust,
securities convertible into Common Stock or any other capital stock or other
security of the Company or the Trust, or otherwise dispose of, directly or
indirectly, any securities of the Company or the Trust, other securities or
capital stock of the Company or the Trust, without the prior consent of the
underwriter. See "Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS
PROVISIONS IN THE COMPANY'S GOVERNING INSTRUMENTS. Certain provisions of
the Company's Certificate of Incorporation and Bylaws as well as certain federal
regulations, assist the Company in maintaining its status as an independent
publicly owned corporation. These provisions provide for, among other things,
supermajority voting on certain matters, staggered elections of the boards of
directors, non-cumulative voting for directors, and limits on the calling of
special meetings. These provisions in the Company's
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governing instruments may discourage potential proxy contests and other
potential takeover attempts, particularly those which have not been negotiated
with the Board of Directors, and thus, generally may serve to perpetuate current
management. See "Restrictions on Acquisition of the Company."
VOTING CONTROL OF OFFICERS AND DIRECTORS. Directors and executive officers
of the Company and Bank own approximately 84.5% of the shares of common stock at
June 30, 1998. An additional 349,584 shares may be attributable to directors and
officers of the Company and Bank through the exercise of options to purchase
shares of Common Stock held by such directors and officers pursuant to the
Company's stock option plans at June 30, 1998. Accordingly, management's voting
control will continue to have a significant influence over the affairs of the
Company and the Bank. Such concentration of ownership may have the effect of
delaying, deferring or preventing takeover attempts that certain stockholders
deem to be in their best interest and may tend to perpetuate existing
management. Additionally, pursuant to a stockholder agreement (the "Stockholder
Agreement") with Deltec, a banking corporation organized under the laws of the
Commonwealth of the Bahamas, for so long as Deltec, holds at least 15% of the
Company's Common Stock, Deltec has the right to nominate one director to the
Company's Board of Directors. Additionally, Mr. Yedinak has agreed that during
this time period he will vote all shares of the Company's Common Stock owned by
him for the nominee designated by Deltec. See "Restrictions on Acquisition of
the Company and the Bank--Restrictions in the Company's Certificate of
Incorporation and Bylaws," "The Board of Directors and Management of the
Bank--Stock Option Plans" and "Stockholder Agreement."
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Company, as a savings association holding company, and the Bank, as a
federal savings bank, are subject to extensive federal law, regulations and
supervision. Such law and regulations, which affect the Bank on a daily basis,
may be changed at any time, and the interpretation of the relevant law and
regulations is also subject to change by the federal regulatory authorities. Any
change in the regulatory structure or the applicable statutes or regulations,
whether by the OTS, the Federal Deposit Insurance Corporation ("FDIC") or the
Congress, could have a material impact on the Company, the Bank and their
respective operations. See "Regulation."
RECHARTERING LEGISLATION. The Deposit Insurance Funds Act of 1996 ("the
Funds Act"), enacted in September 1996, provides that the Bank Insurance Fund
("BIF"), the fund which insures most commercial bank deposits, and the Savings
Association Insurance Fund ("SAIF") will merge on January 1, 1999, if there are
no savings associations, as defined, in existence on that date. Pursuant to that
legislation, the Department of Treasury in May 1997 recommended in a report to
Congress that the separate charters for thrifts and banks be abolished. Various
proposals to eliminate the federal thrift charter, create a uniform financial
institutions charter, conform holding company regulation and abolish the OTS
have been introduced in Congress. The House Committee on Banking and Financial
Services has reported a bill that will require federal savings associations to
convert to national banks or some type of state charter within two years of
enactment or they would automatically become national banks. The bill would also
merge the BIF and the SAIF, repeal the Home Owners' Loan Act ("HOLA"), abolish
the OTS and transfer the regulation of savings associations to the federal bank
regulators and the Federal Reserve Board. Federal thrifts converted to national
banks generally will be permitted to continue to engage in any activity,
including the holding of any asset, lawfully conducted on the date prior to the
enactment. A federal savings association converted to a national bank may retain
all branches established or proposed in a pending application as of enactment
and establish new branches in any state in which it has a branch. Otherwise it
may establish new branches only under national bank rules. In addition,
beginning two years after enactment, national banks will be authorized to
exercise all powers formerly authorized for federal savings associations.
Under the proposal, holding companies for savings associations converted to
national banks generally will become subject to the same regulation as holding
companies that control commercial banks, with a
26
<PAGE>
grandfather provision for former unitary savings and loan holding companies.
Such grandfathered companies will be permitted to maintain and establish
affiliations with any type of company and to acquire additional depository
institutions, as long as any acquired depository institution is merged into its
converted savings association and such institution continues to comply with both
the qualified thrift lender test and certain asset and investment limitations to
which it was subject as a federal savings association.
The Financial Services Act of 1998, introduced in March 1998, would allow
securities firms, insurance companies and commercial banks to merge under a
holding company structure. Among other things, the bill would expand the Federal
Reserve's regulatory authority over these financial institutions. The Company is
unable to predict whether this bill or any other such legislation will be
enacted, what the provisions of such final legislation may be, or the extent to
which the legislation would restrict, disrupt or otherwise have a material
effect on its operations.
YEAR 2000 READINESS
As the Year 2000 approaches, a critical business issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. In brief, many existing application software products in the
marketplace were designed to only accommodate a two digit date position which
represents the year (E.G., the year 1995 is stored on the system as "95"). The
Company has implemented a program designed to ensure that all software used in
connection with the Company's business will manage and manipulate data involving
the transition with data from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such data. However, there
can be no assurances that such program will be effective as to the results of
any potential failure of computer programs and/or systems. To the extent the
Company's systems or the systems of its vendors are not fully Year 2000 Ready,
there can be no assurance that potential systems interruptions or the cost
necessary to update software would not have a material adverse effect on the
Company's business, financial condition, results of operations or business
prospects. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Discussions."
ENVIRONMENTAL RISKS
In the course of its business, the Company has acquired, and may acquire in
the future, properties securing loans that are in default. There is a risk that
hazardous substances or waste, contaminants, pollutants or sources thereof could
be discovered on such properties after acquisition by the Company. In such
event, the Company may be required by law to remove such substances from the
affected properties at its sole cost and expense. There can be no assurance that
(i) the cost of such removal would not substantially exceed the value of the
affected properties or the loans secured by the properties, (ii) the Company
would have adequate remedies against the prior owner or other responsible
parties or (iii) the Company would not find it difficult or impossible to sell
the affected properties either prior to or following such removal.
RISK FACTORS RELATED TO ON-LINE
COMPETITION. On-Line competes with a number of other companies that provide
electronic data processing and other related services primarily to financial
institutions. The market for electronic data processing services within the
financial services industry is intensely competitive and rapidly changing and
there can be no assurance that On-Line will be able to compete successfully in
the future. In addition to direct competition, On-Line may also face indirect
competition from its existing and potential customers, many of which internally
design, integrate and deploy their own technologies for their particular needs,
and therefore may be reluctant to use services offered by independent providers
such as On-Line. This indirect risk is generally dependent on the size and
technological sophistication of the existing or potential customer, both of
which impact the cost versus benefit analysis for deciding whether to use an
independent provider or manage processing needs internally.
27
<PAGE>
On-Line believes that its ability to compete successfully depends upon a
number of factors both within and beyond its control, including system
performance, price, market perception, level of customer support, quality and
breadth of services, and industry and general economic trends. As a result,
On-Line must educate existing and prospective customers as to the advantages and
differentiating factors of On-Line's services, which include offering advanced
technologies that compliment core application system products. In addition,
since mid-1997 On-Line began marketing its optical report retrieval and document
management and imaging systems, as well as local and wide area network
architectural design and implementation services, to companies outside the
financial services industry in order to expand and diversify its revenues. There
can be no assurance that On-Line will be able to compete effectively with its
direct competitors or to adequately educate potential customers as to the
benefits provided by On-Line's services, or effectively continue to increase
sales to companies outside of the financial services industry. See "Business of
On-Line Financial Services, Inc."
CONSOLIDATION IN BANKING AND FINANCIAL SERVICES INDUSTRY. There has been
and continues to be merger, acquisition and consolidation activity in the
banking and financial services industry. Mergers or consolidations of banks and
financial institutions in the future could reduce the number of On-Line's
clients or potential clients. A smaller market for On-Line's services could have
a material adverse impact on On-Line's business and results of operations. Also,
it is possible that larger banks or financial institutions resulting from
mergers or consolidations would consider the possibility of performing some or
all of the services which On-Line currently provides or could provide. Should
such events occur, it could have a material adverse impact on On-Line's business
and results of operations.
HIGH OPERATING EXPENSES. As a result of its acquisition in 1995, On-Line's
expenditures have increased the overall operating expenses of the Company.
During 1996 and 1997, On-Line implemented a restructuring program whereby it has
invested in highly skilled technical personnel and focused its resources on
advanced technologies in order to stay competitive in its industry, which is an
innovative and frequently changing market. On-Line incurred significant costs to
upgrade and increase the products and services it offers its customers, which
resulted in a period of rising operating expenses as such upgrades and increased
products and services were being implemented. Management believes that such
expenses have stabilized at the current level of recurring costs. Although
management believes that its capital expenditures are unlikely to continue to
escalate at the same rate, there can be no assurances that On-Line will not
continue to experience high operating costs or that it will obtain an adequate
revenue base or sustain future profitability.
DEPENDENCE ON SKILLED PERSONNEL. On-Line's success will depend on its
ability to attract and retain highly skilled personnel in all areas of its
business, as the demand for these individuals is high in all industry markets.
In addition, On-Line is dependent upon many skilled and highly specialized
technical personnel, none of whom are parties to employment agreements. The loss
or unavailability of one or more of certain of these individuals could have a
material adverse effect on On-Line's business prospects and existing clients. As
the Year 2000 approaches, key individuals knowledgeable in certain areas of
mainframe programming languages will also become more and more valuable to
companies faced with Year 2000 issues. On-Line will be competing for these
individuals with larger companies that may be offering better compensation
packages. As a result, On-Line may need to rely on the use of outside consulting
services and there can be no assurance that such consulting services will be
available. Although management believes it has good relations with its personnel
and currently has several Year 2000 incentive plans in place, no assurance can
be given that On-Line will be able to attract and retain personnel in the
future.
YEAR 2000 READINESS. On-Line has implemented several Year 2000 programs
designed to facilitate meeting Year 2000 criteria. However, there can be no
assurance that such programs will be effective as to the results of any
potential failure of the various computer systems and application programs in
place at On-Line. To the extent that On-Line's systems are not fully Year 2000
Ready, there can be no assurance that potential systems interruptions or the
cost necessary to update systems would not have a material adverse effect on
On-Line's financial condition, results of operations or business prospects.
Although Year 2000 planning initiatives are currently in place, there can be no
assurances that third parties will not commence litigation against On-Line
concerning Year 2000 Readiness. Any of the foregoing could result in a material
adverse effect on On-Line's business, financial condition or results of
operations.
28
<PAGE>
USE OF PROCEEDS
The Trust will use the gross proceeds from the sale of the Capital
Securities to purchase Junior Subordinated Debentures of the Company.
Approximately one-half of the net proceeds from the sale of the Junior
Subordinated Debentures will be contributed to the Bank and one-half will be
used by the Company. The net proceeds at the Bank level will be used for general
lending purposes, including the funding of new loans, as well as the enhancement
of operational capabilities. At the Company level, the net proceeds will be used
for general corporate purposes, the enhancement of operational capabilities and
for the potential purchase of loans.
MARKET FOR THE CAPITAL SECURITIES
The Capital Securities will be a new issue of securities for which there is
no current market. The Company and Trust have applied to have the Capital
Securities listed on the American Stock Exchange under the trading symbol
" ". Nevertheless there is no assurance that an active and liquid trading
market will develop or, if developed, that such a market will be sustained. The
offering price and distribution rate have been determined by negotiations among
representatives of the Company and the Underwriters, and the offering price of
the Capital Securities may not be indicative of the market price following the
Offering. See "Underwriting."
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth the ratios of earnings to combined fixed
charges of the Company on a consolidated basis for the respective periods
indicated.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1996(1) 1995
--------- --------- --------- --------- ----------- ---------
Ratios of Earnings to Combined Fixed Charges:
Excluding interest on deposits........................ 1.59x 1.46x 1.35x 1.63x 1.93x 1.88x
Including interest on deposits........................ 1.11x 1.13x 1.08x 1.18x 1.27x 1.29x
<CAPTION>
<S> <C> <C>
1994 1993
--------- ---------
Ratios of Earnings to Combined Fixed Charges:
Excluding interest on deposits........................ 2.11x 3.76x
Including interest on deposits........................ 1.33x 1.66x
</TABLE>
- ------------------------
(1) Represents the respective fixed charge ratios excluding the SAIF
recapitalization assessment.
For purposes of computing the ratios of earnings to combined fixed charges,
earnings represent net income plus applicable income taxes and fixed charges.
Fixed charges, excluding interest on deposits, include gross interest expense
other than on deposits. Fixed charges, including gross interest on deposits,
include all interest expense.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of the Company and, accordingly, the accounts of the Trust will be included in
the Consolidated Financial Statements of the Company. The Capital Securities
will be presented as a separate line item in the consolidated balance sheet of
the Company under the caption "Guaranteed preferred beneficial interests in the
Company's Junior Subordinated Debentures," and appropriate disclosures about the
Capital Securities, the Guarantee and the Junior Subordinated Debentures will be
included in the notes to Consolidated Financial Statements. For financial
reporting purposes, the Company will record Distributions payable on the Capital
Securities as interest expense in the consolidated statements of operations.
Future audited Consolidated Financial Statements of the Company will include
a footnote to the financial statements stating that (i) the Trust is
wholly-owned, (ii) the sole assets of the Trust are the Junior Subordinated
Debentures (specifying the principal amount, interest rate and maturity date of
such Junior Subordinated Debentures), and (iii) the full and unconditional
guarantee by the Company of the obligations of the Trust under the Capital
Securities in the event of the occurrence of an Event of Default. The Trust will
not obtain separate audited financial statements.
29
<PAGE>
CAPITALIZATION
The following table sets forth (i) the consolidated capitalization of the
Company at June 30, 1998 and (ii) the consolidated capitalization of the Company
giving effect to the issuance of the Capital Securities hereby offered by the
Trust and receipt by the Company of the net proceeds from the corresponding sale
of the Junior Subordinated Debentures to the Trust, as if the sale of the
Capital Securities had been consummated on June 30, 1998 and assuming the
Underwriters over-allotment option was not exercised. The information below
should be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes thereto which are included elsewhere herein. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Guaranteed preferred beneficial interests in the Company's Junior Subordinated
Debentures.............................................................................. $ -- $ 15,000(1)
Stockholders' Equity:
Preferred stock of the Company, $0.01 par value (1,000,000 shares authorized, none issued
or outstanding)(2)...................................................................... $ -- $ --
Common stock of the Company, $0.01 par value (9,000,000 shares authorized, 1,990,576
shares issued and outstanding........................................................... 20 20
Additional paid-in capital................................................................ 8,735 8,735
Retained earnings......................................................................... 10,414 10,414
Accumulated other comprehensive income.................................................... (127) (127)
Common stock acquired by:
Employee Stock Ownership Plan........................................................... (27) (27)
Management Recognition Plan............................................................. (290) (290)
--------- -----------
Total stockholders' equity................................................................ $ 18,725 $ 33,725
--------- -----------
--------- -----------
Book value per share...................................................................... $ 9.41 $ 16.94
--------- -----------
--------- -----------
Bank regulatory capital ratios(3):
Tangible Capital........................................................................ 5.68% 8.47%
Core (leverage) capital................................................................. 5.68% 8.47%
Total risk-based capital................................................................ 11.05% 16.64%
Stockholders' equity to total assets...................................................... 7.21% 12.27%
</TABLE>
- ------------------------
(1) In connection with the issuance of the guaranteed preferred beneficial
interests in the Company's Junior Subordinated Debentures, the Company
estimates it will incur expenses of $ (including Underwriters'
compensation of $ ). The Junior Subordinated Debentures will mature
on October , 2028, which date may be shortened to a date not earlier than
October , 2003 if certain conditions are met.
(2) On August 31, 1998 the Company issued 592,681 shares of Goodwill Convertible
Preferred Stock. See "Recent Developments" and "Description of Capital Stock
of the Company--Goodwill Convertible Preferred Stock."
(3) Pursuant to the OTS regulations, savings institutions must meet three
separate minimum capital-to-assets requirements: (1) a risk-based capital
requirement of 8.0% for risk-weighted assets, (2) a leverage or core ratio
of 3.0% core capital to total adjusted assets, and (3) a tangible capital
requirement of 1.5% tangible core capital to total assets. Although the
minimum capital requirement is 3.0%, the OTS Regulations provide that an
institution with less than 4.0% core capital is deemed to be
"undercapitalized."
30
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The operating data presented below is derived in part from and should be
read in conjunction with the audited Consolidated Financial Statements of the
Company and Notes thereto of the Company, presented elsewhere in the Prospectus.
The operating data for the six month periods ended June 30, 1998 and 1997 is
derived from unaudited financial data, but, in the opinion of management,
reflects all adjustments (consisting of only normal recurring adjustments) which
are necessary to present fairly the results for such interim periods. The
results of operations for the six months ended June 30, 1998 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable................................................... $ 6,829 $ 6,438 $ 12,072 $ 11,370 $ 11,836
Discounted loans receivable........................................ 1,215 3,210 5,249 3,687 1,174
Securities available-for-sale...................................... 204 301 581 596 910
Interest-earning deposits.......................................... 313 141 364 421 67
--------- --------- --------- --------- ---------
Total interest income.......................................... 8,561 10,090 18,266 16,074 13,987
--------- --------- --------- --------- ---------
Interest expense:
Deposits........................................................... 4,583 4,124 8,580 6,433 5,610
Custodial escrows.................................................. -- 5 1 78 224
Borrowed money..................................................... 1,068 1,695 2,705 2,572 2,507
--------- --------- --------- --------- ---------
Total interest expense......................................... 5,651 5,824 11,286 9,083 8,341
--------- --------- --------- --------- ---------
Net interest income before provision for loan losses................. 2,910 4,266 6,980 6,991 5,646
Provision for loan losses............................................ 235 60 210 248 55
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses................ 2,675 4,206 6,770 6,743 5,591
--------- --------- --------- --------- ---------
Noninterest income:
Purchased mortgage servicing income (loss), net.................... (278) 169 426 352 361
Net gain (loss) on sale:
Loans held for sale.............................................. 384 31 217 246 226
Discounted loans receivable...................................... 715 23 279 1,843 1,062
Foreclosed real estate........................................... (91) 81 19 (366) (2)
Securities available-for-sale.................................... 318 207 710 235 219
Fees and service charges........................................... 1,020 572 1,451 520 450
Data processing income............................................. 6,020 5,509 11,528 11,111 1,836
Other.............................................................. 729 66 955 253 327
--------- --------- --------- --------- ---------
Total noninterest income....................................... 8,817 6,658 15,585 14,194 4,479
--------- --------- --------- --------- ---------
Noninterest expense:
Compensation and benefits.......................................... 4,345 4,529 8,799 8,731 3,648
Occupancy and equipment............................................ 2,709 2,353 4,930 4,260 1,471
Federal deposit insurance premiums................................. 56 47 102 1,072 268
Loan servicing expense............................................. 286 272 550 268 251
Professional fees.................................................. 354 428 1,261 788 431
Advertising and promotion.......................................... 189 156 382 305 104
Goodwill amortization.............................................. 51 53 104 108 102
Data processing cost of services................................... 1,721 946 2,806 1,542 231
Computer services.................................................. -- -- -- -- 181
Software expense................................................... 590 337 865 705 119
Other.............................................................. 564 962 1,610 1,481 856
--------- --------- --------- --------- ---------
Total noninterest expense...................................... 10,865 10,083 21,409 19,260 7,662
--------- --------- --------- --------- ---------
Income before income tax expense............................... 627 781 946 1,677 2,408
Income tax (benefit) expense....................................... (40) 157 123 343 667
--------- --------- --------- --------- ---------
Net income..................................................... $ 667 $ 624 $ 823 $ 1,334 $ 1,741
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Per share amounts(1):
Basic.............................................................. $ .34 $ .33 $ .43 $ 1.07 $ 1.47
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted............................................................ $ .32 $ .31 $ .39 $ .90 $ 1.24
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Adjusted to give effect to a four-to-one stock split in the form of a stock
dividend which will take place prior to the date of the Offering.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT OF INTEREST RATE RISK
Generally, the Bank's financial objective is to manage the sensitivity of
its earnings to interest rate fluctuations by altering the match between the
interest rate sensitivity of its assets and liabilities. The major strategies
the Bank has implemented are (i) the origination and purchase of ARMs; (ii) the
origination of balloon mortgages; (iii) the origination of adjustable rate home
equity lines of credit; (iv) the sale of newly originated long-term fixed-rate
mortgages; (v) the purchase of seasoned fixed-rate and adjustable rate mortgage
loans at a discount; (vi) from time to time, in appropriate interest rate
environments, the investment in PMSRs, which provide a source of noninterest
income and also act as a hedge against the decline in the value of fixed-rate
mortgages in a rising interest rate environment; (vii) the maintenance of
noninterest-bearing custodial accounts related to loans and PMSRs; and (viii)
the control of deposit growth and maintenance of long-term deposits. In addition
to the foregoing, the Bank has recently implemented a pre-payment penalty on
ARMs and management looks for and continues to seek low cost liabilities in the
public and private sectors. The strategies listed have been implemented by the
Bank and are monitored on a quarterly basis by management. The Bank does not use
any derivatives to reduce its exposure to interest rate risk. See "Business of
Bank--Lending Activities."
NET PORTFOLIO VALUE. As part of its normal operations, the Bank is subject
to interest-rate risk on the interest-sensitive assets it invests in and the
interest-sensitive liabilities it borrows. The Bank's Investment Committee which
includes members of senior management and directors, monitors and determines the
strategy of managing the rate and sensitivity repricing characteristics of the
individual asset and liability portfolios the Bank maintains. The overall goal
is to manage this interest rate risk to most efficiently utilize the Bank's
capital, as well as to maintain an acceptable level of change to its NPV and net
interest income. The Bank strategy is to minimize the impact of sudden and
sustained changes in interest rates on NPV and its net interest margin.
Interest rate risk exposure is measured using interest rate sensitivity
analysis to determine the Bank change in NPV in the event of hypothetical
changes in interest rates, as well as interest rate sensitivity gap analysis,
which monitors the repricing characteristics of the Bank's interest-earning
assets and interest-bearing liabilities. The Board of Directors has established
limits to changes in NPV and net interest income across a range of hypothetical
interest rate changes. If estimated changes to NPV and net interest income are
not within these limits, the Board may direct management to adjust its
asset/liability mix to bring its interest rate risk within Board limits.
Interest rate sensitivity analysis is used to measure the Bank's interest
rate risk by calculating the estimated change in the NPV of its interest
sensitive assets and liabilities, as well as certain off- balance sheet items,
in the event of a series of sudden and sustained changes in interest rates
ranging from 100 to 400 basis points. Management assumes that a 200 basis point
movement up or down is considered reasonable and plausible for purposes of
managing its interest-rate risk on a day-to-day basis. NPV is computed as the
difference between the estimated market value of assets and the estimated market
value of liabilities, adjusted for the value of off-balance sheet items. The
following table presents the Bank's projected change in NPV for the various rate
movements as of June 30, 1998.
32
<PAGE>
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
ESTIMATED INCREASE
(DECREASE) IN NPV VALUE OF ASSETS
------------------------------------ ------------------------
ESTIMATED PERCENT PERCENT
CHANGE IN INTEREST RATE NPV CHANGE CHANGE NPV RATIO CHANGE
- ----------------------------------------------------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
400 basis point increase................................... $ 16,614 $ (12,325) (43.0)% 6.88% (4.27)%
300 basis point increase................................... 20,851 (8,088) (28.0) 8.44 (2.71)
200 basis point increase................................... 24,707 (4,233) (15.0) 9.79 (1.36)
100 basis point increase................................... 27,689 (1,251) (4.0) 10.79 (.37)
Base scenario.............................................. 28,939 -- -- 11.15 --
100 basis point decline.................................... 28,941 2 -- 11.08 (.07)
200 basis point decline.................................... 28,287 (653) (2.0) 10.77 (.38)
300 basis point decline.................................... 27,900 (1,040) (4.0) 10.56 (.59)
400 basis point decline.................................... 27,752 (1,187) (4.0) 10.53 (.73)
</TABLE>
The NPV is calculated by the OTS using guidelines related to interest rates,
loan prepayment rates, deposit decay rates and market values of certain assets
under the various interest rate scenarios. These assumptions should not be
relied upon as indicative of actual results due to the inherent shortcomings of
the NPV analysis. These shortcomings include (i) the possibility that actual
market conditions could vary from the assumptions used in the computation of
NPV, (ii) certain assets, including adjustable-rate loans, have features which
affect the potential repricing of such instruments, which may vary from the
assumptions used, (iii) that the discount rates used by the OTS in its
computation may not accurately reflect the credit risks inherent in the Bank's
loan portfolio and (iv) the likelihood that as interest rates are changing, the
Investment Committee would likely be changing strategies to limit the indicated
changes in NPV as part of its management process. See "Regulation--Federal
Savings Institution Regulation--Capital Requirements."
The Bank does not currently engage in trading activities or use derivative
instruments to control interest rate risk. Other types of market risk, such as
foreign currency exchange risk and commodity price risk, do not arise in the
normal course of the Company's business activities and operations.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them.
AVERAGE BALANCE SHEET
The following tables set forth certain information relating to the Company's
consolidated average balance sheets and reflects the average yield on assets and
average cost of liabilities for the period indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from month-end
33
<PAGE>
balances. Management believes that the use of month-end balances instead of
daily average balances has not caused a material difference in the information
presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------
1998 1997
------------------------------------ ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
---------- --------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Loans receivable(1)......................... $ 183,564 $ 8,044 8.76% $ 189,602 $ 9,648 10.18%
Securities available-for-sale............... 7,829 204 5.21 9,750 301 6.17
Interest-earning deposits................... 11,604 313 5.40 5,270 141 5.35
---------- --------- ---------- ---------
Total interest-earning assets............. 202,997 8,561 8.44 204,622 10,090 9.86
Noninterest-earning assets.................... 37,752 37,703
---------- ----------
Total assets.............................. $ 240,749 $ 242,325
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits.................................... $ 180,857 $ 4,583 5.07% $ 161,902 $ 4,124 5.09%
Custodial escrows........................... 1 -- -- 28 5 35.71
Borrowed money.............................. 29,633 1,068 7.21 50,720 1,695 6.68
---------- --------- ---------- ---------
Total interest-bearing liabilities........ 210,491 5,651 5.37 212,650 5,824 5.48
Noninterest-bearing liabilities............... 11,747 12,000
---------- ----------
Total liabilities......................... 222,238 224,650
Stockholders' equity.......................... 18,511 17,675
---------- ----------
Total liabilities and stockholders'
equity.................................. $ 240,749 $ 242,325
---------- ----------
---------- ----------
Net interest income/interest rate spread(2)... $ 2,910 3.07% $ 4,266 4.38%
--------- --- --------- -----
--------- --- --------- -----
Net interest-earning assets(liabilities)/net
interest margin(3).......................... $ (7,494) 2.87% $ (8,028) 4.17%
---------- --- ---------- -----
---------- --- ---------- -----
Ratio of average interest-earning assets to
average interest-bearing liabilities........ .96x .96x
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Loans receivable include loans held for sale, Portfolio Loans receivable and
Discounted Loans receivable.
(2) Interest rate spread represents the difference between the average yield on
total interest-earning assets and the average cost of total interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
34
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Loans receivable(1)............................ $ 180,964 $ 17,321 9.57% $ 151,384 $ 15,057 9.95%
Securities available-for-sale.................. 9,670 581 6.01 9,470 596 6.29
Interest-earning deposits...................... 6,573 364 5.54 2,103 421 4.84
--------- --------- --------- ---------
Total interest-earning assets................ 197,207 18,266 9.26 162,957 16,074 9.86
Noninterest-earning assets....................... 39,260 32,927
--------- ---------
Total assets................................. $ 236,467 $ 195,884
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits....................................... $ 165,669 $ 8,580 5.18% $ 130,163 $ 6,433 4.94%
Custodial escrows.............................. 21 1 4.76 1,209 78 6.45
Borrowed money................................. 41,140 2,705 6.58 41,909 2,572 6.14
--------- --------- --------- ---------
Total interest-bearing liabilities........... 206,830 11,286 5.46 173,281 9,083 5.24
Noninterest-bearing liabilities.................. 11,827 10,340
--------- ---------
Total liabilities............................ 218,657 183,621
Stockholders' equity............................. 17,810 12,263
--------- ---------
Total liabilities and stockholders' equity... $ 236,467 $ 195,884
--------- ---------
--------- ---------
Net interest income/interest rate spread(2)...... $ 6,980 3.80% $ 6,991 4.62%
--------- --- --------- ---
--------- --- --------- ---
Net interest-earning assets(liabilities)/net
interest margin(3)............................. $ (9,623) 3.54% $ (10,324) 4.29%
--------- --- --------- ---
--------- --- --------- ---
Ratio of average interest-earning assets to
average interest-bearing liabilities........... .95x .94x
--------- ---------
--------- ---------
<CAPTION>
1995
-----------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST
--------- --------- -------------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable(1)............................ $ 139,194 $ 13,010 9.35%
Securities available-for-sale.................. 13,945 910 6.53
Interest-earning deposits...................... 1,459 67 4.59
--------- ---------
Total interest-earning assets................ 154,598 13,987 9.05
Noninterest-earning assets....................... 19,444
---------
Total assets................................. $ 174,042
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits....................................... $ 113,857 $ 5,610 4.93%
Custodial escrows.............................. 3,126 224 7.17
Borrowed money................................. 38,768 2,507 6.47
--------- ---------
Total interest-bearing liabilities........... 155,751 8,341 5.36
Noninterest-bearing liabilities.................. 8,103
---------
Total liabilities............................ 163,854
Stockholders' equity............................. 10,188
---------
Total liabilities and stockholders' equity... $ 174,042
---------
---------
Net interest income/interest rate spread(2)...... $ 5,646 3.69%
--------- ---
--------- ---
Net interest-earning assets(liabilities)/net
interest margin(3)............................. $ (1,153) 3.65%
--------- ---
--------- ---
Ratio of average interest-earning assets to
average interest-bearing liabilities........... .99x
---------
---------
</TABLE>
- ------------------------
(1) Loans receivable include loans held for sale, Portfolio Loans receivable and
Discounted Loans receivable.
(2) Interest rate spread represents the difference between the average yield on
total interest-earning assets and the average cost of total interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
35
<PAGE>
RATE VOLUME ANALYSIS
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume
(changes in volume multiplied by prior rate); (2) changes in rate (changes in
rate multiplied by prior volume); and (3) net changes in rate-volume. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED 1996
JUNE 30, 1998 COMPARED
COMPARED TO TO 1995
SIX MONTHS ENDED INCREASE
JUNE 30, 1997 1997 COMPARED TO 1996 (DECREASE)
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO DUE TO
--------------------------------- ------------------------------- ---------
VOLUME RATE NET VOLUME RATE NET VOLUME
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans receivable, net..................... $ (307) $ (1,297) $ (1,604) $ 2,934 $ (670) $ 2,264 $ 1,146
Securities-available-for-sale............. (64) (33) (97) 4 (19) (15) (290)
Interest-earning deposits................. 169 3 172 894 (951) (57) 30
----- --------- --------- --------- --------- --------- ---------
Total interest-earning assets........... $ (202) $ (1,327) $ (1,529) $ 3,832 $ (1,640) $ 2,192 $ 886
----- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
Deposits.................................. $ 482 $ (23) $ 459 $ 1,757 $ 390 $ 2,147 $ 799
Custodial escrows......................... (5) -- (5) (77) -- (77) (137)
Borrowed money............................ (705) 78 (627) (47) 180 133 203
----- --------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities...... $ (228) $ 55 $ (173) $ 1,633 $ 570 $ 2,203 $ 865
----- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- ---------
Net change in interest income............... $ 26 $ (1,382) $ (1,356) $ 2,199 $ (2,210) $ (11) $ 21
----- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- ---------
<CAPTION>
RATE NET
--------- ---------
<S> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net..................... $ 901 $ 2,047
Securities-available-for-sale............. (24) (314)
Interest-earning deposits................. 324 354
--------- ---------
Total interest-earning assets........... $ 1,201 $ 2,087
--------- ---------
--------- ---------
INTEREST-BEARING LIABILITIES:
Deposits.................................. $ 24 $ 823
Custodial escrows......................... (9) (146)
Borrowed money............................ (138) 65
--------- ---------
Total interest-bearing liabilities...... $ (123) $ 742
--------- ---------
--------- ---------
Net change in interest income............... $ 1,324 $ 1,345
--------- ---------
--------- ---------
</TABLE>
RESULTS OF OPERATIONS
GENERAL. The Company's results of operations are dependent primarily on net
interest income, representing the difference between the interest income earned
on its loans, mortgage-backed securities, investment securities and
interest-earning deposits, and its cost of funds, consisting of the interest
paid on its deposits, escrows, and borrowings, and the fees generated by ATMs,
and the Bank's investment in PMSRs. The Company's operating results are also
affected by the profit recognized on the sale of mortgage loans and equity
securities, customer service charges, data processing and other income. The
Company's operating expenses consist of employee compensation, occupancy
expenses, federal deposit insurance premiums, amortization of goodwill, and
other general and administrative expenses.
Results of operations are also significantly affected by general economic
and competitive conditions, particularly changes in market interest rates,
government policies, and actions of regulatory authorities.
DISCOUNTED LOANS RECEIVABLE. In recent years the Company has acquired,
through public sales and auctions, mortgage loans at a discount for which the
borrowers may not be current as to principal and interest payments. Acquired
loans are valued based upon an analysis of the underlying collateral of the
loans being purchased. The Company estimates the amounts it will realize through
foreclosure, collection efforts or other resolution of each loan and the length
of time required to complete the collection process in determining the amounts
it will bid to acquire such loans. Investment in these assets has generally
resulted in higher than market interest yields and gains as a result of the
ultimate sale of properties acquired through these purchases. Losses have also
been incurred from the sales of certain REO properties. The Bank also incurs
higher operating expenses associated with administering these loans.
Beginning in the fourth quarter of 1996, the Company began to focus its
resources on Conventional Loans receivable originated through MARGO and in mid
1997 began to reduce its portfolio of Discounted
36
<PAGE>
Loans receivable. Sales of Discounted Loans receivable totaled $6.9 million for
the six month period ended June 30, 1998, $20.7 million for the year ended
December 31, 1997, and $7.5 million for the year ended December 31, 1996. As a
result of the Company's business strategy, the balance of the Discounted Loans
receivable portfolio decreased from $47.7 million or 20.8% of total assets at
December 31, 1996, to $30.6 million or 12.9% of total assets at December 31,
1997, to $17.0 million or 6.5% of total assets at June 30, 1998. Gains on these
sales were $715,000 and $23,000 for the six month periods ended June 30, 1998
and 1997, and were $279,000 and $1.8 million for the years ended December 31,
1997 and 1996, respectively.
ON-LINE FINANCIAL SERVICES, INC. On October 31, 1995, the Company acquired
On-Line, an Oak Brook, Illinois based computer services bureau.
The original transaction value, including asset notes and contingent
payments (based on future defined net revenues of On-Line over a seven year
period ending October 2002), was not to exceed $10.0 million. During 1997, the
Company asserted claims that the selling shareholders of On-Line had breached
certain representations and warranties in the purchase contract. Following a
series of negotiations, the selling shareholders agreed to reduce the purchase
price by $1,098,000. As a result, at December 31, 1997, the amount paid or
payable, exclusive of the future contingent payments for On-Line, was $836,000
less than the fair value of the net assets acquired. Any future contingent
payments will reduce this difference. In December 1997, the Company purchased
from certain of the former shareholders their rights to 25.45% of the future
contingent payments. The Company paid $172,000 for these future contingent
payments. Additionally, a payment of $479,000 was made in April 1998, further
reducing the remaining contingent payments to former stockholders to an amount
not to exceed $3.5 million. Management anticipates funding any required future
payments with borrowed funds and excess funds generated from operations and, to
the extent necessary, earnings and assets of the Company.
On-Line is a third party provider of electronic data processing services,
primarily to financial institutions. On-Line currently provides data processing
services to thrifts, community banks, savings banks, and mortgage bankers
throughout the Midwest. In addition, On-Line provides data report retrieval
services to an insurance company with offices located throughout the United
States. Management believes that On-Line's orientation toward superior customer
service and specialized products allows it to effectively compete in these
markets. The acquisition by the Company has promoted the development and sale of
technological advances in the systems, programs, and services offered by
On-Line, which includes resale of software produced by ITI, integrated check and
document imaging systems, computer output laser disc storage technology and high
speed communication technology. These services are in addition to new offerings
by On-Line in the planning and deployment of wide area and local area network
systems, the sale of all related hardware and services, expanded technical and
communications support, consultation, and training.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997.
Total assets increased $23.5 million to $259.8 million at June 30, 1998,
from $236.3 million at December 31, 1997.
Cash and interest-earning deposits increased $9.9 million to $18.6 million
at June 30, 1998, primarily due to cash received from a sale of loans at the end
of June 1998.
Loans receivable and Discounted Loans receivable increased $16.5 million to
$200.9 million at June 30, 1998, due to the origination and purchase of $78.0
million of loans, and discount accretion of $302,000, partially offset by
principal repayments of $35.0 million, the sale of $24.9 million of loans
receivable and Discounted Loans receivable, and the transfer of $1.9 million of
loans and Discounted Loans receivable to REO.
Securities, which totaled $5.0 million at June 30, 1998 are carried at fair
value and include $2.3 million of mortgage-backed securities, $2.3 million of
marketable equity securities, and $379,000 of municipal securities.
37
<PAGE>
Deposits increased $29.0 million to $201.5 million at June 30, 1998, from
$172.5 million at December 31, 1997. The increase was attributed to an
aggressive marketing effort during the first six months of 1998, aimed at
attracting a larger customer base, and interest credited of $4.6 million for the
six months ended June 30, 1998. Brokered deposits at June 30, 1998, totaled
$16.5 million and had a weighted average maturity of one (1) year.
Borrowings decreased $5.8 million to $28.4 million at June 30, 1998, from
$34.2 million at December 31, 1997. The decrease in advances was due to the
increase in deposits during the six months ended June 30, 1998. At June 30,
1998, borrowings consisted of FHLB advances totaling $18.1 million, two lines of
credit totaling $6.6 million, capital lease obligations in the amount of $3.2
million and other borrowings of $387,000.
Custodial escrow balances for loans serviced decreased $509,000 to $5.9
million at June 30, 1998, from $6.4 million at December 31, 1997. This decrease
reflects normal fluctuations within these accounts. The custodial accounts
pertain to escrowed payments of taxes and insurance and the float on principal
and interest payments on loans serviced either for the Bank or on behalf of
others by an independent mortgage servicing operation. The custodial accounts
related to loans serviced by others are maintained at the Bank in both
interest-bearing and non-interest bearing accounts. The custodial accounts
associated with loans or PMSRs serviced for the Bank are maintained in
non-interest bearing accounts. At June 30, 1998, the entire escrow balance
pertains to loans subserviced on behalf of the Bank for Portfolio Loans,
servicing retained loans and PMSRs.
Stockholders' equity increased $621,000 to $18.7 million at June 30, 1998,
from $18.1 million at December 31, 1997. The increase was caused by the exercise
of stock options for $116,000, a $39,000 tax benefit related to the exercise of
the options and net income of $667,000, partially offset by dividends paid of
$168,000, and other comprehensive loss of $94,000.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
GENERAL. Net income for the six months-ended June 30, 1998, was $667,000 or
$0.32 per diluted share compared to net income of $624,000 or $0.31 per diluted
share for the six months ended June 30, 1997. The $0.01 increase in diluted
earnings per share during the six month period ending June 30, 1998, was due to
the $43,000 increase in net income during the period partially off-set by an
increase in weighted average common shares and equivalents of 15,007.
INTEREST INCOME. Interest income for the six months-ended June 30, 1998,
totaled $8.6 million, as compared to $10.1 million for the comparable 1997
period. The $1.5 million decrease was the result of a one hundred forty-two
(142) basis point decrease in the weighted average yield on interest earning
assets to 8.44% for the six months ended June 30, 1998. The decrease in yield
was primarily attributable to the decreased investment in Discounted Loans
receivable, which typically have higher yields. Loan sales of Discounted Loans
receivable amounted to $6.9 million for the period, while mortgage loan sales
were $17.9 million. Also contributing to the decrease in interest income for the
period was the $1.6 million decrease in average interest-earning assets.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1998,
totaled $5.7 million as compared to $5.8 million for the comparable 1997 period.
The $173,000 decrease was the result of a $2.2 million decrease in average
interest-bearing liabilities to $210.5 million for the six months ended June 30,
1998, and an eleven (11) basis point decrease in the weighted average costs of
interest-bearing liabilities to 5.37% for the six months ended June 30, 1998.
NET INTEREST INCOME. Net interest income totaled $2.9 million for the six
months ended June 30, 1998, reflecting a decrease of $1.4 million from the
amount recorded in the comparable 1997 period. The decrease in net interest
income for the six months ended June 30, 1998, resulted from a one hundred
thirty-one (131) basis point decrease in the effective net spread to 3.07% from
4.38% for the comparable
38
<PAGE>
1997 period. Also contributing to the decrease was the $1.6 million decrease in
average interest-earning assets which contributed to the one hundred thirty-one
(131) basis point decline in net interest margin. Partially offsetting this
decrease was the $2.2 million decrease in the average dollar amount of interest-
bearing liabilities.
PROVISION FOR LOAN LOSSES. A provision for loan losses of $235,000 was
recorded during the six month period ended June 30, 1998, as compared to $60,000
for the six months ended June 30, 1997. At June 30, 1998, the allowance for loan
losses amounted to $880,000 or 17.19% of total non-performing loans (excluding
Discounted Loans) and .48% of net loans (excluding Discounted Loans). In the
determination of the provision for loan losses and adequacy of the corresponding
allowance for loan losses, management considers changes in the asset quality,
charge-off experience, and economic conditions. Management currently believes
that its allowance for loan losses is adequate. However, additions to such
allowance may be necessary in future periods.
NON-INTEREST INCOME. Noninterest income increased $2.2 million for the six
month period ended June 30, 1998 from the amount recorded in the comparable 1997
period. The increase was primarily the result of a $984,000 increase in gains on
sale of loans receivable, Discounted Loans receivable, securities
available-for-sale, mortgage backed securities, and REO, for the six month
period ended June 30, 1998. Also data processing income increased $511,000 for
the six month period ended June 30, 1998. Lastly, other income also increased
$663,000. The increase in other income was primarily attributable to significant
increases in gains on sale of hardware and increases in other ancillary services
at On-Line. Partially offsetting these increases was a $447,000 decrease in
servicing income from the PMSRs for the six month period ended June 30, 1998, as
a result of a $392,000 valuation reserve being recorded on the Company's
investment in three limited partnerships which invest in PMSRs. At June 30,
1998, the Company had $5.7 million invested in such limited partnership
investments.
NONINTEREST EXPENSE. Noninterest expense increased $782,000 for the six
month period ended June 30, 1998. This increase was primarily due to increases
in occupancy and data processing costs of services. Occupancy expense increased
$356,000 for the six month period ended June 30, 1998, primarily due to facility
improvements and equipment upgrades at both the Bank and On-Line. Also
contributing to the increase was the opening of the Bank's permanent branch
location on the Westside of Chicago, Illinois during May 1997. The $775,000
increase in data processing cost of services was due to hardware and software
upgrades and increased hardware and software costs of $319,000 as a result of
the increased hardware and software sales activity at On-Line during the six
month period ended June 30, 1998. See "Business of On-Line Financial Services,
Inc." Partially offsetting these increases were decreases in compensation
expense and other general and administrative expenses during the six month
period. Compensation expense decreased $184,000 for the six month period. Other
general and administrative expenses reflected a decrease of $172,000 for the six
month period ended June 30, 1998. These decreases were due to Company-wide cost
reduction measures.
INCOME TAX EXPENSE. For the six month period ended June 30, 1998, the
Company recorded a net income tax benefit of $40,000. The provision for income
tax decreased $197,000 compared to the six month period ended June 30, 1997. The
decline in the provision was primarily due to the recognition of tax benefits
during the period.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets increased $7.0 million to $236.3 million at December 31, 1997
from $229.3 million at December 31, 1996. The increase in total assets was
funded primarily by an increase of $21.8 million in deposits, partially offset
by a $16.7 million decrease in borrowed money.
Loans receivable, which include loans held for sale and Discounted Loans
receivable, increased $10.9 million or 6.28% in 1997 to $184.4 million at
December 31, 1997. The increase in loans receivable for 1997
39
<PAGE>
was due to the origination of ARMs and the purchase of seasoned fixed-rate loans
secured by single-family residences. New originations and purchases contributed
$115.2 million in loans receivable and purchases contributed $8.9 million in
Discounted Loans receivable. These purchases and originations were primarily
funded by principal repayments of $49.1 million on loans receivable, Discounted
Loans receivable and mortgage-backed securities, proceeds from the sale of loans
receivable, Discounted Loans receivable and REO of $65.8 million and an increase
in deposits of $21.8 million, partially offset by a $16.7 million decrease in
borrowings. The 1996 originations and purchases, excluding Discounted Loan
purchases of $41.1 million, were $83.2 million primarily funded by a $27.1
million increase in deposits, a $12.7 million increase in borrowings, principal
repayments of $47.0 million and proceeds from the sale of loans receivable and
Discounted Loans receivable of $45.4 million.
Securities available-for-sale, which totaled $5.0 million at December 31,
1997, are carried at fair value and include $2.9 million of mortgage-backed
securities, $1.7 million of marketable equity securities, and $380,000 of
municipal securities. The balance of mortgage-backed securities decreased during
1997 by $2.0 million due to the sale of $1.2 million and principal repayments of
$855,000. Partially offsetting these decreases was a $1.4 million increase in
marketable equity securities.
Deposits increased $21.9 million to $172.5 at December 31, 1997, from $150.6
million at December 31, 1996. The increase is attributable to increased focus on
attracting retail core deposits.
Borrowings decreased $16.7 million to $34.2 million at December 31, 1997. At
December 31, 1997, borrowings consisted of FHLB advances totaling $23.8 million,
two lines of credit totaling $6.1 million, and capital lease obligations in the
amount of $3.8 million and other borrowings of $386,000. The decrease was
primarily due to the increase in deposits and decreased funding needs for the
purchase of seasoned loan packages.
Custodial escrow balances for loans serviced increased $618,000 to $6.4
million at December 31, 1997. The custodial accounts relate to escrowed payments
of taxes and insurance and the float on principal and interest payments on loans
serviced either for the Bank or on behalf of others by an independent mortgage
servicing operation. The custodial accounts related to loans serviced by others
are maintained at the Bank in interest-bearing accounts. The custodial accounts
associated with loans or PMSRs serviced for the Bank are maintained in
noninterest-bearing accounts. Due to the nature of custodial escrow deposits,
balances may fluctuate widely on a day-to-day basis.
Common shares outstanding increased 173,320 shares to 1,958,336 at December
31, 1997. The increase was due to the exercise of 129,988 stock options and the
issuance of 43,332 shares under the Stock Purchase Agreement with Deltec. The
shares were issued from authorized but unissued common stock.
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR
ENDED
DECEMBER 31, 1996
GENERAL. Net income for the year ended December 31, 1997 was $823,000 or
$.39 per diluted share, compared to net income of $1.3 million, or $.90 per
diluted share, in 1996. The $511,000 decrease in net income was attributable
primarily to an increase in noninterest expense.
INTEREST INCOME. Interest income increased $2.2 million or 13.6% to $18.3
million in 1997 from $16.1 million in 1996. The increase was primarily due to
the increase of $34.2 million in the average balance of interest-earning assets
to $197.2 million in 1997 from $163.0 million in 1996. Loans receivable
accounted for $29.6 million of the increase. Partially offsetting this increase
was a 60 basis point decrease in the weighted average yield on interest-earning
assets to 9.26% in 1997 from 9.86% in 1996.
INTEREST EXPENSE. Interest expense increased $2.2 million or 24.3% to $11.3
million in 1997 from $9.1 million in 1996, primarily as a result of a higher
average balance of interest-bearing liabilities. The average balance of
interest-bearing liabilities increased $33.5 million to $206.8 million from
$173.3 million in 1996. Deposits accounted for $35.5 million of the increase,
while other borrowings decreased $769,000. Also
40
<PAGE>
contributing to the increase in interest expense was a 22 basis point increase
in the weighted average cost of funds from 5.24% in 1996 to 5.46% in 1997.
NET INTEREST INCOME. Net interest income for the year remained relatively
unchanged from 1996 at $7.0 million. The net interest margin decreased from
4.29% in 1996 to 3.54% in 1997. The interest rate spread decreased to 3.80% in
1997 from 4.62% in 1996.
PROVISION FOR LOAN LOSSES. A provision for loan losses of $210,000 was
recorded during 1997, resulting in an allowance for loan losses of $814,000 or
.53% of total loans receivable, excluding Discounted Loans receivable, and
14.73% of total nonperforming loans, excluding Discounted Loans receivable, at
December 31, 1997. The loan loss provision in 1996 was $248,000 and the
allowance for loan losses at December 31, 1996 amounted to $665,000 or .53% of
total loans receivable, excluding Discounted Loans receivable. In the
determination of the provision for loan losses and adequacy of the corresponding
allowance for loan losses, management considers changes in the asset quality,
charge off experience and economic conditions.
NONINTEREST INCOME. Noninterest income increased $1.4 million to $15.6
million in 1997 from $14.2 million in 1996. The increase was primarily due to a
$931,000 increase in fees attributable to MARGO's operations; a $475,000
increase in gains on sale of securities; a $417,000 increase in data processing
income;, a $702,000 increase in other income primarily attributable to other
ancillary income at On-Line; and a $385,000 increase in gains on sale of REO.
Offsetting these increases was a $1.6 million decrease in gains on sale of
Discounted Loans receivable.
NONINTEREST EXPENSE. Noninterest expense increased $2.1 million to $21.4
million in 1997 from $19.3 million in 1996. This increase was primarily due to
increases in occupancy, professional fees, data processing cost of services, and
other expenses. Occupancy and computer equipment and software expense increased
$670,000 primarily due to significant leasehold improvements, hardware
purchases, and software upgrades at On-Line, as well as the opening of the
Bank's permanent branch location on the West Side of Chicago, Illinois. The
$473,000 increase in professional fees was caused by increases in legal and
accounting fees. Data processing cost of services increased $1.3 million
primarily due to significant increases in hardware and software cost of sales by
On-Line as a result of growth in the hardware and software sales division. Also
contributing to the increase in data processing cost of services were increases
in various third party data communication charges. See "Business of On-Line
Financial Services, Inc." The $129,000 increase in other expenses was partially
due to MARGO being fully operational in 1997 as well as increases at other
subsidiaries. Offsetting these increases in noninterest expenses was the
decrease in federal deposit insurance premiums as a result of the one time SAIF
assessment of $789,000 which was recognized during the year ended December 31,
1996.
INCOME TAX EXPENSE. The provision for income tax expense decreased $220,000
to $123,000 for the year ended December 31, 1997. The decrease was primarily due
to a decrease of pretax income of $731,000 and the utilization of approximately
$202,000 in available tax credits primarily attributable to the Company's
investment in low-income housing partnerships. The Company has low-income
housing tax credit carryforwards in the amount of $212,000 expiring in 2011 and
2012. In addition, the Company has net operating loss carryforwards of
approximately $267,000 expiring in 2004.
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR
ENDED
DECEMBER 31, 1995
GENERAL. Net income for the year ended December 31, 1996 was $1.3 million
or $.90 per diluted share, compared to net income of $1.7 million, or $1.24 per
diluted share, in 1995.
INTEREST INCOME. Interest income increased $2.1 million or 14.9% to $16.1
million in 1996 from $14.0 million in 1995. The increase was primarily due to
the increase of $8.4 million in the average balance of interest-earning assets
to $163.0 million in 1996 from $154.6 million in 1995, and an increase in the
41
<PAGE>
weighted average yield on interest-earning assets to 9.86% in 1996 from 9.05% in
1995. This increase in average yield was primarily due to the growth in the
higher yielding Discounted Loans receivable portfolio during 1996.
INTEREST EXPENSE. Interest expense increased $800,000 or 9.64% to $9.1
million in 1996 from $8.3 million in 1995, primarily as a result of a higher
average balance of interest bearing liabilities. The average balance of
interest-bearing liabilities increased $17.5 million to $173.3 million in 1996
from $155.8 million in 1995. Partially offsetting this increase was a 12 basis
point decrease in the weighted average cost of funds from 5.36% in 1995 to 5.24%
in 1996.
NET INTEREST INCOME. Net interest income totaled $7.0 million for the year
ended December 31, 1996, reflecting an increase of $1.4 million from the $5.6
million recorded in 1995. The net interest margin increased from 3.65% in 1995
to 4.29% in 1996. The interest rate spread increased to 4.62% in 1996 compared
to 3.69% in 1995, primarily as a result of the purchase of higher yielding
Discounted Loans.
PROVISION FOR LOAN LOSSES. A provision for loan losses of $248,000 was
recorded during 1996, bringing the allowance for loan losses to $665,000 or .53%
of total loans receivable, excluding Discounted Loans receivable, and 16.87% of
total nonperforming loans, excluding Discounted Loans receivable, at December
31, 1996. The loan loss provision in 1995 was $55,000 and the allowance for loan
losses at December 31, 1995 amounted to $587,000 or .45% of total loans
receivable, excluding Discounted Loans receivable. In the determination of the
provision for loan losses and adequacy of the corresponding allowance for loan
losses, management considers changes in the asset quality, charge off
experience, and economic conditions.
NONINTEREST INCOME. Noninterest income increased $9.7 million during 1996
to $14.2 million in 1996 from $4.5 million in 1995. The increase is primarily
due to On-Line, which generated $11.1 million in data processing revenue for the
year ended December 31, 1996 as compared to the $1.8 million generated for the
two months ending December 31, 1995. See "Business of On-Line Financial
Services, Inc." Also contributing to the increase in noninterest income was a
$781,000 increase in gains on sale of Discounted Loans receivable. This increase
was due to increased loan sale activity at Argo Mortgage. Offsetting these
increases was a $364,000 increase in losses realized on the sale of REO.
NONINTEREST EXPENSE. Noninterest expense increased $11.6 million to $19.3
million in 1996 from $7.7 million in 1995. This increase was primarily due to
the acquisition of On-Line in the fourth quarter of 1995. The full year of
operations of On-Line resulted in increases of $3.8 million in compensation and
benefits, $658,000 in occupancy and equipment expense, $1.4 million in data
processing servicing costs, $715,000 in other general and administrative costs,
$1.7 million in software and equipment expenses, and $154,000 in legal and
professional fees. Also contributing to the increase in noninterest expense in
1996 was the $804,000 increase in FDIC insurance premiums. This was primarily
the result of the special SAIF recapitalization assessment of $789,000 which was
paid on September 30, 1996.
INCOME TAX EXPENSE. The provision for income tax expense decreased $324,000
to $343,000 for the year ended December 31, 1996. The decrease was primarily due
to a decrease of pretax income of $731,000 and the utilization of approximately
$179,000 in available tax credits primarily attributable to the Company's
investment in low-income housing partnerships. The Company had low-income
housing tax credit carryforwards in the amount of $358,000 expiring in 2011 and
2012. In addition, the Company had net operating loss carryforwards available of
approximately $323,000 expiring in 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds include deposits, proceeds from principal and
interest payments on the loan and mortgage-backed securities portfolio,
custodial deposit accounts related to loans serviced for others, maturing
investments, borrowed money and loan sales. The most liquid assets are cash and
short-term investments. The levels of these assets are dependent on operating,
financing, and investing activities
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<PAGE>
during any given period. Cash and interest-earning deposits totaled $18.6
million at June 30, 1998. The Company has adequate alternative funding sources
if short-term liquidity needs arise.
The primary investment activity of the Company is the origination and
purchase of mortgage loans. During the six months ended June 30, 1998 and years
ended December 31, 1997 and 1996, the Company originated and purchased $77.7
million, $115.2 million and $83.2 million of loans receivable, respectively, and
$296,000, $8.9 million and $41.1 million of Discounted Loans receivable,
respectively. Purchases of securities totaled $5.4 million, $8.1 million and
$152,000 for the six months ended June 30, 1998 and years ended December 31,
1997 and 1996, respectively. These investing activities were primarily funded by
principal repayments on loans and mortgage-backed securities of $35.2 million,
$49.1 million, and $47.0 million, respectively, and an increase in deposits of
$29.0 million, $21.8 million and $27.1 million for the six months ended June 30,
1998 and the years ended December 31, 1997 and 1996, respectively. Also
providing funding was the $32.9 million, $74.5 million and $48.1 million in
total proceeds that resulted from the sale of loans receivable, Discounted Loans
receivable, securities and REO for the six months ended June 30, 1998 and the
years ended December 31, 1997 and 1996.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulation. At June 30, 1998 liquid assets represented 6.7% of its
liquidity base as compared to the required level of 4.0%. The level of liquidity
maintained is believed by management to be adequate to meet the requirements of
normal operations, potential deposit outflows, and current loan demand. Cash
flow projections are updated regularly to assure necessary liquidity.
Liquidity management for the Company is both a daily and long-term function
of the Company's management. The Company's management meets on a daily basis and
monitors interest rates, current and projected commitments to purchase loans and
the likelihood of funding such commitments, and projected cash flows. Excess
funds are generally invested in short-term investments.
At June 30, 1998 the Bank's capital exceeded all capital requirements of the
OTS. The Bank's tangible, core, and risk-based capital ratios were 5.68%, 5.68%,
and 11.05%, respectively. The Bank is considered "well capitalized" under OTS
prompt corrective action regulations.
At June 30, 1998 , the Bank had outstanding loan commitments and unused
lines of credit of $11.3 million and $3.5 million, respectively. The Bank also
had Community Reinvestment Act investment commitments outstanding of $2.9
million. The Bank anticipates that it will have sufficient funds available to
meet its current commitments.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the NPV of the estimated market
value of interest sensitive assets, liabilities, and off-balance sheet contracts
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
institution's assets. In calculating its total capital under the risk-based
capital rule, a savings institution whose measured interest rate risk exposure
exceeds 2.0% of the estimated market value of interest sensitive assets must
deduct an amount equal to one-half of the difference between the institution's
measured interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300.0 million and risk-based capital
ratios in excess of 12.0% is not subject to the interest rate risk component,
unless the OTS determines otherwise. For the present time, the OTS has deferred
implementation of the interest rate risk component. At June 30, 1998, the Bank
met each of its capital requirements, and it is anticipated that the Bank will
not be subject to the interest rate risk component.
43
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and operating
results in terms of historical dollar amounts without considering the changes in
the relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Management of
Interest Rate Risk."
YEAR 2000
Many existing computer programs use only two digits to identify a year in a
date field. These programs were designed and developed without considering the
impact of a change in century. If not corrected, many computer programs could
fail, or create erroneous results that could affect a company's ability to do
business prior to, at, or after December 31, 1999.
Financial service organizations such as the Bank are heavily reliant upon
computer systems in processing and accounting for services provided to
customers. Substantially all of the Company's major computer processing is
contracted with third party providers. Although the contracted vendors bear the
responsibility of making their systems "Year 2000 Ready," assuming the costs
associated with necessary changes, keeping the Company apprised of their
progress in meeting established benchmarks, and certifying to the Company that
the systems are in fact "Year 2000 Ready," the Company bears ultimate
responsibility for testing, due diligence and assurance that its major vendors
will continue to provide service without interruption due to the change in
century at year-end 1999.
In 1996, the Company and the Bank established an internal Technology
Committee to identify and/or resolve issues related to the Year 2000 date
change. The Technology Committee has inventoried all of the systems used by the
Company and the Bank, and has identified those that are deemed "critical" to its
business. As a part of its responsibilities, the Committee maintains regular
communications with vendors providing critical systems to the Company and the
Bank to verify that 1) testing is performed regularly, and 2) necessary changes
are being identified and addressed. The Bank management estimates that its Year
2000 Readiness expenses will total approximately $100,000.
On-Line has initiated a company-wide business planning initiative to prepare
On-Line's multiple platform environment for the Year 2000, which includes due
diligence efforts, certain program remediation, and testing of all
date-sensitive hardware and operating systems, financial application system
product offerings, and other ancillary interface applications and systems.
On-Line has established four primary Year 2000 Committees: 1) a Thrift System
Committee to oversee, convert, implement and test Year 2000 renovation efforts
for the Thrift (COMMAND) proprietary application system product; 2) a Third
Party Software Committee to oversee due diligence efforts and test primarily the
BANKFORCE-Registered Trademark- application system product for Year 2000
Readiness, which is a third party system that On-Line licenses from ITI on
behalf of its clients; 3) a Network Communications Committee to test existing
hardware and software residing or running on On-Line's local and/or wide area
network; and 4) a Business Operations Committee to perform due diligence and
testing procedures on primary operational vendors such as telecommunication
carriers, disaster recovery providers, certain maintenance vendors, and other
software used for administrative functions.
On-Line expects to incur primarily internal staffing and consulting services
expenses related to internal Year 2000 efforts, as well as costs for software
tools and a dedicated testing platform. Such costs for testing and conversion of
On-Line's infrastructure and applications within its processing environment
44
<PAGE>
are estimated at $600,000 to $800,000 over the next three years. On-Line
estimates approximately $450,000 to $600,000 will be related to salaries and
benefits for additional personnel and Year 2000 incentive plans. The remaining
$150,000 to $200,000 is estimated for indirect costs related to depreciation and
amortization expense on equipment and software. Through June 30, 1998, On-Line
has incurred approximately $100,000 in direct costs and $7,000 in indirect costs
related to Year 2000 efforts. In addition to the direct and indirect costs
necessary for On-Line to meet its contractual and regulatory requirements for
its existing and future clients to ensure "Year 2000 Readiness", On-Line will
also incur certain costs related to optional subscription services for its
clients to perform their own Year 2000 testing both at On-Line's facility and
from their institution locations. Costs associated with these optional services
are expected to be offset by revenues earned from providing these testing
services.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from net worth and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes are required. The Company
adopted SFAS No. 130 on January 1, 1998. The adoption of SFAS No. 130 did not
have an effect on the Consolidated Financial Statements of the Company.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosure for each segment that are similar to those required under current
standards with the addition of quarterly disclosure requirements and a finer
partitioning of geographic disclosures. It requires limited segment data on a
quarterly basis. It also requires geographic data by country, as opposed to
broader geographic regions as permitted under current standards. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. Management of the Company does not expect that the
adoption of SFAS No. 131 will have a material effect on the Consolidated
Financial Statements of the Company.
The FASB has issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post-Retirement Benefits," which is effective for fiscal years beginning
after December 15, 1997. This statement revises employers' disclosures about
pension and other post-retirement benefit plans. It does not change the
measurement of recognition of those plans. It standardizes the disclosure
requirements for pensions and other post-retirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful. The
Company adopted SFAS No. 132 on January 1, 1998. The adoption did not have an
effect on the Consolidated Financial Statements of the Company.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by FASB in June 1998. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments at fair value. The accounting for changes in the fair
value (i.e., gains or losses) of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging relationship and, if so,
on the reason for holding it. If certain conditions are met, entities may elect
to designate a derivative instrument as a hedge of exposures to changes in fair
values, cash flows, or foreign currencies. If the hedged exposure is a fair
value exposure, the gain or loss on the derivative instrument is
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<PAGE>
recognized in earnings in the period of change together with the offsetting loss
or gain on the hedged item attributable to the risk being hedged. If the hedged
exposure is a cash flow exposure, the effective portion of the gain or loss on
the derivative instruments is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. The Company anticipates
that the adoption of SFAS No. 133 will not have a material impact on the
Company's financial statements.
BUSINESS OF THE COMPANY
DEVELOPMENT OF THE COMPANY
The Company was incorporated in August 1987, for the purpose of acquiring
the Bank. On May 26, 1992, the Company acquired a neighboring savings and loan
association ("Dolton Riverdale") pursuant to a public supervisory merger
conversion (the "Merger-Conversion"). The transaction was accounted for under
the pooling of interests method of accounting. No goodwill or other intangible
assets were recorded as a result of the transaction. As part of the Merger
Conversion, the Company sold an additional 299,000 shares of Common Stock and
received net proceeds of $861,000. From December 31, 1987 to June 30, 1998, the
Bank's assets have increased from $25.6 million to $244.4 million.
On October 31, 1995, the Company acquired On-Line, an Oak Brook, Illinois
based computer services bureau which, at the time of the acquisition, served
only bank, thrift and mortgage banking clients throughout the Midwest. The
original transaction value, including asset notes and contingent payments (based
on future defined net revenues of On-Line over a seven year period ending
October 2002), was not to exceed $10.0 million. During 1997, the Company
asserted claims that the selling shareholders of On-Line had breached certain
representations and warranties in the purchase contract. Following a series of
negotiations, the selling shareholders agreed to reduce the purchase price by
$1.1 million. As a result, at December 31, 1997, the amount paid or payable,
exclusive of the future contingent payments for On-Line was $836,000 less than
the fair value of the net assets acquired. Any future contingent payments will
reduce this difference. In December 1997, the Company purchased from certain of
the former shareholders their rights to 25.45% of the future contingent
payments. The Company paid $172,000 for these future contingent payment rights.
Additionally, a payment of $479,000 was made in April 1998, further reducing the
remaining contingent payment to former stockholders to an amount not to exceed
$3.5 million. Management anticipates funding any required future payments with
borrowed funds and excess funds generated from operations and, to the extent
necessary, earnings and assets of the Company.
On December 31, 1996, the Company entered into the Stock Purchase Agreement
with Deltec. Under the terms of the Stock Purchase Agreement, the Company agreed
to issue and sell 446,256 shares of the Company's Common Stock to Deltec at a
purchase price of $9.50 per share. Total proceeds from this transaction were
approximately $4.2 million, and the net proceeds of the transaction were $4.0
million following payment of a 5% investment advisory fee. The Stock Purchase
Agreement also provides that Deltec may acquire additional shares of Common
Stock from the Company when the Company issues or sells additional shares to
third parties in order that Deltec can maintain a 25% ownership in the Company's
Common Stock.
Unlike many savings and loan holding companies, the Company is an active
holding company with only a portion of its future anticipated operating income
dependent upon the earnings of the Bank. As an operating company, the Company
has assets, liabilities and income that are unrelated to the operations of the
Bank. Among the assets of the Company is a 98.4% investment in Empire, which
engages in the purchase and disposition of Discounted Loans. See "Business of
Empire/Argo Mortgage, LLC." The Company's assets at June 30, 1998, on an
unconsolidated basis include its investment in the Bank of $14.6 million, its
investment in On-Line of $5.7 million, and its investment in the majority owned
Empire
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of $1.1 million. The Company also had outstanding borrowings on an
unconsolidated basis in the amount of $6.4 million at June 30, 1998, incurred in
connection with capital infusions to its subsidiaries.
At June 30, 1998, on a consolidated basis, the Company had assets totaling
$259.8 million, liabilities totaling $241.0 million and total stockholders'
equity of $18.7 million. The Company is a unitary savings and loan holding
company and is registered as such with the OTS. The Company is a FHA approved
originator and servicer, a licensed Illinois mortgage broker and an approved
FannieMae servicer. The principal executive offices of the Company are located
at 7600 West 63rd Street, Summit, Illinois and its telephone number is (708)
496-6010.
[LOGO]
- ------------------------
* Denotes inactive subsidiary.
COMPANY PERSONNEL
As of June 30, 1998, the Bank including its subsidiaries, had sixty-one (61)
full-time employees (including twelve (12) MARGO full-time employees
consolidated into the Bank's payroll) and fifteen (15) part-time employees.
On-Line had eighty-nine (89) full-time employees. The Company's employees are
not represented by a collective bargaining agreement. The Company believes its
relationship with its employees is good.
COMPANY PROPERTIES
The executive offices of the Company and the home office of the Bank are
located at 7600 West 63rd Street, Summit, Illinois 60501. On-Line's offices are
located at 900 Commerce Drive, Oak Brook, Illinois 60523.
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The following table sets forth the location of and certain additional
information regarding the offices of the Company and its subsidiaries at June
30, 1998.
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
ORIGINAL LEASEHOLD
YEAR IMPROVEMENTS AT
LEASED LEASED DATE OF JUNE 30, 1998
OR OR LEASE (DOLLARS IN
LOCATION OWNED ACQUIRED EXPIRATION THOUSANDS)
- ----------------------------- --------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C>
14076 Lincoln Avenue Owned 1992 -- $ 451
Dolton, IL 60419
7600 W. 63 Street Owned 1987 -- 882
Summit, IL 60501
8267 S. Roberts Road Owned 1987 -- 360
Bridgeview, IL 60455
2154 W. Madison Street Owned 1994 -- 914
Chicago, IL 60612
5818 S. Archer Owned 1988 -- 441
Summit, IL 60501
6121 Washington Street Leased 1995 Sept. 1999 48
Gurnee, IL 60031(1)
7604-06 W. 63rd Street Leased 1992 Mar. 2002 154
Summit, IL 60501
900 Commerce Drive Leased 1988 Oct. 2006 1,027
Oakbrook, IL 60523
------
$ 4,277
------
------
</TABLE>
- ------------------------
(1) On July 16, 1998 the sale of the Gurnee branch was completed. On September
1, 1998, the Bank opened a new branch at Dearborn Station. See "Recent
Developments."
COMPANY LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
legal proceedings occurring in the ordinary course of business. Management
believes that none of these legal proceedings, individually or in the aggregate,
will have a material adverse impact on the results of operations or financial
condition of the Company.
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BUSINESS OF THE BANK
BACKGROUND OF THE BANK
The Bank was originally chartered in 1908 as a mutual savings and loan
association in the State of Illinois. The Bank converted to a federal stock
charter in 1982 and was determined to be insolvent by the Federal Savings and
Loan Insurance Corporation ("FSLIC") in 1987. The Company acquired the Bank on
November 17, 1987. The Bank is a member of the FHLB System and its deposits are
insured by the FDIC under the SAIF. As of June 30, 1998, the Bank had five
branch offices, located in Cook and Lake County, Illinois. The home office of
the Bank is located at 7600 West 63rd Street, Summit, Illinois, and its
telephone number is (708) 496-6010.
On May 29, 1996, the Bank incorporated a majority-owned subsidiary, MARGO.
MARGO is an Illinois chartered limited liability corporation whose members are
the Bank and Nip'n Tuck, Inc., an Illinois corporation. MARGO's primary
objectives are to increase loan origination volume and to serve as a wholesale
mortgage banking operation using a network of brokers, Correspondents and
conduits. The Bank has a 50.1% interest in MARGO.
The Bank's primary business is the solicitation of savings deposits from the
general public and the purchase or origination of both Conventional and
Portfolio Loans secured by one- to four-family residential real estate. Through
its majority-owned subsidiary, MARGO, and its wholly-owned subsidiary, Argo
Mortgage, the Bank has engaged in mortgage banking activities that focus on the
origination, purchase and sale of mortgage loans in the secondary market. The
Bank, through MARGO, also offers, to a much lesser extent, Expanded Criteria
Loans. These one-to four-family loans are generally not Agency Qualified, due to
the borrower's credit profile, and are not as readily saleable in the secondary
market as Conventional Loans. The Expanded Criteria Loans also include home
equity lines of credit. See "Risk Factors--Risks Associated with Portfolio and
Expanded Criteria Lending." The Bank generates income by the sale of mortgage
loans generally on a "servicing released" basis, into the secondary market and
through investment in partnerships in PMSRs. More recently, the Bank also
generates fee income from an expanding network of ATMs in the Chicago area and
service fees.
Through Argo Mortgage, the Bank also has acquired Discounted Loans for which
the borrowers may not be current as to principal and interest payments. In
determining the amount it will bid to acquire such loans at public sales and
auctions, the Bank estimates the amounts it will realize through foreclosure,
collection efforts, or other resolution of each loan and the length of time
required to complete the collection process. Investment in these assets has
often resulted in higher yields and gains. However, the Bank has also incurred
losses on certain properties which have become real estate owned. See "Business
of Empire/Argo Mortgage LLC" for discussion of Discounted Loans purchased by
Empire.
The Bank continues to expand its operations to include additional ATMs, and
real estate secured consumer lending. The Bank also plans to expand, on a
limited basis, its commercial real estate lending and commercial checking. The
Bank also invests funds in securities approved for investment by federal
regulations, including obligations of the United States Government and its
agencies.
Beginning in the fourth quarter of 1996, the Bank began to focus its
resources on Conventional Loans receivable originated through its majority owned
subsidiary MARGO and began to reduce its position in Discounted Loans
receivable. As a result of the Bank's business strategy, the balance of the
Discounted Loans receivable portfolio decreased from $47.7 million or 20.8% of
total assets at December 31, 1996, to $30.6 million or 12.9% of total assets at
December 31, 1997, to $17.0 million or 6.5% of total assets at June 30, 1998.
GENERAL
The discussion that follows relates primarily to the business of the Bank, a
federally-chartered depository institution. The primary lending activities of
the Company are undertaken by the Bank,
49
<PAGE>
accordingly, the discussion under the caption "Lending Activities" materially
relates only to the Bank. The Company does, however, have certain investments in
loans on an unconsolidated basis at the holding company level, as well as
certain borrowings unrelated to the activities of the Bank. Accordingly, there
are certain references to the Company's separate activities in this section. See
also "Business of Empire/Argo LLC" for a discussion of Discounted Loans
purchased by Empire.
BUSINESS STRATEGY OF THE BANK
The overall strategy of the Bank is to increase stockholder value by
acquiring low cost liabilities, generating traditional and electronic fee
income, investing in assets providing consistent returns and reducing
non-performing assets. Specifically, the Bank intends to focus on traditional
banking activities and move the non-traditional functions, such as Discounted
Loan activities, to the Company level. Management expects to meet its goals by:
GROWING THE BANK IN THE LOCAL MARKET. From December 31, 1987 to June 30,
1998, the Bank has grown in asset size from $25.6 million to $244.4 million.
This growth has been achieved through (1) an increase in loan purchases and
originations funded through an increase in deposits, (2) the acquisition of
Dolton Riverdale, (3) the opening of new branches and (4) a marketing strategy
aimed at niche markets, including senior citizens and affordable housing
opportunities. Management intends to prudently expand the operations of the Bank
by strategically opening efficient branches within its Primary Market Area which
become available due to consolidation in the financial institution industry,
while streamlining its existing branch network as necessary.
EXPANDING OF ONE- TO FOUR-FAMILY LENDING. The Bank will continue to expand
the origination of one-to four-family loans through MARGO primarily on a
wholesale basis through its network of Correspondents. To a lesser extent, the
Bank also plans to expand its origination of one-to four-family loans on a
retail basis, through its branch network. In particular, the Bank intends to
increase ARM product lending which is retained for portfolio through geographic
expansion of its network of Correspondents and increased penetration in existing
markets. Implementation of new electronic access and delivery systems and
technology upgrades to MARGO's underwriting system will support this expansion
effort. Additionally, the Bank intends to initiate a warehouse lending program
whereby the Bank would extend funding to qualified mortgage brokers and bankers
for the origination of single-family mortgage loans to be held by the Bank for
resale in the secondary market. Such loans would not be originated, however,
until such time as the Bank and the mortgage broker had received a firm
commitment for the purchase of such loan in the secondary market. There can be
no assurances as to when or if the Bank will begin such warehouse lending
activities.
CONTINUING STRATEGIC PURCHASES AND SALES OF LOANS. The Bank will continue
to actively seek to purchase loans which the Bank believes to be undervalued
relative to the market and which the Bank believes can be later resold at a
profit.
MAINTAINING COMMUNITY ORIENTATION. Management is seeking to maintain the
value of the Bank's existing franchises in its Primary Market Area, which is
based in large part upon its long-standing reputation for a high level of
customer service in the delivery of traditional thrift products and services and
active community involvement. Management intends to maintain the Bank's
community orientation by continuing to emphasize traditional deposit products
and loan products consisting of primarily one- to four-family residential
mortgages. The Bank has been and intends to continue to be actively engaged in
community lending and development activities such as affordable housing. See
"Business of the Bank-- Lending Activities--General."
NON-PERFORMING ASSETS. The Bank intends to reduce non-performing assets by
continuing to decrease its emphasis on the purchase of Discounted Loans, and
reducing its REO. In May 1998, the Bank hired a full time asset manager with 16
years of experience. Prior to such time, most of the Bank's asset
50
<PAGE>
management function was outsourced. Additionally, the Bank has been and intends
to take additional steps to work out its existing non-performing loans by
bringing such loans current or foreclosing on such loans and selling the
underlying properties.
INCREASING FEE INCOME. Management plans to increase fee income through the
expansion of its ATM network both in its Primary Market Area and outside its
Primary Market Area. At June 30, 1998, the Bank has 21 ATMs strategically
located in such high traffic urban areas as retail food stores, gas stations,
hotels and other high volume areas. A number of these ATMs are located in low
income neighborhoods where there is little competition. Management is in the
process of installing several additional ATMs and plans to expand its ATM cash
withdrawal network throughout the Chicago area and, in the near future, to
additional states. Fee income from ATMs for the six months ended June 30, 1998,
totaled $171,000 compared to $102,000 for the six months ended June 30, 1997.
INCREASE IN CORE DEPOSIT BASE. The Bank has developed certain marketing
relationships in an effort to increase its core deposit base. For instance, the
Bank holds exclusive rights to use the Chicago Bull's logo on ATM cards and
offers such a card to its customers in connection with the opening of a new
savings or checking account. The Bank has also created a GOLDTIMER'S CLUB with
specific marketing efforts aimed at senior citizens. The Bank maintains and
services this customer base through seminars, travel events and special events
such as polka parties. The Bank plans to further develop and implement such
sector driven programs.
MARKET AREA
The Bank considers its Primary Market Area to be the greater Chicago
metropolitan area. The Bank maintains its headquarters and a branch in Summit,
Illinois. It also has branch offices in Bridgeview, the West Side of Chicago and
Dolton, Illinois. See "Recent Developments." The areas surrounding Summit,
Bridgeview, and Dolton are urban and are comprised of high density residential
neighborhoods interspersed with mixed-use and heavily industrialized areas. This
area is fully developed with a relatively large number of generally older homes.
Median household income levels are average, and a large portion of household
earnings are derived from traditional "blue collar" local manufacturing
facilities. All branch locations have excellent access to major transportation
routes, including Interstates 290, 294, 94 and 55, as well as public
transportation, both rail and bus.
In recent periods, the Bank, has expanded the origination of loans outside
of its Primary Market Area through its network of MARGO Correspondents. As of
June 30, 1998, the Bank was originating loans in numerous states, with a primary
focus in Illinois. See "--Lending Activities--Loan Originations and Purchases."
LENDING ACTIVITIES
GENERAL. The Company's net loans receivable, which includes loans held for
sale, Portfolio Loans receivable and Discounted Loans receivable, totaled $200.9
million, excluding accrued interest, at June 30, 1998, representing 77.3% of the
Company's total assets. On that date, $191.7 million of total loans outstanding
or 92.8% of the Bank's total gross loan portfolio, consisted of loans secured by
first mortgages on one-to four-family residential properties, $3.1 million, or
1.52%, consisted of loans secured by multi-family properties, and $1.4 million,
or .68%, consisted of loans that are secured by commercial buildings primarily
in suburban Cook and Lake County. In addition, at June 30, 1998, $10.4 million,
or 5.04% of the Bank's loan portfolio consisted of other loans, primarily
comprised of home equity and construction loans.
The Bank has focused its lending activities on the generation of gains from
the sale of loans, as well as increasing the interest-rate sensitivity of its
loan portfolio. The Bank originates long-term, fixed-rate mortgage loans with 15
and 30 year maturities generally for immediate sale in the secondary mortgage
market. Such loans are originated, in most instances, through its mortgage
brokerage subsidiary, MARGO,
51
<PAGE>
through the Bank's branch network and through MARGO's national network of
Correspondents. Historically, the Bank's lending activity has also included the
origination and purchase of ARMs. The majority of the growth in the Bank's loan
balances in the current year is due to the purchase and origination of
adjustable-rate loans and seasoned fixed-rate loans secured by single-family
residences located throughout the country. The Bank's policy of purchasing ARM
loans and seasoned higher yielding fixed-rate loans is intended to increase the
interest rate sensitivity of its assets without decreasing the yield on its
interest-earning assets. The Company originated and purchased approximately
$77.7 million of loans for portfolio and purchased $296,000 of Discounted Loans
receivable during the first six months of 1998.
ANALYSIS OF LOAN PORTFOLIO. The following table sets forth the composition
of the Company's loan portfolio, including loans held for sale, in dollar
amounts and in percentages of the respective portfolios at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
-------------------- ---------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------- -------------------- -------------------- -------------------- ---------
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage Loans:
One- to four-family......... $ 191,684 92.76% $ 177,521 92.20% $ 177,345 92.50% $ 143,931 93.47% $ 112,393
Multi-family................ 3,139 1.52 1,252 .65 1,468 .77 1,180 .77 1,177
Commercial.................. 1,412 .68 1,951 1.01 4,523 2.36 2,379 1.55 1,684
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total mortgage loans.... 196,235 94.96 180,724 93.86 183,336 95.63 147,490 95.89 115,254
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Other loans:
Automobile.................. -- -- 4 -- 4 -- 5 -- 28
Mobile home................. 198 .10 208 .11 248 .13 379 .25 472
Other (1)................... 10,215 4.94 11,597 6.03 8,142 4.24 5,941 3.86 4,364
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total other loans....... 10,413 5.04 11,809 6.14 8,394 4.37 6,325 4.11 4,864
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total loans
receivable(2)......... 206,648 100.00% 192,533 100.00% 191,730 100.00% 153,815 100.00% 120,118
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- ---------
Less:
Unearned discounts, premiums
and deferred loans, net... 4,889 7,361 17,636 10,848 1,442
Allowance for loan losses... 880 814 665 587 613
--------- --------- --------- --------- ---------
Loans receivable, net....... $ 200,879 $ 184,358 $ 173,429 $ 142,380 $ 118,063
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
1993
----------------------
% OF % OF
TOTAL AMOUNT TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
Mortgage Loans:
One- to four-family......... 93.57% $ 80,059 86.92%
Multi-family................ .98 1,799 1.95
Commercial.................. 1.40 1,454 1.59
--------- ----------- ---------
Total mortgage loans.... 95.95 $ 83,312 90.46
--------- ----------- ---------
Other loans:
Automobile.................. .02 102 .11
Mobile home................. .39 636 .69
Other (1)................... 3.64 8,052 8.74
--------- ----------- ---------
Total other loans....... 4.05 8,790 9.54
--------- ----------- ---------
Total loans
receivable(2)......... 100.00% 92,102 100.00%
--------- ----------- ---------
--------- ---------
Less:
Unearned discounts, premiums
and deferred loans, net... 1,350
Allowance for loan losses... 613
-----------
Loans receivable, net....... $ 90,139
-----------
-----------
</TABLE>
- ------------------------
(1) Consists primarily of $5.7 million of home equity loans secured by one-to
four-family properties, and $3.6 million of construction loans at June 30,
1998.
(2) Includes loans receivable and Discounted Loans receivable.
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<PAGE>
LOAN ORIGINATIONS, PURCHASES AND SALES. Set forth below is a table showing
the Company's loan originations, purchases and sales for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Loans originated:
One- to four-family (1).............................. $ 31,724 $ 29,939 $ 56,318 $ 12,904 $ 10,292
Multi-family and commercial.......................... -- 333 333 1,895 890
--------- --------- ---------- ---------- ----------
Total mortgage loans originated.................. 31,724 30,272 56,651 14,799 11,182
Other loans 7,645 8,892 18,137 20,914 15,504
--------- --------- ---------- ---------- ----------
Total loans originated........................... 39,369 39,164 74,788 35,713 26,686
Loans purchased:
Mortgage loans....................................... 38,217 19,770 39,521 58,722 75,371
Discounted loans..................................... 296 8,731 8,858 41,061 19,904
Other loans.......................................... 628 -- -- -- --
--------- --------- ---------- ---------- ----------
Total loans purchased............................ 39,141 28,501 48,379 99,783 95,275
--------- --------- ---------- ---------- ----------
Total loans originated and purchased............. $ 78,510 $ 67,665 $ 123,167 $ 135,496 $ 121,961
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Loans Sold:
Mortgage loans receivable (2)........................ $ 17,530 $ 26,945 $ 48,466 $ 39,550 $ 45,084
Discounted loans..................................... 8,639 21,310 20,711 7,515 5,432
Other loans.......................................... 1,067 -- -- -- --
--------- --------- ---------- ---------- ----------
Total loans sold................................. $ 27,236 $ 48,255 $ 69,177 $ 47,065 $ 50,516
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
- ------------------------
(1) Originations and sales exclude $38.0 million for the six months ended June
30, 1998 and $38.0 million and $3.5 million for the years ended December 31,
1997 and 1996, respectively of loans originated and immediately sold
directly to third party investors.
(2) Gains related to these sales were $715,000 and $23,000 for the six month
periods ended June 30, 1998 and 1997 and were $279,000, $1,843,000 and
$1,062,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
LOAN MATURITY AND REPRICING. The following table shows the maturity or
period to repricing of the Company's loan portfolio at June 30, 1998. Loans that
have adjustable rates are shown as being due in the period during which the
interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on mortgage loans
53
<PAGE>
totaled $35.0 million, $48.2 million, $46.2 million, and $35.9 million for the
six months ended June 30, 1998 and the years ended December 31, 1997, 1996, and
1995, respectively.
<TABLE>
<CAPTION>
LOANS
---------------------------------------------------------------
ONE- TO COMMERCIAL
FOUR- FAMILY MULTI-FAMILY REAL ESTATE OTHER(1) TOTAL
------------ ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Amounts Due:
Within one year................................ $ 66,770 $ 1,716 $ 184 $ 9,683 $ 78,353
------------ ------ ----------- --------- ----------
After one year:
One to three years........................... 10,580 524 660 180 11,944
Three to five years.......................... 1,824 898 568 53 3,343
Five to 10 years............................. 15,605 -- -- 228 15,833
10 to 20 years............................... 10,911 -- -- 265 11,176
Over 20 years................................ 85,999 -- -- -- 85,999
------------ ------ ----------- --------- ----------
Total due after one year......................... 124,919 1,422 1,228 726 128,295
------------ ------ ----------- --------- ----------
Total amounts due................................ 191,689 3,138 1,412 10,409 206,648
Less:
Unearned discounts, premiums and deferred loans
fees, net.................................... 4,926 -- -- (37) 4,889
Allowance for loan losses.................... 646 14 216 4 880
------------ ------ ----------- --------- ----------
Loans receivable, net........................ $ 186,117 $ 3,124 $ 1,196 $ 10,442 $ 200,879
------------ ------ ----------- --------- ----------
------------ ------ ----------- --------- ----------
</TABLE>
- ------------------------
(1) Consists primarily of home equity loans secured by one-to four-family
properties in the amount of $5.7 million and $3.6 million of construction
loans.
The following table sets forth at June 30, 1998, the dollar amount of all
loans due after June 30, 1999, and whether such loans have fixed or adjustable
interest rates.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-----------------------------------
FIXED ADJUSTABLE
RATES RATES TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Due after June 30, 1999:
Mortgage Loans:
One- to four-family...................................................... $ 113,051 $ 11,868 $ 124,919
Multi-family............................................................. 1,422 -- 1,422
Commercial............................................................... 1,228 -- 1,228
Other loans.............................................................. 726 -- 726
---------- ----------- ----------
Total loans receivable....................................................... $ 116,427 $ 11,868 $ 128,295
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
LOAN ORIGINATIONS AND PURCHASES. The Bank's principal business is
attracting deposits from the general public and originating or purchasing loans
primarily secured by one- to four-family residential real estate. To a much
lesser extent, the Bank also originates multi-family and commercial real estate
mortgage loans, home equity loans, construction loans, deposit account loans and
other consumer loans. Historically, the Bank's lending portfolio consisted of
those loans in existence in 1992 when the Company acquired Dolton Riverdale,
which primarily consisted of one- to four-family residential mortgage loans.
Since 1992, the Bank has acquired portfolios of loans consisting primarily of
performing seasoned one- to four-family residential mortgage loans. From time to
time and in limited amounts, the Bank has purchased, through Argo Mortgage and
through Empire, Discounted Loans. Discounted Loans are purchased by the Bank
54
<PAGE>
with a view toward bringing such loans current for the Bank's portfolio, for
resale in the secondary market or foreclosure and liquidation. Primarily as a
result of its Discounted Loan activities, the Bank's level of non-performing
loans to total loans has been historically higher than that of its peers.
In order to expand its level of loan originations and purchases, in 1996 the
Bank established MARGO as a majority-owned subsidiary. Since August 1996, the
Bank has engaged in both wholesale and retail lending activities primarily
through MARGO. MARGO focuses on the origination, purchase, and sale of mortgage
loans generally on a "servicing released" basis into the secondary market.
Through MARGO, the Bank has originated loans through Correspondents located in
various states throughout the country. ARM loans originated by MARGO are
generally retained by the Bank for its portfolio, while fixed-rate loans
originated by MARGO are generally not retained in the Bank's portfolio but are
immediately sold in the secondary market. From time to time, the Bank will
selectively sell ARM loans.
Through its network of Correspondents, the Bank is able to originate one- to
four-family residential mortgage loans throughout the United States. Since
August 1996, 100% of the loans originated by the Bank have been through MARGO
Correspondents.
The Bank continues to purchase performing seasoned one- to four-family
mortgage loans. For the six month period ended June 30, 1998, $38.2 million of
such loans were purchased by the Bank. In addition, Argo Mortgage purchases
Discounted Loans for which the borrowers may not be current as to principal and
interest payments. For the six months ended June 30, 1998, and the years ended
December 31, 1997 and December 31, 1996, Argo Mortgage purchased $296,000, $8.9
million and $41.1 million of Discounted Loans, respectively. From time to time,
Discounted Loans are also purchased by the Company through Empire, although the
Company is reducing its emphasis on the purchase of Discounted Loans. See
"Business of Empire/Argo Mortgage, LLC."
USE AND QUALIFICATIONS OF CORRESPONDENTS. The core of MARGO's
Correspondents consist of a nationwide network of third party loan originators.
Additional Correspondents are regularly added to MARGO's list of third party
originators through referrals (primarily from one of the six mortgage insurance
companies utilized by MARGO) and from contacts made at trade shows, conferences,
and over the Internet. At June 30, 1998, MARGO accepted applications from
approximately 100 Correspondents.
In order to be approved as a Correspondent for MARGO, an applicant must meet
certain defined criteria. In evaluating potential Correspondents, MARGO looks at
a number of criteria including, but not limited to, the financial statements of
the potential Correspondent, participation in trade associations, and continuing
education. Quality control measures and historical performance with respect to
originations and volume selling are also significant in selecting and continuing
relationships with Correspondents. MARGO seeks to enter into relationships with
Correspondents who are experienced, educated and financially secure and who do
not require day to day contact with MARGO staff. In addition, management will
maintain a relationship with a Correspondent only if that Correspondent brings
an established level of loans to MARGO on a monthly basis. Management believes
that it will be able to sustain relationships with Correspondents meeting the
foregoing criteria as it offers Correspondents what it believes to be very
competitive rates. In addition, as an additional incentive to Correspondents to
bring loans to MARGO, Correspondents originating an average of $250,000 per
month for MARGO are paid a servicing premium of 0.0625 basis points on
outstanding principal balance on such loans per year, up to a maximum of seven
years. In the event loans are sold, Correspondents are paid a fee equal to the
present value of the remaining service fee premiums less the amounts paid to
date.
ONE-TO FOUR-FAMILY RESIDENTIAL LOANS. The Bank, through MARGO, originates,
purchases and sells primarily fixed-rate and adjustable-rate mortgage loans
secured by one- to four-family residences. At June 30, 1998, the Bank's one- to
four-family loan portfolio totaled $191.7 million, or 92.8% of the Bank's total
loan portfolio. The loans generally fall into three categories: (1) Conventional
Loans--loans which conform to all of the underwriting guidelines of FannieMae
and FreddieMac ("Agency Qualified"); (2) Expanded Criteria Loans--loans which
are (a) not Agency Qualified, generally due to the borrowers
55
<PAGE>
credit profile, (b) are not as readily saleable in the secondary market as
Conventional Loans and (c) are generally fixed-rate loans which are originated
at interest rates higher than those of fixed-rate Conventional Loans; and (3)
Portfolio Loans--adjustable-rate mortgage ("ARM") loans which (a) are not Agency
Qualified, (b) are originated under specific criteria set forth by the Bank and
(c) are not Conventional or Expanded Criteria Loans.
The Bank, through MARGO, originates loans which it classifies as either
Conventional, Portfolio Loans or Expanded Criteria Loans. The bulk of the loan
originations by MARGO have been sold by the Bank. See "--Loan Originations and
Purchases." The Conventional Loans are either fixed-rate or adjustable-rate
mortgage loans ranging from $10,000 up to a maximum of $227,150. These loans are
then sold into the secondary market through one of eight third-party wholesale
conduits with servicing released. In the future, as the Company's cash flow and
volume of Agency Qualified loans increases, MARGO may sell such loans directly
to the Agencies.
The Portfolio Loans are adjustable-rate and, to a lesser extent, fixed-rate
mortgage loans originated by the Bank, through MARGO, with principal balances
that range from $10,000 to $2.0 million and which are not necessarily Agency
Qualified. The yield on these loans is generally 100 basis points higher than
the yield on Agency Qualified loans. Portfolio Loans are generally retained by
the Bank. From time to time, the Bank has made strategic sales of such loans.
The Bank, through MARGO, also originates Portfolio Loans which are jumbo
residential mortgage loans. Jumbo loans are loans with principal balances that
generally range between $300,000 and $2.0 million. Adjustable-rate jumbo
mortgage loans under $600,000 are generally held in the Bank's loan portfolio,
while other jumbo mortgage loans are originated for sale. The yield on jumbo
loans is generally between 125 and 375 basis points higher than the yield on
Agency Qualified loans.
Since September 1996, the Bank, through MARGO, has enlarged its product
offerings to include the origination of Expanded Criteria Loans, loans secured
by one- to four-family residences that are not Agency Qualified and may not be
as readily saleable in the secondary market as Conventional Loans. Since
December 31, 1997, 3.6% of the loans originated by MARGO were Expanded Criteria
Loans. These loans are originated, in many instances, when the borrower's credit
profile, or some aspect of the loan, does not adhere to the Agency underwriting
guidelines. Expanded Criteria Loans are perceived by management as being
advantageous to the Bank because they generally have higher interest rates and
origination and servicing fees and generally lower loan-to-value ratios than
loans that conform to Agency guidelines. In addition, management believes that
the resources are available through its third party servicers to adequately
service Expanded Criteria Loans as well as the experience to resolve loans that
may become non-performing.
As of June 30, 1998, the amount of Portfolio Loans originated by MARGO which
are non-performing is $337,000. The Bank intends to continue to expand the
volume of Portfolio and Expanded Criteria Loans throughout the country through
its nationwide network of Correspondents. See "Risk Factors--Risks Associated
With Portfolio and Expanded Criteria Lending" and "--Discounted Loans."
The Bank requires title insurance to insure the priority of its lien on all
of its mortgage loans. It also requires fire, flood, and casualty insurance on
all its properties securing loans provided by the Bank and mortgage insurance on
all loans with a loan-to-value of 80% or greater.
MULTI-FAMILY RESIDENTIAL REAL ESTATE LENDING. The Bank also originates
loans for the acquisition of existing multi-family residences or for the
refinancing of such properties, such as five to twelve unit apartment buildings
located in the greater Chicago metropolitan area. At June 30, 1998, the Bank had
gross loans secured by multi-family properties in the amount of $3.1 million, or
1.52% of the total loan portfolio. Loans originated on multi-family dwellings
are generally 5-year fixed-rate balloon mortgages amortized over thirty (30)
years. An origination fee is generally charged on such loans. Multi-family
residential real estate lending entails additional risk as compared with one-to
four-family residential property lending. Multi-family real estate loans
typically involve larger loan balances to a single borrower
56
<PAGE>
or groups of affiliated borrowers. The payment experience on such loans is
typically dependent on the successful operation of the real estate project. The
Bank evaluates all aspects of multi-family real estate loan transactions in
order to mitigate risk to the greatest extent possible. To minimize these risks,
the Bank generally limits its multi-family lending to properties used solely for
residential purposes. The Bank seeks to ensure that the property securing the
loan will generate cash flow to adequately cover operating expenses and debt
service payments. To this end, multi-family real estate loans generally are made
at a loan-to-value ratio no greater than 75.0%.
COMMERCIAL REAL ESTATE LENDING. The commercial real estate loan portfolio
originated or purchased is primarily secured by office buildings and other
income producing commercial properties and amounted to $1.4 million or .68% of
the total gross loan portfolio at June 30, 1998.
The Bank will continue on a limited basis to originate loans secured by
commercial real estate. In underwriting these loans, consideration is given to
the property's operating history, future operating projections, current and
projected occupancy, position in the local and regional market, location and
physical condition. The underwriting analysis also includes credit checks and a
review of the financial condition of the borrower. An appraisal report is
prepared in accordance with OTS regulations by an outside appraiser qualified by
federal and state law to substantiate property values for every multi-family and
commercial real estate loan. These appraisal reports are reviewed by the Bank
prior to the closing of the loan to assure compliance with OTS appraisal
standards and policies and the adequacy of the value of the security property.
The Bank also typically obtains full personal loan guarantees from the
borrowers. The Bank validates such personal loan guarantees through an
investigation of the borrower's personal finances.
Commercial real estate lending entails significant additional risks compared
to one- to four-family residential property lending. Commercial real estate
loans typically involve larger loan balances to a single borrower or groups of
affiliated borrowers. The payment experience on such loans is typically
dependent on the successful operation of the real estate project. These risks
can be significantly impacted by supply and demand conditions in the market for
office and retail space, and as such may be subject to a greater extent to
adverse conditions in the economy generally.
CONSUMER LENDING. The Bank makes various types of secured consumer loans,
primarily home equity loans and mobile home loans. The home equity loans are
made for terms of up to ten years, while mobile home loans have terms of up to
15 years. At June 30, 1998, the Bank's consumer loan portfolio totaled $10.4
million, or 5.0%, of the Bank's total loan portfolio, which included $3.6
million in construction loans.
Management considers consumer loans to involve more credit risk than secured
single family residential mortgage loans and, therefore, consumer loans
generally yield a higher return to the Bank and generally provide the Bank with
shorter maturities than single-family residential mortgage loans.
LOAN APPROVAL AND UNDERWRITING. Loan applications are accepted by both
MARGO personnel and employees of the Bank. Upon receipt of a loan application,
credit reports are ordered to verify specific information relating to a loan
applicant's employment, income, assets and credit standing, and for independent
verification of all credit, income and liability information provided by the
applicant. In the case of a real estate loan originated by the Bank, or by MARGO
for the Bank, an appraisal of the real estate intended to secure the proposed
loan is undertaken by an independent appraiser approved by the Bank's Board of
Directors. For loans originated for MARGO by third parties, an independent
appraiser approved by MARGO is used.
MARGO uses six major mortgage insurance companies, any of which may act as a
contract underwriter on all loans originated through its network of
Correspondents. All loans originated for the Bank's portfolio are also
underwritten by MARGO in order to ensure such loans conform to the specific loan
program under which they are being originated. These insurance companies are
provided with the Bank's underwriting manuals and guidelines and all loans are
underwritten to conform with the Bank's guidelines.
57
<PAGE>
Written assurances that the manuals and guidelines have been adhered to, in the
form of representations and warranties, are provided to MARGO by the insurance
company.
Upon completion of the loan application processing activities, all other
loan files are presented to the Bank's loan underwriters if the loan is
originated on behalf of the Bank, or to third party investors if the loan is
originated for immediate sale. In the case of the Bank, certain senior officers
have lending authority and may approve loans of up to $350,000 in the case of
commercial loans and $450,000 in the case of one-to four-family loans, after
completion of the underwriting process. Loans in excess of $350,000 but less
than $500,000, in the case of commercial loans, and in excess of $450,000 and
less than $600,000, in the case of one- to four-family loans, must be submitted
to the Bank's Lending Committee for approval. Loans in excess of $500,000, in
the case of commercial loans, and $600,000, in the case of one- to four-family
loans, are subject to approval by the Board of Directors of the Bank.
Loan applicants are promptly notified in writing of the final determination
of the loan request by either the Bank or MARGO. If approved, the terms and
conditions of the loan decision including the amount of the loan, interest rate,
amortization term, brief description of the real estate securing the mortgage as
well as all conditions to final closing of the transaction are provided in
writing to the loan applicant. The loan applicant is required to pay all costs
incurred by MARGO, as well as their own costs in connection with the loan
closing. If denied, disclosure of the factors resulting in the denial is made
pursuant to the requirements of applicable federal and state law.
The loan documentation and processing activities utilized by the Bank/MARGO
in connection with the origination of real estate loans conforms to standards
imposed by the Agencies, as well as third party investor guidelines. Loan
documentation and processing activities utilized by the Bank/MARGO also conforms
to both requirements of the Agencies, as well as to the standards promulgated by
the Federal Housing Authority ("FHA"), the Department of Housing and Urban
Development ("HUD") and the Veterans Administration ("VA"). Additionally,
written policies and procedures governing the origination of mortgage and other
loans conforming to regulatory guidelines promulgated by the OTS are in place
and utilized by the Bank.
Statistics regarding all loan applications, including those both denied and
approved, are retained by the Bank and MARGO, and reported annually under the
Home Mortgage Disclosure Act. Quality control procedures verifying data obtained
through loan processing activities are in place at the Bank and MARGO.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on loans
and commitments for making loans, the Bank and MARGO earn fees in connection
with the origination of loans. Origination fees are a percentage of the
principal amount of the mortgage loan charged to the borrower for the granting
of the loan. Loan fees are accounted for by deferring all loan origination fees
and certain direct costs associated with originations. Net deferred fees or
costs are amortized as yield adjustments over the custodial life of the related
loans using the interest method, adjusted for estimated prepayment based on the
Bank's historical prepayment experience. At June 30, 1998, the Bank had $842,000
in net deferred loan costs that will be recognized in future periods.
Loan origination and commitment fee income vary with the volume and type of
loans and commitments made and purchased and with competitive conditions in
mortgage markets, which in turn tend to vary in response to the demand and
availability of money.
The Bank also receives other fees and charges relating to existing loans,
which include late charges, and fees collected in connection with a change in
borrower or other loan modifications.
PROBLEM ASSETS AND ASSET CLASSIFICATION. In accordance with Federal
regulations, loans and other assets are reviewed by the Bank on a regular basis
for a determination of need to classify such assets as "Substandard," "Doubtful"
or "Loss" assets. An asset is considered "Substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor, or of the
current realizable value of
58
<PAGE>
the collateral pledged. "Substandard" assets include those characterized by the
"distinct possibility" that the Bank will sustain "some loss" if the
deficiencies noted are not corrected. Assets classified as "Doubtful" have all
the weaknesses inherent in those classified as "Substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions and values, "highly
questionable and improbable." Assets classified as "Loss" are those considered
"uncorrectable" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. An
allowance for losses is established in amounts deemed prudent by management.
General allowances represent loss allowances which have been established by the
Bank to recognize the inherent risk associated with lending activities but,
which, unlike specific allowances, have not been allocated to a particular
problem asset. When an asset is classified as "Loss," the Bank is required to
establish a specific allowance for such losses equal to 100% of the amount of
the asset so classified, or to charge-off such amount. Recently, the OTS
discontinued classifying Assets as "special mention" if such assets possessed
weakness but did not expose the institution to sufficient risk to warrant
classification in the Substandard category.
At June 30, 1998, the Bank had $5.1 million of loans and $4.2 million of REO
classified as Substandard or Doubtful, respectively. Excluded from this total is
the $3.6 million of Discounted Loans ninety (90) days or more past due.
Management does not consider these loans non-performing and thus excludes them
from all non-performing loan analyses and from all general valuation allowance
analyses. If an asset or portion thereof is classified as Loss, the Bank must
either establish a specific allowance for loan losses in the amount of 100
percent of the portion of the asset classified as Loss, or charge off such
amount. At June 30, 1998, the Bank had no assets classified as Loss. Management
evaluates collectibility of the Discounted Loans receivable on an aggregate pool
basis.
As a general rule, the Bank has entered into contractual arrangements with
third parties ("Sub-servicers") who collect principal and interest payments from
obligors on loans owned by the Bank, pay real estate property taxes and ensure
collateral securing loans remains insured for the benefit of the Bank, in
accordance with generally recognized servicing standards and practices.
Sub-servicers remit payments received from loan obligors and submit monthly
reports detailing delinquencies and other matters to the Bank. The Bank may
handle managing the process of collection and liquidation of loan assets,
however, in some instances, Sub-servicers are charged with such responsibility.
Generally, when a loan becomes 15 days or more past due, the Sub-servicer
submits a reminder notice to the loan obligor. For loans 30-89 days delinquent,
additional notices are submitted to the borrower, and the Sub-servicer attempts
telephonic contact. After principal and interest are 90 days or more past due,
and the loan obligor has failed to respond to the Sub-servicer and no
forbearance or other repayment plan has been agreed to, the Sub-servicer
generally initiates foreclosure action. The Bank's policy is to stop accruing
interest for any loan in excess of 90 days delinquent separate from management's
analysis as to the future collectibility of interest.
Real estate acquired through foreclosure or deed in lieu of foreclosure or
in judgment is carried at the lower of the fair market value less cost to
dispose or the related loan balance at the date of foreclosure. An allowance for
loss is established by a charge to operations or a transfer from the allowance
for loan losses if the carrying value of REO exceeds its fair value less cost to
dispose. Sub-servicers generally manage the disposition process for the Bank,
contracting for security and maintenance of REO, listing REO with real estate
brokers for sale, submitting offers to purchase to the Bank for review and
approval, and arranging for final sale of REO utilizing attorneys and title
companies licensed in the jurisdiction where REO is located. The disposition of
REO related to Discounted Loans is now managed by the Bank through its in-house
personnel.
59
<PAGE>
The following table sets forth information with respect to the Bank's
non-performing assets as of the dates indicated. For the six months ended June
30, 1998, the amount of interest income that would have been recognized on
non-performing loans if such loans had continued to perform in accordance with
their contractual terms was $456,000, none of which was recognized. As of the
dates shown, the Bank had no restructured loans.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans (1)(2)......................... $ 5,120 $ 5,525 $ 3,942 $ 1,987 $ 2,324 $ 1,097
Foreclosed real estate, net (3)..................... 4,179 4,251 3,913 1,473 359 554
----------- --------- --------- --------- --------- ---------
Total non-performing assets......................... $ 9,299 $ 9,776 $ 7,855 $ 3,460 $ 2,683 $ 1,651
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Allowance for estimated loan losses as a percentage
of net loans receivable (1)....................... .48% .53% .53% .45% .52% .68%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Allowance for loan losses to non-performing loans... 17.19% 14.73% 16.87% 29.54% 26.38% 55.88%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Non-performing loans as a percentage of loans
receivable (1).................................... 2.78% 3.57% 3.12% 1.54% 1.93% 1.19%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
Non-performing assets as a percentage of total
assets (1)........................................ 3.58% 4.14% 3.43% 2.26% 1.72% 1.31%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) All non-performing loan totals exclude Discounted Loans receivable ninety
(90) days or more past due which at June 30, 1998 amounted to $3.6 million.
(2) At June 30, 1998, $710,000 or 13.9% of the $5.1 million in non-performing
loans represent loans originated by the Bank. The remaining loans represent
loans purchased by the Bank.
(3) Includes $3.0 million of foreclosed real estate related to the Discounted
Loans receivable portfolio at June 30, 1998.
At June 30, 1998, the Bank had $5.1 million of Portfolio Loans receivable
and loans held for sale and $3.6 million of Discounted Loans receivable 90 days
or more delinquent. At both June 30, 1998 and December 31, 1997, the Bank had
approximately $4.2 million of REO. This stabilization is the result of the
Bank's reduction in its position in Discounted Loans receivable as the Company
focuses its resources on conventional lending.
60
<PAGE>
The following table sets forth delinquencies in the Company's loan portfolio
as of the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30, 1998 AT DECEMBER 31, 1997
----------------------------------------------- -----------------------------------------------
30-89 DAYS 90 DAYS OR MORE 30-89 DAYS 90 DAYS OR MORE
---------------------- ---------------------- ---------------------- ----------------------
LOANS LOANS LOANS LOANS
NUMBER RECEIVABLE, NUMBER RECEIVABLE, NUMBER RECEIVABLE, NUMBER RECEIVABLE,
OF LOANS NET OF LOANS NET OF LOANS NET OF LOANS NET
-------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family......... 86 $6,133 101 $4,958 107 $4,862 95 $5,474
Multi-family................ 1 2 2 127 -- -- -- --
Commercial.................. -- -- -- -- -- -- -- --
--- ----------- --- ----------- --- ----------- --- -----------
Total mortgage loans.... 87 6,135 103 5,085 107 4,862 95 5,474
Other loans................... 4 114 1 35 -- -- 9 51
--- ----------- --- ----------- --- ----------- --- -----------
Total................... 91 $6,249 104 $5,120 107 $4,862 104 $5,525
--- ----------- --- ----------- --- ----------- --- -----------
--- ----------- --- ----------- --- ----------- --- -----------
Delinquent loans to total
loans receivable(1)......... 3.40% 2.78% 3.16% 3.57%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
----------------------------------------------- -----------------------------------------------
30-89 DAYS 90 DAYS OR MORE 30-89 DAYS 90 DAYS OR MORE
---------------------- ---------------------- ---------------------- ----------------------
LOANS LOANS LOANS LOANS
NUMBER RECEIVABLE, NUMBER RECEIVABLE, NUMBER RECEIVABLE, NUMBER RECEIVABLE,
OF LOANS NET OF LOANS NET OF LOANS NET OF LOANS NET
-------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family......... 115 $4,055 65 $3,908 38 $1,109 44 $1,918
Multi-family................ -- -- -- -- -- -- -- --
Commercial.................. -- -- -- -- -- -- -- --
-- -- --
--- ----------- ----------- ----------- -----------
Total mortgage loans.... 115 4,055 65 3,908 38 1,109 44 1,918
Other loans................... 1 1 13 19 2 1 13 69
-- -- --
--- ----------- ----------- ----------- -----------
Total................... 116 $4,056 78 $3,942 40 $1,110 57 $1,987
-- -- --
-- -- --
--- ----------- ----------- ----------- -----------
--- ----------- ----------- ----------- -----------
Delinquent loans to total
loans receivable(1)......... 3.21% 3.12% 1.10% 1.54%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Excludes balances related to portfolio of Discounted Loans receivable.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
maintained at a level determined to be adequate by management to absorb future
charge-offs of loans deemed uncollectible. At June 30, 1998, the Company
experienced a decrease in the percentage of net loans 90 days or more delinquent
from 3.57% of total loans receivable and loans held for sale (excluding
Discounted Loans) at December 31, 1997 to 2.78% of total loans receivable and
loans held for sale (excluding Discounted Loans) at June 30, 1998. In addition
to the allowance for loan losses, the Bank maintains an allowance for losses on
REO. At June 30, 1998, the Bank s allowance for losses on REO amounted to
$272,000, which represents specific reserves currently in place on REO. As of
June 30, 1998, all of the allowance for loan losses pertains to a general
allowance. The Bank had no specific reserves established at June 30, 1998, other
than the reserves against REO. The allowance is increased by provisions charged
to operating expense and by recoveries on loans previously charged off.
Determination of an appropriate level of allowance for loan losses
necessarily involves a high degree of judgment. Primary considerations in this
evaluation are prior loan loss experience, the character and mix
61
<PAGE>
of the loan portfolio, adverse situations which may affect a borrower s ability
to repay, size of the loan portfolio, business and economic conditions and
management s estimate of potential losses. Management believes that the
allowance for loan losses is currently adequate. However, there can be no
assurances as to whether such allowance may be increased in future periods.
While management uses all available information, including the monitoring of the
economic conditions in the geographic regions in which the loan portfolio is
located, future additions to the allowance may be necessary based on estimates
that are susceptible to significant revision as a result of changes in economic
conditions and other factors. Additionally, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank s
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgment of information available to
them at the time of their examination.
The following table sets forth information with respect to the Company's
allowance for loan losses by loan category for the periods and at the dates
indicated.
<TABLE>
<CAPTION>
AT OR FOR
THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------ ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Balance as beginning of period:
Mortgage loans (gross):
One- to-four-family........................... $561 $412 $412 $330 $315 $313 $138
Multi-family.................................. 14 14 14 14 14 14 14
Commercial loans.............................. 216 216 216 216 216 216 216
Other loans................................... 23 23 23 27 68 70 13
---- ---- ---- ---- ---- ---- ----
Total......................................... 814 665 665 587 613 613 381
Provision for loan losses:
Mortgage loans (gross):
One- to-four-family........................... 235 60 210 248 96 45 200
Multi-family.................................. -- -- -- -- -- -- --
Commercial loans.............................. -- -- -- -- -- -- --
Other loans................................... -- -- -- -- (41) 3 70
---- ---- ---- ---- ---- ---- ----
Total......................................... 235 60 210 248 55 48 270
Purchased allowance one- to-four-family loans..... 30 -- -- -- -- -- --
Transfer to allowance for losses on foreclosed
real estate..................................... (180) -- (50) (77) (45) (43) (25)
Charge-offs:
Mortgage loans (gross):
One- to-four-family........................... -- -- (11) (89) (36) -- --
Multi-family.................................. -- -- -- -- -- -- --
Commercial loans.............................. -- -- -- -- -- -- --
Other loans................................... (19) -- -- (4) -- (5) (13)
---- ---- ---- ---- ---- ---- ----
Total......................................... (19) -- (11) (93) (36) (5) (13)
Balance at end of period:
Mortgage loans (gross):
One- to-four-family........................... 646 472 561 412 330 315 313
Multi-family.................................. 14 14 14 14 14 14 14
Commercial loans.............................. 216 216 216 216 216 216 216
Other loans................................... 4 23 23 23 27 68 70
---- ---- ---- ---- ---- ---- ----
Total......................................... $880 $725 $814 $665 $587 $613 $613
---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ----
Ratio of net charge-offs during the period to
average loans outstanding, excluding Discounted
loans........................................... .01% --% .01% .08% .03% --% .01%
---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ----
Ratio of allowance for loan losses to net loans
receivable, excluding Discounted Loans.......... .48% .53% .53% .53% .45% .52% .68%
---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ----
</TABLE>
62
<PAGE>
PURCHASED MORTGAGE SERVICING RIGHTS
PMSRs represent the right to receive a fee for the collection and
administration of the mortgage payments on the loans being serviced for others.
The cost of acquiring the right to service the mortgage loans is carried as a
capitalized asset and amortized proportionately over the estimated remaining
lives of the loans serviced. The servicing of mortgages primarily consists of
the collection of monthly principal and interest payments, collection, and
disbursement of escrow funds for taxes and insurance, providing various customer
services and account maintenance, reporting, foreclosure processing, and
investor notification. For performing these administrative tasks, the servicer
retains a monthly servicing fee generally calculated as a percentage of the
outstanding loan balance, and holds the escrowed payments for taxes and
insurance in non-interest-bearing custodial accounts. The servicing fee is
intended to cover anticipated operating expenses incurred in servicing the loans
and to provide for an adequate profit margin. The Company uses Sub-servicers to
perform the administrative activities discussed above under sub-servicing
agreements. The Company's primary administrative task associated with PMSRs is
to review monthly analysis of all servicing and accounting reports prepared by
each Sub-servicer and to perform periodic on-site inspections and reviews of the
Sub-servicers' operations.
Prior to completing any acquisition of servicing rights, the Company
analyzes a wide range of parameters with respect to each portfolio under
consideration. This review includes the projected revenues and expenses,
maturity dates, geographic distribution, interest rate distribution,
loan-to-value ratios, outstanding balances, delinquency history, and other
statistics. Due diligence is either performed by the Bank's employees or a
designated independent contractor on a representative sample of the mortgages
involved. The purchase price is based on the present value of the expected
future stream of cash flows, computed by using a discount rate that management
considers to approximately reflect the risk associated with the investment, and
using a loan prepayment assumption that management considers to be conservative
relative to the characteristics of the serviced loans. Management does not
purchase PMSRs with recourse servicing, thus the Company is not subject to the
risk of and costs (including foreclosure costs) associated with borrower default
on the underlying loans.
Mortgage servicing activities carry interest rate risk since the total
amount of servicing fees earned, as well as the amortization of the investment
in the servicing rights, fluctuate based on loan prepayments which generally are
results of changes in market interest rates and the effect of these changes on
the average life of the underlying residential mortgage loans. Prepayment of the
mortgage loans may be influenced by a variety of economic, geographic, social,
and other factors and, most importantly, the difference between interest rates
on the mortgage loans underlying the PMSRs and prevailing mortgage rates
available for comparable mortgages.
The value of PMSRs generally decrease in a declining interest rate
environment and increase in a rising interest rate environment due to the actual
or anticipated fluctuation in the prepayment speeds of the underlying mortgage
loans. The value of the PMSRs reacts inversely with the other interest-earning
assets of the Bank. The value of mortgage loans, comprising the majority of the
Bank's assets, decreases in a rising interest rate environment and increases in
a declining interest rate environment. Thus, the PMSRs act as a natural hedge
against the mortgage loans in the Bank's portfolio in a changing interest rate
environment.
The Bank's principal investment in PMSRs is through a $5.7 million equity
investment in three limited partnerships whose business activities are to
purchase mortgage servicing rights. There are several unaffiliated equity
investors in each limited partnership. The purchase of the servicing rights is
then leveraged, allowing the limited partnerships to purchase rights equaling
one to three times the equity investment by its partners. The cost of the
borrowings, as well as the service income and expense and related amortization,
is recorded at the limited partnership level. Each quarter, financial statements
are issued to the limited partnerships by DMI, the general partner of each
limited partnership and the pro-rata share of the income for each investor is
calculated by DMI. The Bank records its share of income or loss
63
<PAGE>
on the equity method for each partnership investment. At the end of five years,
or at such time as the investors may agree, the servicing rights will be sold
and the proceeds divided pro-rata among the investors. As with a direct
investment in PMSRs, the collateral behind the equity investment is the
servicing rights. All limited partnership purchases of servicing rights must be
approved by all equity investors and undergo the same guidelines outlined
previously for direct purchases of servicing. The task of finding and acquiring
the servicing rights controlled by the limited partnerships as well as all
associated administrative duties, is assigned to DMI. DMI also Sub-services the
PMSRs in each partnership. Each limited partnership is audited annually by an
independent auditor and an independent third party valuation of the
partnership's PMSRs is performed quarterly. In addition, unaudited financial
statements of each limited partnership are distributed quarterly by DMI to each
investor. The audited financial statements, the unaudited quarterly financial
statements and the quarterly valuations are sent directly to each equity
investor. The risks associated with PMSRs are somewhat mitigated in the case of
PMSRs managed by DMI. As a result of the current decline in the interest rate
market, DMI has actively moved to retain servicing rights on refinancings. The
loans may be refinanced at lower rates, for longer terms, and, from time to
time, with higher balances with the servicing on such loans retained by the
limited partnerships.
The Bank accounts for the investment in the three limited partnerships using
the equity method. Income or loss is recorded based upon information received
from DMI. DMI obtains quarterly valuations from an independent appraiser for
each limited partnership. At June 30, 1998, the valuation of one of the Bank's
three limited partnerships had a market value lower than the current book value.
The general partner recorded a valuation allowance. The Bank's proportionate
share of the writedown was $392,000, which the Bank has recorded based upon
information received from DMI.
In addition to its investment in the limited partnerships, at June 30, 1998,
the Bank had a $676,000 investment in a PMSR portfolio that it owns directly. At
June 30, 1998, this directly owned PMSR portfolio consisted of 1,344 mortgage
loans having an outstanding principal balance of $53.1 million.
At June 30, 1998, the Bank's investment in PMSRs, including the limited
partnerships, was $6.3 million. Of this amount, $635,000 exceeded the amount of
PMSRs allowable in regulatory capital. The remaining $5.7 million investment in
PMSRs constituted 40.9% of the Bank's core capital at June 30, 1998.
A secondary benefit derived from the PMSRs is the interest free custodial
accounts comprised of the borrowers' taxes and insurance escrows and, for a
short time period, the float on their principal and interest payments. The
custodial balances are maintained in noninterest-bearing accounts and are not
affected by changes in interest rates. The custodial balances relating to the
servicing owned at June 30, 1998, amounted to $5.9 million.
INVESTMENT ACTIVITIES
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and at
levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is maintained. At June
30, 1998, the Bank's liquidity ratio (liquid assets as a percentage of deposits
and borrowings payable in one year or less) was 6.7%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their
64
<PAGE>
assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally chartered
savings institution is otherwise authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives. It is the Bank's general policy to
invest in certificates of deposit, overnight funds, and securities which are
securities of government sponsored entities and federal agency obligations, and
other fixed-issues that are rated investment grade. The policy also permits the
Bank to invest in the equity securities of government sponsored entities. All
mortgage-backed securities in the Bank's portfolio at June 30, 1998 were
acquired in the Merger Conversion. The Bank has not purchased mortgage-backed
securities since that time. All of the mortgaged-backed securities are insured
or guaranteed by the Agencies.
The Company also maintains a portfolio of readily marketable equity
securities, generally comprised of the equity securities of government sponsored
entities and the holding companies for local, regional and national banks,
savings banks and savings and loan associations. Generally, the Company has
acquired non-control positions in financial institution equities which
management believes, after analysis of market pricing, business practices, and
earnings potential, are under-valued and represent an opportunity for profit
from sales of such securities. At June 30, 1998, the Company and the Bank had
$5.0 million in securities.
The following table sets forth the composition of the Company's debt and
equity and mortgage-backed securities portfolios in dollar amounts and
percentages at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
-------------------- ----------------------------------------------------------------
1998 1997 1996 1995
-------------------- -------------------- -------------------- --------------------
FAIR % OF FAIR % OF FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL VALUE TOTAL
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Debt securities:
U.S. Government obligations.............. $ -- --% $ -- --% $ -- --% $ 603 7.96%
Municipal bonds.......................... 379 7.59 380 7.64 602 10.40 619 8.17
--------- --------- --------- --------- --------- --------- --------- ---------
Total debt securities.................. $ 379 7.59% $ 380 7.64% $ 602 10.40% $ 1,222 16.13%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Equity securities.......................... $ 2,275 45.56% $ 1,667 33.51% $ 282 4.87% $ 639 8.44%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Mortgage-backed securities:
FreddieMac............................... $ 118 2.37% $ 124 2.51% $ 826 14.27% $ 1,164 15.37%
FannieMae................................ 2,198 44.02 2,799 56.26 3,949 68.23 4,339 57.30
GinnieMae................................ -- -- -- -- 152 2.62 158 2.09
--------- --------- --------- --------- --------- --------- --------- ---------
Total mortgage-backed securities....... 2,316 46.39 2,923 58.77 4,927 85.12 5,661 74.76
Net premium (discount)................... 35 .70 39 .78 60 1.04 78 1.03
Unrealized (loss) on securities
available-for-sale..................... (12) (.24) (35) (.70) (83) (1.43) (27) (.36)
--------- --------- --------- --------- --------- --------- --------- ---------
Net mortgage-backed securities........... $ 2,339 46.85% $ 2,927 58.85% $ 4,904 84.73% $ 5,712 75.43%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Total securities available-for-sale.... $ 4,993 100% $ 4,974 100% $ 5,788 100% $ 7,573 100%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
FHLB of Chicago stock...................... $ 1,847 100% $ 3,271 100% $ 3,428 100% $ 2,669 100%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
65
<PAGE>
The following table sets forth the amortized cost and fair values of the
Company's securities at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------------------- -----------------------------------------------------------
1998 1997 1996 1995
---------------------- ---------------------- ---------------------- -----------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED
COST VALUE COST VALUE COST VALUE COST
----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Securities available-for-sale:
U.S. Government obligations............ $ -- $ -- $ -- $ -- $ -- $ -- $ 601
Municipal bonds........................ 370 379 370 380 557 602 558
Equity securities...................... 2,480 2,275 1,695 1,667 226 282 607
Mortgage-backed securities:
FreddieMac........................... 120 119 125 124 826 834 1,162
FannieMae............................ 2,232 2,220 2,837 2,803 4,009 3,910 4,419
GinnieMae............................ -- -- -- -- 152 160 158
----------- --------- ----------- --------- ----------- --------- -----------
Total mortgage-backed securities... 2,352 2,339 2,962 2,927 4,987 4,904 5,739
----------- --------- ----------- --------- ----------- --------- -----------
Total investment securities
available-for-sale................... $ 5,202 $ 4,993 $ 5,027 $ 4,974 $ 5,770 $ 5,788 $ 7,505
----------- --------- ----------- --------- ----------- --------- -----------
----------- --------- ----------- --------- ----------- --------- -----------
FHLB-Chicago stock..................... $ 1,847 $ 1,847 $ 3,271 $ 3,271 $ 3,428 $ 3,428 $ 2,669
----------- --------- ----------- --------- ----------- --------- -----------
----------- --------- ----------- --------- ----------- --------- -----------
<CAPTION>
FAIR
VALUE
---------
<S> <C>
Securities available-for-sale:
U.S. Government obligations............ $ 603
Municipal bonds........................ 619
Equity securities...................... 639
Mortgage-backed securities:
FreddieMac........................... 1,183
FannieMae............................ 4,364
GinnieMae............................ 165
---------
Total mortgage-backed securities... 5,712
---------
Total investment securities
available-for-sale................... $ 7,573
---------
---------
FHLB-Chicago stock..................... $ 2,669
---------
---------
</TABLE>
The table below sets forth certain information regarding the amortized cost,
weighted average yields and contractual maturities of investment securities as
of June 30, 1998.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
--------------------------------------------------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE MORE THAN TEN YEARS
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS
-------------------------- ------------------------ ---------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE
COST YIELD COST YIELD COST YIELD COST YIELD
----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Investment
securities
available-for-sale:
Municipal Bonds... $ -- -- % $ -- -- % $ 50 9.50% $ 320 9.50%
Equity
Securities(1)... 2,480 -- -- -- -- -- -- --
Mortgage-backed
securities:
FreddieMac...... -- -- -- -- -- 120 6.07
FannieMae....... 558 6.22 -- -- -- -- 1,674 6.46
----------- --- ----------- ----- --- --- ----------- ---
Total
mortgage-
backed
securities... 558 6.22 -- -- -- -- 1,794 6.43
----------- --- ----------- ----- --- --- ----------- ---
Total
investment
securities
available-for-
sale........ $ 3,038 6.22% $ -- -- % $ 50 9.50% $ 2,114 6.90%
----------- --- ----------- ----- --- --- ----------- ---
----------- --- ----------- ----- --- --- ----------- ---
FHLB-Chicago
stock(1).......... $ 1,847 -- % $ -- -- % $ -- -- % $ -- -- %
----------- --- ----------- ----- --- --- ----------- ---
----------- --- ----------- ----- --- --- ----------- ---
<CAPTION>
TOTAL
--------------------------
WEIGHTED
AMORTIZED AVERAGE
COST YIELD
----------- -------------
<S> <C> <C>
Investment
securities
available-for-sale:
Municipal Bonds... $ 370 9.50%
Equity
Securities(1)... 2,480 --
Mortgage-backed
securities:
FreddieMac...... 120 6.07
FannieMae....... 2,232 6.40
----------- ---
Total
mortgage-
backed
securities... 2,352 6.38
----------- ---
Total
investment
securities
available-for-
sale........ $ 5,202 6.81%
----------- ---
----------- ---
FHLB-Chicago
stock(1).......... $ 1,847 -- %
----------- ---
----------- ---
</TABLE>
- ------------------------
(1) Weighted average yield does not include equity securities.
66
<PAGE>
SOURCES OF FUNDS AND BORROWINGS
GENERAL. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
loan principal repayments, proceeds from sales of loans, borrowings, and the
custodial balances on loans serviced for others. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used to compensate for reductions in the availability of other
sources of funds. They may also be used on a longer term basis for general
business purposes. In addition, the Company's sources of funds include two notes
payable. See "--Borrowings."
DEPOSITS. The Bank offers a number of deposit accounts, including tiered
passbook, NOW accounts, money market accounts and certificate accounts currently
ranging in maturity from seven days to ten years. Deposit accounts vary as to
terms, with the principal differences being the minimum balance required, the
period the funds must remain on deposit and the interest rate. The Bank in the
past has utilized brokered deposits, and will continue to use this source of
funds as needed in the future. The Bank had $16.5 million in brokered deposits
at June 30, 1998. The Bank has traditionally priced its deposit products at or
near market rates in its primary market.
DEPOSIT FLOW. The following table sets forth the change in dollar amount of
savings accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------------------------------- -----------------------------------------------------------
1998 1997 1996
----------------------------------- ----------------------------------- ----------------------
PERCENT PERCENT PERCENT
OF TOTAL INCREASE OF TOTAL INCREASE OF TOTAL
AMOUNT DEPOSITS (DECREASE) AMOUNT DEPOSITS (DECREASE) AMOUNT DEPOSITS
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Passbook accounts...... $ 19,900 9.9% $ 2,293 $ 17,607 10.2% $ (742) $ 18,349 12.2%
NOW accounts........... 20,615 10.2 7,390 13,225 7.7 799 12,426 8.3
Money market accounts.. 6,308 3.1 85 6,223 3.6 1,266 4,957 3.3
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Total................ 46,823 23.2 9,768 37,055 21.5 1,323 35,732 23.8
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Certificate accounts:
3.99% or less........ -- -- (10) 10 -- (42) 52 --
4.00% to 4.99%....... 1,047 .5 173 874 .5 105 769 .5
5.00% to 5.99%....... 120,256 59.7 57,321 62,935 36.5 (8,234) 71,169 47.2
6.00% to 6.99%....... 32,560 16.2 (37,402) 69,962 40.5 30,768 39,194 26.0
7.00% to 7.99%....... 769 .4 (744) 1,513 .9 (2,099) 3,612 2.4
8.00% to 8.99%....... 8 -- (112) 120 .1 21 99 .1
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Total.............. 154,640 76.8 19,226 135,414 78.5 20,519 114,895 76.2
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Total deposits......... $ 201,463 100.00% $ 28,994 $ 172,469 100.00% $ 21,842 $ 150,627 100.00%
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
--------- ----------- ----------- --------- ----------- ----------- --------- -----------
Weighted average
rate................. 5.07% 5.18% 5.17%
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
1995
-----------------------------------
PERCENT
INCREASE OF TOTAL INCREASE
(DECREASE) AMOUNT DEPOSITS (DECREASE)
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Passbook accounts...... $ (167) $ 18,516 15.0% $ (2,680)
NOW accounts........... (404) 12,830 10.4 (225)
Money market accounts.. 474 4,483 3.6 400
----------- --------- ----------- -----------
Total................ (97) 35,829 29.0 (2,505)
----------- --------- ----------- -----------
Certificate accounts:
3.99% or less........ 34 18 -- (5,993)
4.00% to 4.99%....... (4,688) 5,457 4.4 (11,733)
5.00% to 5.99%....... 34,232 36,937 30.0 13,828
6.00% to 6.99%....... 8,634 30,560 24.7 17,785
7.00% to 7.99%....... (10,938) 14,550 11.8 12,298
8.00% to 8.99%....... (34) 133 .1 (167)
----------- --------- ----------- -----------
Total.............. 27,240 87,655 71.0 26,018
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Total deposits......... $ 27,143 $ 123,484 100.00% $ 23,513
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Weighted average
rate................. 5.17%
-----------
-----------
</TABLE>
CERTIFICATE ACCOUNTS. At June 30, 1998, the Bank had outstanding $53.3
million of certificate of deposit accounts in amounts of $100,000 or more
maturing or repricing as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
Three months or less........................................................................ $ 22,060
Over three through six months............................................................... 9,894
Over six through 12 months.................................................................. 11,420
Over 12 months.............................................................................. 9,926
-------
Total................................................................................... $ 53,300
-------
-------
</TABLE>
The Bank had pledged investment securities with principal balances totaling
approximately $2.7 million at June 30, 1998, as collateral to secure certain
public deposits. At June 30, 1998, the Bank also had letters of credit totaling
$15.4 million, as collateral to secure several government certificates of
deposit totaling approximately $15.4 million which mature or reprice in the
three months or less time period.
67
<PAGE>
The following table presents the amount of certificate accounts outstanding
at June 30, 1998, and the periods to maturity or repricing.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMOUNT RATE
---------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Within one year............................................................................ $ 70,958 5.55%
One to three years......................................................................... 76,297 5.89
Thereafter................................................................................. 7,385 6.25
---------- ---
Total...................................................................................... $ 154,640 5.74%
---------- ---
---------- ---
</TABLE>
CERTIFICATE ACCOUNTS CLASSIFIED BY RATES. The following table sets forth
the certificate accounts of the Bank classified by rates as of the dates
indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ---------------------------------
<S> <C> <C> <C> <C>
RATE 1998 1997 1996 1995
- ------------------------------------------------------------------ ----------- ---------- ---------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
3.99% or less..................................................... $ -- $ 10 $ 52 $ 18
4.00% to 4.99%.................................................... 1,047 874 769 5,457
5.00% to 5.99%.................................................... 120,256 62,935 71,169 36,937
6.00% to 6.99%.................................................... 32,560 69,962 39,194 30,560
7.00% to 7.99%.................................................... 769 1,513 3,612 14,550
8.00% to 8.99%.................................................... 8 120 99 133
----------- ---------- ---------- ---------
Total......................................................... $ 154,640 $ 135,414 $ 114,895 $ 87,655
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
</TABLE>
DEPOSIT ACTIVITY. The following table sets forth the deposit activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Deposits in excess of withdrawals.......................... $ 24,411 $ 15,629 $ 13,262 $ 20,710 $ 17,177
Interest credited.......................................... 4,583 4,124 8,580 6,433 5,610
--------- --------- --------- --------- ---------
Net increase in savings deposit accounts............... $ 28,994 $ 19,753 $ 21,842 $ 27,143 $ 22,787
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Substantially all of the Bank's depositors are residents of the States of
Illinois and Indiana.
BORROWINGS. The Company's borrowings at June 30, 1998 include three notes
payable, a margin account, capital lease obligations, and FHLB advances.
Although savings deposits are the primary source of funds of the Bank's
lending and investment activities and for its general business purposes, the
Bank can also borrow funds from the FHLB of Chicago to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. The FHLB has served
as the Bank's primary borrowing source. Advances from the FHLB are secured by
the Bank's stock in the FHLB and a portion of the Bank's portfolio of first
mortgage loans. The rates on these advances vary from time to time in response
to general economic conditions. At June 30, 1998, the Bank had $17.8 million of
fixed-rate advances and $309,000 of adjustable-rate advances from the FHLB with
interest rates ranging from 5.48% to 8.43%. The FHLB functions as a central
reserve bank providing credit for savings and loan associations and certain
other member financial institutions. As a member, the Bank is required to own
capital stock in the FHLB and is authorized to apply for advances on the
security of such stock and
68
<PAGE>
certain of its home mortgages and other assets (principally, securities that are
obligations of, or guaranteed by, the United States Government or its agencies)
provided certain standards related to creditworthiness have been met. Advances
are made pursuant to several different programs. Each credit program has its own
interest rate and the amount of advances is based either on a fixed percentage
of an institution's net worth or on the FHLB's assessment of an association's
creditworthiness.
One of the notes is payable for an amount of $6.0 million and is drawn on a
$6.0 million revolving line of credit with a third party financial institution
and is collateralized by the Bank's Common Stock. Additionally, this line of
credit is personally guaranteed by Mr. Yedinak, President and Chief Executive
Officer of the Company and the Bank. However, the Company believes such
guarantee will not be required should the line of credit be accessed following
the Offering. The interest rate on this note adjusts monthly at the lower of
LIBOR plus 250 basis points or the current designated prime rate. The second
note is payable by On-Line for $635,000 drawn on a $1.0 million open line of
credit with a third party financial institution. This note is also
collateralized by accounts receivable of On-Line and the line of credit is
guaranteed by the Company. Both lines of credit are due to mature on August 17,
1999. The third note is payable by the Company's ESOP, with a remaining balance
of $27,000. Finally, the balance outstanding under a third party securities
brokerage firm margin account agreement was in the amount of $360,000 at June
30, 1998.
Included in other borrowings at June 30, 1998, is $3.2 million in capital
lease obligations for premises and equipment related to On-Line.
The following table sets forth certain information regarding borrowings by
the Company on a consolidated basis at the end of and during the periods
indicated. The borrowings at and during the periods consisted of FHLB advances,
and promissory notes. The weighted average was computed on a monthly average
basis.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------- -------------------------------
1998 1997 1996 1995
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average interest rate at end of period paid on:
FHLB advances.................................................................. 6.20% 6.22% 5.80% 5.85%
Other borrowings............................................................... 8.55 8.63 8.48 8.91
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Maximum amount of borrowings outstanding at any month end:
FHLB advances.............................................. $ 20,332 $ 49,587 $ 49,587 $ 45,257 $ 38,416
Other borrowings........................................... 10,678 11,411 11,542 8,760 8,121
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTH
PERIOD FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Average borrowings outstanding with respect to:
FHLB advances.............................................. $ 19,362 $ 41,225 $ 30,191 $ 34,608 $ 32,852
Other borrowings........................................... 10,271 9,495 10,621 7,669 6,166
--------- --------- --------- --------- ---------
Total.................................................. $ 29,633 $ 50,720 $ 40,812 $ 42,277 $ 39,018
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average interest rate during the period paid on:
FHLB advances.............................................. 6.20% 5.88% 5.98% 5.69% 6.06%
Other borrowings........................................... 9.11 10.21 8.43 8.60 7.86
--------- --------- --------- --------- ---------
Total weighted average................................. 7.21% 6.69% 6.60% 6.20% 6.34%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
69
<PAGE>
BANK SUBSIDIARIES
The Bank has two wholly-owned subsidiaries, Argo Mortgage and Dolton
Riverdale Savings Services, Inc. ("Dolton Services"). Argo Mortgage engages in
mortgage brokerage activities that focus on the purchase and sale of Discounted
Loans into the secondary market. Dolton Services is an inactive subsidiary. In
May 1996, the Bank incorporated a 50.1% owned operating subsidiary, MARGO. MARGO
is an Illinois chartered limited liability corporation whose members are the
Bank and Nip'n Tuck, Inc., an unaffiliated Illinois corporation. MARGO's primary
objectives are to increase loan origination volume within the Bank's branch
network and to serve as a mortgage banking operation using a network of
Correspondents. At June 30, 1998, the Bank had an equity investment in Argo
Mortgage, Dolton Services, and MARGO of $18.0 million, $161,000 and $(4,000),
respectively.
COMPETITION
The Bank faces strong competition in attracting deposits and in originating
real estate loans. Its most direct competition for deposits has historically
come from other savings institutions, credit unions, savings banks and from
commercial banks located in its Primary Market Area. The Bank also faces
additional significant competition for investor funds from short-term money
market securities and other corporate and government securities. The Bank's
competition for real estate loans comes principally from mortgage banking and
brokerage companies and, to a lesser extent, other thrift institutions,
commercial banks and credit unions. Competition may also increase as a result of
the lifting of restrictions on the interstate operations of financial
institutions.
The Bank competes for loans principally through the interest rates and loan
fees it charges and the efficiency and quality of the services it provides
borrowers, real estate brokers and home builders. It competes for deposits by
offering depositors a wide variety of savings accounts, checking accounts, and
convenient office locations.
The Bank is a community oriented savings institution and competes with many
financial institutions in its Primary Market Area, most of which have assets
which are significantly larger than the assets of the Bank. Management considers
the Bank's reputation for financial strength and customer service as its major
competitive advantage in attracting and retaining customers in its market area.
The Bank also believes it benefits from its community bank orientation as well
as its core deposit base.
70
<PAGE>
BUSINESS OF ON-LINE FINANCIAL SERVICES, INC.
HISTORY
On October 31, 1995 the Company acquired On-Line, an Oak Brook, Illinois
based computer services bureau. The purchase transaction was consummated through
the use of a wholly-owned subsidiary, OLF Acquisition Corporation, which
acquired shares of three separate state chartered savings and loan service
corporations which owned, in the aggregate, 98.9% of the outstanding shares of
On-Line. Sale of the remaining 1.1% of On-Line shares was made by a single
institutional stockholder which held shares in On-Line directly. The intervening
acquisition subsidiary and state chartered savings and loan service corporation
shells were liquidated and merged by the Company in June 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--On-Line Financial Services, Inc." for the financial terms of the
transaction.
GENERAL
On-Line is a third party provider of electronic data processing services
primarily to financial institutions located throughout the Midwest. On-Line
provides data processing services to thrifts, community banks, savings banks,
and mortgage brokers. Prior to the Company's acquisition, On-Line's business
focus was primarily on data processing only, utilizing the existing applications
in place at the time, and On-Line generally did not have the personnel or
technological infrastructure to meet the future technological needs of its
clients, nor was there an active pursuit to solicit new clients outside or
within the financial institution arena. Company management believed that it had
acquired a mature, but limited, technology company that required a new strategic
vision and enhanced technological capabilities to meet the needs of its evolving
marketplace. The Company's primary strategy during its 1996 and 1997 period of
transition was to evaluate the existing technological and operational
environment, including the internal business processes, existing products and
services, and technical viability of the equipment and resources.
BUSINESS STRATEGY OF ON-LINE
The Company's strategy since the acquisition has been to enhance On-Line's
strong foundation as a data processing and data communications network provider
by implementing tools to continue supporting existing services, as well as
evolve into a provider of electronic commerce, Intranet and Internet services,
technical training services, and document management and imaging services. The
primary objectives of On-Line's strategic planning have been to increase the
Company's shareholder value by implementing data processing platforms capable of
continuously evolving to meet the needs of the rapidly changing financial
services industry and to attract and develop skilled management and technical
personnel. Principal steps taken include:
- DEVELOPING MANAGEMENT AND PERSONNEL. Since its acquisition in 1995,
management has streamlined and re-structured On-Line's entire organization
to deploy and implement its revised business strategies. This process
included taking steps to create a team with complementary skills through
extensive internal training, re-engineering, recruiting, and the
elimination of certain technical positions which were no longer viable.
While key management personnel were retained following the acquisition,
many new management, supervisory and staff personnel were hired with
complementary advanced financial services, electronic commerce, local and
wide area networking, programming and systems software experience.
Management believes that it has assembled a technical staff capable of
implementing its future strategic objectives.
- IMPLEMENTATION OF ADVANCED TECHNOLOGIES. Since the acquisition of On-Line,
the Company has promoted a corporate commitment to implementation of
advanced technologies sufficient to remain competitive in the future
marketplace. On-Line's open system architecture allows the Company to take
advantage of rapidly changing technologies and gain certain operating
efficiencies. As a result of implementation of this architecture, On-Line
has gained available capacity in its
71
<PAGE>
hardware system and intends to use such excess capacity as an additional
avenue for generating income. From January 1996 through June 1998, On-Line
successfully upgraded its Unisys mainframe systems which include
Microsoft-C- NT client/server based services, faster response time, faster
disaster recovery capability, and increased memory and capacity for new
and/or upgraded product volumes, and also purchased and implemented Unisys
UNIX-based file servers to run its optical report retrieval system. In
addition, On-Line has implemented a local and wide area networking
infrastructure that includes an upgraded data communications front-end
processor with improved monitoring and diagnostic tools, frame relay
services, a redundant fiber optical ring, and enough capacity to sustain
On-Line's foreseeable business objectives for continued network growth in
router technology, ATM processing, running voice over the network, video
conferencing capabilities, and the potential for performing smaller scale
processing services within a Microsoft-C- NT file server environment.
On-Line's enhanced network has also resulted in improved internal workflow
processes such as the enterprise-wide automated help desk solution and
phone system implemented by On-Line during 1997, to improve client service
tracking and monitoring within all functional departments.
- NEW PRODUCT LINES. In order to become a full service out-sourcing business
partner to its clients, On-Line has upgraded and increased its product and
service offerings. On-Line is now actively offering the
BANKFORCE-Registered Trademark- system, an integrated application system
developed by ITI, capable of meeting customer requirements relating to
daily operations, account management reporting, and product distribution
functions which can be utilized by both banking and non-banking clients of
On-Line. In addition, On-Line introduced a Computer Output Information
Server ("COINS") product, which is a high-speed optical storage and
retrieval system developed by INSCI Corporation. On-Line has also
established its CyberDoc division, which distributes a non-proprietary,
sophisticated document imaging and management process.
- RELATIONSHIP DEVELOPMENT. On-Line seeks to initiate, develop and
strengthen its business relationships with its clients by offering new
products and services designed to provide technologically advanced
solutions for improving client profitability, performance, growth, and
competitive position in the marketplace. On-Line's client services team
approach focuses on a partnership with each individual client and to
tailoring products and services to meet their needs.
- INTERNAL GROWTH AND SALES. On-Line seeks to grow internally by selling
services and products to new clients and cross-selling additional services
to existing clients. On-Line also seeks to develop and sell new services
to clients to help them retain existing customers and attract additional
customers from new markets. The acquisition by the Company has resulted in
new potential targeted sales markets for On-Line that focus on educating
existing clients on necessary technological advances in order to remain
competitive in today's financial services industry, as well opening new
opportunities to offer servicing solutions to financial services
companies. Such sales include the resale of software developed by ITI,
integrated check and document imaging systems, and computer output laser
disc storage technology. These services are in addition to new offerings
by On-Line in the planning and deployment of wide area and local area
network design and implementation, the sale of all related hardware and
services, expanded technical and communications support, consultation, and
training.
- UPGRADED PLANT AND LIFE SAFETY. Since On-Line's acquisition, the Company
has significantly upgraded the physical plant where On-Line is located,
including the creation of a viewing area for visitors to monitor computer
processing activities, reconstruction of departmental office space,
improvement of workflow processes, and installation of numerous life
safety features within the facility such as improved lighting and fire
sprinkler systems. In addition, during July 1997, On-Line completed
construction of the APEX Training & Conference Solution Center, an
on-site, computer-based training and conference facility for use by its
staff, clients, and outside service providers.
72
<PAGE>
CLIENT BASE
On-Line's data processing clients are currently located primarily in the
Midwest. Historically, On-Line's clients have consisted primarily of financial
institutions. Since mid-1997, On-Line has expanded its client base to include
optical report processing services for an insurance company with offices
throughout the United States; document management and imaging services to
financial institution clients, a payroll processor, and manufacturing companies;
and network services to existing and new financial institutions, restaurants,
manufacturing firms, and out-sourcing services for other hardware providers and
technology servicing companies.
COMPETITION
The market for On-Line's services is highly competitive. On-Line seeks to
compete based upon several factors, including product quality, technical
management and staff, leveraging of current advanced technologies capabilities
to existing and prospective clients, introduction of new products and services,
competitive pricing and its relationship strategy. On-Line competes with
independent vendors who offer a full range of products and services to financial
institutions which have assets significantly larger than those of the Company,
as well as certain existing and prospective clients' in-house technical
departments.
SALES, MARKETING AND CLIENT SUPPORT
Sales and Marketing representatives are responsible for sales of On-Line
services to existing clients and the development of new business, including
COINS, document imaging, and data processing. Collectively with On-Line's Client
Services department, such representatives are also responsible for communication
between On-Line and its clients and coordination of On-Line resources to provide
conversion and consultative services. Account Managers manage client
relationships, communicate On-Line's activities and strategic plans, and serve
as a liaison with various On-Line servicing groups. On-Line's collective client
servicing team consists of professional staff members who generally have data
processing experience and/ or experience in the financial services industries.
During 1997, On-Line also began to leverage its enhanced network to improve
internal workflow processes and implement productivity tools. On-Line's
enterprise network provides for a company-wide electronic communications system,
access to all host based applications from multiple platforms, an electronic
application product documentation library, and complete and timely access to all
client reports via the COINS optical viewing system. In addition, On-Line has
implemented an enterprise-wide automated help desk solution and a new phone
system to improve client service tracking and monitoring within all functional
departments. The automated help desk solution provides for call tracking by
client, time, and type of problem, includes a problem solutions database for
reference and ease of problem solving, maintains a client call history, and
provides statistical analysis capabilities for management reporting and
performance measurement. The help desk system allows for call problem escalation
within and between departments and allows for information sharing among
departments to improve customer problem resolution response time.
On-Line's strategy to implement and offer local and wide area networking
services, computer output laser disc storage, optical report retrieval, i.e.
COINS technology, and a full line of document management services has been
realized. Additionally, certain products and services are now being marketed to
a wide array of users in various paper intensive industries. Together with
aggressive marketing to small and mid-size commercial and community banks,
On-Line's business plan to expand its traditional financial institution client
base and enter into other industries is also being implemented. See
"--Description of Business--Interface and/or Stand Alone Systems" and
"--Ancillary Services"
73
<PAGE>
FINANCIAL RESULTS
A summary of the financial results of On-Line is presented below.
ON-LINE FINANCIAL SERVICES, INC.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT
AT DECEMBER 31,
JUNE 30, ---------------------------------
1998 1997 1996 1995
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents...................................... $ 142 $ 98 $ 36 $ 1,171
Trade accounts receivable, net................................. 1,892 2,244 2,023 1,374
Property and equipment, net.................................... 5,984 6,445 5,719 2,897
Other.......................................................... 2,966 2,302 2,445 1,043
----------- --------- --------- -----------
Total assets..................................................... $ 10,984 $ 11,089 $ 10,223 $ 6,485
----------- --------- --------- -----------
----------- --------- --------- -----------
Liabilities and stockholder's equity:
Capital lease obligations...................................... $ 3,224 $ 3,829 $ 4,338 $ 2,288
Note payable................................................... 635 830 975 --
Other liabilities.............................................. 1,379 1,316 1,364 2,795
Total stockholder's equity..................................... 5,746 5,114 3,546 1,402
----------- --------- --------- -----------
Total liabilities and stockholder's equity....................... $ 10,984 $ 11,089 $ 10,223 $ 6,485
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
ON-LINE FINANCIAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE TWO
FOR THE SIX MONTHS
MONTHS ENDED YEARS ENDED DECEMBER ENDED
JUNE 30, 31, DECEMBER 31,
---------------------- -------------------- -------------
1998 1997 1997 1996 1995
----------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
Processing revenue.................................. $ 6,154 $ 5,415 $ 11,690 $ 10,956 $ 1,758
Other income........................................ 670 221 1,063 590 256
----------- --------- --------- --------- ------
Total Revenue..................................... 6,824 5,636 12,753 11,546 2,014
Expense:
Processing costs.................................... 1,721 1,017 2,806 1,665 232
Personnel costs..................................... 2,363 2,280 4,499 4,618 784
Computer equipment and software expenses............ 1,489 1,193 2,642 2,033 380
Other expense....................................... 874 1,350 2,610 2,103 260
----------- --------- --------- --------- ------
Total Expense..................................... 6,627 5,840 12,557 10,419 1,656
----------- --------- --------- --------- ------
Income (loss) before income taxes..................... 197 (204) 196 1,127 358
Income tax expense (benefit).......................... 75 (80) 71 391 136
----------- --------- --------- --------- ------
Net Income (loss)..................................... $ 122 $ (124) $ 125 $ 736 $ 222
----------- --------- --------- --------- ------
----------- --------- --------- --------- ------
</TABLE>
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DESCRIPTION OF BUSINESS--CORE APPLICATION SYSTEMS
On-Line maintains two fully-integrated application software systems for its
clients. The COMMAND. System is a proprietary application system primarily used
by thrift institutions. BANKFORCE-Registered Trademark- is a third-party banking
electronic commerce solution developed by ITI that can be used by a variety of
financial services clients. In addition to security controls in place within
On-Line's facility, logical security for both application systems resides at the
mainframe, network, terminal, and application levels.
The COMMAND. System, On-Line's proprietary product offering, provides user
institutions with an on-line real-time system for maintaining savings,
IRA/KEOGH, DDA accounts (including line of credit), mortgage loans,
loans-in-process, mortgage banking, installment loans, and general ledger-type
accounts, and supports a batch commercial loan system. The COMMAND.Teller system
serves as an interface with the COMMAND.System applications and allows the
teller to enter transactions using menu screens. The COMMAND.System core
application system includes a mix of integrated value added systems, which
include full ATM processing, support for electronic funds transfer ("EFT") /
automated clearing house ("ACH") transactions, over-the-counter transaction
system capabilities, personal computer ("PC")-based teller and platform systems,
and a telephone banking system.
BANKFORCE-Registered Trademark- is On-Line's electronic commerce solution
developed by ITI. BANKFORCE-Registered Trademark- performs account processing
services for all types of financial institutions and may also be used in any
business utilizing electronic commerce technology. The
BANKFORCE-Registered Trademark- product is capable of meeting customer
requirements relating to daily operations, account management, regulatory
reporting and product distribution functions. All facets of electronic banking
are available with BANKFORCE-Registered Trademark-, as well as detailed customer
information files and expansive capabilities on loan and deposit requirements
allowing customization by users. All modules available with the
BANKFORCE-Registered Trademark- product interface with the general ledger module
to provide a totally integrated product meeting customer needs.
The BANKFORCE-Registered Trademark- application system also includes several
"value added" systems including real-time ATM processing and support for EFT/ACH
transactions. During 1997, On-Line also introduced and implemented the telephone
banking option for its BANKFORCE-Registered Trademark- clients. The
BANKFORCE-Registered Trademark- version of telephone banking allows customers of
On-Line's clients to access account information and transfer funds between
accounts. During the first quarter of 1998, On-Line also introduced home banking
into its BANKFORCE-Registered Trademark- client base, which allows the customers
of On-Line's clients to access account information via PC. Allowable
transactions are determined by the On-Line client, and can include viewing
statements, histories, and transferring funds.
During the first quarter of 1998, On-Line entered into a joint marketing
agreement with a leading provider of remote financial servicing options such as
full-service banking through home computers, an Internet web browser solution,
and another type of voice response ("IVR" or telephone banking) system. These
remote financial services are available to both COMMAND.System and
BANKFORCE-Registered Trademark- clients. On-Line also has a joint marketing
agreement with a Chicago, Illinois ATM supplier and servicer. Both joint
marketing agreements include certain referral fees for On-Line, and may assist
with the renewal of existing client contracts by offering a wider breath of
servicing options to the client.
On-Line's conversion services include product file specification training,
application functionality training, and pre- and post-conversion support at the
client location with the goal for client institutions to become self-sufficient
in managing their new system. On-Line is responsible for providing the training
and guidance necessary to complete the required COMMAND.System or
BANKFORCE-Registered Trademark- system specifications. Each client is ultimately
responsible, however, for reviewing and making decisions regarding the
specifications, based on the institution's products and services. On-Line client
services personnel work with user institutions to set-up institutional
parameters such as interest rates, loan payment schedules, loan classification
codes, etc. Client services professionals then develop the specifications
necessary for converting each existing application field to a corresponding
COMMAND.System or BANKFORCE-Registered Trademark- field. Conversion programming
for the COMMAND. System is performed by On-Line's in-house programming and
client
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services departments. Conversion programming for the
BANKFORCE-Registered Trademark- system is out-sourced to ITI's programming staff
and performed in conjunction with On-Line's Client Services department.
After conversion and on an on-going basis, BANKFORCE-Registered Trademark-
allows for customization of products and services through modification of
appropriate specifications within the system. As such, it is each institution's
responsibility to modify application file specifications, implement segregation
of duties and application-level security through the mechanisms within the
BANKFORCE-Registered Trademark- security control module, and ensure that local
area network ("LAN") security is adequately controlled and administered. After
conversion and on an on-going basis, COMMAND.System users are also responsible
for implementing application level security and determining specifications, but
certain specifications must be made with the assistance of On-Line staff after
receiving written authorization from the client.
Once a client has entered into a COMMAND.System or
BANKFORCE-Registered Trademark- processing contract, On-Line's monthly recurring
fees are generated from processing charges primarily based on the number of
accounts and number of transactions, plus communications charges, disaster
recovery fees and any recurring or one-time special services. In addition,
conversion services generally include a one-time conversion fee, re-sale of
certain software licensing fees, the sale of teller terminals and computer
hardware and/or software.
DESCRIPTION OF BUSINESS--INTERFACE AND/OR STAND ALONE SYSTEMS
COINS. In 1996, On-Line completed the acquisition, development and testing
of its Computer Output Information Server product ("COINS"), which is a
high-speed, optical computer storage and retrieval system that replaces computer
paper and/or microfiche output. Any mainframe-based output can be transferred to
On-Line's COINS server for on-line viewing via a PC and can be distributed and
viewed by multiple concurrent users on a local or wide area network.
Since late 1996, On-Line has been actively marketing COINS to existing
clients, as well as potential clients both within, and outside, the financial
services industry. As of June 30, 1998, most existing On-Line data processing
clients utilize, or have contracted for, the COINS system as their microfiche
replacement, as well as an insurance company with offices throughout the United
States. With over 500 installations worldwide, the COINS solution is based on
client server technology and is one of the market leaders. While the COINS
application can operate on various client/server platforms, the On-Line COINS
application currently resides on a Unisys UNIX-based server within the On-Line
climate controlled computer room. After the nightly update, all existing client
files (I.E., reports, notices, statements ) are transferred from the On-Line
mainframe to the UNIX-based server. Through the existing communications network,
multiple concurrent users at client locations can then access and retrieve
stored data via terminals/PCs, and can distribute the data electronically.
Reports, statements, checks and notices may also be printed if hard copy is
required. Non-data processing client files are transferred from the client's
location to On-Line, and can then be viewed at the clients' sites via dedicated
communication links to On-Line. Access to COINS is controlled by user ID and
password to ensure that only authorized users receive these images.
On-Line obtains recurring revenue from COINS by charging monthly licensing
and account fees. Annual software maintenance fees are also assessed to each
client. On-Line has competitive advantages related to offering an out-sourcing
solution for COINS, as opposed to running the COINS system in-house because,
generally, it is more cost beneficial for clients. There are substantial
hardware investment costs and software licensing fees for running the system
in-house. Currently, On-Line has a site-license for the COINS application and,
thus, can add an unlimited number of file servers and individual users to the
system without incurring additional licensing upgrades.
CYBERDOC. On-Line has entered into several re-selling agreements with third
parties for the resale of two primary imaging solutions and various different
hardware components. During third quarter 1997, On-Line officially introduced
document management and imaging to its line of products and services under
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the marketing label "CyberDoc", thereby enhancing the scope of services
available to its clients. CyberDoc is also being aggressively marketed to
attract new clients. The sales and implementation cycle for CyberDoc clients
includes On-Line's use of high-speed scanners to scan backlogged client records,
such as personnel records or mortgage files, save scanned documents to CD-ROM,
and then code and index the documents for retrieval according to client
specifications. Clients are then able to manipulate the data and access
information meeting specific parameters, i.e., mortgages meeting specific
requirements for sale in the secondary market or a specified customer base for
cross-selling products. Clients have the option of having On-Line continue to
scan new documents on an on-going basis or On-Line will train the client to scan
and code new documents in-house.
Typically, CyberDoc sales consist of one-time, high-margin revenues
associated with backlog conversion of client documents, the sale of complete
imaging capture and retrieval systems, and associated scanners. Image capturing
and scanners may not be sold if the client decides to have On-Line scan and code
new documents; in this case, On-Line benefits from the recurring conversion
work. A licensing fee is also charged to the customer, as well as maintenance
fees for software systems.
DESCRIPTION OF BUSINESS--ANCILLARY SERVICES
Since the Company's acquisition, On-Line has expanded its existing client
services by creating a Network Services department in order to re-sell hardware
and software to existing clients and provide local and wide area network
architectural design and implementation services. Since mid-1997, On-Line's
Network Services have also been targeted to companies both within and outside
the financial services industry. See also "Business of On-Line Financial
Services, Inc.--Client Base"
In addition, in July 1997, On-Line completed construction of its APEX
Training and Conference Solution Center ("APEX"). APEX has a dedicated local
area network and is designed to provide computer based training services.
On-Line utilizes APEX to conduct application and conversion training services to
existing clients, and also generates one-time revenues from rental of the center
to third parities, primarily training companies that provide instruction on
PC-based application software.
CONTRACTS
On-Line has contracts with its financial institution data processing clients
that generally have an initial term of three to seven years and automatically
renew for successive terms unless terminated by either party. In addition, based
on the average contract length, approximately 20% of On-Line's recurring data
processing revenues are at risk each year. On-Line's fee structure is primarily
based on the number of accounts and transactions processed, plus additional
charges for special services. All data processing contracts are in compliance
with OTS Thrift Bulletin 46 (TB-46): "Contracting for Data Processing Services
or Systems" and also address certain other Federal Financial Institutions
Examination Council (FFIEC) requirements for information systems servicing
providers. It is On-Line's policy that legal counsel review data processing
contracts for compliance with applicable regulations and soundness to help
eliminate potential risk exposures to On-Line. In addition, On-Line's data
processing contracts generally include penalties and/or recovery of servicing
discounts received over the life of the contract, in the event a client
terminates its agreement prior to the expiration date, as well as de-conversion
fees.
During October 1997, On-Line began entering into processing contracts with
non-financial institution clients. Such contracts are similar to those for
financial institutions and have specified terms, but may differ slightly based
on the nature of the client's business.
In addition, On-Line may enter into agreements to provide "one-time"
services to existing and new clients, in all industries, in the areas of local
and wide area networking, hardware and software sales and services, document
management and retrieval systems, or specialized consulting services. As a
result of these "one-time" agreements, On-Line may from time to time also enter
into a relationship to provide
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ongoing maintenance services which include network support, network
administration or certain other software maintenance services that result in a
recurring revenue stream for On-Line.
DISASTER RECOVERY / BUSINESS RESUMPTION SYSTEMS
On-Line has comprehensive disaster recovery and business resumption systems.
The key restoration services include daily off-site storage and rotation of
critical files, and the availability of a third-party "hot site". On-Line's
hot-site is a fully operational off-site processing facility equipped with
hardware and system software consistent with On-Line's facility, and is ready to
operate within several hours in the event of a disaster. The hot-site is also
equipped with certain communications equipment as well as On-Line owned
equipment to provide full network recovery capabilities. In order to manage its
recovery systems, On-Line utilizes a disaster recovery planning product that is
specifically designed to meet the compliance needs of its financial institution
clients. All components of On-Line's multiple platform environment and product
offerings are considered in its recovery systems.
REGULATION
On-Line is not directly subject to federal or state banking regulations.
However, as a provider of services to banking institutions, On-Line is subject
to review from time to time by the FDIC, the OTS, the Federal Reserve Board, the
Office of the Comptroller of the Currency, and various state regulatory
authorities. These regulators make certain recommendations to On-Line regarding
various aspects of its operations. In addition, On-Line processing operations
are reviewed annually by an independent auditing firm during a third-party
service center review. Internal auditing procedures are also performed
periodically throughout the year by an independent auditing firm. Such
regulatory reviews and independent audits are intended to review compliance with
FFIEC guidelines, primarily as related to information systems internal controls,
in order to better protect client data from potential security, data integrity,
or confidentiality risks.
BUSINESS OF EMPIRE/ARGO, LLC
In recent years, the Company has acquired Discounted Loans through Empire.
The Company estimates the amounts it will realize through foreclosure,
collection efforts or other resolution of each loan and the length of time
required to complete the collection process in determining the amounts it will
bid to acquire such loans. Investments in these assets has generally resulted in
higher yields and gains. Losses have also been incurred from certain properties
through REO activity. Discounted Loans receivable have also been acquired
through Argo Mortgage. See "Business of the Bank--Bank Subsidiaries."
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Bank report their income on a consolidated
basis and the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. 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
Bank or the Company. For its 1998 taxable year, the Bank is subject to a maximum
federal income tax rate of 35%.
BAD DEBT RESERVES. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved)
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under (i) the Percentage of Taxable Income Method (the "PTI Method") or (ii) the
Experience Method. The reserve for nonqualifying loans was computed using the
Experience Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, requires savings institutions to recapture (I.E.,
take into income) certain portions of their accumulated bad debt reserves. The
1996 Act repeals the reserve method of accounting for bad debts effective for
tax years beginning after 1995. However, thrift institutions that would be
treated as small banks are allowed to utilize the Experience Method applicable
to such institutions, while thrift institutions that are treated as large banks
(those generally exceeding $500 million in assets) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.
A thrift institution required to change its method of computing reserves for
bad debts will treat such change as a change in method of accounting, initiated
by the taxpayer, and having been made with the consent of the IRS. Any Section
481(a) adjustment required to be taken into income with respect to such change
generally will be taken into income ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to the
residential loan requirement.
Under the residential loan requirement provision, the recapture required by
the 1996 Act was suspended for the 1996 and 1997 taxable years because the Bank
met the residential loan requirement test for both years.
Under the 1996 Act, for its current and future taxable years, as a small
bank, the Bank is permitted to make additions to its tax bad debt reserves. In
addition, the Bank is required to recapture (I.E., take into income) over a six
year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 other than its supplemental reserve for losses on loans, if
any over the balance of such reserves as of December 31, 1987 or a recomputed
December 31, 1987 reserves if the Bank's loan portfolio decreased since December
31, 1987. As a result of such recapture, the Bank will incur additional taxable
income of approximately $80,000 which will be taken into income beginning in
1998 over a six year period.
DISTRIBUTIONS. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, as a small bank such distributions will be
considered to have been made from the greater of the Bank's tax bad debt
reserves computed under the experience method on the Bank's tax bad debt
reserves as of December 31, 1987 to the extent thereof, and then from the Bank's
supplemental reserve for losses on loans, to the extent thereof, and an amount
based on the amount distributed (but not in excess of the amount of such
reserves) will be included in the Bank's income. Non-dividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of the Bank's current or accumulated earnings and profits
will not be so included in the Bank's income.
The amount of additional taxable income triggered by a non-dividend
distribution is the lesser of the Bank's tax bad debt reserves and supplemental
reserves as determined above as of December 31, 1987 or an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if the Bank makes a non-dividend distribution to the
Company, in some instances approximately one and one-half times the amount of
such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserves.
SAIF RECAPITALIZATION ASSESSMENT. The Funds Act levied a $.657-cent fee on
every $100 of thrift deposits held on March 31, 1995. For financial statement
purposes, this assessment was reported as an expense for the quarter ended
September 30, 1996. The Funds Act includes a provision which states that
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the amount of any special assessment paid to capitalize SAIF under this
legislation is deductible under Section 162 of the Code in the year of payment.
STATE AND LOCAL TAXATION
STATE OF ILLINOIS. The Company files Illinois income tax returns. For
Illinois income tax purposes, savings institutions are presently taxed at a rate
equal to 7.18% of taxable income. For these purposes, "taxable income" generally
means federal taxable income, subject to certain adjustments (including the
addition of interest income on State and municipal obligations and the exclusion
of interest income on United States Treasury obligations). The exclusion of
income on United States Treasury obligations has the effect of reducing
significantly the Illinois taxable income of savings institutions. The Company
is not currently under audit with respect to its Illinois income tax returns.
STATE OF DELAWARE TAXATION. As a Delaware holding company not earning
income in Delaware, the Company is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
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REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its chartering agency, and the FDIC, as the deposit insurer. The
Bank is a member of the FHLB System. The Bank's deposit accounts are insured up
to applicable limits by the SAIF managed by the FDIC. The Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to test
the Bank's compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or the Congress, could have a material adverse impact on the
Company, the Bank or their operations. The Company, as a savings and loan
holding company, will also be required to file certain reports with, and
otherwise comply with the rules and regulations of, the OTS and the Commission
under the federal securities laws.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the OTS, the FDIC or the Congress, could have a material
impact on the Company, the Bank, their operations, or the Reorganization.
Congress is expected to consider in 1998 the elimination of the federal thrift
charter and the abolishment of the OTS. The results of such consideration,
including possible enactment of legislation, is uncertain. Therefore, the
Company is unable to determine the extent to which the results of such
consideration or possible legislation, if enacted, would affect its business.
See "Risk Factors-- Financial Institution Regulation and Possible Legislation."
Certain of the regulatory requirements applicable to the Bank and to the
Company are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings associations set forth in this
Prospectus do not purport to be complete descriptions of such statutes and
regulations and their effects on the Bank and the Company and is qualified in
its entirety by reference to such statutes and regulations.
FEDERAL SAVINGS INSTITUTION REGULATION
BUSINESS ACTIVITIES. The activities of federal savings institutions are
governed by the HOLA and, in certain respects, the Federal Deposit Insurance Act
("FDI Act") and the regulations issued by the agencies to implement these
statutes. These laws and regulations delineate the nature and extent of the
activities in which federal associations may engage. In particular, many types
of lending authority for federal associations, E.G., commercial, non-residential
real property loans and consumer loans, are limited to a specified percentage of
the institutions' capital or assets.
LOANS-TO-ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. At June 30, 1998, the Bank's general limit on loans-to-one borrower
was $2.1 million. At June 30, 1998, the Bank's largest aggregate amount of
loans-to-one borrower consisted of $3.2 million. The OTS has allowed the Bank to
lend an amount not to exceed $4.0 million to this customer based on regulatory
exceptions to the loan to-one-borrower limitation.
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QTL TEST. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of June 30, 1998,
the Bank maintained 93% of its portfolio assets in qualified thrift investments
and, therefore, met the QTL test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered as "qualified thrift investments."
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. At June 30, 1998, the Bank was classified as a Tier 1 Bank. In the
event the Bank's capital fell below its capital requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable deposit accounts plus
short-term borrowings. Monetary penalties may be imposed for failure to meet
these liquidity requirements. The Bank's average liquidity ratio for the quarter
ended June 30, 1998 was 6.66% and for the year ended December 31, 1997 was
5.91%, which exceeded the applicable requirements. The Bank has never been
subject to monetary penalties for failure to meet its liquidity requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Bank's latest
quarterly Thrift Financial Report. The assessments paid by the Bank for the six
months ended June 30, 1998 totaled $56,000 and for the year ended December 31,
1997 totaled $102,000.
BRANCHING. OTS regulations permit federally chartered savings associations
to branch nationwide under certain conditions. Generally, federal savings
associations may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings associations. For
a discussion of the impact of proposed legislation, see "Risk Factors--Financial
Institution Regulation and Possible Legislation."
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (I.E., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by
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Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A restricts
the aggregate amount of covered transactions with any individual affiliate to
10% of the capital and surplus of the savings institution and also limits the
aggregate amount of transactions with all affiliates to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally requires that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect to a particular savings institution. If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, Information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit systems; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholders' equity (including retained earnings),
certain non-cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights and credit card relationships. The OTS
regulations require that, in meeting the leverage ratio, tangible and risk-based
capital standards, institutions generally must deduct investments in and loans
to subsidiaries engaged in activities not permissible for a national bank. In
addition, the OTS prompt corrective action regulation provides that a savings
institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See
"Regulation--Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining
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the amount of risk-weighted assets, all assets, including certain off-balance
sheet assets, are multiplied by a risk-weight of 0% to 100%, as assigned by the
OTS capital regulation based on the risks the OTS believes are inherent in the
type of asset. The components of core capital are equivalent to those discussed
earlier under the 3% leverage standard. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and, within specified limits, the allowance for loan and lease
losses. Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its regulatory
capital rule. The final interest rate risk rule also adjusts the risk-weighting
for certain mortgage derivative securities. Under the rule, savings associations
with "above normal" interest rate risk exposure would be subject to a deduction
from total capital for purposes of calculating their risk-based capital
requirements. A savings association's interest rate risk is measured by the
decline in the NPV of its assets (I.E., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200-basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. The OTS has postponed the
date that the component will first be deducted from an institution's total
capital to provide it with an opportunity to review the interest rate risk
approaches taken by the other federal banking agencies.
At both June 30, 1998 and December 31, 1997, the Bank met each of its
capital requirements.
PROMPT CORRECTIVE REGULATORY ACTION
Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
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INSURANCE OF DEPOSIT ACCOUNTS
Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the BIF (the deposit insurance fund that covers most commercial bank deposits)
are statutorily required to be recapitalized to a 1.25% of insured reserve
deposits ratio. Until recently, members of the SAIF and BIF were paying average
deposit insurance premiums of between 24 and 25 basis points. The BIF met the
required reserve in 1995, whereas the SAIF was not expected to meet or exceed
the required level until 2002 at the earliest. This situation was primarily due
to the statutory requirement that SAIF members make payments on bonds issued in
the late 1980s by the FICO to recapitalize the predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Bank could have been placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President signed into law the the Funds Act
which, among other things, imposed a special one-time assessment on SAIF member
institutions, including the Bank, to recapitalize the SAIF. As required by the
Funds Act, the FDIC imposed a special assessment of 65.7 basis points on SAIF
assessable deposits held as of March 31, 1995, payable November 27, 1996 (the
"SAIF Special Assessment"). The SAIF Special Assessment was recognized by the
Bank as an expense in the quarter ended September 30, 1996 and was tax
deductible. The SAIF Special Assessment recorded by the Bank amounted to
$789,000 on a pre-tax basis and $489,000 on an after-tax basis.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits will
be assessed for FICO payment of 1.3 basis points, while SAIF deposits will pay
6.48 basis points. Full pro rata sharing of the FICO payments between BIF and
SAIF members will occur on the earlier of January 1, 2000 or the date the BIF
and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations remain as of that
time.
As a result of the Funds Act, the FDIC recently voted to effectively lower
SAIF assessments to 0 to 27 basis points as of January 1, 1997, a range
comparable to that of BIF members. However, SAIF members will continue to make
the FICO payments described above. Management cannot predict the level of FDIC
insurance assessments on an on-going basis, whether the savings association
charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
The Bank's assessment rate for the six months ended June 30, 1998 and the
year ended December 31, 1997 was 6 basis points and the premiums paid for these
periods were $56,000 and $102,000, respectively. A significant increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION
The Funds Act, enacted in September 1996, provides that the BIF, the fund
which insures most commercial bank deposits, and the SAIF will merge on January
1, 1999, if there are no savings associations,
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as defined, in existence on that date. Pursuant to that legislation, the
Department of Treasury in May, 1997 recommended in a report to Congress that the
separate charters for thrifts and banks be abolished. Various proposals to
eliminate the federal thrift charter, create a uniform financial institutions
charter, conform holding company regulation and abolish the OTS have been
introduced in Congress. The House Committee on Banking and Financial Services
has reported a bill that will require federal savings associations to convert to
national banks or some type of state charter within two years of enactment or
they would automatically become national banks. The bill would also merge the
BIF and the SAIF, repeal the HOLA, abolish the OTS and transfer the regulation
of savings associations to the federal bank regulators and the Federal Reserve
Board. Federal thrifts converted to national banks generally will be permitted
to continue to engage in any activity, including the holding of any asset,
lawfully conducted on the date prior to the enactment. A federal savings
association converted to a national bank may retain all branches established or
proposed in a pending application as of enactment and establish new branches in
any state in which it has a branch. Otherwise, it may establish new branches
only under national bank rules. In addition, beginning two years after
enactment, national banks will be authorized to exercise all powers formerly
authorized for federal savings associations.
Under the proposal, holding companies for savings associations converted to
national banks generally will become subject to the same regulation as holding
companies that control commercial banks, with a grandfather provision for former
unitary savings and loan holding companies. Such grandfathered companies will be
permitted to maintain and establish affiliations with any type of company and to
acquire additional depository institutions, as long as any acquired depository
institution is merged into its converted savings association and such
institution continues to comply with both the qualified thrift lender test and
certain asset and investment limitations to which it was subject as a federal
savings association.
TRUTH IN LENDING
The Truth in Lending Act ("TILA") and Regulation Z promulgated thereunder
requires lenders, such as the Bank, to provide a disclosure statement to
borrowers which explains the terms and cost of credit, including, but not
limited to, the amount financed, finance charges, other charges, and prepayment
terms. Regulation Z applies to a wide variety of lending transactions, including
mortgage loans and credit cards. The TILA provides borrowers with a three day
right to cancel certain credit transactions, including residential mortgage
loans and other loans where a customer pledges his or her principal dwelling as
security for the loan. Failure to comply with the provisions of the TILA could
subject a lender to criminal and civil sanctions.
The TILA was amended effective October 1, 1995 to impose new disclosure
requirements and substantive limitations on closed-end home equity mortgage
loans bearing rates or fees above a certain percentage or amount ("TILA
Amendments"). Specifically, the TILA Amendments applies to loans secured by a
customer's principal dwelling (other than a residential mortgage loan to acquire
or construct a borrower's principal dwelling, a reverse mortgage transaction or
home equity lines of credit) with (i) an annual percentage rate which exceeds by
more than ten percentage points the yield on U.S. Treasury securities having
comparable periods of maturity; or (ii) total loan origination fees and other
fees payable by the customer will exceed the greater of 8% of the loan amount or
$400 ("Covered Loans"). Additional disclosures are required to be provided to
the customer under the TILA Amendments for all Covered Loans not less than three
business days prior to the consummation of the transaction.
OTHER LENDING LAWS
The Bank is also required to comply with the Equal Credit Opportunity Act of
1974, as amended ("ECOA"), which prohibits creditors from discriminating against
applicants on certain prohibited bases, including race, color, religion,
national origin, sex, age or marital status. Regulation B promulgated under ECOA
restricts creditors from obtaining certain types of information from loan
applicants. Among other things, it also requires certain disclosures by the
lender regarding consumer rights and requires lenders to
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advise applicants of the reasons for any credit denial. In instances where the
applicant is denied credit or the rate or charge for loans increases as a result
of information obtained from a consumer credit agency, another statute, the Fair
Credit Reporting Act of 1970, as amended, requires lenders to supply the
applicant with the name and address of the reporting agency. In addition, the
Bank is subject to the Fair Housing Act and regulations thereunder, which
broadly prohibit certain discriminatory practices in connection with the Bank's
business. The Bank is also subject to the Real Estate Settlement Procedures Act
of 1974, as amended, and the Home Mortgage Disclosure Act.
In addition, the Bank is subject to various other Federal and state laws,
rules and regulations governing, among things, the licensing of, and procedures
which must be followed by, mortgage lenders and services, and disclosures which
must be made to consumer borrowers. Failure to comply with such laws, as well as
with the laws described above, may result in civil and criminal liability.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at June 30, 1998, of $1.8 million.
FHLB advances must be secured by specified types of collateral and all long-term
advances may only be obtained for the purpose of providing funds for residential
housing finance. At June 30, 1998, the Bank had outstanding FHLB advances of
$18.1 million.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the six months ended June 30, 1998 and 1997 and
the years ended December 31, 1997, 1996 and 1995, dividends from the FHLB to the
Bank amounted to $89,000, $112,000, $226,000, $188,000, and $175,000
respectively. If dividends were reduced, the Bank's net interest income would
likely also be reduced. Further, there can be no assurance that the impact of
recent or future legislation on the FHLBs will not also cause a decrease in the
value of the FHLB stock the Bank is required to hold.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts greater than $47.8 million, the
reserve requirement is $1.4 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
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HOLDING COMPANY REGULATION
The Company is a non-diversified unitary savings and loan holding company
within the meaning of the HOLA. As such, the Company is registered with the OTS
and is subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Company
and its non-savings institution subsidiaries. Among other things, this authority
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings institution. The Bank must notify the OTS
30 days before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Bank continues to be a QTL. See
"Regulation--Federal Savings Institution Regulation--QTL Test" for a discussion
of the QTL requirements. Upon any non-supervisory acquisition by the Company of
another savings association, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS,
and to other activities authorized by OTS regulation. Previously proposed
legislation would have treated all savings and loan holding companies as bank
holding companies and limit the activities of such companies to those
permissible for bank holding companies. See "Risk Factors--Financial Institution
Regulation and Possible Legislation."
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; and from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
FEDERAL SECURITIES LAWS
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act for the registration of the Common Stock and the
Capital Securities to be issued in the Offering. Upon the effectiveness of the
Offering, the Company's Common Stock and Capital Securities will be registered
with the Commission under the Securities Exchange Act of 1934 (the "Exchange
Act"). The Company will then be subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of 1933 (the "Securities Act") of
shares of the Common Stock and the Capital Securities to be issued in the
Offering does not cover the resale of such shares. Shares of the Common Stock
and/or Capital Securities purchased by persons who are not affiliates of the
Company may be resold without registration. Shares purchased by 144 under the
Securities Act. If the Company meets the current public information requirements
of Rule 144 under the Securities Act, each
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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) would be 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
revision may be made in the future by the Company to permit affiliates to have
their shares registered for sale under the Securities Act under certain
circumstances.
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THE BOARD OF DIRECTORS AND
MANAGEMENT OF THE COMPANY
The following table sets forth certain information regarding executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD WITH COMPANY
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
John G. Yedinak..................................... 49 Director, Chairman of the Board, President and Chief
Executive Officer
Sergio Martinucci................................... 63 Director, Vice President
Frances M. Pitts.................................... 39 Director, Executive Vice President and Secretary
Donald G. Wittmer................................... 62 Director
Arthur E. Byrnes.................................... 53 Director
George L. Koehm..................................... 36 Interim Chief Financial Officer
</TABLE>
- ------------------------
(1) As of June 30, 1998
The Board of Directors of the Company is divided into three classes, each of
which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Mr. Wittmer, has a term of office expiring at the 1999 annual
meeting of stockholders; a second class, consisting of Ms. Pitts and Mr. Byrnes,
has a term of office expiring at the 2000 annual meeting of stockholders; and a
third class consisting of Messrs. Martinucci and Yedinak, has a term of office
expiring at the 2001 annual meeting of stockholders.
During the term of the Stockholder Agreement with Deltec, and for so long as
Deltec holds at least 15% of the Company's Common Stock, Deltec has the right to
nominate one director to the Company's Board of Directors. The Stockholder
Agreement also grants Deltec registration rights in respect of any shares of
Common Stock that Deltec decides to sell. Furthermore, John G. Yedinak, the
President and Chief Executive Officer of the Company has agreed that, during
this time period, he will vote all shares of the Company's Common Stock owned by
him for the nominee designated by Deltec. Finally, during the term of the
Stockholder Agreement, Deltec has agreed to remain in compliance with the
Rebuttal Agreement between Deltec and the OTS. See "Stockholder Agreement."
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company met on a monthly basis during the year
ended December 31, 1997. No directors attended fewer than 75% of the total
number of Board and Committee meetings held during this period. The Board of
Directors of the Company maintains committees, the nature and composition of
which are described below:
EXECUTIVE COMMITTEE. The Executive Committee of the Company consists of
Messrs. Yedinak, Wittmer and Martinucci. This committee exercises the authority
of the Board of Directors with respect to matters requiring action between
meetings of the Board of Directors. Any actions by this committee require
subsequent ratification by the Board of Directors at the next regular meeting.
This committee meets as needed between regular meetings of the Board. The
Executive Committee met 12 times in 1997.
AUDIT COMMITTEE. The Audit Committee of the Company consists of Messrs.
Wittmer, Byrnes and Yedinak. The Audit Committee met 12 times in 1997.
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NOMINATING COMMITTEE. The Company's Nominating Committee for the 1998
Annual Meeting of Stockholders consisted of the entire Board of Directors. The
Nominating Committee considers and recommends the nominees for director to stand
for election at the Company's annual meeting of stockholders. The Company's
Bylaws provide for stockholder nominations of directors. These provisions
require such nominations to be made pursuant to timely notice in writing to the
Secretary of the Company. The stockholder's notice of nomination must contain
all information relating to the nominee which is required to be disclosed by the
Company's bylaws and by the Exchange Act. The Nominating Committee last met on
February 11, 1998.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. Directors of the Company are paid $700 monthly for
attendance at meetings and for services rendered to the Company. Directors of
the Bank are paid $700 for attendance at monthly meetings of the Board, and are
also compensated for service to and attendance at meetings of the committees of
the Board on which they serve at the rate of $400 ($450 for the Chairman) for
each committee meeting. The Chairman of each Board and each committee is
compensated at a higher rate for attendance at monthly meetings and for duties
performed during the month and the Secretary of the Board and of each committee
also receives compensation for services, at the rate of $400 each meeting.
Directors of On-Line are paid $700 for attendance at meetings of the Board.
1998 INCENTIVE STOCK OPTION PLAN. Each member of the Board of Directors who
is not an officer or employee of the Bank or the Company, is eligible to receive
non-statutory stock options to purchase shares of Common Stock under the
Company's 1998 Incentive Stock Option Plan ("Incentive Stock Option Plan"). As
of June 30, 1998 no options had been granted under the Incentive Stock Option
Plan.
THE BOARD OF DIRECTORS AND MANAGEMENT OF THE BANK
DIRECTORS
The following table sets forth certain information regarding the Board of
Directors of the Bank.
<TABLE>
<CAPTION>
POSITIONS HELD WITH THE DIRECTOR TERM
NAME AGE(1) BANK SINCE EXPIRES
- --------------------------------------------------------- ----------- --------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Sergio Martinucci........................................ 63 Chairman of the Board 1987 1999
John G. Yedinak.......................................... 49 Director, President and 1987 1999
Chief Executive Officer
Richard B. Duffner....................................... 63 Director 1987 2001
Emil T. Sergo............................................ 72 Director 1988 2001
Dennis G. Carroll........................................ 48 Director 1990 1999
Raymond E. Froula........................................ 72 Director 1991 2000
Mary Ann Gearhart........................................ 47 Director 1991 2000
</TABLE>
- ------------------------
(1) As of June 30, 1998.
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EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the executive
officers of the Bank who are not also directors.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION HELD WITH THE BANK
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
Frances M. Pitts.................................... 39 Senior Vice President, General Counsel and Secretary
George L. Koehm..................................... 36 Senior Vice President and Chief Operating Officer
</TABLE>
- ------------------------
(1) As of June 30, 1998.
BIOGRAPHICAL INFORMATION
Presented below is biographical information regarding directors and
executive officers of the Company and directors and executive officers of the
Bank who are not also directors and executive officers of the Company.
JOHN G. YEDINAK has served as the Chairman of the Board, President and Chief
Executive Officer of the Company. Mr. Yedinak also serves as the President and
Chief Executive Officer and Director of the Bank and the Chairman of the Board
and Chief Executive Officer of On-Line. He received a B.S. from Northern
Illinois University and his Master of Business from Governor's State University.
Mr. Yedinak was previously President of Summit Financial Services, Inc.,
City-Wide Collection Company, Inc., and Assistant Secretary and Systems Manager
of Talman Federal Savings and Loan Association.
SERGIO MARTINUCCI has served as a Director and Vice President of the Company
since 1987. Mr. Martinucci also serves as the Chairman of the Board of the Bank
and is a Director of On-Line. Mr. Martinucci is President of Coldwell
Banker-Stanmeyer Realtors. He received his B.A. and Masters in Education from
Roosevelt University, Chicago, Illinois. Previously, Mr. Martinucci was a
college professor.
FRANCES M. PITTS has served as a Director of the Company since 1992 and as
Executive Vice President and Secretary of the Company since 1994. Ms. Pitts also
serves as Senior Vice President, General Counsel and Secretary of the Bank and
Senior Vice President and Secretary of On-Line. She received her B.A. from
Marquette University and her J.D. from Valparaiso University School of Law. Ms.
Pitts was previously in private practice representing financial institutions.
RICHARD B. DUFFNER has served as a Director of the Bank since 1987. He
received his B.S.C. in accounting and M.B.A. from Loyola University. Mr. Duffner
has served as Assistant Treasurer and Director of Cash Management at Commerce
Clearing House, Inc. and also served as Vice President, Branch Operations of
Talman Federal Savings. Mr. Duffner is also President of R.B.D. & Associates,
Ltd, a real estate appraisal firm.
DONALD G. WITTMER has served as Director of the Company since 1992 and also
serves as a Director of On-Line. He received his B.S. in Accounting from
Fairleigh Dickinson University and his MBA in Finance from Loyola University in
Chicago. Previously he served as Vice President, Controller for Quaker Oats
Company. Currently, Mr. Wittmer is an owner and President of Wittmer Management
Corporation and Wittmer Financial Services, Ltd. Mr. Wittmer is a Certified
Public Accountant.
ARTHUR E. BYRNES has served as a Director of the Company since 1997. Mr.
Byrnes is Chairman of the Deltec Asset Management Corporation, a wholly owned
subsidiary of Deltec, and a Director of Deltec International S.A., the parent
holding company of Deltec. He received his B.A. from Harvard University
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and his M.B.A. from Stanford University. Mr. Byrnes is also a Director at Dravo
Corporation and Home Federal Financial Corporation.
EMIL T. SERGO has served as a Director of the Bank since 1988. He is the
Mayor of McCook, Illinois. Currently, Mr. Sergo is a member and past President
of the Lyons Township Democratic Organization.
DENNIS G. CARROLL has served as a Director of the Bank since 1990. He is a
detective with the City of Chicago Police Department. He received his B.S. from
St. Joseph College and his Masters in Public Administration from Illinois
Institute of Technology. Mr. Carroll was previously associated with the Chicago
City Bank. He is a Certified Residential Appraiser. Currently, he also is a
consultant for Midwest Appraisals, Ltd.
RAYMOND E. FROULA has served as a Director of the Bank since 1991. He is
currently retired, but was previously a Senior Vice President in charge of
appraisal services for Bell Federal Savings in Chicago, Illinois. Mr. Froula was
a past President of Illinois Chapter #6 of the American Institute of Real Estate
Appraisers and of the Society of Real Estate Appraisers Market Data Center.
MARY ANN GEARHART has served as a Director of the Bank since 1991. Ms.
Gearhart received her B.S. and M.A. in Education from Illinois State University.
Previously, she was an owner of Deer Creek Cooperative Preschool and was a
special education teacher. Currently, she also serves as Executive Chairperson
of the Will County Board of Commissioners and a Supervisor in Crete Township.
GEORGE L. KOEHM joined the Bank in October 1997 as Senior Vice President and
Chief Operating Officer and was appointed Interim Chief Financial Officer of the
Company in July 1998. From August 1989 until August 1997, Mr. Koehm was Vice
President and Treasurer of Community Bank, a Federal Savings Bank located in
Michigan City, Indiana and served as Vice President and Chief Financial Officer
of its parent company, CB Bancorp, Inc.
Presented below is biographical information regarding certain executive
officers of the Company's subsidiaries other than the Bank.
COLLEEN A. KITCH joined On-Line in May 1996 as Director of Information
Systems Integration and was promoted to Senior Vice President and Chief
Operating Officer in October 1996. Prior to joining On-Line, Ms. Kitch worked
for KPMG Peat Marwick LLP's financial audit division and Information Risk
Management/Information Systems consulting division. Ms. Kitch graduated from the
University of Notre Dame with a BAA in Accountancy and a BA in Computer
Applications. Ms. Kitch is also a Certified Public Accountant and Certified
Systems Auditor.
JOSEPH C. ("TUCK") MARSHALL, has served as the President for MARGO since its
inception in May 1996. Mr. Marshall has an extensive background in mortgage
brokerage and mortgage financing. He is responsible for the marketing direction
and efforts of MARGO. In addition, Mr. Marshall is the current President of the
National Association of Mortgage Brokers, which represents approximately 8,000
mortgage brokers across the country.
RALPH E. ROSYNEK, JR., has served as the Executive Vice President and Chief
Operating Officer of MARGO since its inception in May, 1996. From 1993-1996, Mr.
Rosynek was President of Shoreline Bancorp, Inc., a privately held mortgage
banking firm. Mr. Rosynek is responsible for all operations of MARGO, assisted
by a staff of 12 and has a 22 year background in banking, mortgage banking and
mortgage brokerage. In addition, Mr. Rosynek is currently the Treasurer of the
National Association of Mortgage Brokers Educational Foundation and holds the
national designation of Senior Mortgage Consultant.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK
The Board of Directors meets on a monthly basis and may have additional
special meetings upon the request of the Chairman of the Board. During the year
ended December 31, 1997, the Board of Directors
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met 12 times. No director attended fewer than 75% of the total number of Board
and committee meetings held during this period.
The Board of Directors of the Bank has established the following Board and
management committees:
The Audit Committee consists of Messrs. Carroll and Duffner and Mmes.
Gearhart and Pitts. The Bank's outsourced internal audit function reports to
this Committee. The purpose of this Committee is to review the audit report and
to suggest management actions regarding the implementation of audit findings.
The Committee also maintains a liaison with the outside auditors and reviews the
adequacy of internal controls. The Committee meets monthly.
The Loan Committee consists of Messrs. Yedinak, Carroll, Duffner, Froula,
Koehm, Rosynek and Ms. Pitts. This Committee exercises the authority of the
Board pertaining to loan matters and approves or rejects all loans presented by
management. This Committee also reviews the workout solutions of problem loans,
and approves the classification of assets and the establishment of adequate
valuation allowances. The Committee meets monthly.
The Executive Committee consists of Messrs. Yedinak, Martinucci, Carroll and
Duffner. This committee exercises the authority of the Board of Directors with
respect to matters requiring action between meetings of the Board of Directors.
Any actions by this committee require subsequent ratification by the Board of
Directors at the next regular meeting. The Executive Committee meets as needed;
in the year ended December 31, 1997 it met 12 times.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows for the fiscal years
ending December 31, 1997, 1996 and 1995, the cash compensation paid by the
Company and its subsidiaries, the Bank and On-Line, as well as certain other
compensation paid or accrued for those years, to the Chief Executive Officer and
to the other executive officers of the Company who received total salary and
bonus in excess of $100,000 in 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION AWARDS
------------------------------------- ----------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND SALARY BONUS COMPEN- SATION AWARD(S) OPTIONS/
PRINCIPAL OFFICE YEAR ($)(1)(2) ($)(3) ($)(4) ($) SARS(#)
- ---------------------------------------- --------- ----------- --------- ------------- ----------- ---------------
John G. Yedinak......................... 1997 $ 359,804 $ 176,000 $ -- $ -- --
President and Chief 1996 320,336 200,998 -- -- --
Executive Officer of the 1995 299,149 125,434 -- 13,755 --
Company and President
and Chief Executive
Officer of the Savings
Bank
Frances M. Pitts........................ 1997 $ 144,615 $ 70,500 $ -- $ -- --
Executive Vice President 1996 126,368 82,989 -- -- --
and Secretary of the 1995 117,034 46,201 -- 5,000 --
Company and Senior
Vice President, General
Counsel and Secretary of
the Saving Bank
<CAPTION>
<S> <C> <C>
PAYOUTS
----------- ALL OTHER
LTIP COMPEN-
NAME AND PAYOUTS SATION
PRINCIPAL OFFICE ($)(5) ($)
- ---------------------------------------- ----------- -----------
John G. Yedinak......................... None $ 24,816(6)
President and Chief None 58,451
Executive Officer of the None 23,369
Company and President
and Chief Executive
Officer of the Savings
Bank
Frances M. Pitts........................ None $ 23,482(6)
Executive Vice President None 21,453
and Secretary of the None 9,945
Company and Senior
Vice President, General
Counsel and Secretary of
the Saving Bank
</TABLE>
- ------------------------
(1) Includes amounts of salary deferred pursuant to the Bank's 401(k) Plan.
Under the plan, participants may elect to have up to the lesser of 12% or
$9,500 of annual compensation deferred for the plan year.
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(2) Includes directors' fees received from the Company, the Bank and On-Line
with respect to Mr. Yedinak and directors' fees and Secretary's fees
received from the Company and the Bank with respect to Ms. Pitts.
(3) Includes deferred bonus amounts as described under "--Employment Agreements"
with respect to Mr. Yedinak and Ms. Pitts. Such bonuses were based upon the
financial results of the Company for 1996 and 1995. No bonuses were paid in
1997.
(4) For 1997, 1996 and 1995, there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the years; (b)
payments of above market preferential earnings on deferred compensation; (c)
payments of earnings with respect to long term incentive plans prior to
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock.
(5) The Company does not maintain a long-term incentive plan and therefore,
there were no payouts or awards under such plan.
(6) Includes $4,750 contributed by the Bank pursuant to the 401(k) Plan for the
account of each of Mr. Yedinak and Ms. Pitts, for the year ended December
31, 1997. Excludes $82,219, and $10,797 which represents the market value of
premiums paid on supplemental policies covering life (with proceeds to be
paid to the Company and the Bank) and long-term disability for Mr. Yedinak
and Ms. Pitts for the year ended December 31, 1997. Includes $20,066 and
$18,632, the market value of the allocations of shares made under the
Employee Stock Ownership Plan for 1997.
EMPLOYMENT AGREEMENTS. The Company and the Bank (collectively the
"Employer") entered into employment agreements ("Agreements") with each of Mr.
Yedinak and Ms. Pitts (the "Executives"), effective November 1, 1996. The Bank
Agreements provide for a three year term and, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
Directors may extend the Agreements for an additional year so that the remaining
term shall be three years, unless written notice of non-renewal is given by the
Board of Directors after conducting a performance evaluation of the Executives.
The Company Agreements provide for a five year term and shall be extended on a
daily basis unless written notice of non-renewal is given by the Board of the
Company. Under the Agreements with each of the Executives, base compensation of
$150,000 and $173,800 with respect to Mr. Yedinak and $98,000 and $33,415 with
respect to Ms. Pitts, will be paid by each of the Bank and the Company,
respectively. The salary amounts under the Agreements may be increased at the
discretion of the Board of Directors, or authorized committee of the Board, of
each of the Company and the Bank. The salary may not be decreased during the
term of the Agreements without the prior written consent of the executive
officer.
Pursuant to the Agreements, in addition to the Executive's base
compensation, an amount equal to 2.0% for Mr. Yedinak and 1.0% for Ms. Pitts of
gross profits of each of the Company and Bank shall be credited as additional
compensation to the executive to be paid on the earlier of termination for other
than cause, death or disability, the expiration of the Agreements, or annually
on the anniversary date of the Agreements. The deferred amounts will be
forfeited if the Executive is terminated prior to the anniversary date of the
Agreements for any reason other than death or disability. The Agreements also
provide for, among other things, participation in stock benefits plans and other
fringe benefits applicable to executive personnel. The Agreements provide for
termination by the Bank or the Company for cause as defined in the Agreements at
any time.
In the event the Bank or the Company chooses to terminate the Executive's
employment for reasons other than for cause, or in the event of the Executive's
resignation from the Bank and the Company upon: (i) termination of employment
other than for disability, retirement or cause or (ii) the Executive's
resignation upon: (a) a failure to re-elect the Executive or his current offices
or failure to nominate or renominate the Executive to the board; (b) a material
demotive change in the Executive's functions, duties or responsibilities; (c) a
relocation of the Executive's principal place of employment by more than 30
miles; (d) a material reduction in benefits or perquisites being provided to the
Executive under the Agreements; (e) liquidation or dissolution of the Bank or
the Company; or (f) a breach of the Agreements by the Bank
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or the Company, the Executive or, in the event of death, his beneficiary would
be entitled to receive an amount equal to the base salary increased annually by
four percent (4.0%) due to the Executive for the remaining term of the
Agreements and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank or the Company during the
remaining term of the Agreements. The Bank and the Company would also continue
and pay for the Executive's life, health and disability coverage for the
remaining term of the Agreements.
Under the Agreements, if voluntary or involuntary termination follows a
change in control of the Bank or the Company (as defined in the Agreements), the
Executive or, in the event of the Executive's death, his beneficiary, would be
entitled under the Company Agreements to a severance payment equal to five times
the average of the three preceding taxable years' annual compensation. Under the
Bank Agreements, the Executive would be entitled to a severance payment equal to
three times the Executive's average annual compensation for the five most recent
taxable years. The Bank and the Company would also continue the Executive's
life, health, and disability coverage for sixty months. Notwithstanding that
both the Bank and the Company Agreements provide for a severance payment in the
event of a change in control, the Executive would only be entitled to receive a
severance payment under one agreement. Any excise taxes due as a result of an
"excess parachute payment" under the Company Agreements will be reimbursed under
the Agreements. Based solely on the compensation reported in the Summary
Compensation Table for 1997 and excluding any benefits under any employee plan
which may be payable, following a change in control and termination of
employment, Mr. Yedinak and Ms. Pitts would be entitled to severance payments of
approximately $2,469,535 and $980,035, respectively.
Payments to the Executives under the Bank Agreements will be guaranteed by
the Company in the event that payments or benefits are not paid by the Bank.
Payment under the Company Agreements would be made by the Company. The
Agreements also provide that the Bank and Company shall indemnify the Executive
to the fullest extent allowable under federal and Delaware law, respectively.
MANAGEMENT RECOGNITION PLAN AND TRUST. The Management Recognition and
Retention Plan (the "MRP") provides stock awards to officers and key employees.
Awards made after June 1, 1995 are subject to performance goals and vest at a
rate of 16.66% on the last day of each six month period following the date of
grant. Awards made prior to June 1, 1995 are not subject to performance goals
and vest at a rate of 33.33% per year commencing on the date of grant. As of
June 30, 1998, 3,250 shares have been granted pursuant to the MRP and remain
unvested and 24,212 shares remain available for grant.
STOCK OPTION PLANS. On May 20, 1998 the Stockholders of the Company
approved the Incentive Stock Option Plan. The Incentive Stock Option Plan
provides for discretionary awards of options to purchase Common Stock to
officers and key employees as determined by a committee of disinterested
directors. As of June 30, 1998 no options had been granted under the Incentive
Stock Option Plan. All outstanding options to purchase common stock held by
employees were granted under the Argo Bancorp, Inc. 1991 Employee Stock Option
and Incentive Plan (the "1991 Stock Option Plan"). The following table provides
certain information with respect to option exercises in the previous fiscal year
by Named Executive Officers and the number of shares of Common Stock represented
by outstanding stock options held by the Named Executive Officers as of December
31, 1997. Also reported are the values for "in-the-money" options which
represent the positive spread between the exercise price of any such existing
stock options and the year-end price of the Common Stock. As of June 30, 1998,
400,000 options to purchase shares of Common Stock are available for grant (all
under the Incentive Stock Option Plan) and 381,808 options to purchase Common
Stock have been granted under predecessor plans and are currently outstanding.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS/SARS
AT FISCAL YEAR END AT FISCAL YEAR END
(#)(1)(2)(3)(4) ($)(5)
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- ----------- ----------------- ----------- -----------------
John G. Yedinak....................... 95,984 $ 271,365 95,984(6) -- $ 449,325 --
Frances M. Pitts...................... -- -- 54,000(7) -- $ 265,687 --
</TABLE>
- ------------------------
(1) All options become 100% exercisable upon death, disability, retirement or a
change in control, as defined generally under the 1991 Stock Option Plan. In
addition, vesting of non-statutory options may be accelerated by a committee
consisting of outside directors.
(2) The purchase price may be made in whole or in part through the surrender of
previously held shares of Common Stock.
(3) Under limited circumstances, such as death, disability or normal retirement
of an employee, the employee (or his beneficiary) may request that the
Company, in exchange for the employee's surrender of an option, pay to the
employee (or beneficiary) the amount by which the fair market value of the
Common Stock exceeds the exercise price of the option on the date of the
employee's termination of employment. It is within the Company's discretion
to accept or reject such as request.
(4) Options are subject to limited (SAR) rights pursuant to which the options,
to the extent outstanding for at least six months, may be exercised in the
event of a change in control of the Company. Upon the exercise of a limited
right, the option holder would receive a cash payment equal to the
difference between the exercise price of the related option on the date of
grant and the fair market value of the underlying shares of Common stock on
the date the limited right is exercised.
(5) The price of the Common Stock on December 31, 1997 was $8.53.
(6) The exercise price for 95,984 options is $3.85.
(7) The exercise price for 50,000 options is $3.50 and the exercise price for
4,000 options is $5.00.
INDEBTEDNESS OF MANAGEMENT AND TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank has adopted a policy which requires that all loans or extensions of
credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
BENEFICIAL OWNERSHIP
At June 30, 1998, the Company had 1,990,576 shares of Common Stock
outstanding. The following table sets forth, as of June 30, 1998 on an
historical and on a pro forma basis, certain information as to those persons who
were known by management to be beneficial owners of more than 5% of the
Company's
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<PAGE>
outstanding shares of Common Stock, each director, each Named Executive Officer
and the shares of Common Stock beneficially owned by all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
<S> <C> <C>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT
- ----------------------------------------------------------------------------------------- ---------- -----------
The Deltec Banking Corporation, Limited.................................................. 497,644 25.00%
Deltec House
Lyford Cay
Nassau, Bahamas
John G. Yedinak.......................................................................... 979,048(2) 46.92%
Sergio Martinucci........................................................................ 275,676(3) 13.50%
Frances M. Pitts......................................................................... 107,352(2) 5.25%
Donald G. Wittmer........................................................................ 28,004(3) 1.39%
Arthur E. Byrnes......................................................................... 497,644(4) 25.00%
All executive officers and directors as a group (9 persons).............................. 1,894,028(5) 85.99%
</TABLE>
- ------------------------
(1) Each person or relative of such person whose shares are included herein,
exercises sole (or shared with spouse, relative or affiliate) voting or
dispositive power as to the shares reported.
(2) Includes 95,984 and 54,000 shares subject to options which are currently
exercisable and which may be acquired by Mr. Yedinak and Ms. Pitts,
respectively.
(3) Includes 38,000 and 24,000 shares subject to options which are currently
exercisable and may be acquired by Mr. Martinucci and Mr. Wittmer,
respectively.
(4) Shares owned by Deltec attributable to Mr. Byrnes.
(5) Includes 381,808 shares subject to options which are currently exercisable
and 3,120 shares allocated to executive officers but not yet vested under
the Company's MRP.
ARGO CAPITAL TRUST CO.
The Trust is a statutory business trust formed under Delaware law upon the
filing of a certificate of trust with the Delaware Secretary of State. The Trust
exists for the exclusive purposes of: (i) issuing and selling the Trust
Securities; (ii) using the proceeds from the sale of Trust Securities to acquire
the Junior Subordinated Debentures; and (iii) engaging in only those other
activities necessary, advisable or incidental thereto. The Junior Subordinated
Debentures will be the sole assets of the Trust, and accordingly, payments under
the Junior Subordinated Debentures will be the sole revenues of the Trust. All
of the Common Securities will be owned by the Company. The Common Securities
will rank PARI PASSU, and payments will be made thereon PRO RATA, with the
Capital Securities, except that upon the occurrence and continuance of an event
of default under the Trust Agreement resulting from a Debenture Event of
Default, the rights of the Company as holder of the Common Securities to
payments in respect of Distributions and payments upon liquidation, redemption
or otherwise will be subordinated to the rights of the holders of the Capital
Securities. See "Description of Capital Securities--Subordination of Common
Securities." The Company will acquire Common Securities in a Liquidation Amount
equal to at least 3% of the total capital of the Trust. The Trust has a term of
31 years, but may be dissolved earlier as provided in the Trust Agreement. The
Trust's business and affairs are conducted by the Issuer Trustees, each
appointed by the Company as holder of the Common Securities. The Issuer Trustee
for the Trust will be Wilmington Trust Company as the Property Trustee,
Wilmington Trust Company, as Delaware Trustee, and 3 Administrative Trustees who
are officers of the Company. Wilmington Trust Company, as Property Trustee, will
act as sole indenture trustee under the Trust Agreement. See "Description of
Guarantee" and "Description of Junior Subordinated Debentures." The holder of
the Common Securities of the Trust or, if an Event of Default under the Trust
Agreement has occurred and is continuing, the holders of a majority in
Liquidation Amount of the Capital Securities will be entitled to appoint, remove
or replace the Property
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Trustee and/or the Delaware Trustee. In no event will the holders of the Capital
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights will be vested exclusively in the
holder of the Common Securities. The duties and obligations of each Issuer
Trustee are governed by the Trust Agreement. The Company, as issuer of the
Junior Subordinated Debentures, will pay all fees, expenses, debts and
obligations (other than the payment of principal, interest and premium, if any,
on the Trust Securities) related to the Trust and the offering of the Capital
Securities and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the Trust. The principal executive office of the Trust is 7600
West 63rd Street, Summit, Illinois 60501.
DESCRIPTION OF CAPITAL SECURITIES
DESCRIPTION OF CAPITAL SECURITIES
The Capital Securities will represent beneficial interests in the Trust and
the holders thereof will be entitled to a preference over the Common Securities
in certain circumstances with respect to Distributions and amounts payable on
redemption of the Trust Securities or liquidation of the Trust. See
"--Subordination of Common Securities." The Trust Agreement will be qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of certain provisions of the Capital Securities, the Common
Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement, including the definitions therein of certain terms.
GENERAL
The aggregate Liquidation Amount of Capital Securities at any one time
outstanding shall be limited to the aggregate Liquidation Amount of Capital
Securities issued in the Offering. The Capital Securities will rank PARI PASSU,
and payments will be made thereon PRO RATA, with the Common Securities except as
described under "--Subordination of Common Securities." Legal title to the
Junior Subordinated Debentures will be held by the Property Trustee in trust for
the benefit of the holders of the Trust Securities. The Guarantee will not
guarantee payment of Distributions or amounts payable on redemption of the
Capital Securities or liquidation of the Trust when the Trust does not have
funds on hand legally available for such payments. See "Description of
Guarantee."
DISTRIBUTIONS
Distributions on the Capital Securities will be cumulative, will accumulate
from the Issue Date, and will be payable quarterly in arrears on April 15th,
July 15th, October 15th and January 15th of each year, commencing on January 15,
1999 at the annual rate of % of the Liquidation Amount to the holders of the
Capital Securities on the relevant record dates. The record dates will be the
15th day of the month in which the relevant Distribution Date (as defined
herein) falls. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months and, for any
period of less than a full calendar month, the number of days elapsed in such
month. In the event that any date on which Distributions are payable on the
Capital Securities is not a Business Day (as defined below), 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 to any
such delay), except that if such next succeeding Business Day falls in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date (each date on which Distributions are payable in accordance with
the foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in the State
of Delaware or Illinois are authorized or required by law or executive order to
remain closed.
So long as no Debenture Event of Default shall have occurred and be
continuing, the Company will have the right under the Indenture to elect to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarterly periods
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with respect to each Extension Period, provided that no Extension Period shall
end on a date other than an Interest Payment Date or extend beyond the Stated
Maturity Date. Upon any such election, quarterly Distributions on the Capital
Securities will be deferred by the Trust during such Extension Period.
Distributions to which holders of the Capital Securities are entitled during any
such Extension Period will accumulate additional Distributions thereon at the
rate per annum of % thereof, compounded quarterly from the relevant
Distribution Date, but not exceeding the interest rate then accruing on the
Junior Subordinated Debentures. The term "Distributions," as used herein, shall
include any such additional Distributions.
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarterly periods, to end
on a date other than an Interest Payment Date or to extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date, the Company may elect to
begin a new Extension Period, subject to the above requirements. No interest
shall be due and payable during an Extension Period, except at the end thereof.
The Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any such Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of (i) the
date the Distributions on the Capital Securities would have been payable except
for the election to begin such Extension Period and (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or automated quotation system or to holders of such Capital Securities of the
record date or the date such Distributions are payable, but in any event not
less than five Business Days prior to such record date. There is no limitation
on the number of times that the Company may elect to begin an Extension Period.
See "Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Date" and "Certain Federal Income Tax Consequences with Respect to the
Capital Securities--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may 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; (ii)
make any payment of principal of or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company (including any Other Debentures) that
rank PARI PASSU with or junior in right of payment to the Junior Subordinated
Debentures; or (iii) make any guarantee payments with respect to any guarantee
by the Company of the debt securities of any subsidiary of the Company
(including Other Guarantees) if such guarantee ranks PARI PASSU with or junior
in right of payment to the Junior Subordinated Debentures (other than (a)
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, the Common Stock of the Company, (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 Guarantee, (d) as a result of a reclassification of the
Company's capital stock or the exchange or 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). The Company has no current intention to
exercise its option to defer payments of interest on the Junior Subordinated
Debentures.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. See "Description of Junior Subordinated
Debentures-- General." If the Company does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities. The payment of
Distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such
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Distributions) will be guaranteed by the Company on a limited basis as set forth
herein under "Description of Guarantee."
REDEMPTION
Upon the repayment on the Stated Maturity Date or prepayment in whole or in
part prior to the Stated Maturity Date of the Junior Subordinated Debentures
(other than following the distribution of the Junior Subordinated Debentures to
the holders of the Trust Securities), the proceeds from such repayment or
prepayment shall be applied by the Property Trustee to redeem a Like Amount (as
defined below) of the Trust Securities, upon not less than 30 nor more than 60
days' notice of a date of redemption (the "Redemption Date"), at the applicable
Redemption Price, which shall be equal to (i) in the case of the repayment of
the Junior Subordinated Debentures on the Stated Maturity Date, the Maturity
Redemption Price (equal to the principal of, and accrued and unpaid interest on,
the Junior Subordinated Debentures), (ii) in the case of the optional prepayment
of the Junior Subordinated Debentures before the Initial Optional Prepayment
Dates upon the occurrence and continuation of a Special Event, the Special Event
Redemption Price (equal to the Special Event Prepayment Price in respect of the
Junior Subordinated Debentures) and (iii) in the case of the optional prepayment
of the Junior Subordinated Debentures on or after the Initial Optional
Prepayment Date, the Optional Redemption Price (equal to the principal of, and
accrued and unpaid interest on, the Junior Subordinated Debentures). See
"Description of Junior Subordinated Debentures--Optional Prepayment" and
"--Special Event Prepayment." If less than all of the Junior Subordinated
Debentures are to be prepaid on a Redemption Date, then the proceeds of such
prepayment shall be allocated PRO RATA to the Trust Securities.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be paid in accordance with their
terms and (ii) with respect to a distribution of Junior Subordinated Debentures
upon the liquidation of the Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Junior Subordinated Debentures are distributed.
The Company will have the option to prepay the Junior Subordinated
Debentures, (i) in whole or in part, on or after the Initial Optional Prepayment
Date, at the Optional Prepayment Price and (ii) in whole but not in part, at any
time prior to the Initial Optional Prepayment Date, upon the occurrence of a
Special Event, at the Special Event Prepayment Price, in each case subject to
the receipt of any required regulatory approval. See "Description of Junior
Subordinated Debentures--Optional Prepayment" and "--Special Event Prepayment."
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to terminate the Trust and,
after satisfaction of liabilities to creditors of the Trust as required by
applicable law, to cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust. Such right is
subject to: (i) the Company having received an opinion of counsel to the effect
that such distribution will not be a taxable event to holders of Capital
Securities; and (ii) the receipt of any required regulatory approval.
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the Junior Subordinated Debentures to the
holders of the Trust Securities, if the Company, as Sponsor, has given written
direction to the Property Trustee to terminate the Trust (which direction is
optional and, except as described above, wholly within the discretion of the
Company, as Sponsor); (iii) redemption of all of the Trust Securities as
described under "--Redemption;" (iv) expiration of the term of the Trust; and
(v) the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after
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satisfaction of liabilities to creditors of the Trust as provided by applicable
law, to the holders of the Trust Securities a Like Amount of the Junior
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practicable, in which event such holders will be entitled to
receive 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
plus accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If such Liquidation Distribution
can be paid only in part because the Trust has insufficient assets on hand
legally available to pay in full the aggregate Liquidation Distribution, then
the amounts payable directly by the Trust on the Trust Securities shall be paid
on a PRO RATA basis, except that if a Debenture Event of Default has occurred
and is continuing, the Capital Securities shall have a priority over the Common
Securities. See "--Subordination of Common Securities."
If the Company elects not to prepay the Junior Subordinated Debentures prior
to maturity in accordance with their terms and either elects not to or is unable
to liquidate the Trust and distribute the Junior Subordinated Debentures to
holders of the Trust Securities, the Trust Securities will remain outstanding
until the repayment of the Junior Subordinated Debentures on the Stated Maturity
Date.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) DTC or its nominee
will receive, in respect of each registered global certificate, if any,
representing Trust Securities and held by it, a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution and (iii) any certificates representing Trust Securities
not held by DTC or its nominee will be deemed to represent Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal to
the accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Administrative Trustees or their agent for
cancellation, whereupon the Company will issue to such holder, and the Debenture
Trustee will authenticate, a certificate representing such Junior Subordinated
Debentures.
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
the Trust Securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the Capital Securities that an investor may purchase, or the
Junior Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Capital Securities offered hereby.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the Junior Subordinated Debentures. Any redemption of Trust
Securities shall be made and the applicable Redemption Price shall be payable on
the Redemption Date only to the extent that the Trust has funds legally
available for the payment of such applicable Redemption Price. See also
"--Subordination of Common Securities."
If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Capital Securities
held by DTC or its nominees, the Property Trustee will deposit or cause the
Paying Agent (as defined herein) to deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price. See "--Form, Denomination,
Book-Entry Procedures and Transfer." With respect to the Capital Securities held
in certificated form, the Property Trustee, to the extent funds are legally
available, will irrevocably deposit with the paying agent for the Capital
Securities funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the applicable
Redemption Price to the holders thereof upon surrender of their certificates
evidencing the Capital Securities. See "--Payment and Paying Agency."
Notwithstanding the foregoing, Distributions
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payable on or prior to the Redemption Date shall be payable to the holders of
such Capital Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of the Capital Securities called for redemption will cease, except the
right of the holders of such Capital Securities to receive the applicable
Redemption Price, but without interest on such Redemption Price, and such
Capital Securities will cease to be outstanding. In the event that any
Redemption Date of Capital Securities is not a Business Day, then the applicable
Redemption Price payable on such date will be paid 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. In the event that payment of the applicable Redemption Price is
improperly withheld or refused and not paid either by the Trust or by the
Company pursuant to the Guarantee as described under "Description of Guarantee,"
(i) Distributions on Capital Securities will continue to accumulate at the then
applicable rate, from the Redemption Date originally established by the Trust to
the date such applicable Redemption Price is actually paid and (ii) the actual
payment date will be the Redemption Date for purposes of calculating the
applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Redemption Price on, or in the repayment of, the Junior Subordinated Debentures,
on and after the Redemption Date, Distributions will cease to accrue on the
Trust Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Trust
Securities, as applicable, shall be made PRO RATA based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any Distribution
Date or Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or applicable Redemption Price
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all of the outstanding Capital Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the applicable
Redemption Price the full amount of such Redemption Price, shall have been made
or provided for, and all funds available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions on, or Redemption
Price of, the Capital Securities then due and payable.
In the case of any Event of Default, the Company as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Capital Securities and not on behalf of the
Company as holder of the Common Securities, and only the holders of the Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "Description of Junior
Subordinated Debentures--Debenture Events of Default") constitutes an "Event of
Default" under the Trust Agreement.
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 Company, as Sponsor, unless such Event of
Default shall
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have been cured or waived. The Company, as Sponsor, and the Administrative
Trustees are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and
covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"--Liquidation of the Trust and Distribution of Junior Subordinated Debentures"
and "--Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture 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 the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment of
a successor trustee shall be effective until the acceptance of appointment by
the successor trustee in accordance with the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Trust Agreement, provided such Person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described below or as otherwise described under "--Liquidation of the
Trust and Distribution of Junior Subordinated Debentures." The Trust may, at the
request of the Company, as Sponsor, with the consent of the Administrative
Trustees but without the consent of the holders of the Capital Securities, 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 either (a) expressly assumes all of the obligations of the
Trust with respect to the Trust Securities or (b) substitutes for the Trust
Securities other securities having substantially the same terms as the Trust
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Trust Securities rank in priority with respect to distributions
and payments upon liquidation, redemption and otherwise; (ii) the Company
expressly appoints a trustee of such successor entity possessing the same powers
and duties as the Property Trustee with respect to the Junior Subordinated
Debentures; (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Trust 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 Junior
Subordinated Debentures are so rated, the Junior Subordinated Debentures, to be
downgraded by any such nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Trust Securities (including any Successor Securities) in any
material respect; (vi) such successor entity has a purpose
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identical to that of the Trust; (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Company has
received an opinion from 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 of the Trust Securities (including any
Successor Securities) in any material respect (other than any dilution of such
holders' interests in the new entity), and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and (viii) the Company or any permitted successor or
assignee owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee and the Common
Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the
consent of holders of 100% in Liquidation Amount of the Trust 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 entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the successor entity not to be classified as a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "--Mergers, Consolidations, Amalgamations
or Replacements of the Trust" and "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities (i) to cure any ambiguity, correct or supplement
any provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement, which shall not be inconsistent with the
other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to
any provisions of the Trust Agreement 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 Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in each such case such action shall not adversely affect in any material respect
the interests of the holders of the Trust Securities. Any amendments of the
Trust Agreement pursuant to the foregoing shall become effective when notice
thereof is given to the holders of the Trust Securities. The Trust Agreement may
be amended by the Issuer Trustees and the Company (i) with the consent of
holders representing a majority (based upon Liquidation Amount) of the
outstanding Trust Securities and (ii) upon receipt by the Issuer Trustees of an
opinion of counsel experienced in such matters to the effect that such amendment
or the exercise of any power granted to the Issuer 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 Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date or (ii)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Debenture Trustee with respect to
the Junior Subordinated Debentures, (ii) waive certain past defaults under the
Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Junior
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Subordinated Debentures or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of a majority in Liquidation Amount of all outstanding Capital
Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated 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 Issuer 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. The
Property Trustee shall notify each holder of Capital Securities of any notice of
default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of such holders of the Capital Securities,
prior to taking any of the foregoing actions, the Issuer 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.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of Capital Securities in the manner set forth in the Trust
Agreement.
No vote or consent of the holders of Capital Securities will be required for
the Trust to redeem and cancel the Capital Securities in accordance with the
Trust Agreement.
Notwithstanding that holders of the 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 Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
FORM, DENOMINATIONS, BOOK-ENTRY PROCEDURES AND TRANSFER
The Capital Securities initially will be represented by one or more Capital
Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited upon issuance with
the Property Trustee as custodian for DTC, in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Global Capital Securities may
not be exchanged for Capital Securities in certificated form, except in the
limited circumstances described below. See "--Exchange of Book-Entry Capital
Securities for Certificated Capital Securities."
DEPOSITORY PROCEDURES
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
Indirect access to DTC's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own
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securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants with portions of the Liquidation Amount of
the Global Capital Securities and (ii) ownership of such interests in the Global
Capital Securities will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global Capital Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are Participants in such system, or indirectly
through organizations (including Euroclear and Cedel) which are Participants in
such system. All interest in a Global Capital Security will be subject to the
procedures and requirements of DTC. The laws of some states require that certain
persons take physical delivery in certified form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Capital
Security to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Capital Security to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the transferability
of the Capital Securities, see "--Exchange of Book-Entry Capital Securities for
Certificated Capital Securities"
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL CAPITAL
SECURITIES WILL NOT HAVE CAPITAL SECURITIES REGISTERED IN THEIR NAME, WILL NOT
RECEIVE PHYSICAL DELIVERY OF CAPITAL SECURITIES IN CERTIFICATED FORM AND WILL
NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE TRUST
AGREEMENT FOR ANY PURPOSE.
Payments in respect of the Global Capital Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Capital Securities, including the Global Capital Securities, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Property Trustee nor
any agent thereof has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Capital Securities, or for maintaining, supervising or reviewing any of
DTC's records or any Participant's or Indirect Participant's records relating to
the beneficial ownership interests in the Global Capital Securities or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Trust and the Company
that its current practice, upon receipt of any payment in respect of securities
such as the Capital Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in Liquidation Amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Capital
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Property Trustee, the Trust or the
Company. None of the Trust, the Company or the Property Trustee will be liable
for any delay by DTC or any of its Participants in identifying the beneficial
owners of the Capital Securities, and the Trust or the Company and the Property
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
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Secondary market trading activity in interests in the Global Capital
Securities will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will settle in same-day funds.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Capital Securities (including, without
limitation, the presentation of Capital Securities for exchange as described
below) only at the direction of one or more Participants to whose account with
DTC interests in the Global Capital Securities are credited and only in respect
of such portion of the Liquidation Amount of the Capital Securities as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Trust Agreement, DTC reserves the right
to exchange the Global Capital Securities for legended Capital Securities in
certificated form and to distribute such Capital Securities to its Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Capital Securities among Participants in DTC, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of the Trust, the Company
or the Property Trustee will have any responsibility for the performance by DTC,
or its Participants or Indirect Participants of its obligations under the rules
and procedures governing its operations.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES
A Global Capital Security is exchangeable for Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depository for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depository within 90 days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Company in its sole discretion elects to cause the issuance of the
Capital Securities in certificated form or (iii) there shall have occurred and
be continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default under the Trust Agreement. In
addition, beneficial interests in a Global Capital Security may be exchanged by
or on behalf of DTC for certificated Capital Securities upon request by DTC, but
only upon at least 20 days' prior written notice given to the Property Trustee
in accordance with DTC's customary procedures. In all cases, certificated
Capital Securities delivered in exchange for any Global Capital Security or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the depository (in
accordance with its customary procedures).
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities held in global form shall be
made to the Depository, which shall credit the relevant accounts at the
Depository on the applicable Distribution Dates, or in respect of the Capital
Securities that are not held by the Depository, such payments shall be made by
check mailed to the address of the holder entitled thereto as such address shall
appear on the register. The paying agent (the "Paying Agent") shall initially be
the Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees and the Company. The Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee, the Administrative Trustees and the Company. In the event that
the Property Trustee shall no longer be the Paying Agent, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrative Trustees and the Company) to act as Paying
Agent.
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REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of the Capital Securities will be effected without
charge by or on behalf of the Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required to register or cause to be registered
the transfer of the Capital Securities after they have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically set
forth in the Trust Agreement and, during the existence of an Event of Default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of Trust
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the Trust
Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of the Capital Securities
or the Common Securities are entitled under the Trust Agreement to vote, then
the Property Trustee shall take such action as is directed by the Company and,
if not so directed, shall take such action as it deems advisable and in the best
interests of the holders of the Trust Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Junior
Subordinated Debentures will be treated as indebtedness of the Company for
United States federal income tax purposes. In this connection, the Company and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Trust or the Trust
Agreement, that the Company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under an Indenture, as
supplemented from time to time (as so supplemented, the "Indenture"), between
the Company and Wilmington Trust Company, as trustee (the "Debenture Trustee").
The Indenture has been qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). This summary of certain terms and
provisions of the Junior Subordinated Debentures and the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, some
of which are not otherwise defined herein, are qualified in their entirety by
reference to all of the provisions of the Indenture and the Trust Indenture Act.
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GENERAL
Concurrently with the issuance of the Capital Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by the Company
for the Common Securities, in Junior Subordinated Debentures issued by the
Company. The Junior Subordinated Debentures will bear interest from the Issue
Date at the annual rate of % of the principal amount thereof, payable
quarterly in arrears on April 15th, July 15th, October 15th, and January 15th of
each year (each, an "Interest Payment Date"), commencing January 15, 1999, to
the person in whose name each Junior Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the 15th day of the
month in which the relevant payment date falls. It is anticipated that, until
the liquidation, if any, of the Trust, each Junior Subordinated Debenture will
be held in the name of the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The amount of interest payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months and, for
any period of less than a full calendar month, the number of days elapsed in
such month. In the event that any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that if such 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. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of % thereof, compounded quarterly.
The term "interest," as used herein, shall include quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Sums (as defined below), as applicable. The Junior
Subordinated Debentures will mature on October , 2028 (the "Stated Maturity
Date").
The Junior Subordinated Debentures will rank PARI PASSU with all Other
Debentures and will be unsecured and will rank subordinate and junior in right
of payment to all Senior Indebtedness to the extent and in the manner set forth
in the Indenture. See "--Subordination."
The Company is a holding company and almost all of the operating assets of
the Company are owned by the Company's subsidiaries. The Company is a legal
entity separate and distinct from its subsidiaries. Holders of Junior
Subordinated Debentures should look only to the Company for payments on the
Junior Subordinated Debentures. The principal sources of the Company's income
are dividends, interest and fees from its subsidiaries. The Company relies
primarily on dividends from its subsidiaries to meet its obligations for payment
of principal and interest on its outstanding debt obligations and corporate
expenses. There are regulatory limitations on the payment of dividends directly
or indirectly to the Company from the Bank. As of June 30, 1998, under OTS
regulations, the total capital available for payment of dividends by the Bank to
the Company was approximately $1.5 million. However, the OTS has the power to
prohibit any act, including the payment of dividends, if such act would reduce
bank capital to a point that, in its opinion, would render the Bank
undercapitalized and thus constitute an unsafe or unsound banking practice. In
addition, the Bank is subject to certain restrictions imposed by federal law on
any extensions of credit to, and certain other transactions with, the Company
and certain other affiliates, and on investments in stock or other securities
thereof. Such restrictions prevent the Company and such other affiliates from
borrowing from the Bank unless the loans are secured by various types of
collateral. Further, such secured loans, other transactions and investments by
the Bank are generally limited in amount as to the Company and as to each of
such other affiliates to 10% of the Bank's capital and surplus and as to the
Company and all of such other affiliates to an aggregate of 20% of the Bank's
capital and surplus.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary (including
depositors, in the case of the Bank),
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except to the extent the Company may itself be recognized as a creditor of that
subsidiary. At June 30, 1998, the subsidiaries of the Company had total
liabilities (excluding liabilities owed to the Company) of $234.5 million.
Accordingly, the Junior Subordinated Debentures will be effectively subordinated
to all existing and future liabilities of the Company's subsidiaries (including
the Bank's deposit liabilities) and all liabilities of any future subsidiaries
of the Company. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company or any subsidiary, including Senior
Indebtedness. See "--Subordination."
FORM, REGISTRATION AND TRANSFER
If the Junior Subordinated Debentures are distributed to the holders of the
Trust Securities, the Junior Subordinated Debentures may be represented by one
or more global certificates registered in the name of Cede & Co. as the nominee
of DTC. The depository arrangements for such Junior Subordinated Debentures are
expected to be substantially similar to those in effect for the Capital
Securities. For a description of DTC and the terms of the depository
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Description of Capital Securities--Form,
Denomination, Book-Entry Procedures and Transfer."
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and interest on Junior
Subordinated Debentures will be made at the office of the Debenture Trustee in
Wilmington, Delaware or at the office of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that at the option of the
Company payment of any interest may be made, except in the case of Junior
Subordinated Debentures in global form, (i) by check mailed to the address of
the Person entitled thereto as such address shall appear in the register for
Junior Subordinated Debentures or (ii) by transfer to an account maintained by
the Person entitled thereto as specified in such register, provided that proper
transfer instructions have been received by the relevant Record Date. Payment of
any interest on any Junior Subordinated Debenture will be made to the Person in
whose name such Junior Subordinated Debenture is registered at the close of
business on the Record Date for such interest, except in the case of defaulted
interest. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however, the Company will at all
times be required to maintain a Paying Agent in each place of payment for the
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of (and premium,
if any) or interest on any Junior Subordinated Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing, the
Company will have the right under the Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time and from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period shall end on a date other
than an Interest Payment Date or extend beyond the Stated Maturity Date. At the
end of such Extension Period, the Company must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of %, compounded
quarterly to the extent permitted by applicable law ("Compounded Interest")).
During an Extension Period, interest will continue to accrue and, if the Junior
Subordinated Debentures have been distributed to holders of the Trust
Securities, holders of Junior Subordinated Debentures (or holders of the Trust
Securities while Trust Securities are outstanding) will be required to accrue
such
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deferred interest income for United States federal income tax purposes prior to
the receipt of cash attributable to such income. See "Certain Federal Income Tax
Consequences with Respect to the Capital Securities--Interest Income and
Original Issue Discount."
During any such Extension Period, the Company may 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, (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including any Other
Debentures) that rank PARI PASSU with or junior in right of payment to the
Junior Subordinated Debentures or (iii) make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any subsidiary of the
Company (including any Other Guarantees) if such guarantee ranks PARI PASSU with
or junior in right of payment to the Junior Subordinated Debentures (other than
(a) dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, the Common Stock of the Company, (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 Guarantee, (d) as a result of a reclassification of the
Company's capital stock or the exchange or 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).
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarterly periods, end on a
date other than an Interest Payment Date or extend beyond the Stated Maturity
Date. Upon the termination of any such Extension Period and the payment of all
amounts then due on any Interest Payment Date, the Company may elect to begin a
new Extension Period, subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. The
Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of (i) the
date the Distributions on the Trust Securities would have been payable except
for the election to begin or extend such Extension Period or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or to holders of Capital Securities of the Record Date or the date such
Distributions are payable, but in any event not less than five Business Days
prior to such Record Date. The Debenture Trustee shall give notice of the
Company's election to begin or extend a new Extension Period to the holders of
the Capital Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period.
OPTIONAL PREPAYMENT
The Junior Subordinated Debentures will be prepayable, in whole or in part,
at the option of the Company on or after the Initial Optional Prepayment Date,
subject to the Company having received any required regulatory approval, at 100%
of the principal amount thereon plus accrued and unpaid interest thereon to the
date of prepayment (the "Optional Prepayment Price").
SPECIAL EVENT PREPAYMENT
If a Special Event shall occur and be continuing prior to the Initial
Optional Prepayment Date, the Company may, at its option and subject to receipt
of any required regulatory approval, prepay the Junior Subordinated Debentures
in whole (but not in part) at any time (i) within 90 days of the occurrence of
such Special Event and (ii) prior to October , 2003 at a prepayment price (the
"Special Event Prepayment Price") equal to the Make-Whole Amount (as defined
below). The "Make-Whole Amount" shall be equal
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to the greater of (x) 100% of the principal amount of the Junior Subordinated
Debentures to be prepaid or (y) the sum, as determined by a Quotation Agent (as
defined herein), of the present values of the scheduled payments of principal
and interest on the Junior Subordinated Debentures from the prepayment date to
the Initial Optional Prepayment Date discounted to the prepayment date on a
quarterly basis (assuming a 360-day year consisting of twelve 30-day months) at
the Adjusted Treasury Rate, plus, in the case of each of clauses (x) and (y),
accrued and unpaid interest thereon to the date of prepayment. If, following the
occurrence of a Special Event, the Company exercises its option to prepay the
Junior Subordinated Debentures, then the proceeds of that prepayment must be
applied to redeem a Like Amount of Trust Securities at the Special Event
Redemption Price (equal to the Special Event Prepayment Price in respect of the
Junior Subordinated Debentures). See "Description of Capital Securities--
Redemption."
A "Special Event" means a Tax Event or a Regulatory Capital Event, as the
case may be.
A "Tax Event" means the receipt by the Company and the Trust 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
such pronouncement or decision is announced on or after the Issue Date, 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 Junior Subordinated
Debentures; (ii) interest payable by the Company on the Junior Subordinated
Debentures is not, or within 90 days of the date of such opinion will not be,
deductible by the Company, in whole or in part, for United States federal income
tax purposes; or (iii) the Trust 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 Company 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 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 OTS as of the
date of this Prospectus) , or the then-equivalent of such Tier 1 Capital
(provided, however, that the distribution of the Junior Subordinated Debentures
in connection with the liquidation of the Trust by the Corporation shall not in
and of itself constitute a Regulatory Capital Event unless such liquidation
shall have occurred in connection with a Tax Event).
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to the quarterly equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such prepayment date plus (i) five basis points less than the
difference between the coupon of the Capital Securities at pricing and the yield
on the thirty (30) year U.S. Treasury Bond due October , 2028, if such
prepayment date occurs prior to January 15, 2000 and (ii) 55 basis points less
than the difference between the coupon of the Capital Securities at pricing and
the yield on the thirty (30) year U.S. Treasury Bond due October , 2028, in
all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Remaining
Life of the Junior Subordinated Debentures 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 Life. 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.
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"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 any successor publication which is
published weekly by the Federal Reserve Board 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 quarterly 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 the third Business Day preceding the prepayment date.
"Remaining Life" means the term of the Junior Subordinated Debenture from
the Prepayment Date to the Stated Maturity Date.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company. "Reference Treasury Dealer" means a nationally-recognized U.S.
Government securities dealer in New York City selected by the Company.
"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment 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 prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any prepayment date, the average, as determined by the
Debenture 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 Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be prepaid at its registered address. Unless the Company defaults
in payment of the prepayment price, on and after the prepayment date interest
ceases to accrue on such Junior Subordinated Debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures such amounts as shall
be necessary in order that the amount of Distributions then due and payable by
the Trust on the outstanding Trust Securities shall not be reduced as a result
of any additional taxes, duties and other governmental charges to which the
Trust has become subject as a result of a Tax Event ("Additional Sums").
CERTAIN COVENANTS OF THE COMPANY
The Company will also covenant 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, (ii)
make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem
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any debt securities of the Company (including Other Debentures) that rank PARI
PASSU with or junior in right of payment to the Junior Subordinated Debentures
or (iii) make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company (including under
Other Guarantees) if such guarantee ranks PARI PASSU or junior in right of
payment to the Junior Subordinated 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 Company, (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
Guarantee, (d) as a result of a reclassification of the Company's capital stock
or the exchange or 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 be, a Debenture Event of Default and (b) in
respect of which the Company shall not have taken reasonable steps to cure, (2)
the Company shall be in default with respect to its payment of any obligations
under the Guarantee or (3) the Company shall have given notice of its election
of an Extension Period as provided in the Indenture and shall not have rescinded
such notice, and such Extension Period, or any extension thereof, shall have
commenced and be continuing.
So long as the Trust Securities remain outstanding, the Company also will
covenant: (i) to directly or indirectly maintain 100% direct or indirect
ownership of the Common Securities, provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company'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 Junior Subordinated Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement, and (b) to otherwise continue 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 Junior Subordinated
Debentures.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures), and maintaining the qualification of the Indenture
under the Trust Indenture Act. The Indenture contains provisions permitting the
Company and the Debenture Trustee, with the consent of the holders of a majority
in principal amount of Junior Subordinated Debentures, to modify the Indenture
in a manner affecting the rights of the holders of Junior Subordinated
Debentures; provided that no such modification may, without the consent of the
holders of each outstanding Junior Subordinated Debenture so affected, (i)
change the Stated Maturity Date, or reduce the principal amount of the Junior
Subordinated Debentures or reduce the amount payable on redemption thereof or
reduce the rate or extend the time of payment of interest thereon except
pursuant to the Company's right under the Indenture to defer the payment of
interest as provided therein (see "--Option to Extend Interest Payment Date") or
make the principal of, or interest or premium on, the Junior Subordinated
Debentures payable in any coin or currency other than that provided in the
Junior Subordinated Debentures, or impair or affect the right of any holder of
Junior Subordinated Debentures to institute suit for the payment thereof, or
(ii) reduce the
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percentage of principal amount of Junior Subordinated Debentures, the holders of
which are required to consent to any such modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure for 30 days to pay any interest (including Compounded
Interest and Additional Sums, if any) on the Junior Subordinated Debentures
or any Other Debentures, when due (subject to the deferral of any due date
in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures or any Other Debentures when due whether at
maturity, upon redemption, by declaration of acceleration of maturity or
otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have, subject to certain exceptions, the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee. The Debenture Trustee or the holders of not
less than 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures may declare the principal due and payable immediately
upon a Debenture Event of Default. The holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures may annul
such declaration and waive the default if the default (other than the
non-payment of the principal of the Junior Subordinated Debentures which has
become due solely by such acceleration) has been cured and a sum sufficient to
pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal (or premium, if any) on or interest (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest (and premium, if any) and principal due otherwise than by acceleration
has been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior Subordinated
Debenture.
The Indenture requires the annual filing by the Company with the Debenture
Trustee of a certificate as to the absence of certain defaults under the
Indenture.
The Indenture provides that the Debenture Trustee may withhold notice of a
Debenture Event of Default from the holders of the Junior Subordinated
Debentures if the Debenture Trustee considers it in the interest of such holders
to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay the principal of (or
premium, if any), or interest (including Compounded
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Interest and Additional Sums, if any) on the Junior Subordinated Debentures on
the due date, a holder of Capital Securities may institute a Direct Action. The
Company may not amend the Indenture to remove the foregoing right to bring a
Direct Action without the prior written consent of the holders of all of the
Capital Securities. Notwithstanding any payments made to a holder of Capital
Securities by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of (or premium, if any) or interest
(including Compounded Interest and Additional Sums, if any) on the Junior
Subordinated Debentures, and the Company shall be subrogated to the rights of
the holder of such Capital Securities with respect to payments on the Capital
Securities to the extent of any payments made by the Company to such holder in
any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Junior Subordinated Debentures unless there shall have
been an Event of Default under the Trust Agreement. See "Description of Capital
Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties as an entirety
or substantially as an entirety to any Person, and no Person shall consolidate
with or merge into the Company or convey, transfer or lease its properties as an
entirety or substantially as an entirety to the Company, unless: (i) in case the
Company consolidates with or merges into another Person or conveys or transfers
its properties substantially as an entirety to any Person, the successor Person
is organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes the Company's obligations
on the Junior Subordinated Debentures; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as prescribed in
the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
at maturity or called for redemption within one year, and the Company deposits
or causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire indebtedness
on the Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation, for the principal (and premium, if any) and interest
to the date of the deposit or to the Stated Maturity Date, as the case may be,
then the Indenture will cease to be of further effect (except as to the
Company's obligations to pay all other sums due pursuant to the Indenture and to
provide the officers' certificates and opinions of counsel described therein),
and the Company will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, all Senior Indebtedness must be paid in
full before
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the holders of Junior Subordinated Debentures will be entitled to receive or
retain any payment in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness outstanding at the time of
such acceleration will first be entitled to receive payment in full of such
Senior Indebtedness before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect of the Junior Subordinated
Debentures.
No payments on account of principal, or premium, if any, or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Indebtedness, or an event of default with respect to any Senior Indebtedness
resulting in the acceleration of the maturity thereof, or if any judicial
proceeding shall be pending with respect to any such default.
"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,
banker's 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 Junior Subordinated Debentures"
shall mean (i) Indebtedness, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, to the extent such
indebtedness by its terms ranks equally with and not prior to the Junior
Subordinated Debentures in the right of payment upon the happening of the
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 other trust, or a trustee of such trust, partnership
or other 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 Guarantee. The securing of any Indebtedness, otherwise
constituting Indebtedness Ranking on a Parity with the Junior Subordinated
Debentures, shall not be deemed to prevent such Indebtedness from constituting
Indebtedness Ranking on a Parity with the Junior Subordinated Debentures.
"Indebtedness Ranking Junior to the Junior Subordinated Debentures" shall
mean any Indebtedness, whether outstanding on the date of execution of the
Indenture or thereafter created, assumed or incurred, to the extent such
indebtedness by its terms ranks junior to and not equally with or prior to the
Junior Subordinated Debentures (and any other Indebtedness Ranking on a Parity
with the Junior Subordinated Debentures) in right of payment upon the happening
of the dissolution or winding-up or liquidation or reorganization of the
Company. The securing of any Indebtedness, otherwise constituting Indebtedness
Ranking Junior to the Junior Subordinated Debentures, shall not be deemed to
prevent such Indebtedness from constituting Indebtedness Ranking Junior to the
Junior Subordinated Debentures.
"Senior Indebtedness" shall mean all Indebtedness, whether outstanding on
the date of execution of the Indenture or thereafter created, assumed or
incurred, except Indebtedness Ranking on a Parity with the Junior Subordinated
Debentures or Indebtedness Ranking Junior to the Junior Subordinated Debentures,
and any deferrals, renewals or extensions of such Senior Indebtedness.
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The Company is a holding company and the majority of the operating assets of
the Company are owned by the Company's subsidiaries. The Company relies
primarily on dividends from its subsidiaries to meet its obligations for payment
of principal and interest on its outstanding debt obligations and corporate
expenses. The Company is a legal entity separate and distinct from its
subsidiaries. Holders of Junior Subordinated Debentures should look only to the
Company for payments on the Junior Subordinated Debentures. There are regulatory
limitations on the payment of dividends directly or indirectly to the Company
from the Bank. See "--General." In addition, the Bank is subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with, the Company and certain other affiliates, and on
investments in stock or other securities thereof. Such restrictions prevent the
Company and such other affiliates from borrowing from the Bank unless the loans
are secured by various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in amount as to
the Company and as to each of such other affiliates to 10% of the Bank's capital
and surplus and as to the Company and all of such other affiliates to an
aggregate of 20% of the Bank's capital and surplus. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary (including
depositors, in the case of the Bank), except to the extent the Company may
itself be recognized as a creditor of that subsidiary. At June 30, 1998, the
subsidiaries of the Company had total liabilities (excluding liabilities owed to
the Company) of $234.5 million. Accordingly, the Junior Subordinated Debentures
will be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries (including the deposit liabilities of the Bank) and all
liabilities of any future subsidiaries of the Company. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company or any subsidiary, including Senior Indebtedness. See "--Subordination."
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of Delaware.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee is subject to all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to such provisions, the Debenture Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the request of any
holder of Junior Subordinated Debentures, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Trust of the Capital Securities for the benefit of the
holders from time to time of the Capital Securities. Wilmington Trust Company
will act as Guarantee Trustee under the Guarantee. The Guarantee has been
qualified under the Trust Indenture Act. This summary of certain provisions of
the Guarantee does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all of the provisions of the Guarantee,
including the definitions therein of certain terms, and the Trust Indenture Act.
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Capital Securities.
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GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Capital Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Trust may have or assert other than
the defense of payment. The following payments with respect to the Capital
Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the Capital Securities, to the extent that
the Trust has funds on hand legally available therefore at such time, (ii) the
applicable Redemption Price with respect to the Capital Securities called for
redemption, to the extent that the Trust has funds on hand legally available
therefore at such time, and (iii) upon a voluntary or involuntary dissolution,
winding-up or liquidation of the Trust (other than in connection with the
distribution of the Junior Subordinated Debentures to holders of the Capital
Securities or the redemption of all Capital Securities), the lesser of (a) the
Liquidation Distribution, to the extent the Trust has funds legally available
therefore at the time, and (b) the amount of assets of the Trust remaining
available for distribution to holders of Capital Securities after satisfaction
of liabilities to creditors of the Trust as required by applicable law. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of the Capital
Securities or by causing the Trust to pay such amounts to such holders.
The Guarantee will rank subordinate and junior in right of payment to all
Senior Indebtedness to the extent provided therein. See "--Status of the
Guarantee." Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise is subject to the prior
claims of creditors of that subsidiary, except to the extent the Company may
itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the Guarantee effectively will be subordinated to
all existing and future liabilities of the Company's subsidiaries (including the
Bank's deposit liabilities), and all liabilities of any future subsidiaries of
the Company. Claimants should look only to the assets of the Company for
payments under the Guarantee. See "Description of the Junior Subordinated
Debentures--General." The Guarantee does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, including Senior Indebtedness,
whether under the Indenture, any other indenture that the Company may enter into
in the future or otherwise.
The Company will, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guarantee all of the Trust's obligations under the Capital
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional Guarantee of the Trust's obligations under the
Capital Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
in the same manner as the Junior Subordinated Debentures.
The Guarantee will rank PARI PASSU with all Other Guarantees issued by the
Company after the Issue Date with respect to capital securities (if any) issued
by Other Trusts. The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Capital Securities.
The Guarantee will not be discharged except by payment of the Guarantee
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Payments in full to the extent not paid by the Trust or upon distribution to the
holders of the Capital Securities of the Junior Subordinated Debentures. The
Guarantee does not place a limitation on the amount of additional Senior
Indebtedness that may be incurred by the Company.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, provided,
however, that except with respect to a default in payment of any Guarantee
Payment, the Company shall have received notice of default and shall not have
cured such default within 60 days after receipt of such notice. The holders of
not less than a majority in Liquidation Amount of the Capital Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of a majority of the Liquidation Amount of such outstanding Capital
Securities. The manner of obtaining any such approval will be as set forth under
"Description of Capital Securities--Voting Rights; Amendment of the Trust
Agreement." All guarantees and agreements contained in the Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of the Capital
Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the applicable Redemption Price of the Capital Securities, upon full
payment of the Liquidation Amount payable upon liquidation of the Trust or upon
distribution of Junior Subordinated Debentures to the holders of the Capital
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Capital Securities must
restore payment of any sums paid under the Capital Securities or the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, will undertake to
perform only such duties as are specifically set forth in the Guarantee and, in
case a default with respect to the Guarantee has occurred, must exercise the
same degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee will be under no obligation to exercise any of the powers vested in it
by the Guarantee at the request of any holder of the Capital Securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of Delaware.
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RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Trust has funds on hand legally available for the payment of
such Distributions) will be irrevocably guaranteed by the Company as and to the
extent set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement and the Guarantee will provide, in the aggregate, a full, irrevocable
and unconditional guarantee of payments of Distributions and other amounts due
on the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Capital Securities. If and to the extent that the
Company does not make the required payments on the Junior Subordinated
Debentures, the Trust will not have sufficient funds to make the related
payments, including Distributions, on the Capital Securities. The Guarantee will
not cover any such payment when the Trust does not have sufficient funds on hand
legally available therefore. In such event, the remedy of a holder of Capital
Securities is to institute a Direct Action. The obligations of the Company under
the Guarantee will be subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the Junior
Subordinated Debentures will be equal to the sum of the Liquidation Amount or
Redemption Price, as applicable, of the Trust Securities; (ii) the interest rate
and interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Trust Securities; (iii) the Company, as Sponsor, shall pay for all and any
costs, expenses and liabilities of the Trust except the Trust's obligations to
holders of Trust Securities under such Trust Securities; and (iv) the Trust
Agreement will provide that the Trust is not authorized to engage in any
activity that is not consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Trust Agreement. However, in
the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the Indenture will provide that no payments may
be made in respect of the Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Junior Subordinated
Debentures would constitute an Event of Default under the Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The Capital Securities will represent beneficial interests in the Trust, and
the Trust exists for the sole purpose of issuing and selling the Trust
Securities, using the proceeds from the sale of the Trust Securities to acquire
the Junior Subordinated Debentures and engaging in only those other activities
necessary, advisable or incidental thereto. A principal difference between the
rights of a holder of a Capital Security and a holder of a Junior Subordinated
Debenture is that a holder of a Junior Subordinated Debenture will
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be entitled to receive from the Company the principal amount of (and premium, if
any) and interest on Junior Subordinated Debentures held, while a holder of
Capital Securities is entitled to receive Distributions from the Trust (or, in
certain circumstances, from the Company under the Guarantee) if and to the
extent the Trust has funds on hand legally available for the payment of such
Distributions.
RIGHTS UPON TERMINATION
Unless the Junior Subordinated Debentures are distributed to holders of the
Capital Securities, upon any voluntary or involuntary termination, winding-up or
liquidation of the Trust, after satisfaction of the liabilities of creditors of
the Trust as required by applicable law, the holders of the Trust Securities
will be entitled to receive, out of assets held by the Trust, the Liquidation
Distribution in cash. See "Description of Capital Securities--Liquidation of the
Trust and Distribution of Junior Subordinated Debentures." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Junior Subordinated Debentures, would be a subordinated creditor
of the Company, subordinated in right of payment to all Senior Indebtedness as
set forth in the Indenture, but entitled to receive payment in full of principal
(and premium, if any) and interest, before any stockholders of the Company
receive payments or distributions. Since the Company will be the guarantor under
the Guarantee and will agree to pay for all costs, expenses and liabilities of
the Trust (other than the Trust's obligations to the holders of its Capital
Securities), the positions of a holder of Capital Securities and a holder of
Junior Subordinated Debentures relative to other creditors and to stockholders
of the Company in the event of liquidation or bankruptcy of the Company are
expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
WITH RESPECT TO THE ISSUANCE OF THE CAPITAL SECURITIES
GENERAL
In the opinion of Patton Boggs LLP, special federal income tax counsel to
the Company and the Trust ("Tax Counsel"), the following constitutes, in all
material respects, a fair and accurate summary of certain of the principal
United States federal income tax consequences under current law of the purchase,
ownership and disposition of Capital Securities held as capital assets by a
holder who purchases such Capital Securities upon initial issuance. It does not
deal with special classes of holders such as banks, thrifts, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, United States Alien Holders
(as defined below) engaged in a U.S. trade or business or persons that will hold
the Capital Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Capital Securities. Further, it does not include any description
of any alternative minimum tax consequences or the tax laws of any state or
local government or of any foreign government that may be applicable to the
Capital Securities. This summary is based on the Code, Treasury regulations
thereunder and the administrative and judicial interpretations thereof, as of
the date hereof, all of which are subject to change, possibly on a retroactive
basis. An opinion of Tax Counsel is not binding on the IRS or the courts. No
rulings have been or are expected to be sought from the IRS with respect to any
of the transactions described herein and no assurance can be given that the IRS
will not take contrary positions. Moreover, no assurance can be given that the
opinions expressed herein will not be challenged by the IRS or, if challenged,
that such a challenge would not be successful.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures, Tax
Counsel will render its opinion generally to the effect that, under then current
law and assuming full compliance with the terms of the Indenture (and certain
other documents), and based on certain facts and assumptions contained in
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such opinion, the Junior Subordinated Debentures will be classified for United
States federal income tax purposes as indebtedness of the Company. The Company,
the Trust and the holders of the Capital Securities (by acceptance of a
beneficial interest in a Capital Security) will agree to treat the Junior
Subordinated Debentures as indebtedness of the Company for all United States
federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Capital Securities, Tax Counsel will
render its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Trust Agreement and the Indenture
(and certain other documents), and based on certain facts and assumptions
contained in such opinion, the Trust will be classified for United States
federal income tax purposes as a grantor trust and not as an association taxable
as a corporation. Accordingly, for United States federal income tax purposes,
each holder of Capital Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures, and each holder will
be required to include in its gross income any interest (or OID accrued) with
respect to its allocable share of those Junior Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under new Treasury regulations (the "Regulations") applicable to debt
instruments issued on or after August 13, 1996, a "remote" contingency that
stated interest will not be timely paid will be ignored in determining whether a
debt instrument is issued with OID. The Company believes that the likelihood of
its exercising its option to defer payments of interest is "remote" since
exercising that option would, among other things, prevent the Company from
declaring dividends on any class of its equity securities. Accordingly, the
Company intends to take the position based on the advice of Tax Counsel that the
Junior Subordinated Debentures will not be considered to be issued with OID and,
accordingly, stated interest on the Junior Subordinated Debentures generally
will be taxable to a holder as ordinary income at the time it is paid or accrued
in accordance with such holder's method of tax accounting.
Under the Regulations, if the Company were to exercise its option to defer
payments of interest, the Junior Subordinated Debentures would at that time be
treated as issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior Subordinated
Debentures remain outstanding. In such event, all of a holder's taxable interest
income with respect to the Junior Subordinated Debentures would thereafter be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income. Consequently, a holder of Capital Securities would
be required to include in gross income OID even though the Company would not
make actual cash payments during an Extension Period. Moreover, under the
Regulations, if the option to defer the payment of interest was determined not
to be "remote," the Junior Subordinated Debentures would be treated as having
been originally issued with OID. In such event, all of a holder's taxable
interest income with respect to the Junior Subordinated Debentures would be
accounted for on an economic accrual basis regardless of such holder's method of
tax accounting, and actual distributions of stated interest would not be
reported as taxable income.
The new Regulations have not yet been addressed in any rulings or other
interpretations by the IRS. Because of the lack of regulatory guidance in
respect to the application of such Regulations and the factual nature of
determining the likelihood of exercise of the option to defer payments of
interest, it is possible that the IRS could take a position contrary to the
Company's position that the Junior Subordinated Debentures will not be
considered to be issued with OID.
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Because income on the Capital Securities will constitute interest or OID,
corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Company will have the right at any time to liquidate the Trust and cause
the Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities. Under current law, such a distribution, for United States federal
income tax purposes, would be treated as a nontaxable event to each holder, and
each holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to such holder's aggregate tax basis in its Capital Securities.
A holder's holding period in the Junior Subordinated Debentures so received in
liquidation of the Trust would include the period during which the Capital
Securities were held by such holder.
Under certain circumstances described herein (see "Description of Capital
Securities"), the Junior Subordinated Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in redemption of their
Capital Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Capital Securities, and a holder could recognize gain or loss as if it
sold such redeemed Capital Securities for cash. See "--Sales of Capital
Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities (including a redemption of the
Capital Securities by the Company) will recognize gain or loss equal to the
difference between its adjusted tax basis in the Capital Securities and the
amount realized on the sale of such Capital Securities (other than with respect
to accrued and unpaid interest which has not yet been included in income, which
will be treated as ordinary income). A holder's adjusted tax basis in the
Capital Securities generally will be its initial purchase price increased by OID
(if any) previously includable in such holder's gross income to the date of
disposition and decreased by payments (if any) received on the Capital
Securities in respect of OID. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the Capital
Securities have been held for more than one year.
The Capital Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder who uses the accrual method of accounting for
tax purposes (and a cash method holder, if the Junior Subordinated Debenture are
deemed to have been issued with OID) who disposes of his Capital Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Junior Subordinated Debentures
through the date of disposition in income as ordinary income (i.e., interest or,
if applicable, OID), and to add such amount to his adjusted tax basis in his PRO
RATA share of the underlying Junior Subordinated Debentures deemed disposed of.
To the extent the selling price is less than the holder's adjusted tax basis
(which will include all accrued but unpaid interest) a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. holder
for United States federal income tax purposes.
A "U.S. Holder" is a holder of Capital Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for United States federal income tax purposes,
(ii) a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includable in its gross income for
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United States federal income tax purposes without regard to its source or (iv) a
trust over which (A) a court within the United States is able to exercise
primary supervision over the administration of the trust and (B) one or more
United States trustees have the authority to control all substantial decisions
of the trust.
Under present United States federal income tax laws: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the beneficial owner of the Capital Security is not a controlled foreign
corporation that is related to the Company through stock ownership, and (c)
either (A) the beneficial owner of the Capital Security certifies to the Trust
or its agent, under penalties of perjury, that it is not a United States holder
and provides its name and address or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution"), and holds
the Capital Security in such capacity, certifies to the Trust or its agent,
under penalties of perjury, that such statement has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof; and
(ii) a United States Alien Holder of a Capital Security will not be subject to
United States federal withholding tax on any gain realized upon the sale or
other disposition of a Capital Security.
As discussed above, changes in legislation affecting the United States
federal income tax treatment of the Junior Subordinated Debentures are possible,
and could adversely affect the ability of the Company to deduct the interest
payable on the Junior Subordinated Debentures. Moreover, any such legislation
could adversely affect United States Alien Holders by characterizing income
derived from the Junior Subordinated Debentures as dividends, generally subject
to a 30% income tax (on a withholding basis) when paid to a United States Alien
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a United States Alien Holder.
A United States Alien Holder that holds Capital Securities in connection
with the active conduct of a United States trade or business will be subject to
income tax on all income and gains recognized with respect to its proportionate
share of the Junior Subordinated Debentures.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders on
Forms 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31 percent unless the holder
complies with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States federal income tax,
provided the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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ERISA CONSIDERATIONS
Each of the Company (the obligor with respect to the Junior Subordinated
Debentures held by the Trust), and its affiliates and the Property Trustee may
be considered a "party in interest" (within the meaning of ERISA) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to many Plans that are subject to ERISA and certain employee
benefit-related provisions of the Code. The purchase and/or holding of Capital
Securities by a Plan that is subject to the fiduciary responsibility provisions
of ERISA or the prohibited transaction provisions of Section 4975 of the Code
(including individual retirement arrangements and other plans described in
Section 4975(e)(1) of the Code) and with respect to which the Company, the
Property Trustee or any affiliate is a service provider (or otherwise is a party
in interest or a disqualified person) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Capital
Securities are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an
exemption for certain transactions determined by an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), PTCE 95-60
(an exemption for transactions involving certain insurance company general
accounts) or PTCE 96-23 (an exemption for certain transactions determined by an
in-house asset manager). In addition, a Plan fiduciary considering the purchase
of Capital Securities should be aware that the assets of the Trust may be
considered "plan assets" for ERISA purposes. In such event, any persons
exercising discretion with respect to the Junior Subordinated Debentures may
become fiduciary parties in interest or disqualified persons with respect to
investing Plans. In order to avoid certain prohibited transactions under ERISA
and the Code that could thereby result, each investing Plan, by purchasing the
Capital Securities, will be deemed to have directed the Trust to invest in the
Junior Subordinated Debentures and to have consented to the appointment of the
Property Trustee. In this regard, it should be noted that, in an Event of
Default, the Company may not remove the Property Trustee without the approval of
a majority of the holders of the Capital Securities.
A Plan fiduciary should consider whether the purchase of Capital Securities
could result in a delegation of fiduciary authority to the Property Trustee,
and, if so, whether such a delegation of authority is permissible under the
Plan's governing instrument or any investment management agreement with the
Plan. In making such determination, a Plan fiduciary should note that the
Property Trustee is a U.S. bank qualified to be an investment manager (within
the meaning of Section 3(38) of ERISA) to which such a delegation of authority
generally would be permissible under ERISA. Further, prior to an Event of
Default with respect to the Junior Subordinated Debentures, the Property Trustee
will have only limited custodial and ministerial authority with respect to Trust
assets.
THE SALE OF INVESTMENTS TO PLANS IS IN NO RESPECT A REPRESENTATION BY THE
TRUST, THE COMPANY, THE PROPERTY TRUSTEE, THE UNDERWRITERS OR ANY OTHER PERSON
ASSOCIATED WITH THE SALE OF THE CAPITAL SECURITIES THAT SUCH SECURITIES MEET ALL
RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR
ANY PARTICULAR PLAN, OR THAT SUCH SECURITIES ARE OTHERWISE APPROPRIATE FOR PLANS
GENERALLY OR ANY PARTICULAR PLAN. ANY PURCHASER PROPOSING TO ACQUIRE CAPITAL
SECURITIES WITH ASSETS OF ANY PLAN SHOULD CONSULT WITH ITS COUNSEL.
STOCKHOLDER AGREEMENT
On December 31, 1996, the Company entered into the Stock Purchase Agreement
with Deltec, whereby Deltec acquired 446,256 of the issued and outstanding
shares of Common Stock of the Company as of that date for an aggregate purchase
price of $4.2 million. The shares of Common Stock acquired by Deltec were not
registered with the Securities and Exchange Commission, however, the Stock
Purchase Agreement grants Deltec registration rights in respect of any shares of
Common Stock that Deltec decides
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to sell. The Stock Purchase Agreement was entered into following the submission
by Deltec of a Rebuttal of Control to the OTS and the execution by Deltec
International, S.A., the parent of Deltec, of a Rebuttal Agreement with the OTS.
Pursuant to the Stock Purchase Agreement, the Company and Deltec also
entered into a stockholder agreement (the "Stockholder Agreement"). The
principal provision of the Stockholder Agreement stipulates that at any time
that the Company proposes to issue and sell any additional shares of its Common
Stock, it shall notify Deltec and shall offer to sell to Deltec concurrently
with the issuance and sale of the additional shares such number of additional
shares (including fractional shares) so that Deltec will continue to own 25% of
the outstanding shares of the Company's Common Stock. Generally, the additional
shares offered and sold to Deltec pursuant to the Stockholders Agreement will be
at a similar price and upon substantially the same terms and conditions as the
other additional shares sold. In the event that the Company purchases or
otherwise acquires any of its outstanding shares of Common Stock, it shall offer
to purchase from Deltec such number of shares that, after the purchase, Deltec
will continue to own 25% of the outstanding shares of the Company's Common
Stock. During the term of the Stockholder Agreement, and for so long as Deltec
holds at least 15% of the Company's Common Stock, Deltec has the right to
nominate one director to the Company's Board of Directors. John G. Yedinak, the
President and Chief Executive Officer of the Company, has agreed that, during
this time period, he will vote all shares of the Company's Common Stock owned by
him for the nominee designated by Deltec. During the term of the Stockholder
Agreement, Deltec has agreed to remain in compliance with the Rebuttal Agreement
between Deltec and the OTS.
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RESTRICTIONS ON ACQUISITION OF THE COMPANY
GENERAL
Certain provisions in the Company's Certificate of Incorporation and Bylaws
and in its management remuneration together with provisions of Delaware
corporate law, may have anti-takeover effects. In addition, regulatory
restrictions may make it difficult for persons or companies to acquire control
of the Company.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the provisions of
the Company's Certificate of Incorporation and Bylaws which might be deemed to
have a potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Company stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.
BOARD OF DIRECTORS. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, may be filled for the remainder of the
unexpired term exclusively by a two-thirds vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 70% of the outstanding shares of voting stock. In the
absence of these provisions, the vote of the holders of a majority of the shares
could remove the entire Board, with or without cause, and replace it with
persons of such holders' choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by the Board of Directors of the Company or an appropriate committee
designated by the Board of Directors. The Certificate of Incorporation also
provides that any action required or permitted to be taken by the stockholders
of the Company may be taken only at an annual or special meeting and prohibits
stockholder action by written consent in lieu of a meeting.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the issuance
of 9,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The
authorized shares of Common Stock and Preferred Stock provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors
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consistent with its fiduciary duty to deter future attempts to gain control of
the Company. The Board of Directors also has sole authority to determine the
terms of any one or more series of Preferred Stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of Preferred Stock
to persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. The Company's Board of
Directors currently has no plans for the issuance of additional shares. --See
"Recent Developments--Issuance of $0.005 Goodwill Convertible Preferred."
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH INTERESTED
STOCKHOLDERS. The Certificate of Incorporation requires the approval of the
holders of at least 70% of the Company's outstanding shares of voting stock
entitled to vote thereon to approve certain "Business Combinations" by an
"Interested Stockholder," each as defined therein, and related transactions.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, the approval of the holders of at least 70% of the shares of
capital stock entitled to vote thereon is required for any business combination
involving an Interested Stockholders except (i) in cases where the proposed
transaction has been approved by a majority of those members of the Company's
Board of Directors who are unaffiliated with the Interested Stockholder and were
Directors prior to the time when the Interested Stockholder became an Interested
Stockholder or (ii) if the proposed transaction meets certain conditions set
forth therein which are designed to afford the stockholders a fair price in
consideration for their shares. In each such case, where stockholder approval is
required, the approval of only a majority of the outstanding shares of voting
stock is sufficient. The term "Interested Stockholder" is defined to include,
among others, any individual, a group acting in concert, corporation,
partnership, association or other entity (other than the Company or its
subsidiary) who or which is the beneficial owner, directly or indirectly, of 10%
or more of the outstanding shares of voting stock of the Company. A "Business
Combination," is defined to include: (i) any merger or consolidation of the
Company or any of its subsidiaries with any Interested Stockholder or Affiliate
(as defined in the Certificate of Incorporation) of an Interested Stockholder or
any corporation which is, or after such merger or consolidation would be, an
Affiliate of an Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Stockholder or Affiliate of 25% or more of the assets of the Company or combined
assets of the Company and its subsidiary; (iii) the issuance or transfer to any
Interested Stockholder or its Affiliate by the Company (or any subsidiary) of
any securities of the Company (or any subsidiary) in exchange for any cash,
securities or other property the value of which equals or exceeds 25% of the
fair market value of the Common Stock of the Company; (iv) the adoption of any
plan for the liquidation or dissolution of the Company proposed by or on behalf
of any Interested Stockholder or Affiliate there; and (v) any reclassification
of securities, recapitalization, merger or consolidation of the Company with any
of its subsidiaries which has the effect of increasing the proportionate share
of Common Stock or any class of equity or convertible securities of the Company
or subsidiary owned directly or indirectly, by an Interested stockholder or
Affiliate thereof. Directors and executive officers of the Company are
purchasing in the aggregate approximately % of the shares of the Common Stock
in the Offering, and currently own % of the outstanding Common Stock.
Additionally, Directors and Executive Officers hold options in an amount equal
to % of the outstanding Common Stock. As a result, Directors and Executive
Officers have the potential to control the voting of approximately % of the
Company's Common Stock on a fully diluted basis after the Offering, thereby
enabling them to prevent the approval of the transactions requiring the approval
of at least 70% of the Company's outstanding shares of voting stock described
herein.
EVALUATION OF OFFERS. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein), to
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(i) make a tender or exchange offer for any equity security of the Company, (ii)
merge or consolidate the Company with another corporation or entity or (iii)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Company, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Company and the stockholders of
the Company, give due consideration to all relevant factors, including, without
limitation, those factors that directors of any subsidiary (including the Bank)
may consider in evaluating any action that may result in a change or potential
change of control of such subsidiary, and the social and economic effects of
acceptance of such offer on: the Company's present and future customers and
employees and those of its subsidiaries (including the Bank); the communities in
which the Company and the Bank operate or are located; the ability of the
Company to fulfill its corporate objectives as a savings and loan holding
company; and the ability of the Bank to fulfill the objectives of a stock
savings bank under applicable statutes and regulations. By having these
standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.
SUPERMAJORITY VOTING REQUIREMENT FOR AMENDMENT OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION. The Certificate of Incorporation provides that
specified provisions contained in the Certificate of Incorporation may not be
repealed or amended except upon the affirmative vote of the holders of not less
than 70% of the outstanding shares of the Company stock entitled to vote
generally in the election of directors. This requirement exceeds the majority
vote of the outstanding stock that would otherwise be required by Delaware law
for the repeal or amendment of the Certificate of Incorporation provision. The
specific provisions covered by such supermajority voting requirement include the
following: (i) the calling of special meetings of stockholders, the absence of
cumulative voting rights and the requirement that stockholder action be taken
only at annual meetings; (ii) the number and classification of the Company's
Board of Directors; (iii) removing directors; (iv) the requirement for the
approval of certain Business Combinations involving "Interested Stockholders";
(v) the indemnification of directors, officers, employees and agents of the
Company; (vi) the limitation of voting rights; and (vii) the required
stockholder vote for amending the Certificate of Incorporation or Bylaws of the
Company. This provision is intended to prevent the holders of less than 70% of
the outstanding stock of the Company from circumventing any of the foregoing
provisions by amending the Certificate of Incorporation to delete or modify one
of such provisions. This provision would enable the holders of more than 70% of
the Company's voting stock to prevent amendments to the Company's Certificate of
Incorporation or Bylaws even if they were favored by the holders of a majority
of the voting stock.
CERTAIN BYLAW PROVISIONS. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment Agreements with Mr. Yedinak and Ms. Pitts and the
1998 Incentive Stock Option Plan may also discourage takeover attempts by
increasing the costs to be incurred by the Bank and the Company in the event of
a takeover. See "The Board of Directors and
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Management of the Bank--Executive Compensation--Employment Agreements" and
"--Benefits--Stock Option Plans."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans are in
the best interest of the Company and its stockholders. An unsolicited
non-negotiated proposal can seriously disrupt the business and management of a
corporation and cause it great expense. Accordingly, the Board of Directors
believes it is in the best interests of the Company and its stockholders to
encourage potential acquirors to negotiate directly with management and that
these provisions will encourage such negotiations and discourage non-negotiated
takeover attempts. It is also the Board of Directors' view that these provisions
should not discourage persons from proposing a merger or other transaction at a
price that reflects the true value of the Company and that otherwise is in the
best interest of all stockholders.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Any proposal to acquire 10% of any class of equity security of the Company
generally would be subject to approval by the OTS under the Change in Bank
Control Act. The OTS requires all persons seeking control of a savings
institution, and, therefore, indirectly its holding company, to obtain
regulatory approval prior to offering to obtain control. Federal law generally
provides that no "person," acting directly or indirectly or through or in
concert with one or more other persons, may acquire directly or indirectly
"control," as that term is defined in OTS regulations, of a federally-insured
savings institution without giving at least 60 days" written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that: (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
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person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to three years after conversion but
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or the
portion of such proxies in excess of the 10% aggregate beneficial ownership
limit. Such regulatory restrictions may prevent or inhibit proxy contests for
control of the Company or the Bank which have not received prior regulatory
approval.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized to issue 9,000,000 shares of Common Stock, and
1,000,000 shares of Preferred Stock. As of June 30, 1998, there were 1,990,576
shares of Common Stock issued and outstanding and no shares of Preferred Stock
are issued or outstanding. --See "Recent Developments-- Issuance of $0.005
Goodwill Convertible Preferred." or reference discussion below
COMMON STOCK
VOTING RIGHTS. The holders of Common Stock possess exclusive voting rights
in the Company, except to the extent that shares of Preferred Stock issued in
the future may have voting rights, if any. Each holder of Common Stock will be
entitled to one vote for each share held of record on all matters submitted to a
vote of holders of the Common Stock.
DIVIDENDS. Subject to such preferences as may be applicable to any shares
of Preferred Stock which may be issued in the future, the holders of Common
Stock are entitled to such dividends as the Board of Directors may declare from
time to time out of funds legally available therefore and are entitled to share
pro rata in liquidating and other distributions to shareholders. For information
pertaining to cash dividends, see "Dividend Policy." Failure to pay dividends by
the Trust on the Capital Securities issued hereunder would restrict the
Company's ability to pay dividends. See "Description of Capital Securities--
Distributions."
OTHER CHARACTERISTICS. Holders of the Common Stock will not have preemptive
rights with respect to any additional shares of Common Stock which may be
issued. Therefore, the Board of Directors may sell shares of capital stock of
the Company without first offering it to existing stockholders. The Common Stock
is not subject to call for redemption and the outstanding shares of Common Stock
when issued and upon receipt by the Company of the offering price will be fully
paid and non-assessable.
PREFERRED STOCK
The Company has designated as Goodwill Convertible Preferred Stock 592,681
shares of the Preferred Stock which are all outstanding. None of the remaining
authorized shares of Preferred Stock of the Company will be issued in the
Offering. The Board of Directors without shareholders approval can issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the common shareholders. If and when issued, the Preferred
Stock is likely to rank prior to the Common Stock as to dividend rights,
liquidation preferences, or both, and may have full or limited voting rights.
The Board of Directors has no present intention to issue any additional shares
of Preferred Stock.
GOODWILL CONVERTIBLE PREFERRED STOCK
On July 28, 1998, the Company declared a stock dividend of $0.005 Goodwill
Convertible Preferred Stock ("Goodwill Preferred Stock") to all holders of
Common Stock as of August 24, 1998 on a share for share basis. As a result,
592,681 shares of Goodwill Preferred Stock were issued to holders of Common
Stock on August 31, 1998. The Goodwill Preferred Stock entitles the holders
thereof to 75% of any damages awarded upon a final judgment to the Bank, net of
expenses and certain other items as a result of
133
<PAGE>
the Bank's lawsuit against the United States seeking damages for breach of
contract related to the limitation and exclusion of supervisory goodwill in the
computation of the Bank's regulatory capital in connection with the Company's
acquisition of the Bank in November, 1987 ("Goodwill Litigation"). At the time
of the final judgment and award of damages, if any, the Goodwill Preferred Stock
will either be (i) redeemed by the Company for cash or (ii) become convertible
into Common Stock. The Company will be entitled to retain the remaining 25% of
any damages awarded to the Bank, net of expenses, in the Goodwill Litigation.
LITIGATION BACKGROUND. The Goodwill Litigation was filed on July 31, 1995
by the Bank and certain of its shareholders ("Plaintiffs") at such time. The
Plaintiffs' claims arise from changes in regulatory capital regulations mandated
by the Financial Institutions Reform Recovery and Enforcement Act of 1989 ("
FIRREA"). The Plaintiffs allege that the enactment of FIRREA constituted a
breach by the U.S. Government of its contractual commitment regarding the
treatment of supervisory goodwill which arose out of the Company's acquisition
of a failed thrift and unlawful taking of the Bank's property rights with
respect to such supervisory goodwill. The Plaintiffs seek damages for breach of
contract and for deprivation of property without just compensation and without
due process of law.
The Goodwill Litigation was stayed pending the resolution on appeal of
related cases, which present issues similar to those presented by the Goodwill
Litigation. The Goodwill Litigation is one of a number of cases filed against
the U.S. Government in the U.S. Federal Claims Court ("Claims Court") involving
agreements to acquire and operate failed thrift institutions and alleging that
the changes in regulatory capital calculation brought about by FIRREA constitute
a breach of contract between the acquiring institution and the U.S. Government.
On July 1, 1996, the U.S. Supreme Court issued its opinion for U.S. V.
WINSTAR CORPORATION, ET AL., No. 95-865, which affirmed the decisions of the
U.S. Court of Appeals for the Fourth Circuit and the Claims Court in various
consolidated cases (the "Winstar cases") granting summary judgment to the
plaintiff thrift institutions on the liability portion of their breach of
contract claims against the U.S. Government. The Supreme Court held that the
U.S. Government breached certain express contracts when Congress enacted FIRREA,
and the Supreme Court remanded the proceedings for a determination of the
appropriate measure and amount of damages.
The first trial of the related Winstar cases on the issue of damages,
GLENDALE FEDERAL BANK V. U.S., No. 90-772C (the "Glendale Case"), is currently
underway and there has been no final ruling to date with respect to the amount
or scope of damages. In an attempt to manage the numerous cases against the U.S.
Government involving the calculation of regulatory capital as a result of the
adoption of FIRREA, the Claims Court issued a Case Management Order in all of
the Winstar cases and determined that no other case will go to trial until the
damages trials in both the Glendale case and another related Winstar case,
STATESMAN SAVINGS HOLDING CORP., ET AL. V. U.S., No. 90-773C (the "Statesman
Case") have been completed. In addition, the Claims Court has designated twelve
cases as priority cases that will be the first cases to go to trial following
the trials on damages in the Glendale case and the Statesman case.
The first of the priority cases is expected to begin trial in late 1998 or
early 1999. Another group of thirty cases is scheduled for trial following
completion of the priority cases. The Goodwill Litigation is not included among
the twelve priority cases or in the next thirty lawsuits. Assuming a settlement
is not reached and based upon the status of the proceedings in the Winstar case
and the Case Management Order, the Goodwill Litigation is not expected to
commence trial proceedings for at least three years.
The plaintiffs in the Goodwill Litigation have not specified conclusively
the type of damages sought, nor have they quantified definitively the amount of
damages they will claim. In addition, there has been no final ruling in the
Glendale case or any other related Winstar case with respect to the amount or
appropriate measure of damages. The extent and amount of damages awarded to each
such institution that has brought an action against the U.S. Government is
expected to be fact specific. Even if the plaintiffs in
134
<PAGE>
other related Winstar cases are successful in securing damage awards, there is
no assurance that the plaintiffs in the Goodwill Litigation will obtain a damage
award.
TERMS OF THE GOODWILL PREFERRED STOCK. At such time the plaintiffs receive
a final judgment and related damages ("the Litigation Award") of the Goodwill
Litigation, the Company will have 90 days, at its option, to redeem the Goodwill
Preferred Stock. The Redemption price shall be determined by a set formula,
which deducts expenses, fees and net taxes related to the Goodwill Litigation
and issuance of the Goodwill Preferred Stock from the Litigation Award and
distributes 75% of such amount among all Goodwill Preferred Stockholders on a
pro rata basis.
To the extent that all or a portion of the Litigation Award is non-cash, the
Company will receive an independent appraisal to determine the fair market value
of the non-cash portion. If the Litigation Award is solely for non-cash and
valued at $250,000 or less, the Company will redeem the shares for its par
value.
In the event the Company chooses not to redeem to Goodwill Preferred Stock
within the 90 day window, the Goodwill Preferred Stock shall become convertible
into Common Stock based on the current market value of the Common Stock divided
into a pro rata share of 75% of the Litigation Award less expenses, fees and net
taxes. The shares shall be convertible until 90 days from the beginning of the
first day of the fiscal quarter following the time the shares first become
convertible.
The terms of the Goodwill Preferred Stock provide that a committee approved
by the Board of Directors of the Company will supervise the Goodwill Litigation.
The Goodwill Preferred Stock contains no voting rights, except with respect
to issues concerning the Goodwill Preferred Stock.
The Goodwill Preferred Stock maintains a preference over the Common Stock in
the event of any dissolution, liquidation, winding-up of the affairs of the
Company in the amount of the applicable redemption price of the Goodwill
Preferred Stock.
The Goodwill Preferred Stock is not registered with the Commission or any
other state or regulatory agency.
TAX TREATMENT. The Company received an opinion from KPMG Peat Marwick LLP
("KPMG") that the distribution of the Goodwill Preferred Stock constitutes a
tax-free stock distribution under Sections 305(a) and 311(a) of the Internal
Revenue Code.
ACCOUNTING TREATMENT. For accounting purposes the Goodwill Preferred Stock
will not be considered an equity security of the Company.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank, Chicago, Illinois is the transfer agent and
registrar for the Company's Common Stock.
135
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom Tucker Anthony Incorporated is acting as representative (the
"Representative"), has severally agreed to purchase from the Company the
aggregate number of shares of Capital Securities set forth opposite its name
below.
<TABLE>
<CAPTION>
CAPITAL
UNDERWRITER SECURITIES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Tucker Anthony Incorporated......................................................
----------
Total........................................................................ 1,500,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, and that the Underwriters will
purchase all of the Capital Securities offered hereby if any such Capital
Securities are not purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Capital Securities at a Price to Public of $10.00
per Capital Security. The Underwriters may allow, and such dealer may re-allow,
a discount not in excess of $ per share with respect to the Capital
Securities to certain other dealers. The offering of the Capital Securities is
made for delivery when, as and if accepted by the Underwriters and is subject to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel, or modify the offer without notice. After the
initial public offering of the Securities, the offering price and other selling
terms may be changed by the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of $2,250,000 of additional Capital Securities, in each case at the applicable
Price to the Public set forth on the cover page of this prospectus less the
applicable underwriting discount,. The Underwriters may exercise such option and
only to cover over-allotments, if any, made in connection with the sale of
shares of Capital Securities offered hereby. If purchased, the Underwriters will
offer such additional shares of Capital Securities on the same terms as the
$15,000,000 of Capital Securities being offered. To the extent that the
Underwriters exercise such options, each of the Underwriters will be obligated,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Capital Securities to be purchased by it
shown in the above table bears to the total of such respective Capital
Securities and the Company will be obligated, pursuant to the option, to sell
such shares of Capital Securities to the Underwriters.
The Company and the Trust have agreed not to, and the Company's directors
and executive officers have agreed that, for a period of 90 days from the
closing of the Offering, such person or entity will not offer for sale, sell or
grant any options, rights or warrants with respect to any Capital Securities of
the Trust without the prior consent of the Representative.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the federal securities laws, or to
contribute to payments the Underwriter may be required to make in respect
thereof.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority to exceed 5% of the number of shares
offered.
136
<PAGE>
Prior to the Offering, there has not been any public market for the Capital
Securities. The Price to the Public for the Capital Securities included in the
offering was determined by negotiations between the Company and Representatives.
Among the factors considered in determining that price were the history of and
prospects for the Company's business and the industry in which it competes, an
assessment of the Company's management and the present state of the Company's
development, the past and present revenues and earnings of the Company, the
prospects for growth of the Company's revenues and earnings, the current state
of the economy in the United States and the current level of economic activity
in the industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies that are
comparable to the Company.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information concerning the Company can be inspected and copied at
prescribed rates at the Commission's Public Reference Room, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as the following Regional
Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained by mail from the
Commission's Public Reference Section, 450 Fifth Street, N.W.,Washington, D.C.
20549, at prescribed rates. If available, such reports and other information may
also be accessed through the Commission's electronic data gathering, analysis
and retrieval system ("EDGAR") via electronic means, including the Commission's
web site on the Internet (http://www.sec.gov).
This Prospectus constitutes a part of a Registration Statement on Form S-1
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act with respect to the Securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the Securities offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
EXPERTS
The Consolidated Financial Statements of the Company and its subsidiaries as
of December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been included in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the formation of the
Trust will be passed upon by Richards, Layton and Finger, P.A., special counsel
to the Company and to the Trust. The validity under Delaware Law of the Junior
Subordinated Debentures and the Guarantee will be passed upon for the Company
and the Trust by Patton Boggs LLP. Certain legal matters will be passed upon for
Tucker Anthony Incorporated by Elias, Matz, Tiernan & Herrick L.L.P.,
Washington, D.C.
137
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Statements of Financial Condition at June 30, 1998 (Unaudited) and
December 31, 1997.............................................................. F-2
Consolidated Statements of Income for the Six Months ended June 30, 1998 and 1997
(Unaudited).................................................................... F-3
Consolidated Statements of Comprehensive Income for the Six Months ended June 30,
1998 and 1997 (Unaudited)...................................................... F-4
Consolidated Statements of Shareholders' Equity for the Six Months ended June 30,
1998 and 1997 (Unaudited)...................................................... F-5
Consolidated Statements of Cash Flows for the Six Months ended June 30, 1998 and
1997 (Unaudited)............................................................... F-6
Notes to Consolidated (Unaudited) Financial Statements........................... F-7-F-10
Independent Auditors' Report..................................................... F-11
Consolidated Statements of Financial Condition at December 31, 1997 and 1996..... F-12
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996
and 1995....................................................................... F-13
Consolidated Statements of Stockholders' Equity for the Years ended December 31,
1997, 1996 and 1995............................................................ F-14
Consolidated Statements of Cash Flows for the Years ended December 31, 1997, 1996
and 1995....................................................................... F-15
Notes to Consolidated Financial Statements....................................... F-17-F-40
</TABLE>
F-1
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
6/30/98 12/31/97
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash................................................................... $ 8,703 $ 6,211
Interest-earning deposits.............................................. 9,923 2,466
FHLB of Chicago Stock.................................................. 1,847 3,271
Securities available-for-sale.......................................... 4,993 4,974
Loans receivable, net.................................................. 183,878 153,808
Discounted loans receivable............................................ 17,001 30,550
Accrued interest receivable............................................ 1,743 1,725
Foreclosed real estate, net............................................ 4,179 4,251
Premises and equipment, net............................................ 10,712 11,235
Mortgage loan servicing rights, net.................................... 6,349 6,706
Prepaid expenses and other assets...................................... 10,430 11,101
----------- ---------
$ 259,758 $ 236,298
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits............................................................. $ 201,463 $ 172,469
Borrowed money....................................................... 28,388 34,156
Interest-bearing custodial escrow balances for loans serviced........ -- 1
Custodial escrow balances for loans serviced......................... 5,891 6,399
Advance payments by borrowers for taxes and insurance................ 746 741
Other liabilities.................................................... 4,545 4,428
----------- ---------
Total liabilities.................................................. $ 241,033 $ 218,194
----------- ---------
Stockholders' Equity:
Preferred stock, $0.01 par value; Authorized 1,000,000 shares; none
issued or outstanding.............................................. -- --
Common Stock, $0.01 par value; Authorized 9,000,000 shares; issued
and outstanding 497,644 shares..................................... 5 5
Additional paid-in capital........................................... 8,750 8,570
Retained earnings--substantially restricted.......................... 10,414 9,915
Accumulated other comprehensive income............................... (127) (33)
Common stock acquired by:
Employee Stock Ownership Plan...................................... (27) (57)
Management Recognition Plan........................................ (290) (296)
----------- ---------
Total stockholders' equity....................................... $ 18,725 $ 18,104
----------- ---------
Commitments and contingencies
Total Liabilities and Stockholders' Equity............................. $ 259,758 $ 236,298
----------- ---------
----------- ---------
</TABLE>
See notes to accompanying unaudited consolidated financial statements
F-2
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
--------------------
<S> <C> <C>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
<CAPTION>
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable............................................................................... $ 6,829 $ 6,438
Discounted loans receivable.................................................................... 1,215 3,210
Mortgage-backed securities..................................................................... 82 156
Interest-earning deposits...................................................................... 435 286
--------- ---------
Total interest income........................................................................ 8,561 10,090
--------- ---------
Interest expense:
Deposits....................................................................................... 4,583 4,124
Custodial escrow balances for loans serviced................................................... -- 5
Borrowed money................................................................................. 1,068 1,695
--------- ---------
Total interest expense....................................................................... 5,651 5,824
--------- ---------
Net interest income before provision for loan losses............................................. 2,910 4,266
Provision for loan losses........................................................................ 235 60
--------- ---------
Net interest income after provision for loan losses.......................................... 2,675 4,206
--------- ---------
Noninterest income:
Purchased mortgage servicing income (loss), net................................................ (278) 169
Mortgage banking............................................................................... 661 350
Net gain (loss) on sale:
Loans held for sale.......................................................................... 384 31
Discounted loans receivable.................................................................. 715 23
Foreclosed real estate....................................................................... (91) 81
Securities available-for-sale................................................................ 318 207
Fees for other customer services............................................................... 359 222
Data processing income......................................................................... 6,020 5,509
Other.......................................................................................... 729 66
--------- ---------
Total noninterest income..................................................................... 8,817 6,658
--------- ---------
Noninterest expense:
Compensation and benefits...................................................................... 4,345 4,529
Occupancy and equipment........................................................................ 2,709 2,353
Federal deposit insurance premiums............................................................. 56 47
Goodwill amortization.......................................................................... 51 53
Data processing cost of services............................................................... 1721 946
Other general and administrative fees.......................................................... 1,983 2,155
--------- ---------
Total noninterest expense.................................................................... 10,865 10,083
--------- ---------
Income before income tax expense................................................................. 627 781
Income tax expense (benefit)..................................................................... (40) 157
--------- ---------
Net income................................................................................... 667 624
--------- ---------
--------- ---------
Per share amounts:
Basic.......................................................................................... $ 1.35 $ 1.31
--------- ---------
--------- ---------
Diluted........................................................................................ $ 1.26 $ 1.22
--------- ---------
--------- ---------
</TABLE>
See notes to accompanying unaudited consolidated financial statements
F-3
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C> <C>
FOR THE SIX MONTHS
ENDED
JUNE 30,
--------------------
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net Income........................................................................................ $ 667 $ 624
Other Comprehensive Income:
Unrealized gains on available-for sale securities:
Unrealized holding gains (losses) arising during period, net of tax............................. 103 92
Less reclassification adjustment for gains included in net income net of tax...................... (197) (128)
--------- ---------
Other comprehensive income(loss).................................................................. (94) (36)
--------- ---------
Comprehensive income.............................................................................. $ 573 $ 588
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-4
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED COMMON COMMON
COMMON ADDITIONAL OTHER STOCK STOCK
STOCK PAID-IN RETAINED COMPREHENSIVE ACQUIRED ACQUIRED
CLASS A CAPITAL EARNINGS INCOME (LOSS) BY ESOP BY MRP
------------- ------------- ----------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------
Balance at December 31, 1996.......... $ 4 7,382 9,444 12 (117) (165)
Net income............................ -- -- 624 -- -- --
Proceeds from issuance of stock....... 1 411 -- -- -- --
Other comprehensive income (loss), net
of tax.............................. -- -- -- (36) -- --
Principal payments on ESOP loan....... -- -- -- -- 30 --
Amortization of purchase price of MRP
stock............................... -- -- -- -- -- 55
Proceeds from exercise of stock
options............................. -- 525 -- -- -- --
Tax benefits of stock options......... -- 193 -- -- -- --
Fair value adjustment for committed
ESOP shares......................... -- 23 -- -- -- --
Cash dividends........................ -- -- (175) -- -- --
--
----- ----------- --- --- ---
Balance at June 30, 1997.............. $ 5 8,534 9,893 (24) (87) (110)
--
--
----- ----------- --- --- ---
----- ----------- --- --- ---
SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------
Balance at December 31, 1997.......... $ 5 8,570 9,915 (33) (57) (296)
Net income............................ -- -- 667 -- -- --
Other comprehensive income (loss), net
of tax.............................. -- -- -- (94) -- --
Principal payments on ESOP loan....... -- -- -- -- 30 --
Amortization of purchase price of MRP
stock............................... -- -- -- -- -- 6
Proceeds from exercise of stock
options............................. -- 116 -- -- -- --
Tax benefits of stock options......... -- 39 -- -- -- --
Fair value adjustment for committed
ESOP shares......................... -- 25 -- -- -- --
Cash dividends........................ -- -- (168) -- -- --
--
----- ----------- --- --- ---
Balance at June 30, 1998.............. $ 5 8,750 10,414 (127) (27) (290)
--
--
----- ----------- --- --- ---
----- ----------- --- --- ---
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
---------------
<S> <C>
SIX MONTHS ENDED JUNE 30, 1997
- --------------------------------------
Balance at December 31, 1996.......... 16,560
Net income............................ 624
Proceeds from issuance of stock....... 412
Other comprehensive income (loss), net
of tax.............................. (36)
Principal payments on ESOP loan....... 30
Amortization of purchase price of MRP
stock............................... 55
Proceeds from exercise of stock
options............................. 525
Tax benefits of stock options......... 193
Fair value adjustment for committed
ESOP shares......................... 23
Cash dividends........................ (175)
------
Balance at June 30, 1997.............. 18,211
------
------
SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------
Balance at December 31, 1997.......... 18,104
Net income............................ 667
Other comprehensive income (loss), net
of tax.............................. (94)
Principal payments on ESOP loan....... 30
Amortization of purchase price of MRP
stock............................... 6
Proceeds from exercise of stock
options............................. 116
Tax benefits of stock options......... 39
Fair value adjustment for committed
ESOP shares......................... 25
Cash dividends........................ (168)
------
Balance at June 30, 1998.............. 18,725
------
------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-5
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................................. $ 667 $ 624
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation.............................................................................. 1,145 1,020
Accretion of discounts and deferred loan fees............................................. (302) (731)
Provision for losses on loans receivable and foreclosed real estate....................... 265 98
(Gain) loss on sale of:
Securities available-for-sale........................................................... (318) (207)
Loans receivable........................................................................ (384) (31)
Discounted loans receivable............................................................. (715) (23)
Foreclosed real estate.................................................................. 91 (81)
Loans originated and purchased for sale..................................................... -- (12,998)
Proceeds from sale of loans receivable...................................................... 18,335 27,092
Proceeds from sale of discounted loans receivable........................................... 7,635 14,125
Amortization of goodwill.................................................................... 51 53
(Increase) decrease in purchased mortgage servicing rights.................................. 356 (1,476)
Amortization of purchase price of MRP and ESOP stock........................................ 36 85
Recognition of fair value of ESOP shares scheduled to be released........................... 25 23
FHLB stock redemption....................................................................... 1,424 157
(Increase) decrease in accrued interest receivable, prepaid expenses, and other assets...... 1,185 893
Increase (decrease) in accrued interest payable and other liabilities....................... 118 (675)
--------- ---------
Net cash provided by (used in) operating activities....................................... 29,614 27,948
--------- ---------
Cash flows from investing activities:
Loans originated and purchased for portfolio.............................................. (77,738) (45,718)
Discounted loans receivable purchased..................................................... (296) (8,731)
Principal repayments on:
Loans receivable and discounted loans receivable.......................................... 34,994 24,644
Mortgage-backed securities................................................................ 235 333
Proceeds from sale of:
Foreclosed real estate.................................................................... 1,671 1,698
Securities available for sale............................................................. 5,271 2,079
Purchase of:
Securities available for sale............................................................. (5,365) (2,113)
Premises and equipment.................................................................... (622) (2,519)
Net cash (paid) in purchase of subsidiary................................................. (485) --
--------- ---------
Net cash provided by (used in) investing activities........................................... (42,335) (30,327)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits....................................................... 28,994 19,753
Proceeds from borrowed funds.............................................................. 13,345 66,919
Repayment of borrowed funds............................................................... (19,113) (87,650)
Proceeds from exercise of stock options................................................... 116 937
Dividends paid............................................................................ (168) (175)
Net increase (decrease) in advance payments by borrowers for taxes and insurance.......... 5 857
Net increase (decrease) in custodial escrow balances for loans serviced................... (509) (283)
--------- ---------
Net cash provided by financing activities............................................... 22,670 358
--------- ---------
Net increase (decrease) in cash and cash equivalents...................................... 9,949 (2,021)
Cash and cash equivalents at beginning of period............................................ 8,677 13,276
--------- ---------
Cash and cash equivalents at end of period.................................................. $ 18,626 $ 11,255
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense............................................................................ $ 5,405 $ 5,268
Income taxes................................................................................ $ 225 $ 70
Non-cash investing activity--transfer of loans to foreclosed real estate.................... $ 1,869 $ 2,130
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-6
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments including
normal recurring accruals, considered necessary for fair presentation have been
included. The results of operations for the six months ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
The unaudited consolidated financial statements include the accounts of Argo
Bancorp, Inc. ("Argo Bancorp," the "Corporation" or "Holding Company") and its
wholly owned subsidiaries, On-Line Financial Services, Inc. ("On-Line"), Argo
Federal Savings Bank, FSB ("Argo Savings" or "Savings Bank") and Argo Savings'
wholly owned subsidiaries, Argo Mortgage Corporation, Dolton-Riverdale Savings
Service Corporation, and Argo Savings' majority owned subsidiary Margo Financial
Services LLC ("MARGO"). The statements also include Argo Bancorp's majority
owned limited liability corporation, Argo / Empire Mortgage LLC. Significant
intercompany accounts and transactions have been eliminated in consolidation.
NOTE B--STOCK BENEFIT PLANS
The Savings Bank adopted the Argo Federal Savings 401(k) Plan ("Plan")
effective October 1, 1988, for the exclusive benefit of eligible employees of
the Savings Bank. The Plan is a qualified plan covering all employees of the
Savings Bank who have completed at least 1,000 hours of service within a twelve
(12) consecutive month period and are age twenty-one (21) or older. Participants
may make contributions to the Plan from 1.0% to 12.0% of their earnings, subject
to Internal Revenue Service limitations. Matching contributions of 50.0% of each
participant's contribution up to 12.0% are made at the Savings Bank's discretion
each Plan year. The Savings Bank made contributions of $35,000 and $41,000, to
the Plan for the six months ended June 30, 1998, and 1997. The Plan also
provides benefits in the event of death, disability, or other termination of
employment.
On-Line has a 401(k) Plan covering all employees who have completed one or
more years of service. Participants may make contributions to the Plan from 1.0%
to 12.0% of their earnings, subject to Internal Revenue Service limitations.
Matching contributions of 50.0% of each participant's contribution up to 6.0% of
participant contributions are made at On-Line's discretion each year. On-Line
contributions totaled $29,000 and $28,000 for the six-month periods ended June
30, 1998, and 1997, respectively.
In conformity with Internal Revenue Service (IRS) rules governing separate
lines of business, the 401(k) Plan for On-Line will continue to be operated
separately from the 401(k) Plan for the Savings Bank.
In connection with the Merger Conversion, Argo Savings formed an Employee
Stock Ownership Plan ("ESOP") for eligible employees. The ESOP borrowed funds
from an unrelated third party lender in the amount of $60,180 in order to
purchase 7.0% of the Common Stock to be issued in the Merger Conversion (5,233
shares at $11.50 per share). The ESOP has subsequently borrowed additional funds
from the same third party lender in the amount of $245,000 in order to purchase
additional shares as of June 30, 1998, the unpaid principal balance of the ESOP
note was $27,000. The note has an interest rate of 8.25% and matures on May 27,
1999. The ESOP has purchased an additional 13,020 shares at an average price of
$18.79 per share. Argo Savings will make scheduled discretionary cash
contributions to the ESOP sufficient to service the amounts borrowed. The unpaid
balance of the ESOP loan has been included in borrowed funds on the unaudited
consolidated statement of condition and stockholders' equity has been reduced by
F-7
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--STOCK BENEFIT PLANS (CONTINUED)
a similar amount. Contributions of $32,000 and $34,000 were made to the ESOP to
fund principal and interest for the three months ended June 30, 1998, and 1997,
respectively.
The Savings Bank records the difference between the fair value of the shares
committed to be released and the cost of those shares to the ESOP as a charge to
additional paid-in-capital with the corresponding increase or decrease to
compensation expense. Additional paid in capital increased by $25,000 and
$23,000 for the six months ended June 30, 1998 and 1997, respectively.
On-Line does not offer an ESOP for On-Line employees. On-Line employees are
not eligible for participation under the Savings Bank's ESOP.
The Board of Directors of Argo Bancorp formed a new MRP effective September
1, 1996, which purchased 12,500 shares of Argo Bancorp stock on September 24,
1996, for $115,000. During the year ended December 31, 1997, the Company sold
4,652 shares held by the Argo Bancorp MRP for $181,000 reducing the total shares
held by the plan to 7,848. Under this plan, employees in key management
positions with Argo Bancorp and all its subsidiaries are eligible for
participation. No shares were awarded during the six months ended June 30, 1998.
During the six months ended June 30, 1997, 1,575 shares were awarded to certain
key On-Line employees. Amortization expense totaled $6000 for each the six month
period ended June 30, 1998.
The Board of Directors of Argo Savings formed a Management Recognition Plan
and Trust ("MRP") effective October 31, 1991, which purchased 6.8% or 15,400
shares, of the Corporation's authorized but unissued common stock in December
1991. In addition, Argo Savings contributed $34,385 to allow the MRP to purchase
2,990 shares in the merger conversion or on the open market. All initial MRP
shares have been awarded to employees in key management positions with the
Savings Bank and are fully vested.
On April 26, 1995, an amendment to the MRP was approved, which increased the
amount of shares available to be awarded under the MRP to 24,498. An additional
3,797 and 1,907 shares were purchased in 1996 and 1995, respectively, under the
MRP. During the year ended December 31, 1997, the Company sold 5,604 shares held
by the plan for $219,000, reducing the total shares held by the plan to one
hundred (100). Employees earn the awards over a three-year period. Once awarded
the aggregate purchase price of the shares will be amortized to expense as a
portion of annual compensation as the employees become vested in their stock
awards and the amortized cost is reflected as a reduction of stockholders'
equity. No shares were awarded or vested during the six-months ended June 30,
1998. Amortization expense totaled $55,000 for the six months ended June 30,
1997.
Argo Bancorp's Board of Directors adopted the 1991 Stock Option and
Incentive Plan (the 1991 Stock Option Plan), which was approved by its
shareholders effective December 23, 1991, under which up to 107,450 shares of
Argo Bancorp's common stock were reserved for issuance by Argo Bancorp upon
exercise of incentive stock options to be granted to full-time employees of Argo
Bancorp and its subsidiaries from time to time. Argo Bancorp awarded all 107,450
options under the 1991 Stock Option Plan. The exercise price for the options
awarded was equal to the fair market value of the common stock at the date of
grant. To date there have been 61,898 options exercised and 8,060 options of
which were exercised during the six months ended June 30, 1998. At June 30,
1998, options to purchase 45,552 shares were outstanding.
F-8
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--STOCK BENEFIT PLANS (CONTINUED)
Argo Bancorp's Board of Directors adopted the Non-Qualified Stock Option
Plan for Non-Employee Directors (Non-Qualified Stock Option Plan), which was
approved by its shareholders effective December 23, 1991, under which up to
107,450 shares of Argo Bancorp's common stock were reserved for issuance by Argo
Bancorp upon exercise of non-incentive stock options to be granted to
non-employee directors of the Corporation and its subsidiaries from time to
time. At June 30, 1998, Argo Bancorp has awarded 63,100 options for shares under
the Non-Qualified Stock Option Plan. To date, options to acquire 13,200 shares
have been exercised. No options were exercised during the six months ended June
30, 1998. The exercise price for the options awarded was equal to the fair
market value of the common stock at the date of grant. At June 30, 1998, options
to purchase 49,900 shares were outstanding under the Non-Qualified Stock Option
Plan.
On-Line does not offer a stock option plan for On-Line employees. On-Line
employees are not eligible for participation under Argo Bancorp's Stock Option
Plan.
NOTE C--REGULATORY CAPITAL
Pursuant to the Office of Thrift Supervision ("OTS") regulations, savings
institutions must meet three separate minimum capital-to-assets requirements:
(1) a risk-based capital requirement of 8.0% of risk-weighted assets, (2) a
leverage ratio of 3.0% core capital to total adjusted assets, and (3) a tangible
capital requirement of 1.5% tangible core capital to total assets. Although the
minimum capital requirement is 3.0%, the OTS Regulations provide that an
institution with less than 4.0% core capital is deemed to be
"under-capitalized." The following table summarizes, as of June 30, 1998, Argo
Savings' capital requirements under OTS regulations and its actual capital
ratios at that date:
<TABLE>
<CAPTION>
REQUIRED ACTUAL REQUIRED ACTUAL EXCESS
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
PERCENTAGE PERCENTAGE BALANCE BALANCE BALANCE
--------------- ----------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Risk-based.............................................. 8.0% 11.05% $ 10,741 $ 14,838 $ 4,097
Core.................................................... 3.0 5.68 7,374 13,958 6,584
Tangible................................................ 1.5 5.68 3,687 13,958 10,271
</TABLE>
NOTE D--EARNINGS PER SHARE
Basic earnings per share is based on a weighted average number of shares
outstanding of 494,293 and 497,644 for the six months ended June 30, 1998, and
1997, respectively. Diluted earnings per share for the
F-9
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--EARNINGS PER SHARE (CONTINUED)
six months ended June 30, 1998, and 1997, is based upon a weighted average
number of shares outstanding of 527,517 and 530,868, respectively.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net Income................................................................................ $ 667,000 $ 624,000
---------- ----------
---------- ----------
Weighted average common shares outstanding................................................ 494,293 477,449
Basic earnings per shares................................................................. $ 1.35 $ 1.31
---------- ----------
---------- ----------
Total weighted average common shares outstanding.......................................... 494,293 477,449
Additional dilutive shares of stock options outstanding................................... 33,224 35,061
---------- ----------
Total weighted average common shares and Equivalents outstanding for diluted
computation............................................................................. 527,517 512,510
---------- ----------
---------- ----------
Diluted earnings per share................................................................ $ 1.26 $ 1.22
---------- ----------
---------- ----------
</TABLE>
NOTE E--COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the Bank had loan commitments totaling $11.3 million and
$3.5 million in unused lines of credit. Commitments to fund loans have credit
risk essentially the same as that involved in extending loans to customers and
are subject to the Bank's normal credit policies. the Bank also had community
reinvestment act ("CRA") investment commitments outstanding of $2.9 million.
NOTE F--SUBSEQUENT EVENTS
On May 4, 1998, the Bank entered into an agreement to sell its Gurnee branch
to CIB Bank. The transaction included the sale of $13.2 million in deposits and
$149,000 in furniture, fixtures, and equipment. The sale closed on July 16,
1998, and resulted in a pre-tax gain of approximately $995,000, which will be
recorded by the Bank in the third quarter of 1998.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Argo Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Argo Bancorp, Inc. and subsidiaries (the Company) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Argo
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 24, 1998
F-11
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
(IN THOUSANDS)
ASSETS
Cash....................................................................................... $ 6,211 12,518
Interest-earning deposits.................................................................. 2,466 758
Stock in Federal Home Loan Bank of Chicago, at cost........................................ 3,271 3,428
Securities available-for-sale, at fair value............................................... 4,974 5,788
Loans receivable, net of allowance for loan losses of $814 and $665 in 1997 and 1996,
respectively............................................................................. 153,808 125,704
Discounted loans receivable................................................................ 30,550 47,725
Accrued interest receivable................................................................ 1,725 2,089
Foreclosed real estate, net of allowance for losses of $92 and $189 in 1997 and 1996,
respectively............................................................................. 4,251 3,913
Premises and equipment, net................................................................ 11,235 9,856
Mortgage loan servicing rights............................................................. 794 1,089
Investment in limited partnerships......................................................... 5,912 4,175
Software licensing rights.................................................................. 1,338 1,663
Prepaid expenses and other assets.......................................................... 9,763 10,578
---------- ---------
$ 236,298 229,284
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................................................... 172,469 150,627
Borrowed money............................................................................. 34,156 50,879
Advance payments by borrowers for taxes and insurance...................................... 741 24
Accrued interest payable................................................................... 264 267
Interest-bearing custodial escrow balances for loans serviced for others................... 1 76
Custodial escrow balances for loans serviced for others.................................... 6,399 5,706
Other liabilities.......................................................................... 4,164 5,145
---------- ---------
Total liabilities.......................................................................... 218,194 212,724
---------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 500,000 shares; none issued or
outstanding............................................................................ -- --
Common stock:
Class A, $0.01 par value. Authorized 3,020,000 shares; issued and outstanding 489,584
shares in 1997 and 446,254 shares in 1996............................................ 5 4
Class B and C, $0.01 par value. Authorized 340,000 shares each; none issued or
outstanding.......................................................................... -- --
Class D, $0.01 par value. Authorized 800,000 shares; none issued or outstanding........ -- --
Additional paid-in capital............................................................... 8,570 7,382
Retained earnings--substantially restricted.............................................. 9,915 9,444
Common stock acquired by:
Employee Stock Ownership Plan.......................................................... (57) (117)
Management Recognition Plan............................................................ (296) (165)
Net unrealized gain (loss) on securities available-for-sale, net of income taxes......... (33) 12
---------- ---------
Total stockholders' equity................................................................. 18,104 16,560
Commitments and contingencies..............................................................
---------- ---------
$ 236,298 229,284
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Interest income:
Loans receivable............................................................ $ 12,072 11,370 11,836
Discounted loans receivable................................................. 5,249 3,687 1,174
Mortgage-backed securities available-for-sale............................... 293 354 405
Interest-earning deposits................................................... 364 421 67
Securities available-for-sale............................................... 288 242 505
--------- --------- ---------
Total interest income......................................................... 18,266 16,074 13,987
--------- --------- ---------
Interest expense:
Deposits.................................................................... 8,580 6,433 5,610
Custodial escrows........................................................... 1 78 224
Borrowed money.............................................................. 2,705 2,572 2,507
--------- --------- ---------
Total interest expense........................................................ 11,286 9,083 8,341
--------- --------- ---------
Net interest income before provision for loan losses.......................... 6,980 6,991 5,646
Provision for loan losses..................................................... 210 248 55
--------- --------- ---------
Net interest income after provision for loan losses........................... 6,770 6,743 5,591
--------- --------- ---------
Noninterest income:
Loan servicing income, net.................................................. 426 352 361
Net gain (loss) on sale of:
Loans held for sale....................................................... 217 246 226
Discounted loans receivable............................................... 279 1,843 1,062
Foreclosed real estate.................................................... 19 (366) (2)
Securities available-for-sale............................................. 710 235 219
Fees and service charges.................................................... 1,451 520 450
Data processing income...................................................... 11,528 11,111 1,836
Other....................................................................... 955 253 327
--------- --------- ---------
Total noninterest income...................................................... 15,585 14,194 4,479
--------- --------- ---------
Noninterest expense:
Compensation and benefits................................................... $ 8,799 8,731 3,648
Occupancy and equipment..................................................... 4,930 4,260 1,471
Federal deposit insurance premiums.......................................... 102 1,072 268
Loan servicing expense...................................................... 550 268 251
Professional fees........................................................... 1,261 788 431
Advertising and promotion................................................... 382 305 104
Goodwill amortization....................................................... 104 108 102
Data processing cost of services............................................ 2,806 1,542 231
Computer services........................................................... -- -- 181
Software expense............................................................ 865 705 119
Other....................................................................... 1,610 1,481 856
--------- --------- ---------
Total noninterest expense..................................................... 21,409 19,260 7,662
--------- --------- ---------
Income before income taxes.................................................... 946 1,677 2,408
Income tax expense............................................................ 123 343 667
--------- --------- ---------
Net income.................................................................... $ 823 1,334 1,741
--------- --------- ---------
--------- --------- ---------
Per share amounts:
Basic....................................................................... $ 1.70 4.26 5.88
Diluted..................................................................... 1.56 3.60 4.96
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON COMMON GAIN (LOSS)
COMMON ADDITIONAL STOCK STOCK ON SECURITIES
STOCK PAID-IN RETAINED ACQUIRED ACQUIRED AVAILABLE-
CLASS A CAPITAL EARNINGS BY ESOP BY MRP FOR-SALE
----------- ------------- ----------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at December 31, 1994........... $ 3 2,664 6,789 (237) (21) (224)
Net income............................. -- -- 1,741 -- -- --
Principal payments on ESOP loan........ -- -- -- 60 -- --
Amortization of purchase price of MRP
stock................................ -- -- -- -- 21 --
Proceeds from exercise of stock
options.............................. -- 49 -- -- -- --
Fair value adjustment for committed
ESOP shares.......................... -- 26 -- -- -- --
Cash dividends ($.68 per share)........ -- -- (208) -- -- --
Purchase of additional MRP shares...... -- -- -- -- (50) --
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes......................... -- -- -- -- -- 266
----- ----- ----- --- --- ---
Balance at December 31, 1995........... 3 2,739 8,322 (177) (50) 42
Net income............................. -- -- 1,334 -- -- --
Proceeds from issuance of stock........ 1 4,026 -- -- -- --
Principal payments on ESOP loan........ -- -- -- 60 -- --
Proceeds from exercise of stock
options.............................. -- 430 -- -- -- --
Tax benefits of stock options
exercised............................ -- 149 -- -- -- --
Fair value adjustment for committed
ESOP shares.......................... -- 38 -- -- -- --
Cash dividends ($.68 per share)........ -- -- (212) -- -- --
Purchase of additional MRP shares...... -- -- -- -- (115) --
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes......................... -- -- -- -- -- (30)
----- ----- ----- --- --- ---
Balance at December 31, 1996........... 4 7,382 9,444 (117) (165) 12
Net income............................. -- -- 823 -- -- --
Proceeds from issuance of stock........ 1 411 -- -- -- --
Principal payments on ESOP loan........ -- -- -- 60 -- --
Amortization of purchase price of MRP
stock................................ -- -- -- -- 12 --
Proceeds from exercise of stock
options.............................. -- 525 -- -- -- --
Tax benefits of stock options
exercised............................ -- 145 -- -- -- --
Fair value adjustment for committed
ESOP shares.......................... -- 50 -- -- -- --
Cash dividends ($.68 per share)........ -- -- (352) -- -- --
Purchase of additional MRP shares...... -- -- -- -- (486) --
Proceeds from sale of MRP stock........ -- 57 -- -- 343 --
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes......................... -- -- -- -- -- (45)
----- ----- ----- --- --- ---
Balance at December 31, 1997........... $ 5 8,570 9,915 (57) (296) (33)
----- ----- ----- --- --- ---
----- ----- ----- --- --- ---
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1994........... 8,974
Net income............................. 1,741
Principal payments on ESOP loan........ 60
Amortization of purchase price of MRP
stock................................ 21
Proceeds from exercise of stock
options.............................. 49
Fair value adjustment for committed
ESOP shares.......................... 26
Cash dividends ($.68 per share)........ (208)
Purchase of additional MRP shares...... (50)
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes......................... 266
------
Balance at December 31, 1995........... 10,879
Net income............................. 1,334
Proceeds from issuance of stock........ 4,027
Principal payments on ESOP loan........ 60
Proceeds from exercise of stock
options.............................. 430
Tax benefits of stock options
exercised............................ 149
Fair value adjustment for committed
ESOP shares.......................... 38
Cash dividends ($.68 per share)........ (212)
Purchase of additional MRP shares...... (115)
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes......................... (30)
------
Balance at December 31, 1996........... 16,560
Net income............................. 823
Proceeds from issuance of stock........ 412
Principal payments on ESOP loan........ 60
Amortization of purchase price of MRP
stock................................ 12
Proceeds from exercise of stock
options.............................. 525
Tax benefits of stock options
exercised............................ 145
Fair value adjustment for committed
ESOP shares.......................... 50
Cash dividends ($.68 per share)........ (352)
Purchase of additional MRP shares...... (486)
Proceeds from sale of MRP stock........ 400
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes......................... (45)
------
Balance at December 31, 1997........... 18,104
------
------
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net income.................................................................. $ 823 1,334 1,741
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization........................................... 2,176 1,435 708
Accretion of discounts and deferred loan fees........................... (1,032) (774) (1,440)
Deferred income tax expense (benefit)................................... (37) 261 545
Provision for losses on loans receivable and foreclosed
real estate........................................................... 248 487 114
Loss (gain) on sale of:
Loans held for sale................................................... (217) (246) (226)
Discounted loans receivable........................................... (279) (1,843) (1,062)
Securities available-for-sale......................................... (710) (235) (219)
Foreclosed real estate................................................ (19) 366 2
Loans originated and purchased for sale................................. (14,428) (23,681) (57,769)
Proceeds from sale of loans held for sale............................... 40,312 36,040 45,850
Proceeds from sale of discounted loans receivable....................... 20,990 9,358 6,494
Goodwill amortization................................................... 104 108 102
Amortization of purchased loan servicing rights......................... 169 -- --
Amortization of purchase price of MRP and ESOP stock.................... 72 60 81
Recognition of fair value of ESOP shares committed to be released....... 50 38 26
FHLB stock dividends.................................................... -- -- (40)
Decrease (increase) in accrued interest receivable and prepaid expenses
and other assets...................................................... 1,571 (3,689) (3,985)
Increase in accrued interest payable and other liabilities.............. (948) 1,500 2,865
---------- ---------- ----------
Net cash provided by (used in) operating activities........................... 48,845 20,519 (6,213)
---------- ---------- ----------
Cash flows from investing activities:
Loans originated and purchased for portfolio................................ (100,742) (59,552) (35,633)
Discounted loans receivable purchased....................................... (8,858) (41,061) (19,904)
Principal repayments on:
Loans receivable and discounted loans receivable.......................... 48,232 46,231 35,928
Mortgage-backed securities available-for-sale............................. 855 735 936
Proceeds from maturities of investment securities........................... -- 625 4,100
Proceeds from sale of:
Securities available-for-sale............................................. 8,668 742 1,448
FHLB stock................................................................ 157 -- --
Foreclosed real estate.................................................... 4,543 1,968 600
Purchased loan servicing rights........................................... 120 -- --
Premises and equipment.................................................... -- 19 14
Purchase of:
Securities available-for-sale............................................. (8,088) (152) (830)
Premises and equipment.................................................... (3,553) (5,849) (3,691)
(CONTINUED)
</TABLE>
F-15
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stock in Federal Home Loan Bank of Chicago................................ $ -- (759) (53)
Loan servicing rights..................................................... (1,731) (1,231) --
Net cash (paid) received in purchase of subsidiary.......................... -- 67 (629)
---------- ---------- ----------
Net cash used in investing activities......................................... (60,397) (58,217) (17,714)
---------- ---------- ----------
Cash flows from financing activities:
Net increase in deposits.................................................... 21,842 27,143 22,787
Proceeds from borrowed money................................................ 88,433 118,671 145,718
Repayment of borrowed money................................................. (105,156) (105,974) (137,482)
Purchase of MRP shares...................................................... (486) (115) (50)
Proceeds from stock issuance................................................ 412 4,027 --
Proceeds from sale of MRP stock............................................. 400 -- --
Proceeds from exercise of stock options..................................... 525 430 49
Dividends paid.............................................................. (352) (212) (208)
Net increase (decrease) in advance payments by borrowers for taxes and
insurance................................................................. 717 (143) (17)
Net increase (decrease) in custodial escrow balances for loans serviced..... 618 (3,914) (4,995)
---------- ---------- ----------
Net cash provided by financing activities..................................... 6,953 39,913 25,802
---------- ---------- ----------
Net increase in cash and cash equivalents..................................... (4,599) 2,215 1,875
Cash and cash equivalents at beginning of year................................ 13,276 11,061 9,186
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 8,677 13,276 11,061
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $ 11,196 8,980 7,983
Income taxes.............................................................. 76 400 190
Noncash investing activity -
transfer of loans to foreclosed real estate............................... 4,955 4,285 1,820
Decrease in taxes payable from exercise of stock options.................... 145 149 --
On-Line acquisition:
Fair value of assets acquired, including cash and cash equivalents........ -- -- 5,344
Value assigned to intangibles............................................. -- -- 154
Liabilities assumed....................................................... -- -- 5,190
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Argo Bancorp, Inc. (Argo Bancorp or the Company)
and subsidiaries conform to generally accepted accounting principles and to
prevailing industry practices. The following is a description of the more
significant of those policies.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are comprised of the accounts of Argo
Bancorp; its wholly-owned subsidiaries, On-Line Financial Services, Inc. and the
Savings Bank; the Savings Bank's wholly-owned subsidiaries, Argo Mortgage
Corporation and Dolton-Riverdale Savings Service Corporation and its majority
owned subsidiary, Margo Financial Services LLC; and Argo Bancorp's consolidated
joint venture, Empire/Argo Mortgage LLC. All significant intercompany balances
and transactions have been eliminated in consolidation. Certain amounts in the
1996 and 1995 consolidated financial statements have been reclassified to
conform with the 1997 presentation.
(B) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Investments for which the Company has the positive intent and ability to
hold to maturity are classified as "held-to-maturity" and measured at amortized
cost, adjusted for amortization of premiums and accretion of discounts.
Investments purchased and held principally for the purpose of selling them in
the near term are classified as "trading securities" and measured at fair value,
with any changes in fair value included in earnings. All other investments that
are not classified as "held-to-maturity" or "trading securities" are classified
as "available-for-sale." Investments available-for-sale are measured at fair
value with any unrealized gains or losses reflected as a separate component of
stockholders' equity, net of income taxes.
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of the
securities.
Amortization of premiums and accretion of discounts are recognized in
interest income over the estimated life of the related securities using the
interest method. Gains or losses on the sale of investment and mortgage-backed
securities are determined using the specific identification method.
(C) LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances less unearned
discounts, deferred loan fees (costs), and allowance for loan losses. Discounts
on loans are amortized to interest income over the contractual life of the
related loans using the interest method. Interest income is not recognized on
loans which are 90 days or greater delinquent or on loans which management
believes are uncollectible.
All loan origination fees and certain direct costs associated with loan
originations are deferred. Net deferred fees and costs are amortized as yield
adjustments over the contractual life of the related loans using a method which
approximates the interest method, adjusted for estimated prepayments based on
the Savings Bank's historical prepayment experience.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Allowances for estimated losses on
loans receivable are established when any permanent decline in value occurs.
Additions to allowances for losses are provided based on a periodic evaluation
by
F-17
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management. Management's periodic evaluation of the adequacy of the allowance is
based on the Company's past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, and current and prospective
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Savings Bank's
allowance for losses. Such agencies may require the Savings Bank to recognize
additions to the allowance for loan losses based on their judgments or
information available to them at the time of their examination. In the opinion
of management, the allowance, when taken as a whole, is adequate to absorb
losses in the current loan portfolio.
(D) ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
Impaired loans are measured at the present value of expected future cash
flows discounted at the loan's effective interest rate, or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral-dependent. Homogeneous loans that are
collectively evaluated for impairment, including first mortgage loans, consumer
loans, and the portfolio of discounted loans receivable are excluded from the
impairment provisions. At December 31, 1997 and 1996, the Company identified no
loans that were considered impaired as defined.
(E) DISCOUNTED LOANS RECEIVABLE
The Company purchases loans, predominately secured by single family homes,
at moderate to deep discounts. The moderate discount loans have been
historically performing loans whereas the deep discount loans have been
nonperforming. These loans receivable are stated at unpaid principal balance
less unearned discount. Discounts on the performing loans are accreted to
interest income over the contractual life of the related loans using the
interest method. Discounts on purchased loans for which the collection of
principal and interest is not probable are only recognized in income when the
loan is sold or paid in full. Management evaluates collectibility of the
portfolio of discounted loans receivable on an aggregate pool basis. Any excess
of estimated fair value over the net loan balance, in the aggregate, is charged
to income. There was no impairment expense recorded in 1997, 1996, or 1995.
(F) MORTGAGE LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
(G) FORECLOSED REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure or
in judgment is carried at the lower of fair value less costs to dispose or the
related loan balance at the date of foreclosure. Valuations are periodically
performed by management and an allowance for loss is established by a charge to
operations if the carrying value of a property exceeds its fair value less costs
to dispose.
F-18
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activity in the allowance for losses on foreclosed real estate is summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- -----
<S> <C> <C> <C>
Balance at beginning of year............................................................... $ 189 412 399
Provision for losses....................................................................... 38 238 59
Transfer from allowance for loan losses.................................................... 50 77 45
Charge-offs................................................................................ (185) (538) (91)
--------- --- ---
Balance at end of year..................................................................... $ 92 189 412
--------- --- ---
--------- --- ---
</TABLE>
(H) PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
method over the estimated useful lives of the assets. Useful lives are 25 to 50
years for building and additions, 7 to 10 years for building and parking lot
improvements, and 3 to 10 years for furniture, fixtures, equipment, and computer
software.
(I) PURCHASED LOAN SERVICING RIGHTS
The investment in purchased loan servicing rights represents equity
investments in limited partnerships carried at the lower of fair value or the
equity investment. The cost of acquiring the rights to service mortgage loans is
capitalized at the partnership level as are other loan servicing costs.
Valuations are performed by management of the Company on a quarterly basis, and
an independent valuation is performed annually by the partnerships.
(J) SOFTWARE LICENSING RIGHTS
The cost of certain software licensing rights acquired and other product
conversion costs at On-Line Financial Services, Inc. are capitalized and
amortized to expense on a straight-line basis over periods of 5 to 7 years.
(K) EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The cost in excess of fair value of net assets acquired (goodwill) in
business combinations is amortized to expense over 15 years for banking
acquisitions and 20 years (straight-line method) for the On-Line acquisition
using the straight line method.
(L) INCOME TAXES
Argo Bancorp and its subsidiaries file a consolidated Federal income tax
return. The provision for Federal and state income taxes is based upon earnings
reported in the consolidated financial statements.
Under the asset and liability method, deferred tax assets and liabilities
are recognized for the tax consequences attributable to differences between the
financial statement existing assets and liabilities and their respective tax
bases (temporary differences). Deferred tax assets and liabilities are measured
using
F-19
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
enacted tax rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(M) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and
interest-earning deposits with banks with original maturities less than 90 days
are considered to be cash and cash equivalents.
The Savings Bank is required by federal regulations to maintain a minimum
level of liquid assets of 4%. The Savings Bank exceeded the federal requirement
at December 31, 1997 and 1996.
(N) EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," in the fourth
quarter of 1997. All prior periods presented have been restated under the
provisions of SFAS No. 128. Under the provisions of SFAS No. 128, primary and
fully diluted earnings per share were replaced with basic and diluted earnings
per share. Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
is calculated by dividing net income by the weighted average number of shares
adjusted for the diluted effect of outstanding stock options.
The following table sets forth the components of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income................................................................. $ 823 1,334 1,741
---------- ---------- ----------
---------- ---------- ----------
Denominator:
Basic earnings per share--weighted average shares outstanding.............. 482,893 313,256 295,978
Effect of dilutive stock options outstanding............................... 43,798 57,523 55,186
---------- ---------- ----------
Diluted earnings per share--weighted average shares outstanding.............. 526,691 370,779 351,164
---------- ---------- ----------
Basic earnings per share..................................................... $ 1.70 4.26 5.88
Diluted earnings per share................................................... 1.56 3.60 4.96
---------- ---------- ----------
</TABLE>
(O) MANAGEMENT ESTIMATES
In order to prepare the consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make certain
estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. These estimates may differ from actual results.
F-20
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(2) ACQUISITION OF ON-LINE FINANCIAL SERVICES, INC.
On October 31, 1995 Argo Bancorp acquired On-Line Financial Services, Inc.
(On-Line), an Oak Brook, Illinois based computer service bureau, servicing bank
and thrift clients throughout the Midwest. The acquisition was accounted for
using the purchase method. The consolidated financial statements include the
results of operations since the acquisition date.
The purchase transaction was consummated through the use of a wholly owned
subsidiary of the Company, OLF Acquisition Corporation, which acquired shares of
three separate state chartered savings and loan service corporations which
owned, in the aggregate, 98.9% of the outstanding shares of On-Line. Sale of the
remaining 1.1% of On-Line shares was made by a single institutional stockholder
which held shares in On-Line directly. The intervening acquisition subsidiary
and state chartered savings and loan service corporation shells were liquidated
and merged by Argo Bancorp in 1996.
Financial terms of the transaction included a cash sweep to shareholders of
On-Line funds on hand on the closing date, less amounts necessary to establish
certain agreed-upon escrow balances; a two-year asset note of approximately
$1,026,000, representing the closing date net book value of On-Line; a 26-month
escrow note in the amount of $460,000, which was paid in 1997, representing
funds held for future performance under a third-party computer lease; and a
structured schedule of contingent payments based on future revenues of On-Line
over the next seven years. The total transaction value, including asset notes
and contingent payments, will not exceed $8.9 million. During 1997, the Company
asserted claims that the selling shareholders of On-Line had breached certain
representations and warranties in the purchase contract. Following a series of
negotiations, the selling shareholders agreed to reduce the purchase price by
$1,098,000. As a result, at December 31, 1997, the amounts paid or payable,
exclusive of the future contingent payments, for On-Line were $836,000 less than
the fair value of the net assets acquired. Any future contingent payments will
reduce this shortgage. In December, 1997, the Company purchased from certain of
the former shareholders their rights to 25.45% of the future contingent payment.
The Company paid $172,000 for these future contingent payments. Management
anticipates funding any required future payments with borrowed funds and excess
funds generated from operations and, to the extent necessary, earnings and
assets of the Company. The structured payment schedule is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NET REVENUES
---------------
<S> <C>
Year 1.............................................................................................. 10.5%
Year 2.............................................................................................. 15.5
Year 3.............................................................................................. 15.5
Year 4.............................................................................................. 11.0
Year 5.............................................................................................. 11.0
Year 6.............................................................................................. 11.0
Year 7.............................................................................................. 11.0
</TABLE>
F-21
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(3) SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DESCRIPTION COST GAINS LOSSES VALUE
- ----------------------------------------------------- ----------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Municipal Securities................................. $ 370 10 -- 380
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation............. 125 -- (1) 124
Federal National Mortgage Association.............. 2,837 -- (34) 2,803
Marketable equity securities......................... 1,695 7 (35) 1,667
----------- --- --- -----
$ 5,027 17 (70) 4,974
----------- --- --- -----
----------- --- --- -----
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
DESCRIPTION COST GAINS LOSSES VALUE
- ------------------------------------------------------------------- ----------- ------------- ------------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Municipal securities............................................... $ 557 45 -- 602
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation........................... 826 12 (4) 834
Federal National Mortgage Association............................ 4,009 4 (103) 3,910
Government National Mortgage Association........................... 152 8 -- 160
Marketable equity securities....................................... 226 56 -- 282
----------- --- --- -----
$ 5,770 125 (107) 5,788
----------- --- --- -----
----------- --- --- -----
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale, by contractual maturity, at December 31, 1997, are shown
below. Mortgage-backed securities, although not due at a single maturity date,
are allocated among the maturity groupings based on contractual maturity.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Due in one year or less.................................................................... $ 234 234
Due after one year through five years...................................................... 565 560
Due after five years through ten years..................................................... 50 52
Due after ten years........................................................................ 2,483 2,461
----------- -----
3,332 3,307
Marketable equity securities............................................................... 1,695 1,667
----------- -----
$ 5,027 4,974
----------- -----
----------- -----
</TABLE>
F-22
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(3) SECURITIES AVAILABLE-FOR-SALE (CONTINUED)
Proceeds from sales of securities available-for-sale for the years ended
December 31, 1997, 1996, and 1995 were $8,668,000, $742,000, and $1,448,000,
respectively. Gross gains of $710,000, $235,000, and $219,000, respectively
during 1997, 1996, and 1995 were recorded. There were no realized losses on
security sales during these years.
(4) LOANS RECEIVABLE
Loans receivable and loans held for sale, net are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
<S> <C> <C>
1997 1996
---------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans....................................................................... $ 111,404 81,050
Participating investment in first mortgage loans........................................... 31,059 37,487
Commercial real estate loans............................................................... 1,951 4,019
Equity line of credit loans................................................................ 7,700 6,035
Other loans................................................................................ 3,649 1,297
---------- ---------
Total gross loans receivable............................................................... 155,763 129,888
Add (deduct):
Allowance for loan losses...................................................... (814) (665)
Deferred loan costs............................................................ 681 93
Unearned discounts............................................................. (1,822) (3,612)
---------- ---------
$ 153,808 125,704
---------- ---------
---------- ---------
Weighted-average interest rate............................................................. 9.57% 9.95%
---------- ---------
---------- ---------
</TABLE>
Included in first mortgage loans are loans held for sale totaling
approximately $6.5 million and $6.2 million at December 31, 1997 and 1996,
respectively.
The following is a summary of the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- ----- -----
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................................................ $ 665 587 613
Provision for loan losses................................................................... 210 248 55
Transfer to allowance for losses on foreclosed real estate.................................. (50) (77) (45)
Charge-offs................................................................................. (11) (93) (36)
--------- --- ---
Balance at end of year...................................................................... $ 814 665 587
--------- --- ---
--------- --- ---
</TABLE>
F-23
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(4) LOANS RECEIVABLE (CONTINUED)
Loans receivable delinquent three months or more are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER LOANS RECEIVABLE
OF LOANS AMOUNT NET OF DISCOUNT
----------- --------- -----------------
<S> <C> <C> <C>
(IN THOUSANDS)
December 31, 1997............................................................. 104 $ 5,525 3.57%
December 31, 1996............................................................. 78 3,942 3.12
December 31, 1995............................................................. 57 1,987 1.54
--- --------- ---
--- --------- ---
</TABLE>
First mortgage loans at December 31, 1997 include approximately $90.9
million in out-of-area purchased participation and whole loans, which are
secured by single-family homes, with approximately 13% in California, 13% in New
York, and 74% spread throughout the remainder of the country. There is no
geographic concentration of nonperforming loans.
(5) DISCOUNTED LOANS RECEIVABLE
Discounted loans receivable, net are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans......................................................................... $ 36,310 60,276
Commercial real estate loans................................................................. -- 504
Other loans.................................................................................. 460 1,062
--------- ---------
Total discounted loans receivable............................................................ 36,770 61,842
Less unearned discount....................................................................... (6,220) (14,117)
--------- ---------
$ 30,550 47,725
--------- ---------
--------- ---------
</TABLE>
Discounted loans receivable delinquent three months or more are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF DISCOUNT LOANS
AMOUNT RECEIVABLE, NET
------------- -----------------
<S> <C> <C>
(IN
THOUSANDS)
December 31, 1997................................................................ $ 6,220 20.36%
December 31, 1996................................................................ 15,454 32.38
------ -----
------ -----
</TABLE>
F-24
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(6) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Investment securities........................................................................... $ 61 58
Mortgage-backed securities...................................................................... 18 27
Loans receivable and discounted loans receivable................................................ 1,646 2,004
--------- ---------
$ 1,725 2,089
--------- ---------
--------- ---------
</TABLE>
(7) PREMISES AND EQUIPMENT
Premises and equipment, at cost, less accumulated depreciation and
amortization are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Land......................................................................................... $ 537 537
Office buildings and improvements............................................................ 4,075 3,776
Leasehold improvements....................................................................... 1,994 1,293
Furniture, fixtures, and equipment........................................................... 17,082 15,331
Capital leases............................................................................... 6,593 5,811
--------- ---------
30,281 26,748
Less accumulated depreciation and amortization............................................... (19,046) (16,892)
--------- ---------
$ 11,235 9,856
--------- ---------
--------- ---------
</TABLE>
Included in occupancy and equipment expense is depreciation and amortization
expense of office properties and equipment of approximately $2,176,000,
$1,435,000, and $708,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.
The Company leases certain equipment under capital lease agreements. The
cost of these assets is amortized on the straight-line basis with the charge
included in depreciation expense.
At December 31, 1997 the Company had capital lease obligations of $6.6
million relating to lease agreements for equipment and other space in connection
with On-Line. Interest expense with respect to these capital leases totaled
$402,000, $207,000, and $42,000 in 1997, 1996, and 1995, respectively.
The Company leases office space and computer equipment under noncancelable
operating leases. Rent expense for the years ended December 31, 1997, 1996, and
1995 totaled $503,000, $574,000, and $149,000, respectively.
F-25
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(7) PREMISES AND EQUIPMENT (CONTINUED)
At December 31, 1997, minimum future rental payments due under capital and
noncancelable operating leases having an initial or remaining term of one year
or more consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 OPERATING CAPITAL
- --------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
(IN THOUSANDS)
1998......................................................................................... $ 343 1,296
1999......................................................................................... 359 986
2000......................................................................................... 344 802
2001......................................................................................... 359 777
2002......................................................................................... 372 496
Thereafter................................................................................... 1,520 310
----------- -----
Total minimum lease payments................................................................. $ 3,297 4,667
-----------
-----------
Amount representing interest--capital leases................................................. 838
-----
Present value of minimum capital lease payments.............................................. 3,829
-----
-----
</TABLE>
(8) LOAN SERVICING AND PURCHASED MORTGAGE SERVICING RIGHTS
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans totaled approximately $9.1 million, $8.9 million, and $10.3 million
at December 31, 1997, 1996, and 1995, respectively.
For independently acquired servicing rights, the cost of acquiring the
rights to service mortgage loans is capitalized and amortized in proportion to
and over the period of the estimated net servicing income. On December 31, 1997
and 1996, Argo Savings held $794,000 and $1.1 million, respectively, in
purchased mortgage servicing rights (PMSR's) with an underlying principal
balance of approximately $62.2 million and $83.2 million, respectively. Service
fee income for the year ended December 31, 1997 totaled $84,000 net of
amortization of purchased mortgage servicing rights of $2,000. No income was
recorded in 1996. In 1995, Argo Bancorp had no independently purchased servicing
rights.
During the year ended December 31, 1997, PMSR's totaling $120,000 with an
underlying principal balance of $9.2 million were sold at cost from the Savings
Bank. There were no other sales of purchased mortgage servicing rights for the
years ended December 31, 1997, 1996, and 1995.
The custodial accounts which relate to loans subserviced on behalf of the
Savings Bank and Argo Bancorp for portfolio loans, servicing retained loans, and
purchased mortgage servicing rights are maintained at the Savings Bank in
noninterest-bearing accounts. The custodial accounts are used for escrowed
payments of taxes and insurance and the float on principal and interest
payments. At December 31, 1997, the entire balance of the custodial accounts of
$6,399,000 relates to loans serviced on behalf of the Savings Bank and Argo
Bancorp.
The balance of investment in limited partnerships of $5.9 million and $4.2
million at December 31, 1997 and 1996, respectively, represents Argo Savings'
investment in three divisions of a single limited partnerships. The single
business activity of this limited partnership is the purchase of current
mortgage servicing rights. There are several equity investors in each division
of the partnership. The purchase of the servicing rights is then leveraged
allowing the partnership to purchase additional servicing rights. At the
F-26
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(8) LOAN SERVICING AND PURCHASED MORTGAGE SERVICING RIGHTS (CONTINUED)
end of five years, or at such time as the investors agree, the servicing rights
will be sold and the proceeds divided pro rata among the investors. As with
typical investments in PMSR's, the collateral underlying the equity investment
is the servicing rights. All purchases of servicing rights must be approved by
all equity investors and undergo stringent guidelines outlined previously for a
purchase of servicing. The administration and servicing of the purchased
portfolios in each division is performed by the general partner. Argo Savings'
recorded income related to this partnership on the equity method of $341,000,
$352,000, and $360,000 during 1997, 1996, and 1995, respectively, is included in
servicing fee income, net of amortization of PMSR's, in the consolidated
statements of operations.
(9) DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -----------------------
AMOUNT WEIGHTED AMOUNT
IN AVERAGE IN
THOUSANDS PERCENT RATE THOUSANDS PERCENT
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Passbook accounts......................................... $ 17,607 10.2% 2.63% $ 18,349 12.2%
NOW accounts.............................................. 13,225 7.7 2.48 12,426 8.3
Money market accounts..................................... 6,223 3.6 3.50 4,957 3.3
---------- ----- --- ---------- -----
37,055 21.5 2.72 35,732 23.8
---------- ----- --- ---------- -----
---------- ----- --- ---------- -----
Certificate accounts:
3.99% or less........................................... 10 -- 2.50 52 --
4.00 - 4.99%............................................ 874 .5 4.85 769 .5
5.00 - 5.99%............................................ 62,935 36.5 5.55 71,169 47.2
6.00 - 6.99%............................................ 69,962 40.5 6.11 39,194 26.0
7.00 - 7.99%............................................ 1,513 .9 7.09 3,612 2.4
8.00 - 8.99%............................................ 120 .1 8.44 99 .1
---------- ----- --- ---------- -----
135,414 78.5 5.85 114,895 76.2
---------- ----- --- ---------- -----
$ 172,469 100.0% 5.18% $ 150,627 100.0%
---------- ----- --- ---------- -----
---------- ----- --- ---------- -----
<CAPTION>
WEIGHTED
AVERAGE
RATE
-----------
<S> <C>
Passbook accounts......................................... 2.76%
NOW accounts.............................................. 3.05
Money market accounts..................................... 4.30
---
3.07
---
---
Certificate accounts:
3.99% or less........................................... 2.50
4.00 - 4.99%............................................ 4.84
5.00 - 5.99%............................................ 5.50
6.00 - 6.99%............................................ 6.17
7.00 - 7.99%............................................ 7.05
8.00 - 8.99%............................................ 8.44
---
5.77
---
5.13%
---
---
</TABLE>
Contractual maturities of certificate accounts at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
(IN THOUSANDS)
Under 12 months............................................................................ $ 116,154 48,570
12 months to 36 months..................................................................... 13,313 57,111
Over 36 months............................................................................. 5,947 9,214
---------- ---------
$ 135,414 114,895
---------- ---------
---------- ---------
</TABLE>
The Savings Bank has pledged investment securities of approximately
$3,022,000 and $4,160,000 at December 31, 1997 and 1996, respectively, as
collateral to secure certain public deposits. At December 31, 1997 and 1996,
respectively, the Savings Bank also had letters of credit totaling $15,402,000
and
F-27
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(9) DEPOSITS (CONTINUED)
$14,523,000, respectively, as collateral to secure several State of Illinois
certificates of deposit totaling approximately $14,100,000. The aggregate amount
of deposit accounts with a balance greater than $100,000 was $40,607,000 and
$36,487,000 at December 31, 1997 and 1996, respectively.
Interest expense on deposit accounts is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook and certificate accounts...................................................... $ 8,064 5,934 5,162
NOW accounts........................................................................... 270 282 333
Money market accounts.................................................................. 246 217 115
--------- --------- ---------
$ 8,580 6,433 5,610
--------- --------- ---------
--------- --------- ---------
</TABLE>
(10) BORROWED MONEY
Borrowed money at December 31 is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED INTEREST
RATE BALANCE
DECEMBER 31 DECEMBER 31
-------------------- --------------------
MATURITY 1997 1996 1997 1996
----------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Advances from the Federal
Home Loan Bank of Chicago:
Open line.. 6.24% 5.59 $ 6,000 25,650
1/02/97 -- 6.14 -- 297
2/11/97 -- 4.80 -- 2,000
2/10/97 -- 4.80 -- 1,409
12/17/97 -- 6.30 -- 55
2/21/00 5.48 -- 5,000 --
6/03/01 8.43 8.43 72 72
4/20/03 6.13 6.13 2,760 2,760
11/25/06 6.58 6.58 10,000 10,000
--- --------- --------- ---------
6.22 5.80 23,832 42,243
--- --------- --------- ---------
Other borrowings:
ESOP note payable............................................. 4/27/99 8.08 8.02 57 117
Note payable.................................................. Open line 8.44 8.25 5,279 2,227
Note payable.................................................. 10/31/97 -- 5.90 -- 1,026
Note payable.................................................. Open line 8.44 8.25 830 975
Margin account................................................ Open line 8.49 -- 329 --
Capital lease obligations
(see note 7)................................................ various 8.96 9.28 3,829 4,291
--- --------- --------- ---------
8.63 8.48 10,324 8,636
--- --------- --------- ---------
6.95% 6.25 $ 34,156 50,879
--- --------- --------- ---------
</TABLE>
F-28
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(10) BORROWED MONEY (CONTINUED)
The Savings Bank adopted a collateral pledge agreement whereby the Savings
Bank has agreed to at all times keep on hand, free of all other pledges, liens,
and encumbrances, first mortgages with unpaid principal balances aggregating no
less than 167% of the outstanding secured advances and letters of credit from
the Federal Home Loan Bank of Chicago. All stock in the Federal Home Loan Bank
of Chicago is pledged as additional collateral for these advances.
The 18,253 shares of common stock of Argo Bancorp held by the ESOP are
pledged as collateral for the ESOP note. The other borrowings at December 31,
1997 consist of two notes payable and an open line margin account. The note
payable of $5,279,000 is drawn on an open line of credit totaling $6,000,000
with a third-party financial institution, and is collateralized by the Company's
stock in Argo Federal Savings Bank. The rate of interest adjusts monthly at
prime (8.50% at December 31, 1997). The note payable of $830,000 is drawn on
On-Line's $1,000,000 line of credit with a third-party financial institution,
and is collateralized by accounts receivable of On-Line. The rate of interest
adjusts monthly at prime (8.50% at December 31, 1997).
The margin account loan is from a third party securities broker. The rate of
interest on the loan adjusts daily at prime less .50% (8.00% at December 31,
1997). The margin account loan was secured at December 31, 1997 by securities
held by the broker having a market value of $1.1 million.
(11) INCOME TAXES
The provision for Federal and state income tax expense consists of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................................................... $ 496 82 122
Deferred.................................................................................. (242) 261 545
--------- --- ---
254 343 667
State:
Current................................................................................... (124) -- --
Deferred.................................................................................. (7) -- --
--------- --- ---
Total income tax expense.................................................................... $ 123 343 667
--------- --- ---
--------- --- ---
</TABLE>
F-29
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(11) INCOME TAXES (CONTINUED)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................................................... $ 91 111
Unused tax credit.......................................................................... 212 --
Allowance for loan losses.................................................................. 374 259
Depreciation............................................................................... 215 159
Unrealized loss on securities available-for-sale........................................... 20 --
Other...................................................................................... 20 40
--------- ---------
Gross deferred tax assets.................................................................... 932 569
--------- ---------
Deferred tax liabilities:
Excess tax bad debt deduction.............................................................. (31) (31)
Limited partnership interest............................................................... (1,116) (988)
Unrealized gain on securities available-for-sale........................................... -- (7)
Other...................................................................................... (75) (108)
--------- ---------
Gross deferred tax liabilities............................................................... (1,222) (1,134)
--------- ---------
Net deferred tax liabilities................................................................. $ (290) (565)
--------- ---------
--------- ---------
</TABLE>
The effective income tax rate differs from the statutory federal tax rate of
34%. The major reasons for this difference for the years ended December 31
follow:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at statutory rate....................................................... $ 321 570 819
Increase (decrease) in tax resulting from:
Amortization of discounts and goodwill, net.............................................. 35 37 35
Net operating loss carryforwards utilized................................................ (124) (18) (19)
Net decrease in valuation allowance...................................................... -- (62) --
Municipal interest, net.................................................................. (14) (14) (13)
Tax credits.............................................................................. (208) (179) (306)
Other.................................................................................... 113 9 151
--------- --- ---
Income tax expense......................................................................... $ 123 343 667
--------- --- ---
--------- --- ---
</TABLE>
At December 31, 1997 Argo Bancorp has net operating loss carryforwards
available of approximately $267,000 expiring in 2004. Utilization of these net
operating losses is limited to approximately $55,000 per year.
At December 31, 1997, Argo Bancorp has low income housing tax credit
carryforwards in the amount of $212,000 expiring in 2011 and 2012.
Retained earnings at December 31, 1997 include $1,349,000 for which no
provision for Federal income tax has been made. These amounts represent
allocations of income to bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt losses will create
income, which will be subject to the then-current corporate income tax rate.
F-30
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(12) EMPLOYEE BENEFIT PLANS
401(K) PLAN AND TRUST The Argo Federal Savings 401(k) Plan (Plan) is an
ERISA-qualified plan covering all employees of the Savings Bank who have
completed at least 1,000 hours of service within a 12 consecutive month period
and are age 21 or older. Participants may make contributions to the Plan from 1%
to 12% of their earnings, subject to Internal Revenue Service limitations.
Matching contributions of 50% of each participant's contribution up to 12% are
made at the Savings Bank's discretion each Plan year. The Savings Bank made
contributions of $82,000, $73,000, and $64,000 to the Plan for the years ended
December 31, 1997, 1996, and 1995, respectively. The Plan also provides benefits
in the event of death, disability, or other termination of employment.
On-Line has a qualified 401(k) Plan covering all employees who have
completed one or more years of service. Participants may make contributions to
the Plan from 1% to 12% of their earnings, subject to Internal Revenue Service
limitations. Matching contributions of 50% of each participant's contribution up
to 6% of participant contributions are made at On-Line's discretion each year.
On-Line made contributions of $49,000, $81,000, and $10,800 to the Plan for the
years ended December 31, 1997, 1996, and 1995, respectively.
In conformity with Internal Revenue Service (IRS) rules governing separate
lines of business, the 401(k) Plan for On-Line will continue to be operated
separately from the 401(k) Plan for the Savings Bank.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Dolton Riverdale merger conversion, the Savings Bank
formed an Employee Stock Ownership Plan (ESOP) for eligible employees. The ESOP
borrowed funds from an unrelated third-party lender in the amount of $60,180 in
order to purchase 7% of the common stock to be issued in the merger conversion
(5,233 shares at $11.50 per share). The ESOP has subsequently borrowed
additional funds from the same third-party lender in the amount of $245,000 in
order to purchase an additional 13,020 shares at an average price of $18.79 per
share. The Savings Bank will make scheduled discretionary cash contributions to
the ESOP sufficient to service the amounts borrowed. The unpaid balance of the
ESOP loan has been included in borrowed funds on the consolidated statements of
financial condition, and stockholders' equity has been reduced by a similar
amount. Contributions of $67,000, $72,000, and $78,000 were made to the ESOP to
fund principal and interest payments for the years ended December 31, 1997,
1996, and 1995, respectively. At December 31, 1997, 18,253 shares were
allocated, 15,856 shares were committed to be released, and 2,397 shares were in
suspense. The fair value of unearned shares at December 31, 1997 was $93,483.
In accordance with Statement of Position 93-6, (SOP 93-6), "Employers'
Accounting for Employee Stock Ownership Plans," Argo Bancorp considers
outstanding only those shares of the ESOP that are committed to be released when
calculating both basic and diluted earnings per share. The Savings Bank records
the difference between the fair value of the shares committed to be released and
the cost of those shares to the ESOP as a charge to additional paid-in capital
with the corresponding increase or decrease to compensation expense. Additional
paid-in capital was increased by $50,000, $38,000, and $26,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
On-Line does not offer an ESOP for its employees. On-Line employees are not
eligible for participation under the Savings Bank's ESOP.
F-31
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(12) EMPLOYEE BENEFIT PLANS (CONTINUED)
MANAGEMENT RECOGNITION PLAN
The Board of Directors of the Savings Bank formed a Management Recognition
Plan and Trust (MRP) effective October 31, 1991, which purchased 6.8%, or 15,400
shares, of Argo Bancorp's authorized but unissued common stock in December 1991.
In addition, Argo Bancorp contributed $34,385 to allow the MRP to purchase 2,990
shares in the merger conversion or on the open market. All MRP shares have been
awarded to employees in key management positions with the Savings Bank. The
awards vested over a three-year period. The aggregate purchase price of the
shares awarded is being amortized to expense as a portion of annual
compensation, and the unamortized cost is reflected as a reduction of
stockholders' equity. No MRP shares were awarded or expensed during the years
ended December 31, 1997 and 1996. For the year ended December 31, 1995, the
Savings Bank expensed $21,000 of the funds relating to the MRP awards.
On April 26, 1995, an amendment to the MRP was approved, which increased the
amount of shares available to be awarded under the MRP to 24,498. An additional
3,797 and 1,907 shares were purchased in 1996 and 1995, respectively, under the
MRP. During the year ended December 31, 1997, the Company sold 5,604 shares held
by the Savings Bank MRP for $219,000, reducing the total shares held by the plan
to one hundred (100). The proceeds from this transaction were recorded as an
increase in capital at December 31, 1997. None of the remaining shares have been
awarded.
The Board of Directors of Argo Bancorp formed a new MRP effective September
1, 1996, which purchased 12,500 shares of Argo Bancorp stock on September 24,
1996 for $115,000. Under this plan, employees in key management positions with
Argo Bancorp and all its subsidiaries are eligible for participation. During the
year ended December 31, 1997, 1,575 shares were awarded to certain key On-Line
employees. Amortization expense totaled $12,000 for the year ended December 31,
1997. No MRP shares were awarded or expensed during the year ended December 31,
1996. Also during the year ended December 31, 1997, the Company sold 4,652
shares held by the Argo Bancorp MRP plan for $181,000, reducing the total shares
held by the plan to 7,848. The proceeds from this transaction were recorded as
an increase in capital at December 31, 1997.
STOCK OPTION PLANS
Argo Bancorp's Board of Directors adopted the 1991 Stock Option and
Incentive Plan (the 1991 Stock Option Plan), under which up to 107,450 shares of
Argo Bancorp's common stock were reserved for issuance by Argo Bancorp upon
exercise of incentive stock options to be granted to full-time employees of Argo
Bancorp and its subsidiaries from time to time. All 107,450 options were awarded
during 1993. The exercise price for the options awarded was equal to or greater
than the fair market value of the common stock on the date of grant. During
1997, 1996, and 1995, 23,997, 22,972, and 3,762 of the options were exercised,
respectively. The weighted average exercise price for the options exercised in
1997, 1996, and 1995 was $15.40, $16.76, and $14.21, respectively. At December
31, 1997, options to purchase 53,612 shares were outstanding.
Argo Bancorp's Board of Directors adopted the Non-Qualified Stock Option
Plan for Non-Employee Directors (Non-Qualified Stock Option Plan) in 1991, under
which up to 107,450 shares of Argo Bancorp's common stock were reserved for
issuance by Argo Bancorp upon exercise of nonincentive stock options to be
granted to nonemployee directors of the Savings Bank subsidiary from time to
time. At December 31,
F-32
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(12) EMPLOYEE BENEFIT PLANS (CONTINUED)
1997, 62,100 options for shares have been awarded by Argo Bancorp under the
Non-Qualified Stock Option Plan. The exercise price for the options awarded was
equal to the fair market value of the common stock on the date of grant. During
1997, 1996, and 1995, 8,500, 3,200, and 500 of the options were exercised,
respectively. The weighted average exercise price for options exercised in 1997,
1996, and 1995 was $18.24, $14.31, and $11.50, respectively. At December 31,
1997, options to purchase 48,900 shares were outstanding.
On-Line does not offer a stock option plan for its employees. On-Line
employees and directors are not eligible for participation under Argo Bancorp's
Stock Option Plans.
The Company applies ABP Opinion No. 25 in accounting for the Stock Option
Plan and, accordingly, compensation cost based on the fair value at grant date
has not been recognized for its stock options in the consolidated financial
statements during the years ended December 31, 1997 and 1996. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Net income:
As reported........................................................ $ 823 1,334 1,741
Pro forma.......................................................... 583 1,115 1,375
Earnings per share:
Basic:
As reported...................................................... 1.70 4.26 5.88
Pro forma........................................................ 1.21 3.56 4.63
Diluted:
As reported...................................................... 1.56 3.60 4.96
Pro forma........................................................ 1.10 3.01 3.92
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996, and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above, because compensation cost is reflected over the options' graded
vesting period of three years for the 1991 Stock Option Plan and immediately for
the Non Qualified Stock Option Plan. Compensation cost for options granted prior
to January 1, 1995, is not considered. However, the annual expense allocation
methodology prescribed by SFAS No. 123 attributes a higher percentage of the
reported expense to earlier years than to later years, resulting in an
accelerated expense recognition.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes option pricing model. The following assumptions were used in
estimated the fair value for options granted in 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield................................................... 2.13% 2.37% 2.37%
Risk-free interest rate.......................................... 6.11% 6.10% 6.64%
Weighted average expected life................................... 8 yrs. 8 yrs. 8 yrs.
Expected volatility.............................................. 8.70% 6.95% 6.95%
</TABLE>
F-33
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(12) EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted average per share fair values of options granted during 1997,
1996, and 1995 were $10.72, $9.99, and $8.49, respectively.
(13) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Savings Bank is a party to financial instruments with off-balance sheet
risk in the normal course of its business. These instruments represent
commitments to originate and sell first mortgage loans and letters of credit,
and involve credit and interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition.
Commitments to originate fixed and adjustable rate mortgage loans amounted
to approximately $5.8 million at December 31, 1997, at rates ranging from 6.25%
to 9.38%. These commitments represent amounts which the Savings Bank plans to
fund in its normal commitment period. The Savings Bank evaluates each customer's
creditworthiness on a case-by-case basis.
Unused lines of credit amounted to approximately $7.8 million as of December
31, 1997. The Savings Bank also had Community Reinvestment Act (CRA) investment
commitments outstanding of $3.2 million. These commitments include $977,000 to
be funded over ten years for investment in the Chicago Equity Fund, $317,000 to
be funded over thirteen years for investment in the Community Investment
Corporation.
(14) CAPITAL CONTRIBUTIONS
Argo Bancorp contributed $2.4 million and $1.5 million to On-Line during the
years ended December 31, 1997 and 1996, respectively. These capital
contributions were used to fund software license purchases, leasehold
improvements, and to improve the cash flow position. Argo Bancorp contributed
$1.3 million and $2.3 million to the Savings Bank in December of 1997 and 1996,
respectively. Both contributions were made with the intent of increasing
regulatory capital levels and thereby allowing future growth. Argo Bancorp also
contributed $2.5 million to Empire Mortgage LLC during the year ended December
31, 1995 to fund loan purchases.
(15) REGULATION AND SUPERVISION
The Savings 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 Savings Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet specific capital guidelines that involve quantitative
measures of the Savings Bank assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Savings Bank
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined) to risk-weighted
assets (as defined), Tier I capital (as defined) to assets (as defined), and
tangible capital (as defined). Management believes, as of December 31, 1997 and
1996, that the Savings Bank meets all capital adequacy requirements to which it
is subject.
F-34
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(15) REGULATION AND SUPERVISION (CONTINUED)
As of December 31, 1997 and 1996, the most recent notification from the
Office of the Thrift Supervision categorized the Savings Bank as
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, the Savings Bank must maintain minimum total
risk-based, Tier I risk-based, Tier I leverage, and tangible capital ratios as
set forth in the following table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Savings Bank's actual capital amounts (in thousands) and ratios are as
follows as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
TO BE WELL-
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION
-------------------- ------------------------ ------------------------
DECEMBER 31, 1997 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------- --------- --------- ----------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)...... $ 13,849 11.10% $ 9,981 8.00% $ 12,476 10.00%
Tier I capital (to risk-weighted assets)..... 13,035 10.45 N/A N/A 7,486 6.00
Tier I capital (core leverage) (to assets)... 13,035 5.93 6,592 3.00 10,986 5.00
Tangible capital (to assets)................. 13,035 5.93 3,296 1.50 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL-
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION
-------------------- ------------------------ ------------------------
DECEMBER 31, 1996 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------- --------- --------- ----------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)...... $ 13,212 10.84% $ 9,749 8.00% $ 12,186 10.00%
Tier I capital (to risk-weighted assets)..... 12,547 10.30 N/A N/A 7,311 6.00
Tier I capital (core leverage) (to assets)... 12,547 5.82 6,464 3.00 10,774 5.00
Tangible capital (to assets)................. 12,547 5.82 3,232 1.50 N/A N/A
</TABLE>
(16) DIVIDEND RESTRICTIONS
The OTS imposes limitations upon all capital distributions by savings
institutions, including cash dividends. An institution that exceeds all fully
phased-in capital requirements before and after a proposed capital distribution
(Tier I Savings Bank) and has not been advised by the OTS that it is in need of
more than normal supervision, could, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the higher
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year; or (ii) 75% of its net income over the most recent four-quarter period.
Any additional capital distributions would require prior regulatory approval. As
of December 31, 1997 and 1996, the Savings Bank was a Tier I Savings Bank.
(17) SEGMENT FINANCIAL INFORMATION
Argo Bancorp operates in two primary business segments, banking and data
processing, through its two operating subsidiaries. The Savings Bank provides a
wide array of diversified financial services including mortgage, commercial, and
consumer banking services to individuals as well as small and midsize
businesses. On-Line Financial provides data processing services to financial
institutions.
F-35
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(17) SEGMENT FINANCIAL INFORMATION (CONTINUED)
The following table highlights Argo Bancorp's organizational revenues,
earnings, and assets by business segment. Organizational revenues, earnings, and
assets by business segment are impacted by Argo Bancorp intercompany
allocations. The allocations are based upon various management estimates. The
data processing 1995 amounts represent a stub period of two months from the
acquisition date of On-Line.
<TABLE>
<CAPTION>
DATA CONSOLIDATED
BANKING PROCESSING TOTAL
---------- ----------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
1997:
Revenues.................................................................. $ 21,101 12,750 33,851
Earnings.................................................................. 698 125 823
Assets.................................................................... 225,129 11,169 236,298
---------- ----------- ------------
1996:
Revenues.................................................................. $ 18,722 11,546 30,268
Earnings.................................................................. 598 736 1,334
Assets.................................................................... 218,972 10,312 229,284
---------- ----------- ------------
1995:
Revenues.................................................................. $ 16,630 1,836 18,466
Earnings.................................................................. 1,519 222 1,741
Assets.................................................................... 179,983 6,485 186,468
---------- ----------- ------------
</TABLE>
(18) PARENT COMPANY FINANCIAL INFORMATION
Condensed statements of financial condition, operations, and cash flows of
Argo Bancorp, Inc. are presented on the following pages, and should be read
in connection with the consolidated financial statements and notes thereto.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash....................................................................................... $ 146 538
Interest-bearing deposits.................................................................. 520 316
Securities available-for-sale.............................................................. 1,333 282
Loans receivable........................................................................... 62 5
Investment in subsidiaries................................................................. 20,185 18,583
Other assets............................................................................... 1,760 813
--------- ---------
Total assets................................................................................. $ 24,006 20,537
--------- ---------
--------- ---------
Liabilities and stockholders' equity:
Borrowed money............................................................................. 5,608 3,540
Other liabilities.......................................................................... 294 437
Total stockholders' equity................................................................... 18,104 16,560
--------- ---------
Total liabilities and stockholders' equity................................................. $ 24,006 20,537
--------- ---------
--------- ---------
</TABLE>
F-36
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(18) PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income......................................................................... $ 23 9 23
Interest expense........................................................................ (335) (341) (286)
--------- --------- ---------
Net interest expense.................................................................... (312) (332) (263)
Dividends from subsidiaries............................................................. 2,242 1,818 973
Equity in undistributed earnings of subsidiaries........................................ (1,144) 148 1,097
Other noninterest income................................................................ 618 235 206
Noninterest expense..................................................................... (789) (683) (399)
--------- --------- ---------
Net income before income taxes.......................................................... 615 1,186 1,614
Income tax benefit...................................................................... (208) (148) (127)
--------- --------- ---------
Net income.............................................................................. $ 823 1,334 1,741
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-37
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(18) PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................................................... $ 823 1,334 1,741
Adjustments to reconcile net income to net cash provided by operating activities:
Proceeds from sale of loans...................................................... -- -- 137
(Gain) loss on the sale of:
Loans.......................................................................... -- -- (2)
Investment securities.......................................................... (618) (235) (204)
Equity in undistributed earnings of subsidiaries................................. 1,144 (148) (1,097)
Amortization of purchase price of ESOP and MRP................................... 72 60 81
Recognition of fair value of ESOP shares scheduled to be released................ 50 38 26
Increase in other assets......................................................... (729) (586) (139)
Increase (decrease) in other liabilities......................................... (143) 370 (499)
--------- --------- ---------
Net cash provided by operating activities............................................ 599 833 44
--------- --------- ---------
Cash flows from investing activities:
Loans originated................................................................... (63) -- (135)
Principal repayments on loans receivable........................................... 6 3 3
Proceeds from the sale of investment securities.................................... 5,790 742 1,314
Purchase of investment securities.................................................. (6,306) (127) (760)
Net cash (paid) received in purchase of subsidiary................................. 916 -- (629)
Contribution to MRP and ESOP....................................................... (486) (115) (50)
--------- --------- ---------
Net cash provided by (used in) investing activities.................................. (143) 503 (257)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from stock issuance....................................................... 412 4,027 --
Proceeds from borrowed money....................................................... 11,108 1,943 5,173
Repayment of borrowed money........................................................ (9,040) (3,120) (2,573)
Capital contributions to subsidiaries.............................................. (3,698) (3,775) (2,517)
Proceeds from exercise of stock options............................................ 525 430 49
Proceeds from sale of MRP stock.................................................... 400 -- --
Dividends paid..................................................................... (351) (212) (208)
--------- --------- ---------
Net cash used in financing activities................................................ (644) (707) (76)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................. (188) 629 (289)
Cash and cash equivalents at beginning of year....................................... 854 225 514
--------- --------- ---------
Cash and cash equivalents at end of year............................................. $ 666 854 225
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-38
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of estimated fair values for all asset, liability,
and off-balance sheet financial instruments. The estimated fair value
amounts under SFAS No. 107 have been determined as of a specific point in
time utilizing various available market information, assumptions, and
appropriate valuation methodologies. Accordingly, the estimated fair values
presented herein are not necessarily representative of the underlying value
of Argo Bancorp. Rather, the disclosures are limited to reasonable estimates
of the fair value of only Argo Bancorp's financial instruments. The use of
assumptions and various valuation techniques, as well as the absence of
secondary markets for certain financial instruments, will likely reduce the
comparability of fair value disclosures between financial institutions. Argo
Bancorp does not plan to sell most of its assets or settle most of its
liabilities at these fair values. The estimated fair values of Argo
Bancorp's financial instruments as of December 31, 1997 and 1996 are set
forth in the following table, followed by the methods and assumptions used.
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash................................................................ $ 6,211 6,211 12,518 12,518
Interest-bearing deposits........................................... 2,466 2,466 758 758
FHLB of Chicago stock............................................... 3,271 3,271 3,428 3,428
Securities available-for-sale....................................... 4,974 4,974 5,788 5,788
Loans receivable.................................................... 184,358 201,466 173,429 190,655
Accrued interest receivable......................................... 1,725 1,725 2,089 2,089
--------- --------- --------- ---------
--------- --------- --------- ---------
Financial liabilities:
Deposits without stated maturities.................................. $ 37,055 37,055 35,732 35,732
Deposits with stated maturities..................................... 135,414 135,582 114,895 115,184
Borrowed money...................................................... 34,156 34,205 50,879 50,018
Interest-bearing custodial escrow balances.......................... 1 1 76 76
Custodial escrow balances........................................... 6,399 6,399 5,706 5,706
Accrued interest payable............................................ 264 264 267 267
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The following methods and assumptions are used by Argo Bancorp in estimating
the fair value amounts for its financial instruments.
(A) CASH AND INTEREST-BEARING DEPOSITS
The carrying value of cash and interest-bearing deposits approximates fair
value due to the short period of time between origination of the instruments and
their expected realization.
(B) SECURITIES AVAILABLE-FOR-SALE AND FHLB OF CHICAGO STOCK
The fair value of these securities available-for-sale were estimated using
quoted market prices. The fair value of FHLB stock is based on its redemption
value.
F-39
<PAGE>
ARGO BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996, AND 1995
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(C) LOANS RECEIVABLE AND ACCRUED INTEREST RECEIVABLE
The fair value of loans receivable is based on values obtained in the
secondary market. The loan portfolio is segmented into fixed and adjustable
interest rate categories. For fixed rate loans, fair value is estimated based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. For adjustable
rate loans that reprice frequently and with no significant change in credit
risk, fair values are based on carrying values. The carrying amount of accrued
interest receivable approximates its fair value due to the relatively short
period of time between accrual and expected realization.
(D) DEPOSITS, CUSTODIAL ESCROWS, AND INTEREST PAYABLE
The fair value of deposits with no stated maturity, such as passbook
savings, NOW, and money market accounts and custodial escrows are disclosed as
the amount payable on demand.
The fair value of fixed-maturity deposits is the present value of the
contractual cash flow discounted using interest rates currently being offered
for deposits with similar remaining terms to maturity.
The carrying amount of interest payable approximates its fair value due to
the relatively short period of time between accrual and expected realization.
(E) BORROWED FUNDS
The fair value of borrowed funds is the present value of the contractual
cash flows, discounted by the current rate offered for similar remaining
maturities.
F-40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary........................................ 5
Available Information.......................... 12
Summary Consolidated Financial and Other
Data......................................... 13
Recent Developments............................ 15
Risk Factors................................... 17
Use of Proceeds................................ 29
Market for the Capital Securities.............. 29
Ratios of Earnings to Combined Fixed Charges... 29
Accounting Treatment........................... 29
Capitalization................................. 30
Consolidated Statements of Income.............. 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 32
Business of the Company........................ 46
Business of the Bank........................... 49
Business of On-Line Financial Services, Inc.... 71
Business of Empire/Argo, LLC................... 78
Federal and State Taxation..................... 78
Regulation..................................... 81
The Board of Directors and Management of the
Company...................................... 90
The Board of Directors and Management of the
Bank......................................... 91
Description of Capital Securities.............. 99
Description of Junior Subordinated
Debentures................................... 109
Description of Guarantee....................... 119
Relationship among the Capital Securities, the
Junior Subordinated Debentures and the
Guarantee.................................... 122
Certain Federal Income Tax Consequences with
Respect to the Issuance of the Capital
Securities................................... 123
ERISA Considerations........................... 127
Stockholder Agreement.......................... 127
Restrictions on Acquisition of the Company..... 129
Description of Capital Stock of the Company.... 133
Transfer Agent and Registrar................... 135
Underwriting................................... 136
Additional Information......................... 137
Experts........................................ 137
Legal Matters.................................. 137
Financial Statements........................... F-1
</TABLE>
---------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE BANK OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE
BANK SINCE ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE
THE DATE HEREOF.
[LOGO]
$15,000,000
ARGO CAPITAL TRUST CO.
% CAPITAL SECURITIES
ARGO BANCORP, INC.
----------------
PROSPECTUS
----------------
, 1998
TUCKER ANTHONY
INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
The following statement sets forth the estimated amount of expenses (other
than the underwriting discounts and commissions) to be incurred in connection
with the issuance and distribution of the securities being registered.
<TABLE>
<S> <C>
SEC filing fee(1)................................................................. $ 4,425
American Stock Exchange listing fee(1)............................................ 15,000
Printing and distribution......................................................... 25,000
Legal fees and expenses........................................................... 200,000
Accounting fees and expenses...................................................... 165,000
Blue Sky fees and expenses........................................................ 15,000
Miscellaneous..................................................................... 100,000
---------
TOTAL............................................................................. $ 524,425
---------
---------
</TABLE>
- ------------------------
(1) Actual expenses based upon the registration of 15,000,000 aggregate
liquidation amount of the % of Capital Securities at $10.00 per share.
All other expenses are estimated.
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 12 and 2 of the
Registrant's Certificate of Incorporation provide as follows:
ELEVENTH: ELIMINATION OF DIRECTORS' LIABILITY
Directors of the Corporation shall have no liability to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this Article XI shall not eliminate liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not made in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which a director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after the effective date of this Certificate
to further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
TWELFTH: INDEMNIFICATION
A. Each person who was or is made a party or is threatened to be made a party to
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (CONTINUED)
such proceeding is alleged action in an official capacity as a Director,
Officer, employee or agent or in any other capacity while serving as a
Director, Officer, employee or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Section C hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article XII
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a Director or Officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, services to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not entitled to
be indemnified for such expenses under this Section or otherwise. The rights
to indemnification and to the advancement of expenses conferred in Sections
A and B of this Article XII shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a Director, Officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators.
C. If a claim under Section A or B of this Article XII is not paid in full by
the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a
right to indemnification or to an advancement of expenses
II-2
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (CONTINUED)
hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article XII or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in
this Article XII shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Certificate, Bylaws,
agreement, vote of stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent
of the provisions of this Article XII with respect to the indemnification
and advancement of expenses of Directors and Officers of the Corporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In accordance with Item 701 of Regulation S-K, the following information is
presented with respect to securities sold by the Registrant within the past
three years which were not registered under the Securities Act of 1933, as
amended ("Securities Act"):
(a) On December 31, 1996, the Company sold in a private placement an
aggregate of 446,256 shares of its Common Stock.
(b) Charles Webb & Company, a division of Keefe, Bruyette & Woods acted as
the Underwriter for the Company in connection with the private placement
transaction. The Common Stock was sold to one purchaser.
(c) The aggregate purchase price was $4.2 million.
(d) Based upon representations of the offerees and purchasers, the Common
stock was offered and sold in reliance upon an exemption from
registration under 4(2) of the Securities Act.
(e) not applicable
(f) not applicable
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.0 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of Argo Bancorp, Inc. *
3.2 Bylaws of Argo Bank Corp, Inc. *
4.0 Form of Stock Certificate of Argo Bancorp, Inc. *
4.1 Form of Indenture of the Company relating to the Junior Subordinated Debentures
4.2 Form of Certificate of Junior Subordinated Debenture
4.3 Certificate of Trust of Argo Capital Trust Co. *
4.4 Declaration of Trust of Argo Capital Trust Co. *
4.5 Form of Capital Security Certificate for Argo Capital Trust Co. (included in Exhibit
4.7)
4.6 Form of Guarantee of the Company relating to the Capital Securities
4.7 Amended and Restated Declaration of Trust of Argo Capital Trust Co.
4.8 Form of Goodwill Convertible Preferred Stock Certificate of Argo Bancorp, Inc.
5.0 Opinion of Patton Boggs LLP as to legality of the Junior Subordinated Debentures and
the Guarantee to be issued by the Company **
5.2 Opinion of Richards, Layton and Finger as to the legality of the Capital Securities to
be issued by Argo Capital Trust Co.
8.0 Opinion of Patton Boggs LLP as to certain federal income tax matters **
10.0 Stock Purchase Agreement & Stockholder Agreement between ARGO Bancorp, Inc., and the
Deltec Banking Corporation Limited dated December 31, 1996 *
10.1 Employment Agreement between ARGO Bancorp, Inc. and John G. Yedinak dated November 1,
1996
10.2 Employment Agreement between ARGO Bancorp, Inc. and Frances M. Pitts dated November 1,
1996
10.3 Amended and Restated Management Recognition and Retention Plan
10.4 ARGO Bancorp, Inc. 1998 Incentive Stock Option Plan
23.1 Consent of KPMG Peat Marwick L.L.P.
23.2 Consent of Patton Boggs LLP (included in Exhibit 5.1) **
23.3 Consent of Richards, Layton and Finger (included in Exhibit 5.2)
24.1 Power of Attorney of certain officers and directors of the Corporation (located on the
signature page hereto) *
25.1 Form T-1 Statement of Eligibility of ARGO Capital Trust Company to act as trustee
under the Indenture
25.2 Form T-1 Statement of Eligibility of ARGO Capital Trust Company to act as trustee
under the Declaration of Trust of ARGO Capital Trust Co.
25.3 Form T-1 Statement of Eligibility of ARGO Capital Trust Company to act as trustee
under the Guarantee for the benefit of the holders of Capital Securities of ARGO
Capital Trust Co.
27.0 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the Offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Summit,
State of Illinois, on October 13, 1998.
<TABLE>
<S> <C>
ARGO BANCORP, INC.
BY:
---------------------
John G. Yedinak
President and
Chief Executive Officer
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John G. Yedinak and Frances M. Pitts, jointly and
severally, each in his own capacity, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any or all amendments to this Registration Statement, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
or do cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME DATE
- ------------------------------ -------------------
President, Chief Executive
Officer and Director
- ------------------------------ (principal executive October 13, 1998
John G. Yedinak officer)
Interim Chief Financial
* Officer (principal
- ------------------------------ accounting and financial October 13, 1998
George L. Koehm officer)
* Director
- ------------------------------ October 13, 1998
Frances M. Pitts
* Director
- ------------------------------ October 13, 1998
Arthur E. Byrnes
* Director
- ------------------------------ October 13, 1998
Sergio Martinucci
* Director
- ------------------------------ October 13, 1998
Donald G. Wittmer
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Summit,
State of Illinois, on October 13, 1998.
ARGO CAPITAL TRUST CO.
By:
---------------------------------------------
Administrative Trustee
By: *
---------------------------------------------
Administrative Trustee
* Pursuant to Power of Attorney filed with the Commission as Exhibit 24.1 on
July 21, 1998.
II-7
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Summit,
State of Illinois, on October 13, 1998.
<TABLE>
<S> <C> <C>
ARGO BANCORP, INC.
/s/ JOHN G. YEDINAK
-----------------------------------------
John G. Yedinak
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By:
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John G. Yedinak and Frances M. Pitts, jointly and
severally, each in his own capacity, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any or all amendments to this Registration Statement, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
or do cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE DATE
- ------------------------------ -------------------
President, Chief Executive
/s/ JOHN G. YEDINAK Officer and Director
- ------------------------------ (principal executive October 13, 1998
John G. Yedinak officer)
Interim Chief Financial
* Officer
- ------------------------------ (principal accounting and October 13, 1998
George L. Koehm financial officer)
* Director
- ------------------------------ October 13, 1998
Frances M. Pitts
* Director
- ------------------------------ October 13, 1998
Arthur E. Byrnes
* Director
- ------------------------------ October 13, 1998
Sergio Martinucci
* Director
- ------------------------------ October 13, 1998
Donald G. Wittmer
II-8
<PAGE>
CONFORMED
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Summit,
State of Illinois, on October 13, 1998.
<TABLE>
<S> <C> <C> <C>
ARGO CAPITAL TRUST CO.
*By: /s/ JOHN G. YEDINAK
-------------------------
John G. Yedinak
ADMINISTRATIVE TRUSTEE
*By: *
-------------------------
Frances M. Pitts
ADMINISTRATIVE TRUSTEE
</TABLE>
* Pursuant to Power of Attorney filed with the Commission as Exhibit 24.1 on
July 21, 1998.
II-9
<PAGE>
Exhibit 1.0
ARGO BANCORP, INC.
ARGO CAPITAL TRUST CO.
$15,000,000 of ____% Capital Securities
(Liquidation Amount $10 per Capital Security)
UNDERWRITING AGREEMENT
October __, 1998
TUCKER ANTHONY INCORPORATED
One Beacon Street
Boston, Massachusetts 02108
Ladies and Gentlemen:
Argo Bancorp, Inc., a Delaware corporation (the "Company"), proposes to
sell to the several underwriters named in Schedule I hereto (the
"Underwriters") through its wholly-owned financing subsidiary, Argo Capital
Trust Co., a Delaware statutory business trust (the "Trust", and hereinafter
together with the Company, the "Offerors"), an aggregate of $15,000,000 of
the Trust's ____% Capital Securities, with a liquidation amount of $10 per
capital security ("Capital Securities"), to be issued under the Trust
Agreement (as hereinafter defined), (the aforementioned 1,500,000 Capital
Securities to be sold to the Underwriters being referred to herein as the
"Firm Capital Securities"). The respective amounts of the Firm Capital
Securities to be so purchased by the Underwriters are set forth opposite
their names in Schedule I hereto. In addition, the Trust proposes to grant
the Underwriters an option to purchase therefrom all or any part of an
additional $2,250,000 of Capital Securities for the purpose of covering
over-allotments, if any (the aforementioned 225,000 Capital Securities which
may be sold to the Underwriters being referred to herein as the "Option
Capital Securities"). The Firm Capital Securities and all or any part of the
Option Capital Securities are hereinafter collectively referred to as the
"Designated Capital Securities."
1. Representations and Warranties of the Offerors. The Offerors,
jointly and severally, represent and warrant to, and agree with, each of the
Underwriters that:
a. The Company and the Trust have filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), a registration
statement on Form S-1 (Registration Nos. 333-59434 and
333-59435-01) including the related preliminary prospectus
relating to the Designated Capital Securities, the Guarantee (as
defined in Section 2(e) hereof) and $___ aggregate principal
amount of Junior Subordinated Debentures (as defined in Section
2(e) hereof), have filed such amendments thereto as may have been
required as of the date hereof, and will file such additional
amendments as may hereafter
<PAGE>
be required. Copies of such registration statement and any
amendments, including any post-effective amendments, and all
forms of the related prospectuses contained therein and any
supplements thereto, have been delivered to the Underwriters.
Such registration statement, including the prospectus, Part
II, all financial schedules and exhibits thereto, and all
information deemed to be a part of such Registration Statement
pursuant to Rule 430A under the Securities Act, at the time
when it shall become effective, together with any registration
statement filed by the Company and the Trust pursuant to Rule
462(b) of the Securities Act, is herein referred to as the
"Registration Statement," and the prospectus included as part
of the Registration Statement on file with the Commission that
discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430A of the
Rules and Regulations (as defined below) and in the form filed
pursuant to Rule 424(b) under the Securities Act is herein
referred to as the "Final Prospectus." The prospectus included
as part of the Registration Statement on the date when the
Registration Statement became effective is referred to herein
as the "Effective Prospectus." Any prospectus included in the
Registration Statement and in any amendment thereto prior to
the effective date of the Registration Statement is referred
to herein as a "Preliminary Prospectus." For purposes of this
Agreement, "Rules and Regulations" mean the rules and
regulations promulgated by the Commission under either the
Securities Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as applicable.
b. The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations,
and did not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except
that the foregoing does not apply to statements or omissions made
in reliance upon and in conformity with written information
furnished to the Company and the Trust by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the first
paragraph and first two sentences of the third paragraph under
the caption "Underwriting" in the Final Prospectus). When the
Registration Statement becomes effective and at all times
subsequent thereto up to and including the First Closing Date (as
hereinafter defined), (i) the Registration Statement, the
Effective Prospectus and Final Prospectus and any amendments or
supplements thereto will contain all statements which are
required to be stated therein in accordance with the Securities
Act, the Exchange Act, the
2
<PAGE>
Trust Indenture Act and the Rules and Regulations and will
comply with the requirements of the Securities Act, the
Exchange Act and the Rules and Regulations, and (ii) neither
the Registration Statement, the Effective Prospectus nor the
Final Prospectus nor any amendment or supplement thereto will
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; except
that the foregoing does not apply to statements or omissions
made in reliance upon and in conformity with written
information furnished to the Company and the Trust by any
Underwriter specifically for use therein (it being understood
that the only information so provided is the information
included in the first paragraph and first two sentences of the
third paragraph under the caption "Underwriting" in the Final
Prospectus).
c. The Company and each Subsidiary of the Company is duly organized
and validly existing and, except with respect to Argo Federal
Bank, F.S.B. (the "Bank"), as to which no representation is made,
in good standing, under the laws of the respective jurisdictions
of their organization or incorporation, as the case may be, with
full power and authority (corporate, partnership and other, as
the case may be) to own their properties and conduct their
businesses as now conducted and are duly qualified or authorized
to do business and are in good standing in all jurisdictions
wherein the nature of their business or the character of property
owned or leased may require them to be qualified or authorized to
do business, except for jurisdictions in which the failure to so
qualify would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole. The Company and its
Subsidiaries hold all licenses, consents and approvals, and have
satisfied all eligibility and other similar requirements imposed
by federal and state regulatory bodies, administrative agencies
or other governmental bodies, agencies or officials, in each case
as material to the conduct of the respective businesses in which
they are engaged. As used in this Agreement, the term: (i)
"Subsidiary" includes the Trust and any corporation, joint
venture or partnership in which the Company or any Subsidiary of
the Company has an ownership interest, and (ii) the term
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), results of operations,
properties, management, business affairs or business prospects of
the entity in question.
d. The outstanding stock of each of the Company's corporate
Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive
rights or other rights to subscribe for or purchase securities.
All of the outstanding stock of each of the Company's corporate
subsidiaries owned beneficially and of record by the Company is
3
<PAGE>
owned free and clear of any lien, encumbrance, pledge, equity or
claim. Except as discussed in the Effective Prospectus and the
Final Prospectus, neither the Company nor any of its Subsidiaries
is a partner or joint venturer in any partnership or joint
venture.
e. The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware
Business Trust Act with the power and authority (trust and other)
to issue and sell its common securities (the "Common Securities")
to the Company pursuant to the Trust Agreement (as defined in
Section 2(e)), to issue and sell the Designated Capital
Securities, to enter into and perform its obligations under this
Agreement, the Trust Agreement and the agreements and instruments
contemplated by the Trust Agreement and described in the
Preliminary Prospectus, the Effective Prospectus, and the Final
Prospectus and to consummate the transactions herein and therein
contemplated; the Trust has conducted and will conduct no
business other than the transactions contemplated by this
Agreement and described in the Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus; the Trust is not a
party to or bound by any agreement or instrument other than this
Agreement, the Trust Agreement and the agreements and instruments
contemplated by the Trust Agreement and described in the
Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus; the Trust has no liabilities or obligations other
than those arising out of the transactions contemplated by this
Agreement and the Trust Agreement and described in the
Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus; the Trust is not a party to or subject to any action,
suit or proceeding of any nature; the Trust is not, and at the
Closing Date or any Option Closing Date will not be, to the
knowledge of the Offerors, classified as an association taxable
as a corporation for United States federal income tax purposes;
and the Trust is, and as of the Closing Date or any Option
Closing Date will be, treated as a consolidated subsidiary of the
Company pursuant to generally accepted accounting principles.
f. (i) The equity securities of the Trust, the Junior Subordinated
Debentures and the Guarantee conform to the description thereof
contained in the Preliminary Prospectus, the Effective Prospectus
and the Final Prospectus, and neither Offeror is party to nor
bound by any instrument, agreement or other arrangement (except
as disclosed in the Preliminary Prospectus, the Effective
Prospectus and Final Prospectus) providing for it to issue any
capital stock, rights, warrants, options or other securities,
except for this Agreement.
(ii)(A) The Trust has all requisite power and authority to
issue, sell and deliver the Designated Capital Securities in
accordance with and upon the
4
<PAGE>
terms and conditions set forth in this Agreement, the Trust
Agreement, the Registration Statement and the Preliminary
Prospectus, the Effective Prospectus and Final Prospectus.
All corporate and trust action required to be taken by the
Offerors for the authorization, issuance, sale and delivery of
the Designated Capital Securities, the Common Securities and
the Junior Subordinated Debentures in accordance with the
terms and conditions of this Agreement, the Trust Agreement
and the Indenture (as defined in Section 2(e)) has been
validly and sufficiently taken. The Designated Capital
Securities, the Common Securities and the Debentures, when
delivered in accordance with this Agreement, the Trust
Agreement and the Indenture, will be duly and validly issued
and outstanding, and the Designated Capital Securities will be
fully paid and nonassessable undivided beneficial interests in
the assets of the Trust, will be entitled to the benefits of
the Trust Agreement and will not be issued in violation of or
subject to any preemptive or similar rights, and will conform
in all material respects to the description thereof in the
Registration Statement, the Preliminary Prospectus, the
Effective Prospectus, the Final Prospectus and the Trust
Agreement. None of the Designated Capital Securities,
immediately prior to delivery, will be subject to any security
interest, lien, mortgage, pledge, encumbrance, restriction
upon voting or transfer, preemptive rights, claim, or other
title defect.
(B) The Trust Agreement has been duly and validly authorized
and, when duly and validly executed and delivered, will
constitute the valid and legally binding obligation of the
Offerors and will conform in all material respects to the
description thereof contained in the Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus.
(C) The Junior Subordinated Debentures have been duly and
validly authorized, and, when duly and validly executed,
authenticated and issued as provided in the Indenture and
delivered to the Trust pursuant to the Trust Agreement, will
constitute valid and legally binding obligations of the Company
entitled to the benefits of the Indenture and will conform in all
material respects to the description thereof contained in the
Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus.
(D) The Guarantee has been duly and validly authorized, and,
when duly and validly executed and delivered to the guarantee
trustee for the benefit of the Trust, will constitute a valid and
legally binding obligation of the Company and will conform in all
material respects to the description thereof contained in the
Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus.
5
<PAGE>
(E) Each of the Indenture, the Trust Agreement and the Guarantee
has been duly qualified under the Trust Indenture Act and will
conform to the description thereof contained in the Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus.
g. The capitalization of the Offerors at June 30, 1998 is as set
forth under the caption "Capitalization" in the Effective
Prospectus and the Final Prospectus. The Offerors' Designated
Capital Securities conform to the description thereof contained
in the Effective Prospectus and the Final Prospectus. Except as
disclosed in the Effective Prospectus and the Final Prospectus,
neither the filing of the Registration Statement nor the offer or
sale of the Designated Capital Securities as contemplated by this
Agreement gives rise to any rights, other than those which have
been waived or satisfied, for or relating to the registration of
any shares of common stock or any other securities of the Company
or of the Trust. The Underwriters will receive good and
marketable title to the Designated Capital Securities to be sold
by the Offerors to be issued and delivered hereunder, free and
clear of all liens, encumbrances, claims, security interests,
restrictions, stockholders' agreements and voting trusts
whatsoever.
h. All of the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable. None of the issued shares of capital stock of the
Company have been issued in violation of any preemptive or
similar rights and there are no preemptive rights or other rights
to subscribe for or to purchase, or any restriction upon the
transfer of, any shares of Common Stock pursuant to the Company's
Certificate of Incorporation, bylaws or other governing documents
or any agreement or other instrument to which the Company is a
party or by which it may be bound, except as described in the
Effective Prospectus and the Final Prospectus and except for
restrictions on transfer imposed under applicable securities
laws.
i. All offers and sales of the Company's securities prior to the
date hereof were at all relevant times duly registered or exempt
from the registration requirements of the Securities Act and were
duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or
Blue Sky laws, or if not registered in compliance with the
applicable federal and state securities laws, any actions arising
from such failure to register any such securities are barred by
applicable statute of limitations.
j. The Offerors have full legal right, power and authority to enter
into this Agreement and to sell and deliver the Designated
Capital Securities to be
6
<PAGE>
sold to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by
them and constitutes a valid and binding agreement of the
Offerors enforceable against them in accordance with its
terms. No consent, approval, authorization or order of any
court or governmental agency or body or third party is
required for the performance of this Agreement, the Trust
Agreement, the Guarantee or the Indenture by the Offerors or
the consummation by the Offerors of the transactions
contemplated hereby or thereby, except such as have been
obtained and such as may be required by the National
Association of Securities Dealers, Inc. ("NASD") or under the
Securities Act, or state securities or Blue Sky laws in
connection with the purchase and distribution of the
Designated Capital Securities by the Underwriters. The issue
and sale of the Designated Capital Securities to be sold by
the Trust, the Offerors' performance of this Agreement, the
Trust Agreement, the Guarantee and the Indenture and the
consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation of, or
conflict with, any of the terms and provisions of, or
constitute a material default by the Company or any of its
Subsidiaries under, any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or to
which the Company or any of its Subsidiaries or any of their
respective properties is subject, the Certificate of
Incorporation or bylaws of the Company or any of its
Subsidiaries or any statute or any judgment, decree, order,
rule or regulation of any court or governmental agency or body
applicable to the Company or any Subsidiary or any of their
respective properties. Neither the Company nor any Subsidiary
is (i) in violation of its Certificate of Incorporation, (ii)
in violation of any partnership agreement or joint venture
agreement, as the case may be, (iii) in violation of its
bylaws or any law, administrative rule or regulation or
arbitrators' or administrative or court decree, judgment or
order or (iv) in violation of or default (there being no
existing state of facts which with notice or lapse of time or
both would constitute a default) in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, deed of trust,
mortgage, loan agreement, note, lease, agreement or other
instrument or permit to which it is a party or by which it or
any of its properties is or may be bound.
k. The consolidated financial statements and the related notes of
the Company, as set forth in the Registration Statement, the
Effective Prospectus and the Final Prospectus, present fairly the
financial position, results of operations and changes in
financial position and cash flows of the Company and its
Subsidiaries, at the dates and for the periods to which they
relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods indicated. The other
7
<PAGE>
financial statements and schedules as set forth in the
Registration Statement, the Effective Prospectus and the Final
Prospectus conform to the requirements of the Securities Act,
the Exchange Act and the Rules and Regulations and present
fairly the information presented therein on the basis stated
for the periods shown. KPMG Peat Marwick LLP, whose reports
appear in the Effective Prospectus and the Final Prospectus,
are independent accountants as required by the Securities Act
and the Rules and Regulations.
l. Subsequent to June 30, 1998, neither the Company nor any
Subsidiary has sustained any material loss or interference with
its business or properties from fire, flood, hurricane,
earthquake, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, which is not disclosed in the Effective
Prospectus and the Final Prospectus; and subsequent to the
respective dates as of which information is given in the
Registration Statement, the Effective Prospectus and the Final
Prospectus, (i) neither the Company nor any of its Subsidiaries
has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the
ordinary course of business, and (ii) there has not been any
change in the capital stock, partnership interests, joint venture
interests, long-term debt or obligations under capital leases of
the Company and its Subsidiaries, or any issuance of options,
warrants or rights to purchase the capital stock of the Company,
except in each case as described in or contemplated by the
Effective Prospectus and the Final Prospectus.
m. Except as described in the Effective Prospectus and the Final
Prospectus, there is not pending, or to the knowledge of the
Company threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company, any of its Subsidiaries or
any of their officers or directors is a party, or to which the
property of the Company or any Subsidiary is subject, before or
brought by any court or governmental agency or body, wherein an
unfavorable decision, ruling or finding could prevent or
materially hinder the consummation of this Agreement or result in
a Material Adverse Effect on the Company or its Subsidiaries.
n. There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in
the Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
o. Except as described in the Effective Prospectus and the Final
Prospectus, the Company and each of its Subsidiaries have good
and marketable title to all
8
<PAGE>
real and material personal property owned by them, free and
clear of all liens, charges, encumbrances or defects except
those reflected in the financial statements hereinabove
described. The real and personal property and buildings
referred to in the Effective Prospectus and the Final
Prospectus which are leased from others by the Company are
held under valid, subsisting and enforceable leases. The
Company or its Subsidiaries owns or leases all such properties
as are necessary to its operations as now conducted.
p. The Company's system of internal accounting controls taken as a
whole is sufficient to meet the broad objectives of internal
accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts
that would be material in relation to the Company's financial
statements; and, except as disclosed in the Effective Prospectus
and the Final Prospectus, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any
Subsidiary has made any payment of funds of the Company or any
Subsidiary or received or retained any funds on behalf of the
Company or any Subsidiary in violation of any law, rule or
regulation.
q. The Company and its Subsidiaries have filed all federal, state
and local income, excise and franchise tax returns required to
be filed through the date hereof and have paid all taxes shown as
due therefrom; and there is no tax deficiency that has been, nor
does the Company or any Subsidiary have knowledge of any tax
deficiency which is likely to be asserted against the Company or
its Subsidiaries, which if determined adversely could have a
Material Adverse Effect on the Company or its Subsidiaries.
r. The Company and its Subsidiaries operate their respective
businesses in conformity in all material respects with all
applicable statutes, common laws, ordinances, decrees, orders,
rules and regulations of governmental bodies. The Company and its
Subsidiaries have all maintained in full force and effect
licenses, approvals or consents to operate their respective
businesses in all locations in which such businesses are
currently being operated; neither the Company nor any Subsidiary
has received any notification that any revocation or limitation
thereof is threatened or pending and, except as disclosed in the
Effective Prospectus and the Final Prospectus, there is not
pending any change under any law, regulation, license or permit
which could have a Material Adverse Effect on the Company or any
of its Subsidiaries, and the Company and its Subsidiaries are not
aware of any existing or imminent matter which may have a
Material Adverse Effect on the Company or its Subsidiaries other
than as specifically disclosed in the Effective Prospectus and
the Final Prospectus. The Company has not engaged in any
activity, whether alone or in concert with one of its customers,
creating the
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potential for exposure to material civil or criminal monetary
liability or other material sanctions under federal or state
laws regulating consumer credit transactions, debt collection
practices or land sales practices.
s. Neither the Company nor any of its Subsidiaries have failed to
file with the applicable regulatory authorities any statement,
report, information or form required by any applicable law,
regulation or order where the failure to file the same would have
a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole; all such filings or submissions were in
material compliance with applicable laws when filed and no
material deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions.
t. No labor dispute exists with the Company's employees or with
employees of its Subsidiaries or is imminent which could have a
Material Adverse Effect on the Company or any of its
Subsidiaries. The Company is not aware of any existing or
imminent labor disturbance by its employees or by any employees
of its Subsidiaries which could be expected to have a Material
Adverse Effect on the Company or any of its Subsidiaries.
u. Except as disclosed in the Effective Prospectus and the Final
Prospectus, the Company and its Subsidiaries own or possess, or
can acquire on reasonable terms, the licenses, copyrights,
trademarks, service marks and trade names presently employed by
them in connection with the businesses now operated by them, and
neither the Company nor any of its Subsidiaries has received any
notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, alone or in
the aggregate, if the subject of an unfavorable decision, ruling
or finding, would have a Material Adverse Effect on the Company
or its Subsidiaries.
v. Neither the Company nor any of its Subsidiaries, nor any of the
directors, officers, employees or agents of the Company and its
Subsidiaries has taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has
constituted or which might be expected to constitute,
stabilization or manipulation of the price of the Designated
Capital Securities in connection with their sale.
w. The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged. The Company has no reason
to believe that it or any of its Subsidiaries will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar
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insurers as may be necessary to continue their respective
businesses at a comparable cost.
x. The Company is not an "investment company" within the meaning of
such term as defined under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
y. The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA");
no "reportable event" (as defined in ERISA) has occurred with
respect to any "pension plan" (as defined in ERISA) for which the
Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"), and each
"pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
2. Purchase, Sale and Delivery of the Designated Capital Securities.
a. On the basis of the representations, warranties and agreements
herein contained and subject to the terms and conditions herein
set forth, the Offerors hereby agree that the Trust shall issue
and sell the Firm Capital Securities to the several Underwriters,
and each Underwriter, severally and not jointly, agrees to
purchase that number of Firm Capital Securities set forth in
Schedule I opposite its name. Because the proceeds from the sale
of the Firm Capital Securities will be used to purchase from the
Company its Junior Subordinated Debentures, the Company shall pay
to the Underwriters a commission of $_______ per Firm Capital
Security purchased.
b. The Trust grants to the Underwriters an option to purchase up to
____ Option Capital Securities. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm
Capital Securities. The purchase price for any such Option
Capital Securities so acquired shall be as set forth in Section
2(a) above.
c. The options granted hereby may be exercised as to all or any part
of the Option Capital Securities at any time within 30 days after
the date the
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Registration Statement becomes effective. The Underwriters
shall not be under any obligation to purchase any Option
Capital Securities prior to the exercise of such option. The
option granted hereby may be exercised by the Underwriters
upon the giving of written notice to the Company setting forth
the number of Option Capital Securities to be purchased and
the date and time for delivery of and payment for such Option
Capital Securities and stating that the Option Capital
Securities referred to therein are to be used for the purpose
of covering over-allotments in connection with the
distribution and sale of the Firm Capital Securities. If such
notice is given prior to the First Closing Date (as defined
herein), then the date set forth therein for such delivery and
payment shall not be earlier than two full business days
thereafter or the First Closing Date, whichever occurs later.
If such notice is given on or after the First Closing Date,
then the date set forth therein for such delivery and payment
shall not be earlier than three full business days thereafter.
In either event, the date so set forth shall not be more than
15 full business days after the date of such notice. The date
and time set forth in such notice is herein called the "Option
Closing Date." Upon exercise of the option, the Company shall
become obligated to sell to the Underwriters, and, subject to
the terms and conditions herein set forth, the Underwriters
shall become obligated to purchase, for the account of each
Underwriter, severally and not jointly, the number of Option
Capital Securities specified in such notice. Option Capital
Securities shall be purchased for the accounts of the
Underwriters in proportion to the number of Firm Capital
Securities set forth opposite such Underwriter's name in
Schedule I hereto, as except that the respective purchase
obligations of each Underwriter with respect to the Option
Capital Securities may be adjusted so that no Underwriter
shall be obligated to purchase Option Capital Securities other
than in 100 unit increments.
d. Certificates in fully registered form for the Firm Capital
Securities which each Underwriter has agreed to purchase
hereunder shall be deposited with a custodian for and registered
in the name of a nominee of DTC and shall be delivered by or on
behalf of the Company to the Underwriters for the account of such
Underwriters against payment by such Underwriters or on their
behalf of the respective purchase prices therefor by wire
transfer of immediately available funds, payable to the order of
the Trust at the offices of Tucker Anthony Incorporated ("Tucker
Anthony"), One Beacon Street, Boston, Massachusetts 02108, or at
such other place as may be agreed upon by Tucker Anthony, the
Company and the Trust, at 10:00 A.M., Boston time, on the third
full business day after this Agreement becomes effective, such
time of delivery against payment being herein referred to as the
"First Closing Date." The First Closing Date and the Option
Closing Date are herein individually referred to as the "Closing
Date" and collectively referred
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to as the "Closing Dates." Beneficial interests in the Firm
Capital Securities will be shown on, and transfers will be
effected through, records maintained by DTC and its
participants. Certificates in fullyregistered form for the
Option Capital Securities which each Underwriter shall have
agreed to purchase hereunder shall be similarly delivered by
or on behalf of the Trust on the Option Closing Date against
payment by such Underwriter or on its behalf of the purchase
price in the manner set forth above. The certificates in fully
registered form for the Designated Capital Securities to be
delivered will be in good delivery form and in such
denominations and registered in such names as Tucker Anthony
may request not less than 48 hours prior to the First Closing
Date or the Option Closing Date, as the case may be. It is
understood that an Underwriter may (but shall not be obligated
to) make payment on behalf of any Underwriter or Underwriters
for the Designated Capital Securities to be purchased by such
Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their
obligations hereunder.
e. The Offerors propose that the Trust issue the Designated Capital
Securities pursuant to an Amended and Restated Trust Agreement
among Wilmington Trust Company, as Property Trustee, Wilmington
Trust Company, as Delaware Trustee, the Administrative Trustees
named therein (collectively, the "Trustees"), and the Company, in
substantially the form heretofore delivered to the Underwriters,
said Agreement being referred to herein as the "Trust Agreement."
In connection with the issuance of the Designated Capital
Securities, the Company proposes (i) to issue its Junior
Subordinated Deferrable Interest Debentures (the "Debentures")
pursuant to an Indenture, between the Company and Wilmington
Trust Company, as debenture trustee (the "Indenture") and (ii) to
guarantee certain payments on the Designated Capital Securities
pursuant to a Guarantee Agreement between the Company and
Wilmington Trust Company, as guarantee trustee (the "Guarantee"),
to the extent described therein.
3. Offering by the Underwriters. After the Registration Statement becomes
effective, the several Underwriters propose to offer for sale to the public the
Firm Designated Capital Securities and any Option Capital Securities which shall
be sold at the prices and upon the terms set forth in the Final Prospectus.
4. Covenants of the Offerors. The Offerors jointly and severally covenant
and agree with each of the Underwriters that:
a. The Offerors shall comply with the provisions of and make all
requisite filings with the Commission pursuant to Rules 424(b),
430A and 462(b) of the Rules and Regulations and will notify the
Underwriters promptly in
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<PAGE>
writing of all such filings. The Offerors shall notify the
Underwriters promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement, the
Effective Prospectus or the Final Prospectus or for additional
information; the Offerors shall prepare and file with the
Commission, promptly upon the request of the Underwriters, any
amendments of or supplements to the Registration Statement,
the Effective Prospectus or the Final Prospectus which, in the
Underwriters' reasonable opinion, may be necessary or
advisable in connection with the distribution of the
Designated Capital Securities; and the Offerors shall not file
any amendment of or supplement to the Registration Statement,
the Effective Prospectus or the Final Prospectus which is not
approved by the Underwriters after reasonable notice thereof.
The Offerors shall advise the Underwriters promptly of the
issuance by the Commission or any jurisdiction or other
regulatory body of any stop order or other order suspending
the effectiveness of the Registration Statement, suspending or
preventing the use of any Preliminary Prospectus, the
Effective Prospectus or the Final Prospectus or suspending the
qualification of the Designated Capital Securities for
offering or sale in any jurisdiction, or of the institution of
any proceedings for any such purpose; and the Offerors shall
use their best efforts to prevent the issuance of any stop
order or other such order and, should a stop order or other
such order be issued, to obtain as soon as possible the
lifting thereof.
b. The Offerors will take or cause to be taken all necessary action
and furnish to whomever the Underwriters direct, such information
as may be reasonably required in qualifying the Designated
Capital Securities for offer and sale under the securities or
Blue Sky laws of such jurisdictions as the Underwriters may
designate and will continue such qualifications in effect for as
long as may be reasonably necessary to complete the distribution.
The Offerors shall not be required to qualify as a foreign
corporation or (except for the sole purpose of complying with
Blue Sky filing requirements) or to file a general consent to
service of process in any jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign
corporation.
c. Within the time during which a Final Prospectus relating to the
Designated Capital Securities is required to be delivered under
the Securities Act, the Offerors shall comply with all
requirements imposed upon it by the Securities Act, as now and
hereafter amended, and by the Rules and Regulations, as from time
to time in force, so far as is necessary to permit the
continuance of sales of or dealings in the Designated Capital
Securities as contemplated by the provisions hereof and the Final
Prospectus. If during such period any event occurs as a result of
which the Final Prospectus as then
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<PAGE>
amended or supplemented would include an untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances
then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement
the Final Prospectus to comply with the Securities Act, the
Offerors shall promptly notify the Underwriters and shall
amend the Registration Statement or supplement the Final
Prospectus (at the expense of the Offerors) so as to correct
such statement or omission or effect such compliance.
d. The Offerors will furnish without charge to the Underwriters and
make available to the Underwriters copies of the Registration
Statement (four of which shall be signed and shall be accompanied
by all exhibits, including any which are incorporated by
reference, which have not previously been furnished), each
Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus, and all amendments and supplements thereto, including
any prospectus or supplement prepared after the effective date of
the Registration Statement, in each case as soon as such document
becomes available and in such quantities as the Underwriters may
reasonably request.
e. The Offerors will (i) deliver to the Underwriters at such office
or offices as the Underwriters may designate as many copies of
the Preliminary Prospectus and Final Prospectus as the
Underwriters may reasonably request, and (ii) for a period of not
more than nine months after the Registration Statement becomes
effective, send to the Underwriters as many additional copies of
the Final Prospectus and any supplement thereto as the
Underwriters may reasonably request.
f. The Offerors shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the
Securities Act as promptly as practicable and in any event no
later than 90 days after the end of its fiscal quarter in which
the first anniversary of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions
of Section 11(a) of the Securities Act covering a period of at
least 12 consecutive months beginning after the effective date of
the Registration Statement.
g. The Offerors will apply the net proceeds from the sale of the
Designated Capital Securities as set forth under the caption "Use
of Proceeds" in the Final Prospectus.
h. During a period of five years from the effective date of the
Registration Statement, the Offerors will furnish to the
Underwriters copies of all reports and other communications
(financial or other) furnished by the Company to
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<PAGE>
its stockholders and the Trust to the holders of its Capital
Securities and, as soon as available, copies of any reports or
financial statements furnished or filed by the Offerors to or
with the Commission or any national securities exchange on
which any class of securities of the Offerors may be listed.
i. The Offerors will, from time to time, after the effective date of
the Registration Statement, file with the Commission such
reports as are required by the Securities Act, the Exchange Act
and the Rules and Regulations, and shall also file with state
securities commissions in states where the Designated Capital
Securities have been sold by the Underwriters (as the
Underwriters shall have advised the Offerors in writing) such
reports as are required to be filed by the securities acts and
the regulations of those states.
j. Except pursuant to this Agreement or with the Underwriters'
written consent, for a period of 180 days from the effective date
of the Registration Statement, the Offerors will not, and the
Company has provided agreements executed by each of its executive
officers and directors, providing that for a period of 180 days
from the First Closing Date, such person or entity will not offer
for sale, sell or grant any options (other than pursuant to
existing employee benefit plans and agreements, other existing
compensation agreements and, existing stock options), rights or
warrants with respect to any Designated Capital Securities.
k. If at any time during the 25 day period after the Registration
Statement is declared effective, any rumor, publication or event
relating to or affecting the Offerors shall occur as a result of
which, in the Underwriters' opinion, the market price for the
Designated Capital Securities has been or is likely to be
materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of
the Final Prospectus), the Offerors will, after written notice
from the Underwriters advising them as to the effect set forth
above, prepare, consult with the Underwriters concerning the
substance of, and disseminate a press release or other public
statement, reasonably satisfactory to the Underwriters,
responding to or commenting on such rumor, publication or event.
l. The Company will not take, directly or indirectly, any action
which would cause or result in the delisting of the Trust's
Capital Securities on the American Stock Exchange, prior to the
First Closing Date or, if the Underwriters exercise the option
granted by the Offerors to cover overallotments, prior to the
Option Closing Date.
5. Expenses. The Company agrees with the Underwriters that (a) whether
or not the transactions contemplated by this Agreement are consummated or
this Agreement becomes effective
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<PAGE>
or is terminated, the Company will pay all fees and expenses incident to the
performance of the obligations of the Offerors hereunder, including, but not
limited to, (i) the Commission's registration fee, (ii) the expenses of
printing (or reproduction) and distributing the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), each Preliminary Prospectus, the Effective Prospectus, the Final
Prospectus, any amendments or supplements thereto, and this Agreement and
other underwriting documents, including the Underwriters' Questionnaires and
Blue Sky Memoranda, (iii) fees and expenses of accountants and counsel for
the Company, (iv) expenses of registration or qualification of the Designated
Capital Securities under state Blue Sky and securities laws, including the
legal fees of counsel to the Underwriters (which legal fees shall not exceed
$10,000) plus disbursement and expenses in connection therewith, (v) filing
fees paid or incurred by the Underwriters and related fees and expenses of
counsel to the Underwriters in connection with filings with the NASD, (vi)
fees, costs and expenses associated with the registration and listing of the
Designated Capital Securities on the American Stock Exchange, (vii) the costs
and charges of the Offerors' transfer agent and registrar and the cost of
preparing the certificates for the Designated Capital Securities, (viii) the
fees and expenses of the Trustee under the Trust Agreement and the fees and
expenses of the Trustee's counsel, (ix) all other costs and expenses incident
to the performance of their obligations hereunder not otherwise provided for
in this Section 5; and (b) the out-of-pocket expenses, including counsel fees
(which shall not exceed $75,000) plus expenses, other disbursements and
expenses incurred by the Underwriters in connection with investigating,
preparing to market and marketing the Designated Capital Securities and
proposing to purchase and purchasing the Designated Capital Securities under
this Agreement will be borne and paid by the Company if the sale of the
Designated Capital Securities provided for herein is consummated or if the
sale of the Designated Capital Securities provided for herein is not
consummated by reason of the termination of this Agreement by the Offerors
pursuant to Section 12(a)(I), or because of any failure or refusal on the
part of the Offerors to comply or fulfill any of the conditions of this
Agreement. Except as provided in this Section 5, the Underwriters shall pay
all of their own expenses.
6. Conditions of the Underwriters' Obligations. The respective
obligations of the Underwriters to purchase and pay for the Designated
Capital Securities shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Offerors herein as of the date
hereof and as of the Closing Date as if made on and as of the Closing Date,
to the accuracy of the statements of the Offerors' officers made pursuant to
the provisions hereof, to the performance by the Offerors of all of their
covenants and agreements hereunder and to the following additional conditions:
a. The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 5:30 P.M.,
Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been
consented to by the Underwriters and all filings required by
Rules 424, 430A and 462 of the Rules and Regulations shall have
been made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings
for that purpose shall have been
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<PAGE>
instituted or threatened or, to the knowledge of the Offerors
or the Underwriters, shall be contemplated by the Commission;
any request of the Commission for additional information (to
be included in the Registration Statement or the Final
Prospectus or otherwise) shall have been complied with to the
Underwriters' satisfaction; and the NASD, upon review of the
terms of the public offering of the Designated Capital
Securities, shall not have objected to such offering, such
terms or the Underwriters' participation in the same.
b. No Underwriter shall have advised the Offerors that the
Registration Statement, Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or any
supplement thereto, contains an untrue statement of fact which,
in the Underwriters' reasonable judgment, is material, or omits
to state a fact which, in the Underwriters' judgment, is material
and is required to be stated therein or necessary to make the
statements therein not misleading and the Offerors shall not have
cured such untrue statement of fact or stated a statement of fact
required to be stated therein.
c. The Underwriters shall have received an opinion, dated the
Closing Date, from Patton Boggs LLP ("Patton Boggs"), special
counsel for the Offerors, substantially to the effect that:
(1) The Company has been duly organized and is validly existing
in good standing as a corporation under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as now conducted,
and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions
where the failure to so qualify would have a Material
Adverse Effect upon the Company and its Subsidiaries taken
as a whole. The Company holds all licenses, certificates,
permits, franchises and authorizations from governmental
authorities which are material to the conduct of its
business in all locations in which such business is
currently being conducted.
(2) Each of the Company's Subsidiaries is validly existing and,
except with respect to the Bank, as to which no opinion is
rendered, in good standing as a corporation under the laws
of the state of its incorporation or organization, as the
case may be, with power and authority to own its properties
and conduct its business as now conducted, and is duly
qualified or authorized to do business and is in good
standing in all other jurisdictions where the failure to so
qualify would have a Material Adverse Effect upon the
Company and
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its Subsidiaries taken as a whole. The outstanding stock
of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable. All of the
outstanding stock of each of the Subsidiaries owned
beneficially and of record by the Company is owned free
and clear of any liens, encumbrances, equities and
claims. No options, warrants or other rights to
purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares
of capital stock or of ownership interests in any of the
Company's Subsidiaries are outstanding. Each of the
Company's Subsidiaries holds all licenses, certificates,
permits, franchises and authorizations from governmental
authorities which are material to the conduct of its
business in all locations in which such business is
currently being conducted.
(3) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware
Business Trust Act with the power and authority (trust and
other) to issue and sell its Common Securities to the
Company pursuant to the Trust Agreement, to issue and sell
the Designated Capital Securities, to enter into and perform
its obligations under this Agreement, the Trust Agreement
and the agreements and instruments contemplated by the Trust
Agreement and described in the Preliminary Prospectus, the
Effective Prospectus, and the Final Prospectus and to
consummate the transactions herein and therein contemplated;
the Trust is not a party to or bound by any agreement or
instrument other than this Agreement, the Trust Agreement
and the agreements and instruments contemplated by the Trust
Agreement and described in the Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus; the Trust is
not a party to or subject to any action, suit or proceeding
of any nature; the Trust is not, and at the Closing Date or
any Option Closing Date will not be classified as an
association taxable as a corporation for United States
federal income tax purposes.
(4) (i) The Common Securities, the Junior Subordinated
Debentures and the Guarantee conform to the description
thereof contained in the Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus, and to such
counsel's best knowledge, neither Offeror is a party to nor
bound by any instrument, agreement or other arrangement
(except as disclosed in the Preliminary Prospectus, the
Effective Prospectus and Final Prospectus) providing for it
to issue any capital stock, rights, warrants, options or
other securities, except for this Agreement.
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(ii)(A) The Trust has all requisite power and authority to
issue, sell and deliver the Designated Capital Securities
and the Common Securities in accordance with and upon the
terms and conditions set forth in this Agreement, the Trust
Agreement, the Registration Statement and the Preliminary
Prospectus, the Effective Prospectus and Final Prospectus.
All corporate and trust action required to be taken by the
Offerors for the authorization, issuance, sale and delivery
of the Designated Capital Securities, the Common Securities
and the Junior Subordinated Debentures in accordance with
the terms and conditions of this Agreement, the Trust
Agreement and the Indenture has been validly and
sufficiently taken. The Designated Capital Securities, the
Common Securities and the Junior Subordinated Debentures,
when delivered in accordance with this Agreement, the Trust
Agreement and the Indenture, will be duly and validly issued
and outstanding, and the Designated Capital Securities will
be fully paid and nonassessable undivided beneficial
interests in the assets of the Trust, will be entitled to
the benefits of the Trust Agreement and will not be issued
in violation of or subject to the Certificate of Trust or
Trust Agreement, any applicable law, or any preemptive or
similar rights, and will conform in all material respects to
the description thereof in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus, the Final
Prospectus and the Trust Agreement. The holders of the
Designated Capital Securities will be entitled to the
benefits of the Trust Agreement and will be entitled to the
same limitation of personal liability extended to
stockholders of private corporations for profit organized
under the Delaware General Corporation Law. Such opinion may
note that the holders of the Designated Capital Securities
may be required to make payment or provide indemnity or
security as set forth in the Trust Agreement. None of the
Designated Capital Securities, immediately prior to
delivery, will be subject to any security interest, lien,
mortgage, pledge, encumbrance, restriction upon voting or
transfer, preemptive rights, claim, or other title defect.
(B) The Trust Agreement has been duly and validly
authorized and, when duly and validly executed and
delivered, will constitute valid and legally binding
obligations of the Offerors and will conform in all material
respects to the description thereof contained in the
Preliminary Prospectus, the Effective Prospectus and the
Final Prospectus.
(C) The Junior Subordinated Debentures have been duly and
validly authorized, and, when duly and validly executed,
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<PAGE>
authenticated and issued as provided in the Indenture and
delivered to the Trust pursuant to the Trust Agreement, will
constitute valid and legally binding obligations of the
Company entitled to the benefits of the Indenture.
(D) The Guarantee has been duly and validly authorized,
and, when duly and validly executed and delivered to the
guarantee trustee for the benefit of the Trust, will
constitute a valid and legally binding obligation of the
Company.
(E) Each of the Indenture, the Trust Agreement and the
Guarantee has been duly qualified under the Trust Indenture
Act.
(F) The Indenture has been duly and validly authorized and,
when duly and validly executed and delivered, will
constitute a valid and legally binding obligation of the
Company and will conform in all material respects to the
description thereof contained in the Preliminary Prospectus,
the Effective Prospectus and the Final Prospectus.
(5) As of the dates specified therein, the Offerors had
authorized and issued capital stock as set forth under the
caption "Capitalization" in the Final Prospectus. The
capital stock of the Company conforms to the description
thereof contained in the Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus in all
material respects. All of the outstanding shares of the
capital stock of the Company have been duly authorized and
are validly issued, fully paid and nonassessable; none of
the issued shares of Common Stock has been issued in
violation of or subject to any preemptive rights provided
for by law or by the Company's Certificate of Incorporation
or, to the knowledge of such counsel, any agreement or other
instrument to which the Company is a party or by which it
may be bound except as described in the Effective Prospectus
and Final Prospectus and except for restrictions on transfer
imposed under applicable securities laws.
(6) Neither the filing of the Registration Statement nor the
offer or sale of the Designated Capital Securities as
contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or
relating to the registration of any Designated Capital
Securities or any other securities of the Offerors. The
Underwriters will receive good and marketable title to the
Designated Capital Securities to be sold by the Offerors to
be issued and delivered pursuant to this Agreement, free and
clear of all liens,
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encumbrances, claims, security interests, restrictions,
stockholders' agreements and voting trusts whatsoever.
All offers and sales of the Company's securities prior to
the date hereof were at all relevant times duly
registered or exempt from the registration requirements
of the Securities Act and were duly registered or the
subject of an exemption from the registration
requirements of applicable state securities or Blue Sky
laws, or if not registered in compliance with the
applicable federal and state securities laws, any actions
arising from such failure to register any such securities
are barred by applicable statute of limitations.
(7) The Offerors have full legal right, power and authority to
enter into this Agreement and to issue, sell and deliver the
Designated Capital Securities to be sold by it to the
Underwriters as provided herein, and this Agreement has been
duly authorized, executed and delivered by the Offerors and
constitutes a valid and legally binding obligation of the
Offerors enforceable against the Offerors in accordance with
its terms, except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer, fraudulent
conveyance or other laws affecting creditors' rights
generally.
(8) No consent, approval, authorization or order of any court or
governmental agency or body or third party is required for
the performance of this Agreement by the Offerors or the
consummation by the Offerors of the transactions
contemplated hereby, except such as have been obtained under
the Securities Act and such as may be required by the NASD
and under state securities or Blue Sky laws (as to which no
opinion need be rendered) in connection with the purchase
and distribution of the Designated Capital Securities by the
several Underwriters. The performance of this Agreement by
the Offerors and the consummation by the Offerors of the
transactions contemplated hereby will not conflict with or
result in a breach or violation by the Offerors of any of
the terms or provisions of, or constitute a default by the
Offerors under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Offerors are a party or to which
the Company or its properties is subject, the Certificate of
Incorporation or bylaws of the Company or any Subsidiary,
any statute, or any judgment, decree, order, rule or
regulation known to such counsel of any court or
governmental agency or body applicable to the Company or any
of its Subsidiaries or their properties.
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(9) Except as described in the Final Prospectus, there is not
pending, or to the best knowledge of such counsel
threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its
Subsidiaries is a party, or to which the property of the
Company or any of its Subsidiaries is subject, before or
brought by any court or governmental agency or body, which,
if determined adversely to the Company or any of its
Subsidiaries, could result in any Material Adverse Effect
upon the Company or any of its Subsidiaries.
(10) To the best knowledge of such counsel, no default exists,
and no event has occurred which with notice or after the
lapse of time to cure or both, would constitute a default,
in the due performance and observance of any term, covenant
or condition of any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which
the Company or any of its Subsidiaries is a party or to
which they or their properties are subject, or of the
Certificate of Incorporation or bylaws of the Company or any
of its Subsidiaries.
(11) To the best knowledge of such counsel after reasonable
inquiry, neither the Company nor any of its Subsidiaries is
in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or
any of its Subsidiaries and material to the Company and its
Subsidiaries taken as a whole or any decree of any court or
governmental agency or body having jurisdiction over the
Company or any of its Subsidiaries.
(12) The Registration Statement and all post effective amendments
thereto have become effective under the Securities Act, and,
to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have
been instituted or are threatened, pending or contemplated
by the Commission. All filings required by Rule 424 and Rule
430A of the Rules and Regulations have been made; the
Registration Statement, the Effective Prospectus and Final
Prospectus, and any amendments or supplements thereto
(except for the financial statements and schedules included
therein as to which such counsel need express no opinion),
as of their respective effective or issue dates, complied as
to form in all material respects with the requirements of
the Securities Act and the Rules and Regulations; the
descriptions in the Registration Statement, the Effective
Prospectus and the Final Prospectus of statutes,
regulations, legal and governmental proceedings, and
contracts and other documents are
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accurate in all material respects; and such counsel does
not know of any pending or threatened legal or
governmental proceedings, statutes or regulations
required to be described in the Final Prospectus which
are not described as required nor of any contracts or
documents of a character required to be described in the
Registration Statement or the Final Prospectus or to be
filed as exhibits to the Registration Statement which are
not described and filed as required.
(13) The information in the Effective Prospectus and the Final
Prospectus under the captions "Regulation," "Federal and
State Taxation," "Description of the Capital Securities,"
"Description of the Junior Subordinated Debentures,"
"Description of the Guarantee," "Relationship Among the
Capital Securities, the Junior Subordinated Debentures and
the Guarantee," "Certain Federal Income Tax Consequences
with Respect to the Issuance of the Capital Securities,"
"ERISA Considerations" and "Description of Capital Stock,"
to the extent that is constitutes matters of law, summaries
of legal matters, documents or proceedings or legal
conclusions, has been reviewed by them and is correct in all
material respects.
In addition to the matters set forth above, Patton Boggs LLP
shall also state that nothing has come to the attention of such
counsel which leads them to believe that the Registration
Statement, the Effective Prospectus and the Final Prospectus or
any amendment or supplement thereto contains an untrue statement
of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading (except that such counsel need express no view as to
financial or statistical statements, schedules and other
financial information included therein).
In rendering its opinion, counsel may rely, to the extent it
deems such reliance proper, on the opinions of other counsel as
to matters governed by the laws of jurisdictions other than the
United States. In rendering such opinions, such counsel may rely
as to matters of fact, to the extent it deems proper, on
certificates and written statements of responsible officers of
the Offerors and the Subsidiaries and certificates or other
written statements of officers of departments of various
jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company and the
Subsidiaries, provided that copies of any such statements or
certificates shall be delivered to Underwriters' counsel. For
purposes of any of the opinions to be rendered by such counsel,
the term "to such counsel's knowledge" shall mean, to the extent
that such opinion relates to a factual issue or to a mixed
question of law and fact, that after examination of documents in
such
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counsel's files relating to the Offering and considering the
actual knowledge of the individual attorneys in such counsel's
firm who have given substantive attention to matters on behalf
of the Offerors, such counsel finds no reason to believe that
any of such opinions is factually incorrect.
d. The Underwriters shall have received an opinion or opinions,
dated the Closing Date, of Elias, Matz, Tiernan & Herrick L.L.P.,
counsel for the Underwriters, with respect to the Registration
Statement and the Final Prospectus, and such other related
matters as the Underwriters may require, and the Offerors shall
have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon
such matters.
e. The Underwriters shall have received from KPMG Peat Marwick LLP,
a letter dated the date hereof and, at the Closing Date, a second
"bring down" letter dated the Closing Date, in form and substance
satisfactory to the Underwriters, stating that they are
independent public accountants with respect to the Offerors and
the Subsidiaries within the meaning of the Securities Act and the
applicable Rules and Regulations, and to the effect that:
(1) In their opinion, the financial statements and schedules
examined by them and included in the Registration Statement
comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the published Rules and Regulations and are presented in
accordance with generally accepted accounting principles;
and they have made a review in accordance with standards
established by the American Institute of Certified Public
Accountants of the consolidated interim financial
statements, selected financial data, and/or condensed
financial statements derived from audited financial
statements of the Company;
(2) The unaudited selected financial information included in the
Preliminary Prospectus and the Final Prospectus under the
captions "Selected Consolidated Financial Information" for
the years ended December 31, 1997, 1996, 1995, 1994 and 1993
agrees with the corresponding amounts in the audited
financial statements included in the Final Prospectus or
previously reported on.
(3) On the basis of a reading of the latest available unaudited
interim consolidated financial statements of the Company and
its Subsidiaries, a reading of the minute books of the
Company and its Subsidiaries, inquiries of management of the
Company responsible
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for financial and accounting matters and other specified
procedures, all of which have been agreed to by the
Underwriters, nothing came to their attention that caused
them to believe that:
(a) the unaudited financial statements included in the
Registration Statement do not comply as to form in all
material respects with the accounting requirements of
the federal securities laws and the related published
rules and regulations thereunder or are not in
conformity with generally accepted accounting
principles applied on a basis substantially consistent
with the basis for the audited financial statements
contained in the Registration Statement;
(b) any other unaudited financial statement data included
in the Final Prospectus do not agree with the
corresponding items in the unaudited consolidated
financial statements from which data was derived and
any such unaudited data were not determined on a basis
substantially consistent with the basis for the
corresponding amounts in the audited financial
statements included in the Prospectus;
(c) at a specified date not more than five days prior to
the date of delivery of such respective letter, there
was any change in the consolidated capital stock,
decline in stockholders' equity or increase in
long-term debt of the Company and its Subsidiaries, or
other items specified by the Underwriters, in each case
as compared with amounts shown in the latest balance
sheets included in the Final Prospectus, except in each
case for changes, decreases or increases which the
Final Prospectus discloses have occurred or may occur
or which are described in such letters; and
(d) for the period from the closing date of the latest
consolidated statements of income included in the
Effective Prospectus and the Final Prospectus to a
specified date not more than five days prior to the
date of delivery of such respective letter, there were
any decreases in total revenues or net income of the
Company, or other items specified by the Underwriters,
or any increases in any items specified by the
Underwriters, in each case as compared with the
corresponding period of the preceding year, except in
each case for decreases which the Final Prospectus
discloses have occurred or may occur or which are
described in such letter.
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<PAGE>
They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts,
percentages and financial information specified by the
Underwriters which are derived from the general accounting
records of the Company and its Subsidiaries, which appear in
the Effective Prospectus and the Final Prospectus and have
compared and agreed such amounts, percentages and financial
information with the accounting records of the Company and
its Subsidiaries or to analyses and schedules prepared by
the Company and its Subsidiaries from its detailed
accounting records.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases, it
shall be a further condition to the obligations of the
Underwriters that the Underwriters shall have determined,
after discussions with officers of the Company responsible
for financial and accounting matters and with KPMG Peat
Marwick LLP, that such changes, decreases or increases as
are set forth in such letters do not reflect a material
adverse change in the stockholders' equity or long-term debt
of the Company as compared with the amounts shown in the
latest consolidated balance sheets of the Company included
in the Final Prospectus, or a material adverse change in
total revenues or net income, of the Company, in each case
as compared with the corresponding period of the prior year.
f. There shall have been furnished to the Underwriters certificates
dated the Closing Date and addressed to the Underwriters, signed
by the Chief Executive Officer and by the Chief Financial Officer
of the Company and the Administrative Trustees of the Trust to
the effect that:
(1) the representations and warranties of the applicable Offeror
in Section 1 of this Agreement are true and correct, as if
made at and as of the Closing Date, and the applicable
Offeror has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied
at or prior to the Closing Date;
(2) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings
for that purpose have been initiated or, to their knowledge
are pending or threatened under the Securities Act;
(3) all filings required by Rules 424, 430A and 462 of the Rules
and Regulations have been made;
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<PAGE>
(4) they have carefully examined the Registration Statement, the
Effective Prospectus and the Final Prospectus, and any
amendments or supplements thereto, and such documents do not
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(5) since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an
amendment or supplement to the Registration Statement, the
Effective Prospectus or the Final Prospectus which has not
been so set forth.
g. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Final Prospectus, and
except as stated therein, the Company and its Subsidiaries shall
have not sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane,
earthquake, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or governmental
action, order or decree, or become a party to or the subject of
any litigation which is material to the Company and its
Subsidiaries taken as a whole, nor shall there have been any
material adverse change, or any development involving a
prospective material adverse change, in the business, properties,
key personnel, capitalization, net worth, results of operations
or condition (financial or other) of the Company and its
Subsidiaries taken as a whole, which loss, interference,
litigation or change, in the Underwriters' judgment, shall render
it unadvisable to commence or continue the offering of the
Securities at the offering prices to the public set forth on the
cover page of the Prospectus or to proceed with the delivery of
the Designated Capital Securities.
All such opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory to the Underwriters and their counsel. The Offerors
shall furnish to the Underwriters such conformed copies of such opinions,
certificates, letters and documents in such quantities as the Underwriters shall
reasonably request.
The respective obligations of the Underwriters to purchase and pay for the
Option Capital Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Designated Capital Securities, except that
all references to the "Closing Date" shall be deemed to refer to the Option
Closing Date, if it shall be a date other than the Closing Date.
7. Condition of the Offerors's Obligations. The obligations hereunder of
the Offerors are subject to the condition set forth in Section 6(a) hereof.
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<PAGE>
8. Indemnification and Contribution.
a. The Company, the Trust and the Bank (collectively, the "Argo
Indemnifying Parties") jointly and severally agree to indemnify
and hold harmless each Underwriter, and its affiliates,
directors, officers, agents, employees and each person, if any,
who controls any Underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter, its affiliates, directors,
officers, agents, employees and/or controlling person may become
subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based in whole or in part upon (i)
any inaccuracy in the representations and warranties of the
Offerors contained herein, (ii) any failure of the Offerors to
perform their obligations hereunder or under law or (iii) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or in any Blue Sky application
or other written information furnished by the Offerors in any
state or other jurisdiction in order to qualify any or all of the
Designated Capital Securities under the securities laws thereof
(a "Blue Sky Application"), or arise out of or are based upon the
omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus
or Final Prospectus or any amendment or supplement thereto or any
Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter, its affiliates,
directors, officers, agents, employees and each such controlling
person for any legal or other expenses reasonably incurred by
such party in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Argo Indemnifying Parties
will not be liable in any such case to the extent that any such
loss, claim, damage, or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final
Prospectus or such amendment or such supplement or any Blue Sky
Application in reliance upon and in conformity with written
information furnished to the Offerors by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the first
paragraph and first two sentences of the third paragraph under
the caption "Underwriting" in any Preliminary Prospectus and the
Final Prospectus and the Effective Prospectus).
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<PAGE>
b. Each Underwriter will indemnify and hold harmless the Argo
Indemnifying Parties, each of their directors or trustees, as
applicable, each of their officers who signed the Registration
Statement and each person, if any, who controls the Argo
Indemnifying Parties within the meaning of the Securities Act,
against any losses, claims, damages or liabilities to which the
Offerors or any such director, trustee, officer or controlling
person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application, or
arise out of or are based upon the omission or the alleged
omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto or any Blue Sky Application, a
material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information
furnished to the Offerors by any Underwriter specifically for use
therein (it being understood that the only information so
provided is the information included in the first paragraph and
first two sentences of the third paragraph under the caption
"Underwriting" in any Preliminary Prospectus and in the Effective
Prospectus and the Final Prospectus).
c. Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the
commencement thereof; but the omission to so notify the
indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party
to such indemnified party of its election to so assume the
defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation, except that the indemnified party shall have
the right to employ separate counsel if, in
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<PAGE>
its reasonable judgment, it is advisable for the indemnified
party and any other Underwriter to be represented by separate
counsel, and in that event the fees and expenses of separate
counsel shall be paid by the indemnifying party. In no event
shall the indemnifying party be liable for fees and expenses
of more than one counsel separate from their own counsel for
all indemnified parties in connection with any one action or
separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances. The Argo Indemnifying Parties will not,
without prior written consent of each Underwriter, settle or
compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding (or
related cause of action or portion thereof) in respect of
which indemnification may be sought hereunder (whether or not
such Underwriter is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent
includes an unconditional release of such Underwriter from all
liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof).
d. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in
the preceding part of this Section 8 is for any reason held to be
unavailable to the Underwriters, then the Argo Indemnifying
Parties shall contribute to the damages paid by the Underwriters,
and the Underwriters shall contribute to the damages paid by the
Argo Indemnifying Parties provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there
shall be considered the relative benefits received by each party
from the offering of the Securities (taking into account the
portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement or omission, and
any other equitable considerations appropriate under the
circumstances. The Argo Indemnifying Parties and the Underwriters
agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation
(even if the Underwriters were treated as one entity for such
purpose). No Underwriter or person controlling such Underwriter
shall be obligated to make contribution hereunder which in the
aggregate exceeds the underwriting discount applicable to the
Shares and/or the Designated Capital Securities, as the case may
be, purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its
controlling persons have otherwise been required to pay in
respect of the same or any similar claim. The Underwriters'
obligations to
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<PAGE>
contribute hereunder are several in proportion to their
respective underwriting obligations and not joint. For
purposes of this Section 8, each person, if any, who controls
an Underwriter within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as
such Underwriter, and each director or trustee of the Company,
the Trust, or the Bank as applicable, each officer of the
Company who signed the Registration Statement, and each
person, if any, who controls the Argo Indemnifying Parties
within the meaning of Section 15 of the Securities Act, shall
have the same rights to contribution as the Argo Indemnifying
Parties.
e. The obligations of the Argo Indemnifying Parties under this
Section 8 shall be in addition to any liability which the
Offerors may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Securities Act; and the
obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and
conditions, to each officer, director or trustee of the Company,
the Trust or the Bank, as applicable, and to each person, if any,
who controls the Argo Indemnifying Parties within the meaning of
the Securities Act.
9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase any Designated Capital Securities, hereunder and if
the total number of such Designated Capital Securities which such defaulting
Underwriter agreed but failed to purchase is ten percent or less of the total
number of the Designated Capital Securities, to be sold hereunder, then the
nondefaulting Underwriters shall be obligated severally to purchase (in the
respective proportions which the number of such Designated Capital Securities
set forth opposite the name of each non-defaulting Underwriter in Schedule I,
hereto bears to the total number of such Designated Capital Securities set
forth opposite the names of all the non-defaulting Underwriters), the
Designated Capital Securities which such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter so defaults
and the total number of Designated Capital Securities, with respect to which
such default or defaults occur is more than ten percent of the total number
of such Designated Capital Securities to be sold hereunder, and arrangements
satisfactory to the other Underwriters and the Offerors for the purchase of
such Designated Capital Securities by other persons (who may include the
non-defaulting Underwriters) are not made within 36 hours after such default,
this Agreement, insofar as it relates to the sale of the Designated Capital
Securities, will terminate without liability on the part of the
non-defaulting Underwriters or the Offerors except for (i) the provisions of
Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the
Offerors pursuant to Section 5. As used in this Agreement, the term
"Underwriter" includes any person substituted for
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<PAGE>
an Underwriter under this Section 9. Nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Offerors, its
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Offerors, any of its officers, directors or trustees, as applicable, any
Underwriter or any controlling person, (ii) any termination of this Agreement
and (iii) delivery of and payment for the Designated Capital Securities.
11. Effective Date. This Agreement, after due execution, shall become
effective at whichever of the following times shall first occur: (i) at 11:30
A.M., Washington, D.C. time, on the next full business day following the date on
which the Registration Statement becomes effective or (ii) at such time after
the Registration Statement has become effective as the Underwriters shall
release the Firm Capital Securities for sale to the public; provided, however,
that the provisions of Sections 5, 8, 10 and 11 hereof shall survive termination
of this Agreement. For purposes of this Section 11, the Firm Capital Securities
shall be deemed to have been so released upon the release by the Underwriters
for publication, at any time after the Registration Statement has become
effective, of any newspaper advertisement relating to the Firm Capital
Securities or upon the release by the Underwriters of telegrams offering the
Firm Capital Securities for sale to securities dealers, whichever may occur
first.
12. Termination.
a. The Offerors' obligations under this Agreement may be terminated
by the Offerors by notice to the Underwriters in the event that
the condition set forth in Section 7 shall not have been
satisfied at or prior to the First Closing Date.
b. This Agreement may be terminated by the Underwriters by notice to
the Offerors (i) at any time before the Agreement becomes
effective in accordance with Section 11 hereof; (ii) in the event
that at or prior to the First Closing Date, the Offerors shall
have failed, refused or been unable to perform any agreement on
the part of the Offeror to be performed hereunder or any other
condition to the obligations of the Underwriters hereunder is not
fulfilled; (iii) if at or prior to the Closing Date trading in
securities on the New York Stock Exchange, the American Stock
Exchange or the over-the-counter market shall have been suspended
or materially limited or minimum or maximum prices shall have
been established on either of such exchanges or such market, or a
banking moratorium shall have been declared by Federal or state
authorities; (iv) if at or prior to the Closing Date trading in
securities of the Company shall have been suspended; or (v) if
there shall have been
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<PAGE>
such a material change in general economic, political or
financial conditions or if the effect of international conditions
on the financial markets in the United States shall be such as,
in the Underwriters' reasonable judgment, makes it inadvisable to
commence or continue the offering of the Designated Capital
Securities at the offering prices to the public set forth on the
cover page of the Final Prospectus or to proceed with the
delivery of the Designated Capital Securities.
c. Termination of this Agreement pursuant to this Section 12 shall
be without liability of any party to any other party other than
as provided in Sections 5 and 8 hereof.
13. Notices. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed
and confirmed in writing to Tucker Anthony Incorporated, One Beacon Street,
Boston, Massachusetts 02108, Attn: Gregory W. Benning, or if sent to the
Company or the Trust shall be mailed, delivered or telegraphed and confirmed
in writing to the Company or the Trust at 7600 West 63rd Street, Summitt,
Illinois, Attn: Frances M. Pitts.
14. Miscellaneous. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Offerors and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Offerors and the
several Underwriters and for the benefit of no other person except that (i)
the representations and warranties of the Offerors and contained in this
Agreement shall also be for the benefit of any person or persons who control
any Underwriter within the meaning of Section 15 of the Securities Act, and
(ii) the indemnities by the Underwriters shall also be for the benefit of the
directors of the Company, trustees of the Trust, officers of the Offerors who
have signed the Registration Statement and any person or persons who control
the Offerors within the meaning of Section 15 of the Securities Act. No
purchaser of Designated Capital Securities from any Underwriter will be
deemed a successor because of such purchase. The validity and interpretation
of this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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If the foregoing is in accordance with your understanding of our agreement,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Offerors and each of the several Underwriters.
Very truly yours,
ARGO BANCORP, INC.
By:
----------------------------------
Name:
Title:
ARGO CAPITAL TRUST CO.
By:
----------------------------------
Name:
Title:
ARGO FEDERAL SAVINGS BANK, F.S.B.
By:
----------------------------------
Name:
Title:
Confirmed and accepted as
of the date first above written.
TUCKER ANTHONY INCORPORATED
By:
----------------------------------
Name:
Title:
35
<PAGE>
SCHEDULE I
UNDERWRITERS FOR CAPITAL SECURITIES
<TABLE>
<CAPTION>
Number of Firm Capital
Securities
Underwriter to Be Purchased
----------- ----------------------
<S> <C>
Tucker Anthony Incorporated.................
Total........................
</TABLE>
36
<PAGE>
Exhibit 4.1
ARGO BANCORP , INC.
------------------------------
------------------------------
INDENTURE
Dated as of ______________
------------------------------
WILMINGTON TRUST COMPANY
as Trustee
------------------------------
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
<PAGE>
TIE-SHEET(1)
of provisions of Trust Indenture Act of 1939 with Indenture dated as of
_____, 1998 between Argo Bancorp, Inc. and Wilmington Trust Company, 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>
- --------
(1) THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED
<PAGE>
TABLE OF CONTENTS(1)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01
Definitions........................................................1
Additional Sums....................................................1
Adjusted Treasury Rate.............................................1
Affiliate..........................................................2
Underwriting Agreement.............................................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.....................................................4
Extended Interest Payment Period...................................4
Federal Reserve....................................................5
Global Security....................................................5
Indebtedness.......................................................5
</TABLE>
- --------
(1) THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A PART
OF THE INDENTURE.
<PAGE>
<TABLE>
<S> <C>
Indebtedness Ranking on a Parity with the Securities....................................5
Indebtedness Ranking Junior to the Securities...........................................5
Indenture...............................................................................6
Initial Optional Redemption Date........................................................6
Interest Payment Date...................................................................6
Issue Date..............................................................................6
Liquidated Damages......................................................................6
Make Whole Amount.......................................................................6
Maturity Date...........................................................................6
Mortgage................................................................................6
Non Book-Entry Capital Securities.......................................................6
Officers ...............................................................................6
Officers' Certificate...................................................................6
Opinion of Counsel .....................................................................6
Optional Redemption Price...............................................................6
Other Debentures........................................................................6
Other Guarantees........................................................................6
Outstanding.............................................................................7
Person ...............................................................................7
Predecessor Security....................................................................7
Principal Office of the Trustee.........................................................7
Property Trustee........................................................................7
Quotation Agent.........................................................................7
Redemption Price........................................................................7
Reference Treasury Dealer...............................................................8
Reference Treasury Dealer Quotations....................................................8
Regulatory Capital Event................................................................8
Remaining Life..........................................................................8
Responsible Officer.....................................................................8
Restricted Security.....................................................................8
Rule 144A ..............................................................................8
Securities..............................................................................8
Securities Act..........................................................................8
Securityholder..........................................................................9
Holder of Securities....................................................................9
Security Register.......................................................................9
Senior Indebtedness.....................................................................9
Special Event...........................................................................9
Special Event Redemption Price..........................................................9
Subsidiary..............................................................................9
Tax Event..............................................................................10
Treasury Rate..........................................................................10
Trustee ..............................................................................10
Trust Indenture Act of 1939............................................................10
Trust Securities.......................................................................10
Argo Capital Trust Co..................................................................10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
U.S. Government Obligations...........................................................10
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally ...........................................11
SECTION 2.02. Execution and Authentication ..............................11
SECTION 2.03. Form and Payment ..........................................12
SECTION 2.04. Legends. ..................................................12
SECTION 2.05. Global Security ...........................................12
SECTION 2.06 Interest ..................................................14
SECTION 2.07. Transfer and Exchange .....................................14
SECTION 2.08. Replacement Securities ....................................16
SECTION 2.09. Temporary Securities.......................................17
SECTION 2.10. Cancellation ..............................................17
SECTION 2.11. Defaulted Interest ........................................17
SECTION 2.12. CUSIP Numbers .............................................18
ARTICLE III
PARTICULAR COVENANTS OF THE COMPANY ..................................................19
SECTION 3.01. Payment of Principal, Premium and Interest ................19
SECTION 3.02. Offices for Notices and Payments, etc. ....................19
SECTION 3.03. Appointments to Fill Vacancies in Trustee's Office ........20
SECTION 3.04. Provision as to Paying Agent ..............................20
SECTION 3.05. Certificate to Trustee ....................................21
SECTION 3.06. Compliance with Consolidation Provisions ..................21
SECTION 3.07. Limitation on Dividends ...................................21
SECTION 3.08. Covenants as to ___________ Trust Co. .....................22
SECTION 3.09. Payment of Expenses .......................................22
SECTION 3.10. Payment Upon Resignation or Removal .......................23
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE ....................23
SECTION 4.01. Securityholders' Lists................................23
SECTION 4.02. Preservation and Disclosure of Lists .................23
SECTION 4.03. Reports by Company ...................................25
SECTION 4.04. Reports by the Trustee ...............................26
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT ......................27
SECTION 5.01. Events of Default.................................... 27
SECTION 5.02. Payment of Securities on Default; Suit Therefor ......28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 5.03. Application of Moneys Collected by Trustee ...........30
SECTION 5.04. Proceedings by Securityholders .......................31
SECTION 5.05. Proceedings by Trustee ...............................32
SECTION 5.06. Remedies Cumulative and Continuing ...................32
SECTION 5.07. Direction of Proceedings and Waiver of
Defaults by Majority of Securityholders.............32
SECTION 5.08. Notice of Defaults....................................33
SECTION 5.09. Undertaking to Pay Costs..............................33
ARTICLE VI
CONCERNING THE
TRUSTEE...............................................................................34
SECTION 6.01. Duties and Responsibilities of Trustee ...............34
SECTION 6.02. Reliance on Documents, Opinions, etc. ................35
SECTION 6.03. No Responsibility for Recitals, etc. .................36
SECTION 6.04. Trustee, Authenticating Agent, Paying Agents,
Transfer Agents or Registrar May Own Securities.....37
SECTION 6.05. Moneys to be Held in Trust ...........................37
SECTION 6.06. Compensation and Expenses of Trustee .................37
SECTION 6.07. Officers' Certificate as Evidence ....................38
SECTION 6.08. Conflicting Interest of Trustee ......................38
SECTION 6.09. Eligibility of Trustee ...............................38
SECTION 6.10. Resignation or Removal of Trustee ....................39
SECTION 6.11. Acceptance by Successor Trustee ......................40
SECTION 6.12. Succession by Merger, etc. ...........................41
SECTION 6.13. Limitation on Rights of Trustee as a Creditor ........41
SECTION 6.14. Authenticating Agents ................................41
ARTICLE VII
CONCERNING THE SECURITYHOLDERS .......................................................43
SECTION 7.01. Action by Securityholders ............................43
SECTION 7.02. Proof of Execution by Securityholders ................44
SECTION 7.03. Who Are Deemed Absolute Owners .......................44
SECTION 7.04. Securities Owned by Company Deemed
Not Outstanding ....................................44
SECTION 7.05. Revocation of Consents; Future Holders Bound .........44
ARTICLE VIII
SECURITYHOLDERS' MEETINGS ............................................................45
SECTION 8.01. Purposes of Meetings .................................45
SECTION 8.02. Call of Meetings by Trustee ..........................45
SECTION 8.03. Call of Meetings by Company or Securityholders .......45
SECTION 8.04. Qualifications for Voting ............................46
SECTION 8.05. Regulations ..........................................46
SECTION 8.06. Voting ...............................................46
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX
AMENDMENTS ..................................................47
SECTION 9.01. Without Consent of Securityholders ...................47
SECTION 9.02. With Consent of Securityholders ......................49
SECTION 9.03. Compliance with Trust Indenture Act; Effect
of Supplemental Indentures .........................50
SECTION 9.04. Notation on Securities................................50
SECTION 9.05. Evidence of Compliance of Supplemental Indenture
to be Furnished Trustee.............................50
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE ....................................50
SECTION 10.01. Company May Consolidate, etc., on Certain Terms ......50
SECTION 10.02. Successor Corporation to be Substituted for Company...51
SECTION 10.03. Opinion of Counsel to be Given Trustee ...............52
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE ..............................................52
SECTION 11.01. Discharge of Indenture ...............................52
SECTION 11.02. Deposited Moneys and U.S. Government Obligations
to be Held in Trust by Trustee .....................53
SECTION 11.03. Paying Agent to Repay Moneys Held ....................53
SECTION 11.04. Return of Unclaimed Moneys ...........................53
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations .............................53
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,OFFICERS AND DIRECTORS........................55
SECTION 12.01. Indenture and Securities Solely Corporate Obligations.55
ARTICLE XIII
MISCELLANEOUS PROVISIONS .............................................................55
SECTION 13.01. Successors............................................55
SECTION 13.02. Official Acts by Successor Corporation ...............55
SECTION 13.03. Surrender of Company Powers ..........................56
SECTION 13.04. Addresses for Notices, etc. ..........................56
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 13.05. Governing Law ........................................56
SECTION 13.06. Evidence of Compliance with Conditions Precedent .....56
SECTION 13.07. Business Days ........................................57
SECTION 13.08. Trust Indenture Act to Control .......................57
SECTION 13.09. Table of Contents, Headings, etc. ....................57
SECTION 13.10. Execution in Counterparts ............................57
SECTION 13.11. Separability .........................................57
SECTION 13.12. Assignment ...........................................58
SECTION 13.13. Acknowledgement of Rights ............................58
ARTICLE XIV
REDEMPTION OF SECURITIES -- MANDATORY AND OPTIONAL SINKING FUND.....................58
SECTION 14.01. Special Event Redemption .............................58
SECTION 14.02. Optional Redemption by Company .......................59
SECTION 14.03. No Sinking Fund ......................................60
SECTION 14.04. Notice of Redemption; Selection of Securities ........60
SECTION 14.05. Payment of Securities Called for Redemption ..........61
ARTICLE XV
SUBORDINATION OF SECURITIES ..........................................................61
SECTION 15.01. Agreement to Subordinate .............................61
SECTION 15.02. Default on Senior Indebtedness .......................62
SECTION 15.03. Liquidation; Dissolution; Bankruptcy .................62
SECTION 15.04. Subrogation ..........................................63
SECTION 15.05. Trustee to Effectuate Subordination ..................64
SECTION 15.06. Notice by the Company ................................65
SECTION 15.07. Rights of the Trustee; Holders of Senior Indebtedness.66
SECTION 15.08. Subordination May Not Be Impaired ....................66
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD .................................................67
SECTION 16.01. Extension of Interest Payment Period .................67
SECTION 16.02. Notice of Extension ..................................67
EXHIBIT AA-1
Testimonium
Signatures
Acknowledgements
</TABLE>
<PAGE>
THIS INDENTURE, dated as of _________, 1998, between
Argo Bancorp, Inc., a Delaware corporation (hereinafter sometimes called the
"Company"), and Wilmington Trust Company, a Delaware 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) Capital Securities; (vi) Direct Action; and (vii)
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 prepayment
date, the rate per annum equal to the quarterly equivalent yield to maturity of
the Comparable Treasury Issue, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date plus (i) _____ basis points
less than the difference between the coupon of the Capital Securities at pricing
and the yield on the ______% U.S. Treasury Bond due ________ if such prepayment
date occurs prior to __________ and (ii) _____ basis points less than the
difference between the coupon of the
1
<PAGE>
Capital Securities at pricing and the yield on the ______% U.S. Treasury Bond
due ____________, 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 States of Delaware or Illinois are authorized or required by
law or executive order to close.
"Capital Securities" shall mean undivided beneficial interests
in the assets of Argo Capital Trust Co, which rank pari passu with the Common
Securities issued by Argo Capital Trust Co.; 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.
"Capital Securities Guarantee" shall mean any guarantee that
the Company may enter into with Wilmington Trust Company or other Persons that
operates directly or indirectly for the benefit of holders of Capital Securities
and shall include a Capital Securities Guarantee with respect to the Capital
Securities.
"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 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 Argo Capital Trust Co. which rank pari passu with Capital
Securities issued by Argo Capital Trust Co.; 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
2
<PAGE>
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 Argo Capital Trust
Co.
"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 Argo Bancorp, Inc., a Delaware
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 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.
3
<PAGE>
"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 Argo Capital Trust Co., dated as of _______ , 1998, 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 Argo Capital
Trust Co. pursuant to the Declaration, and the distribution of the Securities
held by the Property Trustee to the holders of the Trust Securities issued by
Argo Capital Trust Co. 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.
"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.
"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.
4
<PAGE>
"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 Argo Capital Trust Co., or a trustee of such trust,
partnership or other 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 __________.
"Interest Payment Date" shall have the meaning set forth in
Section 2.06(a).
5
<PAGE>
"Issue Date" shall mean the date of issuance of the Capital
Securities.
"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 quarterly basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in the case of each
of 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 __________.
"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).
"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 canceled by the Trustee or the
Authenticating Agent or delivered to the Trustee for
cancellation;
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(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.
"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.
"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.
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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 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
the Issue Date, 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.
"Remaining Life" means the term of the Securities from the
Prepayment Date to the stated Maturity Date.
"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 Capital 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
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deferrals, renewals or extensions of such Senior Indebtedness.
"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, participations or other
equivalents in the equity interest (however designated) in such Person having
ordinary voting power for the election of a majority of the directors (or the
equivalent) of such Person, other than shares, interests, participations or
other equivalents having such power only by reason of the occurrence of a
contingency.
"Tax Event" shall mean the receipt by Argo Capital Trust Co.
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 the Issue
Date, there is more than an insubstantial risk that (i) Argo Capital Trust Co.
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) Argo Capital Trust Co., 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.
"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
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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.
"Underwriting Agreement" shall mean the Underwriting Agreement
dated _______, 1998 among the Company, Argo Capital Trust Co. and the
Underwriter named therein.
"Argo Capital Trust Co." or the "Trust" shall mean Argo
Capital Trust Co., a Delaware business trust created for the purpose of issuing
its undivided beneficial interests in connection with the issuance of Securities
under this Indenture.
"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.
ARTICLE II
SECURITIES
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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 $10.00 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 $15,000,000 aggregate principal amount of
the Securities, except as provided in Sections 2.07, 2.08, 2.09 and 14.05.
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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. Notwithstanding 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 in substantially the form set
forth on Exhibit A hereto.
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 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
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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 canceled 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 canceled, 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 canceled.
(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 canceled by the Trustee. Such Definitive Securities issued in exchange
for the Global Security shall be registered in such names and 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.
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SECTION 2.06 Interest.
(a) Each Security will bear interest at the rate of ____% 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 _________, 1998, 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 quarterly, payable (subject to the
provisions of Article XVI) quarterly in arrears on April 15th, July 15th,
October 15th and January 15th of each year (each, an "Interest Payment Date")
commencing on the Issue Date, 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 fifteenth day of
the month preceding 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 Argo Capital Trust Co. on the outstanding Trust Securities shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which Argo Capital Trust Co. has become subject as a result of a Tax
Event ("Additional Sums").
SECTION 2.07. 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.
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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.
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 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
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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 canceled 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.
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
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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.
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
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2.06(c), 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 State of Delaware, 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 State of Delaware 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.
In addition to any such office or agency, the Company may from
time to time designate one or more offices or agencies outside the State of
Delaware 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 state of Delaware 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
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(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) , 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 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.
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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 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 Argo Capital Trust Co.
In the event Securities are issued to Argo Capital Trust Co.
or a trustee of such trust in connection with the issuance of Trust Securities
by Argo Capital Trust Co., for so long as such Trust Securities remain
outstanding, the Company (i) will maintain 100% direct or indirect ownership of
the Common Securities of Argo Capital Trust Co.; 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 Argo Capital Trust Co. (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 Argo Capital Trust Co. or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration of Argo Capital Trust Co.,
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.
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SECTION 3.09. Payment of Expenses.
In connection with the offering, sale and issuance of the
Securities to Argo Capital Trust Co. and in connection with the sale of the
Trust Securities by Argo Capital Trust Co., the Company, in its capacity as
borrower with respect to the Securities, shall:
(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 Underwriter
(as defined in the Underwriting Agreement) payable pursuant to the Underwriting
Agreement, fees and expenses in connection with the filing of the Registration
Statement 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 Argo Capital
Trust Co., 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 Argo Capital Trust Co., 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 Argo Capital Trust Co.;
(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 Argo Capital Trust Co. 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 Argo Capital Trust Co.
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.
ARTICLE IV
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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 quarterly 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:
(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
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(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 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.
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(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 which the Trustee
is entitled to rely exclusively on Officers'
Certificates).
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
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this Indenture, commencing May 15, 1999, 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), 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, 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
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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 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), 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
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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), 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 Interest and
Additional Sums, if any) 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 Argo Capital Trust Co. or a
trustee of such trust, without duplication of any other amounts paid by Argo
Capital Trust Co. or a trustee in respect thereof) upon the overdue installments
of interest (including Compounded Interest and Additional Sums, 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
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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 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;
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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), 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
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) 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
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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.
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
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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 Interest and
Additional Sums, 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), 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
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any suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party 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), 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 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
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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;
(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
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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;
(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 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.
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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.
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
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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.
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
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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 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
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(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 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
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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 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.
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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 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.
ARTICLE VII
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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.
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.
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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 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.
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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 State of Delaware or the City of San
Francisco, California, 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 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 State of Delaware 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.
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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
$10.00 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or 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
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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 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:
(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
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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
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 Argo Capital Trust Co. following a
Dissolution Event;
(g) to qualify or maintain qualification of this
Indenture under the Trust Indenture Act;
(h) 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
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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 Argo Capital Trust Co., 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.
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
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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.
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
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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.
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 Argo Bancorp, 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
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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 canceled, or (b) all
the Securities not theretofore canceled or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the giving of notice of
redemption, and the Company shall deposit 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
canceled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest (including Compounded Interest and Additional
Sums, 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) 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.
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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.
SECTION 11.03. Paying Agent to Repay Monies Held.
Upon the satisfaction and discharge of this Indenture all
monies 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 monies.
SECTION 11.04. Return of Unclaimed Moneys.
Any monies 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) 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 monies shall thereupon
cease.
SECTION 11.05. Defeasance Upon Deposit of Monies 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.
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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;
(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
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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 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
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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.
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, 7600 West 63rd Street,
Summit, Illinois, 60501, Attention Frances M. Pitts. 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 Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890 Attention: Corporate Trust
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 Delaware, 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 statement that the
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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 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.
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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 Argo Capital Trust Co. 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 Argo Capital Trust Co. 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 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
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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
100% of the principal amount thereof plus, in each
case, accrued and unpaid interest thereon (including
Compounded Interest and Additional Sums, if any), to
the date of redemption (the "Optional Redemption
Price").
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 the outstanding Securities not previously called
for redemption. 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 Argo
Capital Trust Co. 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 ____________, at the
Optional Redemption Price 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
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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.
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 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), 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,
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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), 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).
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) 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).
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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 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 Senior Indebtedness remaining unpaid to the
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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 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), on the Securities as and when the same shall
become due and payable in
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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.
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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 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) 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.
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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.
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.
ARTICLE XVI
64
<PAGE>
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 20 consecutive
quarterly periods, including the first such quarterly 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 quarterly for each quarterly
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 20 consecutive quarterly periods, including the first such quarterly
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 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
65
<PAGE>
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 quarterly 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 20
quarterly periods permitted in the maximum Extended Interest Payment Period
permitted under Section 16.01.
Wilmington Trust Company 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.
ARGO BANCORP, INC.
By: /s/
------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/
------------------------------------
Name:
Title:
69
<PAGE>
Exhibit 4.2
(FORM OF FACE OF SECURITY)
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. 040125 AA 4
-----------
ARGO BANCORP, INC.
_____% JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURE DUE ________
ARGO Bancorp, Inc., a Delaware corporation (the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Wilmington Trust
Company, as Property Trustee for Argo Capital Trust Co. or registered assigns,
the principal sum of $____________ on ________ (the "Maturity Date"), unless
previously redeemed, and to pay interest on the outstanding principal amount
hereof from ____________, or from the most recent interest payment date (each
such date, an "Interest Payment Date") to which interest has been paid or duly
provided for, quarterly (subject to deferral as set forth herein) in arrears on
April 15, July 15, October 15 and January 15 of each year, commencing on
____________, at the rate of _____% 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 quarterly. The amount of interest payable on any
Interest Payment Date shall be computed on the basis of a 360-day year of twelve
30-day months 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.
<PAGE>
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 fifteenth day of the month preceding
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), 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), 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.
<PAGE>
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.
Dated: , 1998
-----------------
ARGO BANCORP, INC.
By:
------------------------
Name:
Title:
Attest:
By:
-----------------
Name:
Title:
<PAGE>
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
Wilmington Trust Company Dated: , 1998
as Trustee ---------
By
--------------------
Authorized Signatory
<PAGE>
(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
______________ (the "Indenture"), duly executed and delivered between the
Company and Wilmington Trust Company, 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 ___________ (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 quarterly basis (assuming a 360- day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate, plus, in the case of each of clauses (i)
and (ii), any accrued and unpaid interest thereon (including Compounded Interest
and Additional Sums, 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 100% or the principal amount
thereof plus, in each case, accrued and unpaid interest thereon (including
Additional Sums and Compounded Interest, if any), to the date of redemption (the
"Optional Redemption Price").
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,
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.
<PAGE>
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), on this Security at the time and place and at the rate and in the
money herein prescribed.
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
<PAGE>
Securities, to defer payments of interest by extending the interest payment
period of such Securities for a period not exceeding 20 consecutive quarterly
periods, including the first such quarterly 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 20 consecutive
quarterly periods, including the first quarterly 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
ARGO Capital Trust Co., 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 and any such extension shall be continuing.
<PAGE>
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 ARGO Capital Trust Co.
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. 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 of Summit and the State of Illinois
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.
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 DELAWARE WITHOUT REGARD TO
CONFLICT OF LAW PROVISIONS THEREOF.
<PAGE>
Exhibit 4.6
====================================
CAPITAL SECURITIES GUARANTEE AGREEMENT
Argo Bancorp, Inc.
Dated as of ________, 1998
====================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION
<S> <C> <C> <C>
SECTION 1.1 Definitions and Interpretation 2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application 5
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 6
SECTION 2.6 Events of Default; Waiver 7
SECTION 2.7 Event of Default; Notice 7
SECTION 2.8 Conflicting Interests 7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities
Guarantee Trustee 7
SECTION 3.2 Certain Rights of Capital Securities
Guarantee Trustee 9
SECTION 3.3. Not Responsible for Recitals or Issuance of
Capital Securities Guarantee 11
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility 11
SECTION 4.2 Appointment, Removal and Resignation of
Capital Securities Guarantee Trustee 12
</TABLE>
(2)
<PAGE>
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
Page
ARTICLE V
GUARANTEE
<S> <C> <C> <C>
SECTION 5.1 Guarantee 13
SECTION 5.2 Waiver of Notice and Demand 13
SECTION 5.3 Obligations Not Affected 13
SECTION 5.4 Rights of Holders 14
SECTION 5.5 Guarantee of Payment 14
SECTION 5.6 Subrogation 15
SECTION 5.7 Independent Obligations 15
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions 15
SECTION 6.2 Ranking 16
ARTICLE VII
TERMINATION
SECTION 7.1 Termination 16
ARTICLE VIII
COMPENSATION AND EXPENSES OF
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 8.1 Compensation and Expenses 17
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation 17
SECTION 9.2 Indemnification 18
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns 18
SECTION 10.2 Amendments 18
SECTION 10.3 Notices 19
</TABLE>
(3)
<PAGE>
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
SECTION 10.4 Benefit 20
SECTION 10.5 Governing Law 20
</TABLE>
(4)
<PAGE>
CAPITAL SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Capital Securities Guarantee"),
dated as of ________, 1998, is executed and delivered by Argo Bancorp, Inc., a
Delaware corporation (the "Guarantor"), and Wilmington Trust Company, a Delaware
banking corporation, as trustee (the "Capital Securities Guarantee Trustee"),
for the benefit of the Holders (as defined herein) from time to time of the
Capital Securities (as defined herein) of Argo Capital Trust Co., a Delaware
statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of ____, 1998, 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 issued on
the date thereof 1,500,000 capital securities, having an aggregate liquidation
amount of $15,000,000, such capital securities being designated the ____%
Capital Securities (collectively the "Capital Securities"); and
WHEREAS, the Guarantor has executed and delivered a guarantee
agreement (the "Common Securities Guarantee"), dated as of ____, 1998, with
substantially identical terms to this 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 Capital Securities and to receive Guarantee Payments under the
Capital Securities Guarantee and , as the case may be;
NOW, THEREFORE, in consideration of the purchase by each Holder of
Capital Securities which purchase the Guarantor here acknowledges shall benefit
the Guarantor, the Guarantor executes and delivers this Capital Securities
Guarantee for the benefit of such Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Capital Securities Guarantee, unless the
context otherwise requires:
(a) Capitalized terms used in this 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 Capital Securities Guarantee have the same meaning when used
in this Capital Securities Guarantee unless otherwise defined in this Capital
Securities Guarantee;
(c) a term defined anywhere in this Capital Securities
Guarantee has the same meaning throughout;
(d) all references to "the Capital Securities Guarantee" or
"this Capital Securities Guarantee" are to this Capital Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Capital Securities Guarantee to
Articles and Sections are to Articles and Sections of this Capital Securities
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same
meaning when used in this Capital Securities Guarantee, unless otherwise defined
in this 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 States of Delaware or
Illinois are authorized or required by law or executive order to close.
"Capital Securities Guarantee Trustee" means Wilmington Trust
Company, a Delaware banking corporation, as trustee hereunder, until a Successor
Capital Securities Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this 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.
<PAGE>
"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 Rodney Square North, 1100 North Market Street,
Wilmington, Delaware.
"Covered Person" means any Holder of Capital Securities.
"Debentures" means the series of subordinated debt securities
of the Guarantor designated the ____% Junior Subordinated Deferrable Interest
Debentures due ____ 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 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 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 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 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 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 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 Guarantees shall be made until the Holders shall be paid in full the
Guarantee Payments to which they are entitled under this Capital Securities
Guarantee.
"Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Capital Securities; provided, however, that, in
determining whether the holders of the requisite percentage of 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,
<PAGE>
members, partners, employees, representatives, nominees, custodians or agents of
the Capital Securities Guarantee Trustee.
"Indenture" means the Indenture dated as of ____, 1998, among
the Guarantor (the "Debenture Issuer") and Wilmington Trust Company, 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 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
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 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.
"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,
other than the Debentures and the Debentures (as defined in the Indenture),
issued by the Guarantor from time to time and sold to trusts other than the
Issuer to be established by the Guarantor (if any), in each case similar to the
Issuer.
"Other Guarantees" means all guarantees, other than this
Capital Securities Guarantee to be issued by the Guarantor with respect to
capital securities (if any) similar to the Capital Securities issued by trusts
other than the Issuer to be established by the Guarantor (if any), in each case
similar to the Issuer.
<PAGE>
"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.
"Responsible Officer" means, with respect to the Capital
Securities Guarantee Trustee, any officer within the Corporate Trust
Administration department of the Capital Securities Guarantee Trustee with
direct responsibility for the administration of this 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 Capital Securities, collectively.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Capital Securities Guarantee is subject to
the provisions of the Trust Indenture Act that are required to be part of this
Capital Securities Guarantee and shall, to the extent applicable, be governed by
such provisions.
(b) If and to the extent that any provision of this
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 April 15th, July 15th, October 15th, and January 15th of each year, and
(ii) at any other time within 30 days of receipt by the Guarantor of a written
request for a List of Holders as of a date no more than 14 days before such List
of Holders is given to the Capital Securities
<PAGE>
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,
1999, 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 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 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 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 Capital Securities
<PAGE>
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
Capital Securities Guarantee shall have obtained actual knowledge, of such Event
of Default.
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described
in this 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 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 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.
<PAGE>
(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 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 Capital Securities Guarantee, and no implied
covenants shall be read into this Capital Securities Guarantee against the
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 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 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:
(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 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 Capital Securities
Guarantee, and no implied covenants or obligations shall be read into this
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 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 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;
<PAGE>
(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 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 Capital Securities
Guarantee; and
(iv) no provision of this 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 Capital Securities Guarantee or indemnity, reasonably
satisfactory to the Capital Securities Guarantee Trustee, against such risk or
liability is not reasonably assured to it.
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 Capital Securities Guarantee may be sufficiently evidenced
by an Officers' Certificate.
(iii) Whenever, in the administration of this 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
<PAGE>
concerning the administration of this 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 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 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 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 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 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 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.
<PAGE>
(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 Capital
Securities Guarantee.
(b) No provision of this 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 Capital Securities
Guarantee
The recitals contained in this 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 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.
<PAGE>
(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).
(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 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.
<PAGE>
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
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 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 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 Capital Securities or the
extension of time for the performance of any other obligation under, arising out
of, or in connection with, the 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 Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
<PAGE>
(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 Capital
Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred;
(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 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
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 Capital Securities Guarantee or exercising
any trust or power conferred upon the Capital Securities Guarantee Trustee under
this Capital Securities Guarantee.
(b) If the Capital Securities Guarantee Trustee fails to
enforce this 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 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 Capital Securities Guarantee creates a guarantee of
payment and not of collection.
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 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
<PAGE>
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Capital Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this 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 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 Capital
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any 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 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 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 Capital Securities Guarantee or (iii) the
<PAGE>
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 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 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 Capital Securities Guarantee shall terminate (i) upon
full payment of the Redemption Price (as defined in the Declaration) of all
Capital Securities or (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.
Notwithstanding the foregoing, this 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 Capital Securities or
under this Capital Securities Guarantee.
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,
<PAGE>
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 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 Capital Securities.
The provisions of this Article shall survive the termination
of this Capital Securities Guarantee.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Exculpation
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 Capital
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this 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.
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
<PAGE>
hereunder. The obligation to indemnify as set forth in this Section 9.2 shall
survive the termination of this Capital Securities Guarantee.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Successors and Assigns
All guarantees and agreements contained in this 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 Capital Securities Guarantee may only be amended with the
prior approval of the Holders of a Majority in liquidation amount of the 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.
SECTION 10.3 Notices
All notices provided for in this 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):
Argo Capital Trust Co.
c/o Argo Bancorp, Inc.
7600 W. 63rd Street
Summit, Illinois 60501-1830
Attention: John G. Yedinak
Telecopy: (708) 496-2189
(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):
<PAGE>
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
(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):
Argo Bancorp, Inc.
7600 W. 63rd Street
Summit, Illinois 60501-1830
Attention: John G. Yedinak
Telecopy: (708) 496-2189
(d) 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 10.4 Benefit
This Capital Securities Guarantee is solely for the benefit of
the Holders and, subject to Section 3.1(a), is not separately transferable from
the Capital Securities.
SECTION 10.5 Governing Law
THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
<PAGE>
THIS CAPITAL SECURITIES GUARANTEE is executed as of the day
and year first above written.
ARGO BANCORP, INC.
as Guarantor
By:
-----------------------------
Name:
Title:
Wilmington Trust Company
as Capital Securities Guarantee Trustee
By:
-----------------------------
Name:
Title:
<PAGE>
Exhibit 4.7
AMENDED AND RESTATED DECLARATION
OF TRUST
ARGO CAPITAL TRUST CO.
Dated as of ______________, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <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 .......................................................................... 13
SECTION 3.2 Office ........................................................................ 14
SECTION 3.3 Purpose ....................................................................... 14
SECTION 3.4 Authority ..................................................................... 14
SECTION 3.5 Title to Property of the Trust ................................................ 14
SECTION 3.6 Powers and Duties of the Administrative Trustees .............................. 14
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees .......................... 18
SECTION 3.8 Powers and Duties of the Property Trustee ..................................... 18
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee ................... 21
SECTION 3.10 Certain Rights of Property Trustee ............................................ 22
SECTION 3.11 Delaware Trustee .............................................................. 24
SECTION 3.12 Execution of Documents ........................................................ 25
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities ........................ 25
SECTION 3.14 Duration of Trust ............................................................. 25
SECTION 3.15 Mergers ....................................................................... 25
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities ....................................... 27
SECTION 4.2 Responsibilities of the Sponsor ............................................... 27
SECTION 4.3 Right to Proceed .............................................................. 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees: Appointment of Co-Trustee ................................. 28
SECTION 5.2 Delaware Trustee .............................................................. 29
SECTION 5.3 Property Trustee; Eligibility ................................................. 29
SECTION 5.4 Certain Qualifications of Administrative Trustees and
Delaware Trustee Generally .................................................... 30
SECTION 5.5 Administrative Trustees ....................................................... 30
SECTION 5.6 Delaware Trustee .............................................................. 30
SECTION 5.7 Appointment, Removal and Resignation of Trustees .............................. 31
SECTION 5.8 Vacancies among Trustees ...................................................... 32
SECTION 5.9 Effect of Vacancies ........................................................... 32
SECTION 5.10 Meetings ...................................................................... 33
SECTION 5.11 Delegation of Power ........................................................... 33
SECTION 5.12 Merger, Conversion, Consolidation or Succession to
Business ...................................................................... 34
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions ................................................................. 34
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities ....................................... 34
SECTION 7.2 Execution and Authentication .................................................. 35
SECTION 7.3 Form and Dating ............................................................... 36
SECTION 7.4 Registrar, Paying Agent and Exchange Agent .................................... 38
SECTION 7.5 Paying Agent to Hold Money in Trust ........................................... 38
SECTION 7.6 Replacement Securities ........................................................ 38
SECTION 7.7 Outstanding Capital Securities ................................................ 39
SECTION 7.8 Capital Securities in Treasury ................................................ 39
SECTION 7.9 Temporary Securities .......................................................... 39
SECTION 7.10 Cancellation .................................................................. 40
SECTION 7.11 CUSIP Numbers ................................................................. 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust .......................................................... 41
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities ........................................................ 42
SECTION 9.2 Transfer Procedures and Restrictions .......................................... 43
SECTION 9.3 Deemed Security Holders ....................................................... 51
SECTION 9.4 Book Entry Interests .......................................................... 51
SECTION 9.5 Notices to Clearing Agency .................................................... 52
SECTION 9.6 Appointment of Successor Clearing Agency ...................................... 52
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability ..................................................................... 52
SECTION 10.2 Exculpation ................................................................... 53
SECTION 10.3 Fiduciary Duty ................................................................ 53
SECTION 10.4 Indemnification ............................................................... 54
SECTION 10.5 Outside Businesses ............................................................ 57
SECTION 10.6 Compensation; Fees ............................................................ 57
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year ................................................................... 58
SECTION 11.2 Certain Accounting Matters .................................................... 58
SECTION 11.3 Banking ....................................................................... 59
SECTION 11.4 Withholding ................................................................... 59
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments .................................................................... 59
SECTION 12.2 Meetings of the Holders; Action by Written Consent ............................ 61
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee ............................ 62
SECTION 13.2 Representations and Warranties of Delaware Trustee ............................ 63
ARTICLE XIV
RESERVED
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices ....................................................................... 64
SECTION 15.2 Governing Law ................................................................. 65
SECTION 15.3 Intention of the Parties ...................................................... 66
SECTION 15.4 Headings ...................................................................... 66
SECTION 15.5 Successors and Assigns ........................................................ 66
SECTION 15.6 Partial Enforceability ........................................................ 66
SECTION 15.7 Counterparts .................................................................. 66
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 ........................................... A2-1
EXHIBIT B SPECIMEN OF DEBENTURE ......................................................... B-1
EXHIBIT C UNDERWRITING AGREEMENT ........................................................ C-1
</TABLE>
iv
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<S> <C>
Section of Trust Indenture Act of 1939, as amended ...........................................
Declaration Section ..........................................................................
310(b) ....................................................................................... 5.3(c), 5.3(d)
311(a) ....................................................................................... 2.2(b)
311(b) ....................................................................................... 2.2(b)
312(b) ....................................................................................... 2.2(b)
313 .......................................................................................... 2.3
314(a) ....................................................................................... 2.4; 3.6(j)
314(c) ....................................................................................... 2.5
316(a) ....................................................................................... 2.6
316(c) ....................................................................................... 3.6(e)
317(a) ....................................................................................... 3.8(h)
317(b) ....................................................................................... 3.8(i)
</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>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
ARGO CAPITAL TRUST CO.
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of ___________, 1998 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 Argo
Capital Trust Co., a trust created under the Delaware Business Trust Act
pursuant to a Declaration of Trust dated as of July 16, 1998 (the "Original
Declaration"), and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on July 16, 1998, 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>
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 States of California and Delaware are
authorized or required by law or executive order to close.
2
<PAGE>
"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" has the meaning specified in Section 7.1(a).
"Capital Securities Guarantee" means the guarantee agreement dated as
of _________, by the Sponsor in respect of the Capital Securities.
"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
____________ 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, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.
3
<PAGE>
"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 Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention Corporate Trust Administration.
"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 Argo Bancorp, Inc., a Delaware 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 Wilmington Trust Company, a Delaware banking
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"Debentures" means, the ______% Junior Subordinated Deferable Interest
Debentures due _________ of the Debenture Issuer issued pursuant to the
Indenture.
"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.
"Exchange Agent" has the meaning set forth in Section 7.4.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
4
<PAGE>
"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 _________, 1998, between
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.
"Issue Date" means the date of issuance of the Securities.
"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).
"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 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.
"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;
5
<PAGE>
(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.
"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).
"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 Statement" has the meaning set forth in Section 3.6(b)(i)
________________ .
"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
Administration department 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.
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"Rule 3a-5" means Rule 3a-5 under the Investment Company Act, or any
successor rule or regulation.
"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.
"Special Event" has the meaning set forth in Section 4(c) of Annex I
hereto.
"Sponsor" means Argo Bancorp, Inc. a Delaware 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).
"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.
"Underwriting Agreement" means the Underwriting Agreement for the
initial offering and sale of Capital Securities in the form of Exhibit C.
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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.
(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
Section311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
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Within 60 days after May 15 of each year, commencing May 15, 1999,
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 Sponsor's
compliance with any of its covenants hereunder (as to which the Property
Trustee is entitled to rely exclusively on Officers' Certificates).
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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 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
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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 to any
subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
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
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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 and Additional Sums) 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.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named "Argo Capital Trust Co." as such name may
be modified from time to time by the Administrative Trustees following written
notice to the Delaware Trustee, the
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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 Argo Bancorp,
Inc. 7600 West 63rd Street, Summit, Illinois, 60501. 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.
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:
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(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 to:
(i) prepare, execute and file with the Commission, a registration
statement, including any amendments thereto (the "Registration Statement");
(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 deliver letters, documents or instruments with DTC
and other Clearing Agencies relating to the Capital Securities;
(iv) 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, as appropriate; and
(v) execute and enter into the Common Securities Guarantee and the
Debenture Subscription Agreement dated as of _________, 1998 between the Sponsor
and the Trust, the Common Securities Subscription Agreement dated as of
__________, 1998, between the Sponsor and the Trust;
(c) to acquire the Debentures with the proceeds of the sale of the
Capital Securities and the Common Securities; 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 Section316(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;
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(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;
(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;
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(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 cause the Capital Securities to be
registered pursuant to an effective registration statement;
(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
(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;
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(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 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
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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
(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), on
the Debentures on the date such principal, premium, if any, or interest
(including Compounded Interest and Additional Sums, if any) or 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), 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 resignation of the Property Trustee shall not be effective
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").
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(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.
(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:
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(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 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;
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(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;
(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; and
(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.
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 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
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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 Property Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Debenture Issuer, personally or by agent or attorney at the sole cost of
the Debenture Issuer 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 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;
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(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 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.
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.
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The Trust, unless dissolved pursuant to the provisions of
Article VIII hereof, shall have existence up to July 16, 2029.
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:
(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
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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;
(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.
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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 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 for filing by the Trust with the Commission any
Registration Statement;
(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;
(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 a 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(b) or 12(g) of
the Exchange Act, if required; and
(e) to negotiate the terms of and execute the Underwriting Agreement.
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, and:
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(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 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:
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(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.
(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:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust 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.
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The initial Administrative Trustees shall be:
John G. Yedinak
Frances M. Pitts
(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.
(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:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
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
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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.
(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.
(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.
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(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.
(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
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(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 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 "Payment Amount"), the
Property Trustee shall and is
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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 "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 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.
SECTION 7.2 Execution and Authentication.
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.
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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 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 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 set forth in Exhibit
A-1 hereto (a "Global Capital Security" or the "Global Capital Securities"),
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.
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(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 Securities.
(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").
(d) Authorized Denominations. The Capital Securities are issuable only
in denominations of $10.00 and any integral multiple thereof.
SECTION 7.4 Registrar, Paying Agent and Exchange Agent.
The Trust shall maintain in the State of Delaware, (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
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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.
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.
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.
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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.
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 State of Delaware, 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
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in 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.
ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust.
(a) The Trust shall automatically dissolve:
(i) upon the bankruptcy of the Sponsor;
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(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.
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
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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) Reserved
(b) Reserved
(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 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.
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(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 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 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.
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(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
(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 HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
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.
(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, if any beneficial interest in a
Global Capital Security is exchanged for Definitive Capital Securities, Capital
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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 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
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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.
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.
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;
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(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.
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
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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.
(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.
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(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 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
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the resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) he 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.
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:
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(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 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.
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(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.
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);
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(ii) if the amendment affects the rights,
powers, duties, obligations or immunities of the Property Trustee, the
Property Trustee; and
(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; or
(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;
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.
(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
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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 Delaware 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 Delaware 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 authority to execute and deliver, and to carry out
and perform its obligations under the terms of, this Declaration;
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(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, assuming due authorization,
execution and delivery of the Declaration by each of the other parties thereto,
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
RESERVED
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:
(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):
Argo Capital Trust Co.
c/o Argo Bancorp, Inc.
7600 West 63rd Street
Summit, Illinois 60501
Attention: John G. Yedinak
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Telecopy: (708) 4496-2189
(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):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration
Telecopy: 302-651-1576
(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):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration
Telecopy: 302-651-1576
(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):
Argo Capital Trust Co.
c/o Argo Bancorp, Inc.
7600 West 63rd Street
Summit, Illinois 60501
Attention: John G. Yedinak
Telecopy: (708) 496-2189
(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.
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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.
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.
WILMINGTON TRUST COMPANY
as Delaware Trustee
By: /s/
-------------------------
Name:
Title:
WILMINGTON TRUST COMPANY
as Property Trustee
By:
-------------------------
Name:
Title:
ARGO BANCORP, INC.
as Sponsor and Debenture Issuer
By: /s/
-------------------------
Name:
Title:
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ANNEX I
TERMS OF CAPITAL SECURITIES AND COMMON SECURITIES
________%
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of _____, 1998 (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
Registration Statement referred to below in Section 2(c) of this Annex I):
1. Designation and Number.
(a) Capital Securities. 1,500,000 Capital Securities of the
Trust with an aggregate liquidation amount with respect to the assets of the
Trust of fifteen million dollars($15,000,000), and each with a liquidation
amount with respect to the assets of the Trust of $10.00 per security, are
hereby designated for the purposes of identification only as _______ ("Capital
Securities"). The certificates evidencing the Capital Securities shall be
substantially in the form of Exhibit A-1 to the Declaration, with such changes
and additions thereto or deletions therefrom as may be required by ordinary
usage, custom or practice or to conform to the rules of any exchange or
quotation system on or in which the Capital Securities are listed, traded or
quoted.
(b) Common Securities. ____ Common Securities of the Trust
with an aggregate liquidation amount with respect to the assets of the Trust of
_________ ($_______) and a liquidation amount with respect to the assets of the
Trust of $10.00 per security, are hereby designated for the purposes of
identification only as ______ 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 _____% (the "Coupon Rate") of the liquidation amount of $10.00
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 quarterly period will bear additional distributions
thereon compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law). 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.
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(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 the Issue Date, and will be payable quarterly in arrears on April 15th,
July 15th, October 15th, and January 15th of each year, commencing on ______,
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 20 consecutive quarterly periods, including the first
such quarterly 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 quarterly 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 20
consecutive quarterly periods, including the first quarterly 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 fifteenth day of the month preceding 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 Registration Statement dated _______, 1998, 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
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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 $10.00 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 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
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Debentures on or after __________, 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 ____________ (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 100% of the
liquidation amount of Securities to be redeemed plus accumulated and unpaid
Distributions thereon, if any, to the date of such redemption.
(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 quarterly 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
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interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after the Issue
Date, 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
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on the day such notice is first mailed 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 $10.00 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 Redemption/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
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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.
5. Voting Rights - Capital Securities.
(a) Except as provided under Sections 5(b), 6(b) and 7 herein
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
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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 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.
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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 herein
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 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
I-1
<PAGE>
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, 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
I-2
<PAGE>
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).
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.
I-3
<PAGE>
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.
I-4
<PAGE>
EXHIBIT A-1
FORM OF 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.
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.
<PAGE>
Number of Aggregate Liquidation
Capital Securities: Amount: $______________
CUSIP NO. ___________
Certificate Evidencing Capital Securities
of
ARGO CAPITAL TRUST CO.
____% Capital Securities
(liquidation amount $10.00 per Capital Security)
ARGO Capital Trust Co., a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co.
(the "Holder") is the registered owner of $______________ in aggregate
liquidation amount of Capital Securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the ____% Capital
Securities (liquidation amount $10.00 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 ____, 1998, 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 Exchange 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 Exchange 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.
<PAGE>
IN WITNESS WHEREOF, the Trust has duly executed this
certificate.
Dated:
ARGO CAPITAL TRUST CO.
By:
--------------------------------
Name:
-----------------------------
Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
____ TRUST CO.
as Property Trustee
Dated: By:
--------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed
at a rate per annum of ____% (the "Coupon Rate") of the liquidation amount of
$10.00 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 quarterly period will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions," as used herein, includes such cash distributions and any such
interest 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
the Issue Date and will be payable quarterly in arrears, on April 15th, July
15th, October 15th and January 15th of each year, commencing on October 15th,
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 20 consecutive calendar
quarterly periods, including the first such quarterly 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, quarterly
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 quarterly 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 20 consecutive quarterly periods, including the first quarterly
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.
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
<PAGE>
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.
<PAGE>
---------------------
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(1):
------------------------------------------
(1) Signature must be guaranteed by an "eligible guarantor
institution" that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities and Exchange Act of 1934, as amended.
<PAGE>
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.
THIS COMMON SECURITY IS NOT TRANSFERABLE EXCEPT AS SET FORTH IN SECTION
9.1(c) OF THE AMENDED AND RESTATED DECLARATION OF TRUST OF ARGO CAPITAL TRUST
CO., DATED AS OF _________, 1998, AS THE SAME MAY BE AMENDED FROM TIME TO TIME.
<PAGE>
Certificate Evidencing Common Securities
of
ARGO CAPITAL TRUST CO.
____% Common Securities
(liquidation amount $10.00 per Common Security)
Argo Capital Trust Co., a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby certifies that
Argo Bancorp, Inc. (the "Holder") is the registered owner of ____ common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the ____% Common Securities (liquidation amount
$10.00 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 _____, 1998, 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.
IN WITNESS WHEREOF, the Trust has executed this certificate
this ____th day of ____, 1998.
ARGO CAPITAL TRUST CO.
By:
-------------------------------
Name:
-------------------------
Administrative Trustee
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of ____% (the "Coupon Rate") of the liquidation amount of
$10.00 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 QUARTERLY period will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). 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 the Issue Date and will be payable quarterly in arrears, on April 15th,
July 15th, October 15th and January 15th of each year, commencing on ____, 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 20 consecutive calendar quarterly
periods, including the first such quarterly 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 quarterly 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 quarterly periods, including the first quarterly 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.
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
<PAGE>
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.
<PAGE>
---------------------
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)
<PAGE>
EXHIBIT B
SPECIMEN OF DEBENTURE
<PAGE>
EXHIBIT C
UNDERWRITING AGREEMENT
<PAGE>
58595
[LOGO] ARGO
BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
- ------- ------
GW
- -------
GOODWILL CONVERTIBLE CUSIP 040125 20 5
PREFERRED STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF
GOODWILL CONVERTIBLE PREFERRED STOCK, $0.005 PAR VALUE PER SHARE OF
ARGO BANCORP, INC.
(the "Corporation") a Delaware Corporation. The shares represented by this
Certificate are transferable only on the stock transfer books of the
Corporation by the holder of record hereof or by his duly authorized Attorney
or legal representative upon surrender of this Certificate properly endorsed.
This Certificate is non withdrawable and not of an insurable type. Such
shares are not insured by the Federal government. The Certificate is not
valid until countersigned and registered by the Corporation's Transfer Agent
and Registrar.
IN WITNESS WHEREOF the Corporation has caused this
Certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Countersigned and Registered:
HARRIS TRUST AND SAVINGS BANK
Transfer Agent
and Registrar
Date:
By
Authorized Signature
/s/ Frances M. Pitts [Seal] /s/ John G. Yedinak
EXECUTIVE VICE PRESIDENT CHAIRMAN & CHIEF
& CORPORATE SECRETARY EXECUTIVE OFFICE
<PAGE>
ARGO BANCORP, INC.
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OFFERED OR SOLD PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENT OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, AND
ARGO BANCORP, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The shares represented by this Certificate are issued subject to the
provisions of the Certificate of Incorporation, Certificate of Designation,
and By-Laws of Argo Bancorp, Inc. (the "Corporation") as from time to time
amended (copies of which are on file at the principal executive offices of the
Corporation).
The Corporation will furnish to any stockholder upon request and without
charge a full description of each class of stock and any series thereof.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT -
Custodian
- ---------- --------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
- -----------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
--------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Please print or typewrite name and address,
including postal zip code, of assignee
- ------------------------------------------------------------------------shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------Attorney,
to transfer the said shares on the books of the within named Corporation,
with full power of substitution.
Dated
------------------------- -------------------------------------
Signature
-------------------------------------
Signature
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
Exhibit 5.2
[LETTERHEAD]
October 2, 1998
Argo Capital Trust Co.
c/o Argo Bancorp, Inc.
7600 West 63rd Street
Summit, Illinois 60501
Re: Argo Capital Trust Co.
Ladies and Gentlemen:
We have acted as special Delaware counsel for Argo Capital Trust
Co., a Delaware business trust (the "Trust"), in connection with the matters
set forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, as filed in the office
of the Secretary of State of the State of Delaware (the "Secretary of State")
on July 16, 1998 (the "Certificate");
(b) The Trust Agreement of the Trust, dated as of July 16, 1998,
between Argo Bancorp, Inc., a Delaware corporation (the "Company"), and
Wilmington Trust Company, a Delaware banking corporation (the "Trustee"),
(c) The Registration Statement (the "Registration Statement") on
Form S-1 including a prospectus (the "Prospectus") relating to the Capital
Securities of the Trust representing preferred undivided beneficial interests
in the Trust (each, a "Capital Security" and collectively, the "Capital
Securities"), as filed by the Company and the Trust as set forth therein with
the Securities and Exchange Commission on or about October 2, 1998;
(d) A form of Amended and Restated Declaration of Trust of the
Trust, to be entered into among the Company, the trustees of the Trust named
therein and the holders, from time to time, of the undivided beneficial
interests in the assets of the Trust (the "Trust Agreement"); and
<PAGE>
Argo Capital Trust Co.
October 2, 1998
Page 2
(e) A Certificate of Good Standing for the Trust, dated October 2,
1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined
are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed above. We have conducted no independent
factual investigation of our own but rather have relied solely upon the
foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed
to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed
(i) the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii)
except to the extent provided in paragraph 1 below, the due creation or due
organization or due formation, as the case may be, and valid existence in
good standing of each party to the documents examined by us under the laws of
the jurisdiction governing its creation, organization or formation, (iii) the
legal capacity of natural persons who are parties to the documents examined by
us, (iv) that each of the parties to the documents examined by us has the
power and authority to execute and deliver, and to perform its obligations
under, such documents, (v) the due authorization, execution and delivery by
all parties thereto of all documents examined by us, (vi) the receipt by each
Person to whom a Capital Security is to be issued by the Trust
(collectively, the "Capital Security Holders") of an appropriate certificate
for such Capital Security and the payment for the Capital Security acquired
by it, in accordance with the Trust Agreement and the Prospectus, and (vii)
that the Capital Securities are issued and sold to the Capital Security
Holders in accordance with the Trust Agreement and the Prospectus. We have
not participated in the preparation of the Registration Statement and assume
no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our
opinions are rendered only with respect to Delaware laws and rules,
regulations and orders thereunder which are currently in effect.
<PAGE>
Argo Capital Trust Co.
October 2, 1998
Page 3
Based upon the foregoing, and upon our examination of such
questions of law of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act, 12
Del. C Section 3801, et seq.
2. The Capital Securities to be issued to the Capital Security
Holders will represent valid and, subject to the qualifications set forth in
paragraph 3 below, fully paid and nonassessable undivided beneficial
interests in the assets of the Trust.
3. The Capital Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware. We note that the Capital
Security Holders may be obligated to make payments as set forth in the Trust
Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition,
we hereby consent to the use of our name under the heading "Legal Matters" in
the Prospectus. In giving the foregoing consents, we do not thereby admit
that we come within the category of Persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior written consent, this opinion may not be
furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
WF/CDR
<PAGE>
Exhibit 23.1
[Letterhead]
The Board of Directors
Agro Bancorp, Inc.:
We consent to the use of our report dated March 24, 1998 included herein and
to the reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG Peat Marwick L.L.P.
- ----------------------------------
KPMG Peat Marwick L.L.P.
Chicago, Illinois
October 7, 1998
<PAGE>
Exhibit 25.1
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)________
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
ARGO BANCORP, INC.
ARGO CAPITAL TRUST CO.
(Exact name of obligor as specified in its charter)
Delaware 36-3620612
Delaware To be applied for
(State of incorporation (I.R.S. employer identification no.)
or formation)
7600 West 63rd Street
Summit, Illinois 60501
(Address of principal executive offices) (Zip Code)
Capital Securities of ARGO Capital Trust Co.
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the
obligor is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington
Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Wilmington Trust Company, a corporation organized and existing under
the laws of Delaware, has duly caused this Statement of Eligibility to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the City of
Wilmington and State of Delaware on the 30th day of September, 1998.
[SEAL] WILMINGTON TRUST COMPANY
Attest: /s/ Emmett R. Harmon By: /s/ Norma P. Closs
------------------------ --------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT A
AMENDED CHARTER
Wilmington Trust Company
Wilmington, Delaware
As existing on May 9, 1987
<PAGE>
Amended Charter
or
Act of Incorporation
of
Wilmington Trust Company
Wilmington Trust Company, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "Wilmington Trust Company" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
First: - The name of this corporation is Wilmington Trust Company.
Second: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is Wilmington
Trust Company whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
Third: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE>
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
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<PAGE>
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual
3
<PAGE>
owners thereof, including the right to vote thereon; to
invest and deal in and with any of the moneys of the
Corporation upon such securities and in such manner as it
may think fit and proper, and from time to time to vary or
realize such investments; to issue bonds and secure the same
by pledges or deeds of trust or mortgages of or upon the
whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
4
<PAGE>
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
Fourth: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article Fourth, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of
5
<PAGE>
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article Fourth), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
Fourth), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
Fourth, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article Fourth), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to
6
<PAGE>
receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article Fourth, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article Fourth and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article Fourth that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
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<PAGE>
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
Fifth: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the By-Laws of the Corporation),
any director or the entire Board of Directors of the
8
<PAGE>
Corporation may be removed at any time without cause, but only by
the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called
for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
Sixth: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
Seventh: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
Eighth: - This Act shall be deemed and taken to be a private Act.
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<PAGE>
Ninth: - This Corporation is to have perpetual existence.
Tenth: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
Eleventh: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
Twelfth: - The Corporation may transact business in any part of the
world.
Thirteenth: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
Fourteenth: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
Fifteenth: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article Fifteenth:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
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(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article Fifteenth shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article Fifteenth
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article Fifteenth:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on
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such business combination, or immediately prior to the consummation
of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
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(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article Fifteenth on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article Fifteenth shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
Sixteenth: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter
or Act of Incorporation.
Seventeenth: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
As existing on January 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
Stockholders' Meetings
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
Directors
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its
<PAGE>
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
Committees
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who
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shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
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Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than
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<PAGE>
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
Officers
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of
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<PAGE>
Directors shall preside at all meetings of the Board of Directors at which the
Chairman of the Board shall not be present and shall have such further authority
and powers and shall perform such duties as the Board of Directors or the
Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE>
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
Stock and Stock Certificates
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
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<PAGE>
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
Seal
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of the Company shall be the calendar
year.
ARTICLE VIII
Execution of Instruments of the Company
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
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<PAGE>
ARTICLE IX
Compensation of Directors and Members of Committees
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
Indemnification
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses
9
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under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
Amendments to the By-Laws
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
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EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: September 30, 1998 By: /s/ Norma P. Closs
--------------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
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Name of Bank City
in the State of DELAWARE , at the close of business on June 30, 1998.
ASSETS
<TABLE>
<CAPTION>
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.............................................232,976
Interest-bearing balances........................................................................... 0
Held-to-maturity securities................................................................................ 195,579
Available-for-sale securities.............................................................................1,416,957
Federal funds sold and securities purchased under agreements to resell......................................150,100
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,978,706
LESS: Allowance for loan and lease losses. . . . . . 63,164
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve..............................3,915,542
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................135,596
Other real estate owned...................................................................................... 1,696
Investments in unconsolidated subsidiaries and associated companies...........................................1,066
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets............................................................................................55,759
Other assets................................................................................................103,586
Total assets..............................................................................................6,208,857
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices.......................................................................................4,568,934
Noninterest-bearing . . . . . . . . 838,655
Interest-bearing. . . . . . . . . . 3,730,279
Federal funds purchased and Securities sold under agreements to repurchase................................. 418,382
Demand notes issued to the U.S. Treasury.....................................................................99,350
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less......................................................524,000
With original maturity of more than one year.....................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 91,728
Total liabilities.........................................................................................5,745,394
EQUITY CAPITAL
Perpetual preferred stock and related surplus.....................................................................0
Common Stock....................................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................394,325
Net unrealized holding gains (losses) on available-for-sale securities........................................6,520
Total equity capital........................................................................................463,463
Total liabilities, limited-life preferred stock, and equity capital.......................................6,208,857
</TABLE>
2
<PAGE>
Exhibit 25.2
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
------
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
ARGO BANCORP, INC.
(Exact name of obligor as specified in its charter)
Delaware 36-3620612
(State of incorporation (I.R.S. employer identification no.)
or formation)
7600 West 63rd Street 60501
Summit, Illinois (Zip Code)
(Address of principal executive offices)
Junior Subordinated Deferrable Interest Debentures of
ARGO Capital Trust Co.
(Title of the indenture securities)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee
and upon information furnished by the obligor, the obligor is not
an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington
Trust Company to commence business and the authorization
of Wilmington Trust Company to exercise corporate trust
powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b)
of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington
Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Wilmington Trust Company, a corporation organized and existing under
the laws of Delaware, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Wilmington and State of Delaware on the 30th day of September,
1998.
[SEAL] WILMINGTON TRUST COMPANY
Attest:/s/ Emmett R. Harmon By:/s/ Norma P. Closs
--------------------- ---------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT A
AMENDED CHARTER
Wilmington Trust Company
Wilmington, Delaware
As existing on May 9, 1987
<PAGE>
Amended Charter
or
Act of Incorporation
of
Wilmington Trust Company
Wilmington Trust Company, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate
the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and
the name of which company was changed to "Wilmington Trust Company" by an
amendment filed in the Office of the Secretary of State on March 18, A.D.
1903, and the Charter or Act of Incorporation of which company has been from
time to time amended and changed by merger agreements pursuant to the
corporation law for state banks and trust companies of the State of Delaware,
does hereby alter and amend its Charter or Act of Incorporation so that the
same as so altered and amended shall in its entirety read as follows:
First: - The name of this corporation is Wilmington Trust Company.
Second: - The location of its principal office in the State of Delaware is
at Rodney Square North, in the City of Wilmington, County of New Castle;
the name of its resident agent is Wilmington Trust Company whose address is
Rodney Square North, in said City. In addition to such principal office,
the said corporation maintains and operates branch offices in the City of
Newark, New Castle County, Delaware, the Town of Newport, New Castle
County, Delaware, at Claymont, New Castle County, Delaware, at Greenville,
New Castle County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate branch
offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market
Street, and 3605 Market Street, all in the City of Wilmington, New Castle
County, Delaware, and such other branch offices or places of business as
may be authorized from time to time by the agency or agencies of the
government of the State of Delaware empowered to confer such authority.
Third: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this Corporation
are to do any or all of the things herein mentioned as fully and to
the same extent as natural persons might or could do and in any part
of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of law or
equity and to make and use a common seal, and alter the seal at
pleasure, to hold, purchase, convey, mortgage or otherwise deal in
real and personal estate and property, and to appoint such officers
and agents as the business of the
<PAGE>
Corporation shall require, to make by-laws not inconsistent with the
Constitution or laws of the United States or of this State, to
discount bills, notes or other evidences of debt, to receive deposits
of money, or securities for money, to buy gold and silver bullion and
foreign coins, to buy and sell bills of exchange, and generally to
use, exercise and enjoy all the powers, rights, privileges and
franchises incident to a corporation which are proper or necessary
for the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any estate
or interests therein, and to guarantee the holder of such property,
real or personal, against any claim or claims, adverse to his
interest therein, and to prepare and give certificates of title for
any lands or premises in the State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the receipt,
collection, custody, investment and management of funds, and the
purchase, sale, management and disposal of property of all
descriptions, and to prepare and execute all papers which may be
necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every
description, and to carry on the business of conveyancing in all
its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property of
every sort and kind, from executors, administrators, guardians,
public officers, courts, receivers, assignees, trustees, and
from all fiduciaries, and from all other persons and
individuals, and from all corporations whether state, municipal,
corporate or private, and to rent boxes, safes, vaults and other
receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond
or other instrument issued by any state, municipality, body
politic, corporation, association or person, either alone or in
conjunction with any other person or persons, corporation or
corporations.
2
<PAGE>
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any trust,
office, duty, contract or agreement, either by itself or in
conjunction with any other person, or persons, corporation, or
corporations, or in like manner become surety upon any bond,
recognizance, obligation, judgment, suit, order, or decree to be
entered in any court of record within the State of Delaware or
elsewhere, or which may now or hereafter be required by any law,
judge, officer or court in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as trustee,
trustee in bankruptcy, receiver, assignee, assignee in
bankruptcy, executor, administrator, guardian, bailee, or in any
other trust capacity in the receiving, holding, managing, and
disposing of any and all estates and property, real, personal or
mixed, and to be appointed as such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian or bailee by any persons,
corporations, court, officer, or authority, in the State of
Delaware or elsewhere; and whenever this Corporation is so
appointed by any person, corporation, court, officer or
authority such trustee, trustee in bankruptcy, receiver,
assignee, assignee in bankruptcy, executor, administrator,
guardian, bailee, or in any other trust capacity, it shall not
be required to give bond with surety, but its capital stock
shall be taken and held as security for the performance of the
duties devolving upon it by such appointment.
(10) And for its care, management and trouble, and the exercise
of any of its powers hereby given, or for the performance of any
of the duties which it may undertake or be called upon to
perform, or for the assumption of any responsibility the said
Corporation may be entitled to receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without the
State of Delaware, or of the Government of the United States, or
of any state, territory, colony, or possession thereof, or of
any foreign government or country; to receive, collect, receipt
for, and dispose of interest, dividends and income upon and from
any of the bonds, mortgages, debentures, notes, shares of
capital stock, securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages, debentures,
notes, shares of capital stock, securities, obligations,
contracts, evidences of indebtedness and other property, any and
all the rights, powers and privileges of individual
3
<PAGE>
owners thereof, including the right to vote thereon; to invest and
deal in and with any of the moneys of the Corporation upon such
securities and in such manner as it may think fit and proper,
and from time to time to vary or realize such investments; to
issue bonds and secure the same by pledges or deeds of trust or
mortgages of or upon the whole or any part of the property held
or owned by the Corporation, and to sell and pledge such bonds,
as and when the Board of Directors shall determine, and in the
promotion of its said corporate business of investment and to
the extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest
therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and franchises
and to undertake the whole or any part of the assets and
liabilities of any person, firm, association or corporation, and
to pay for the same in cash, stock of this Corporation, bonds or
otherwise; to hold or in any manner to dispose of the whole or
any part of the property so purchased; to conduct in any lawful
manner the whole or any part of any business so acquired, and to
exercise all the powers necessary or convenient in and about the
conduct and management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed, wherever
situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or corporation,
and, without limit as to amount, to draw, make, accept, endorse,
discount, execute and issue promissory notes, drafts, bills of
exchange, warrants, bonds, debentures, and other negotiable or
transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same
extent as natural persons might or could do, to purchase or
otherwise acquire, to hold, own, to mortgage, sell, convey or
otherwise dispose of, real and personal property, of every class
and description, in any State, District, Territory or Colony of
the United States, and in any foreign country or place.
4
<PAGE>
(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall (except
where otherwise expressed in said paragraph) be nowise limited
or restricted by reference to or inference from the terms of any
other clause of this or any other paragraph in this charter, but
that the objects, purposes and powers specified in each of the
clauses of this paragraph shall be regarded as independent
objects, purposes and powers.
Fourth: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as "Preferred
Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the
Board of Directors each of said series to be distinctly designated.
All shares of any one series of Preferred Stock shall be alike in
every particular, except that there may be different dates from
which dividends, if any, thereon shall be cumulative, if made
cumulative. The voting powers and the preferences and relative,
participating, optional and other special rights of each such
series, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series
at any time outstanding; and, subject to the provisions of
subparagraph 1 of Paragraph (c) of this Article Fourth, the Board
of Directors of the Corporation is hereby expressly granted
authority to fix by resolution or resolutions adopted prior to the
issuance of any shares of a particular series of Preferred Stock,
the voting powers and the designations, preferences and relative,
optional and other special rights, and the qualifications,
limitations and restrictions of such series, including, but without
limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute such series, which number
may be increased (except where otherwise provided by the Board
of Directors) or decreased (but not below the number of shares
thereof then outstanding) from time to time by like action of
the Board of Directors;
(2) The rate and times at which, and the terms and conditions
on which, dividends, if any, on Preferred Stock of such series
shall be paid, the extent of the preference or relation, if any,
of such dividends to the dividends payable on any other class or
classes, or series of the same or other class of
5
<PAGE>
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same for,
shares of any other class or classes or of any series of the
same or any other class or classes of stock of the Corporation
and the terms and conditions of such conversion or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on
which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of such
series; and
(7) The voting powers, if any, of the holders of such series of
Preferred Stock which may, without limiting the generality of
the foregoing include the right, voting as a series or by itself
or together with other series of Preferred Stock or all series
of Preferred Stock as a class, to elect one or more directors of
the Corporation if there shall have been a default in the
payment of dividends on any one or more series of Preferred
Stock or under such circumstances and on such conditions as the
Board of Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article Fourth), if any, shall
have been met and after the Corporation shall have complied with
all the requirements, if any, with respect to the setting aside of
sums as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
Fourth), and subject further to any conditions which may be fixed
in accordance with the provisions of section (b) of this Article
Fourth, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount, if
any, (fixed in accordance with the provisions of section (b) of
this Article Fourth), to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation, the holders of the Common Stock
shall be entitled to
6
<PAGE>
receive all of the remaining assets of the Corporation, tangible
and intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of Common
Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be adopted
by the Board of Directors pursuant to section (b) of this
Article Fourth, each holder of Common Stock shall have one vote
in respect of each share of Common Stock held on all matters
voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any
class or series or any additional shares of any class or series to be
issued by reason of any increase of the authorized capital stock of the
Corporation of any class or series, or bonds, certificates of
indebtedness, debentures or other securities convertible into or
exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class
or series of stock or securities convertible into or exchangeable for
stock, or carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, whether such holders or
others, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case, be
as fixed from time to time by the Board of Directors in the resolution
or resolutions adopted pursuant to authority granted in section (b) of
this Article Fourth and the consent, by class or series vote or
otherwise, of the holders of such of the series of Preferred Stock as
are from time to time outstanding shall not be required for the issuance
by the Board of Directors of any other series of Preferred Stock whether
or not the powers, preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the
powers, preferences and rights of such outstanding series, or any of
them; provided, however, that the Board of Directors may provide in the
resolution or resolutions as to any series of Preferred Stock adopted
pursuant to section (b) of this Article Fourth that the consent of the
holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other series of Preferred Stock.
7
<PAGE>
(f) Subject to the provisions of section (e), shares of any series of
Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board
of Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a majority
of the stock of the Corporation entitled to vote thereon.
Fifth: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of directors
constituting the entire Board shall be not less than five nor more than
twenty-five as fixed from time to time by vote of a majority of the
whole Board, provided, however, that the number of directors shall not
be reduced so as to shorten the term of any director at the time in
office, and provided further, that the number of directors constituting
the whole Board shall be twenty-four until otherwise fixed by a majority
of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office for a
term expiring at the next succeeding annual meeting, directors of the
second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting and directors of the third class shall
be elected to hold office for a term expiring at the third succeeding
annual meeting. Any vacancies in the Board of Directors for any reason,
and any newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a majority
of the directors then in office, although less than a quorum, and any
directors so chosen shall hold office until the next annual election of
directors. At such election, the stockholders shall elect a successor
to such director to hold office until the next election of the class for
which such director shall have been chosen and until his successor shall
be elected and qualified. No decrease in the number of directors shall
shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding the
fact that some lesser percentage may be specified by law, this Charter
or Act of Incorporation or the By-Laws of the Corporation), any director
or the entire Board of Directors of the
8
<PAGE>
Corporation may be removed at any time without cause, but only by the
affirmative vote of the holders of two-thirds or more of the outstanding
shares of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing,
delivered or mailed by first class United States mail, postage prepaid,
to the Secretary of the Corporation not less than 14 days nor more than
50 days prior to any meeting of the stockholders called for the election
of directors; provided, however, that if less than 21 days' notice of
the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the Corporation
not later than the close of the seventh day following the day on which
notice of the meeting was mailed to stockholders. Notice of nominations
which are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of
such nominee and (iii) the number of shares of stock of the Corporation
which are beneficially owned by each such nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance
with the foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
Sixth: - The Directors shall choose such officers, agent and servants as
may be provided in the By-Laws as they may from time to time find
necessary or proper.
Seventh: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General Corporation
Law", approved March 10, 1899, as from time to time amended.
Eighth: - This Act shall be deemed and taken to be a private Act.
9
<PAGE>
Ninth: - This Corporation is to have perpetual existence.
Tenth: - The Board of Directors, by resolution passed by a majority of
the whole Board, may designate any of their number to constitute an
Executive Committee, which Committee, to the extent provided in said
resolution, or in the By-Laws of the Company, shall have and may
exercise all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, and shall have power to
authorize the seal of the Corporation to be affixed to all papers which
may require it.
Eleventh: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
Twelfth: - The Corporation may transact business in any part of the
world.
Thirteenth: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation by a
vote of the majority of the entire Board. The stockholders may make,
alter or repeal any By-Law whether or not adopted by them, provided
however, that any such additional By-Laws, alterations or repeal may be
adopted only by the affirmative vote of the holders of two-thirds or
more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for
this purpose as one class).
Fourteenth: - Meetings of the Directors may be held outside of the State
of Delaware at such places as may be from time to time designated by the
Board, and the Directors may keep the books of the Company outside of
the State of Delaware at such places as may be from time to time
designated by them.
Fifteenth: - (a) In addition to any affirmative vote required by law,
and except as otherwise expressly provided in sections (b) and (c) of
this Article Fifteenth:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder), which, after
such merger or consolidation, would be an Affiliate (as hereinafter
defined) of an Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair market value
of $1,000,000 or more, or
10
<PAGE>
(C) the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate fair market value of $1,000,000 or
more, or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly
or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder, or any Affiliate of
any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall
be required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this Article
Fifteenth shall mean any transaction which is referred to any one
or more of clauses (A) through (E) of paragraph 1 of the section
(a).
(b) The provisions of section (a) of this Article Fifteenth shall not
be applicable to any particular business combination and such
business combination shall require only such affirmative vote as is
required by law and any other provisions of the Charter or Act of
Incorporation of By-Laws if such business combination has been
approved by a majority of the whole Board.
(c) For the purposes of this Article Fifteenth:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary)
who or which as of the record date for the determination of stockholders
entitled to notice of and to vote on
11
<PAGE>
such business combination, or immediately prior to the consummation of
any such transaction:
(A) is the beneficial owner, directly or indirectly, of more than
10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within two
years prior thereto was the beneficial owner, directly or
indirectly, of not less than 10% of the then outstanding voting
Shares, or
(C) is an assignee of or has otherwise succeeded in any share of
capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested
Stockholder, and such assignment or succession shall have occurred
in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities
Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates (as
hereafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights, warrants or options or otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1981.
12
<PAGE>
(6) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in effect
in December 31, 1981) is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Investment Stockholder set forth in paragraph (2) of this section
(c), the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty to
determine for the purposes of this Article Fifteenth on the basis
of information known to them, (1) the number of Voting Shares
beneficially owned by any person (2) whether a person is an
Affiliate or Associate of another, (3) whether a person has an
agreement, arrangement or understanding with another as to the
matters referred to in paragraph (3) of section (c), or (4) whether
the assets subject to any business combination or the consideration
received for the issuance or transfer of securities by the
Corporation, or any Subsidiary has an aggregate fair market value
of $1,000,000 or more.
(e) Nothing contained in this Article Fifteenth shall be construed
to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
Sixteenth: Notwithstanding any other provision of this Charter or Act
of Incorporation or the By-Laws of the Corporation (and in addition to
any other vote that may be required by law, this Charter or Act of
Incorporation by the By-Laws), the affirmative vote of the holders of at
least two-thirds of the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) shall be required to amend,
alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth
or Sixteenth of this Charter or Act of Incorporation.
Seventeenth: (a) a Director of this Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Laws as the same exists or may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph shall
not adversely affect any right or protection of a Director of the
Corporation existing hereunder with respect to any act or omission
occurring prior to the time of such repeal or modification."
13
<PAGE>
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
As existing on January 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
Stockholders' Meetings
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or
at such other date, time, or place as may be designated by resolution by the
Board of Directors.
Section 2. Special meetings of all stockholders may be called at
any time by the Board of Directors, the Chairman of the Board or the
President.
Section 3. Notice of all meetings of the stockholders shall be
given by mailing to each stockholder at least ten (10) days before said
meeting, at his last known address, a written or printed notice fixing the
time and place of such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined,
shall constitute a quorum at all meetings of stockholders for the transaction
of any business, but the holders of a small number of shares may adjourn,
from time to time, without further notice, until a quorum is secured. At
each annual or special meeting of stockholders, each stockholder shall be
entitled to one vote, either in person or by proxy, for each shares of stock
registered in the stockholder's name on the books of the Company on the
record date for any such meeting as determined herein.
ARTICLE II
Directors
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the
Company, provided, however, that this limitation shall not apply to any
person who was serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be
managed and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its
<PAGE>
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be
called at any time by the Chairman of the Board of Directors or by the
President, and shall be called upon the written request of a majority of the
directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director
of any special meeting of the Board of Directors, and of any change in the
time or place of any regular meeting, stating the time and place of such
meeting, which shall be mailed not less than two days before the time of
holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of
Directors, although less than a quorum, shall have the right to elect the
successor who shall hold office for the remainder of the full term of the
class of directors in which the vacancy occurred, and until such director's
successor shall have been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect
from its own members a Chairman of the Board of Directors and a President who
may be the same person. The Board of Directors shall also elect at such
meeting a Secretary and a Treasurer, who may be the same person, may appoint
at any time such other committees and elect or appoint such other officers as
it may deem advisable. The Board of Directors may also elect at such meeting
one or more Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be
in charge of such of the departments or division of the Company as it may
deem advisable.
ARTICLE III
Committees
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not more
than nine members who shall be selected by the Board of Directors from its
own members and who
2
<PAGE>
shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of the
Board of Directors when it is not in session to transact all business for and
in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of
the Executive Committee or at the call of the Chairman of the Board of
Directors. The majority of its members shall be necessary to constitute a
quorum for the transaction of business. Special meetings of the Executive
Committee may be held at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall
be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as
the Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws
any two available members of the Executive Committee as constituted
immediately prior to such disaster shall constitute a quorum of that
Committee for the full conduct and management of the affairs and business of
the Company in accordance with the provisions of Article III of these
By-Laws; and if less than three members of the Trust Committee is constituted
immediately prior to such disaster shall be available for the transaction of
its business, such Executive Committee shall also be empowered to exercise
all of the powers reserved to the Trust Committee under Article III Section 2
hereof. In the event of the unavailability, at such time, of a minimum of
two members of such Executive Committee, any three available directors shall
constitute the Executive Committee for the full conduct and management of the
affairs and business of the Company in accordance with the foregoing
provisions of this Section. This By-Law shall be subject to implementation
by Resolutions of the Board of Directors presently existing or hereafter
passed from time to time for that purpose, and any provisions of these
By-Laws (other than this Section) and any resolutions which are contrary to
the provisions of this Section or to the provisions of any such implementary
Resolutions shall be suspended during such a disaster period until it shall
be determined by any interim Executive Committee acting under this section
that it shall be to the advantage of the Company to resume the conduct and
management of its affairs and business under all of the other provisions of
these By-Laws.
3
<PAGE>
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than
thirteen members who shall be selected by the Board of Directors, a majority
of whom shall be members of the Board of Directors and who shall hold office
during the pleasure of the Board.
(B) The Trust Committee shall have general supervision over
the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office of
the Company or elsewhere in its discretion at such times to be determined by
a majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall be
kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the
Trust Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members who
shall be selected by the Board of Directors from its own members, none of
whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision over
the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of
examination of the Company made by any governmental agency or such
independent auditor employed for that purpose, and make such recommendations
to the Board of Directors with respect thereto or with respect to any other
matters pertaining to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the
majority of its members shall deem it to be proper for the transaction of its
business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not more
than
4
<PAGE>
five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise upon
all matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at
any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected by
the Board of Directors as an associate director, to serve during the pleasure
of the Board.
(B) An associate director shall be entitled to attend all
directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of any
Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absence or disqualified member.
ARTICLE IV
Officers
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers
and shall perform such duties as the Board of Directors may from time to time
confer and direct. He shall also exercise such powers and perform such
duties as may from time to time be agreed upon between himself and the
President of the Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of
the Board of
5
<PAGE>
Directors shall preside at all meetings of the Board of Directors
at which the Chairman of the Board shall not be present and shall have such
further authority and powers and shall perform such duties as the Board of
Directors or the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties
pertaining to the office of the President conferred or imposed upon him by
statute or assigned to him by the Board of Directors in the absence of the
Chairman of the Board the President shall have the powers and duties of the
Chairman of the Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE>
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller
and such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be
in charge of the Audit Division of the Company with such title as the Board
of Directors shall prescribe, shall report to and be directly responsible
only to the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor
and such duties as may be prescribed by the officer in charge of the Audit
Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined
from time to time by the Board of Directors, who shall ex officio hold the
office Assistant Secretary of this Company and who may perform such duties as
may be prescribed by the officer in charge of the department or division to
whom they are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices,
subject to the direction of the Board of Directors, the Executive Committee,
Chairman of the Board of Directors or the President and the officer in charge
of the department or division to which they are assigned.
ARTICLE V
Stock and Stock Certificates
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of
Directors and countersigned by the Secretary or Treasurer or an Assistant
Secretary, and the seal of the corporation shall be engraved thereon. Each
certificate shall recite that the stock represented thereby is transferrable
only upon the books of the Company by the holder thereof or his attorney,
upon surrender of the certificate properly endorsed. Any certificate of
stock surrendered to the Company shall be cancelled at the time of transfer,
and before a new certificate or certificates shall be issued in lieu thereof.
Duplicate certificates of stock shall be issued only upon giving such
security as may be satisfactory to the Board of Directors or the Executive
Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders
entitled to notice of, and to vote at, any meeting of stockholders and any
adjournment thereof, or entitled to receive payment of
7
<PAGE>
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in
connection with obtaining the consent of stockholders for any purpose, which
record date shall not be more than 60 nor less than 10 days proceeding the
date of any meeting of stockholders or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent.
ARTICLE VI
Seal
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of the Company shall be the calendar year.
ARTICLE VIII
Execution of Instruments of the Company
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full
power and authority to enter into, make, sign, execute, acknowledge and/or
deliver and the Secretary or any Assistant Secretary shall have full power
and authority to attest and affix the corporate seal of the Company to any
and all deeds, conveyances, assignments, releases, contracts, agreements,
bonds, notes, mortgages and all other instruments incident to the business of
this Company or in acting as executor, administrator, guardian, trustee,
agent or in any other fiduciary or representative capacity by any and every
method of appointment or by whatever person, corporation, court officer or
authority in the State of Delaware, or elsewhere, without any specific
authority, ratification, approval or confirmation by the Board of Directors
or the Executive Committee, and any and all such instruments shall have the
same force and validity as though expressly authorized by the Board of
Directors and/or the Executive Committee.
8
<PAGE>
ARTICLE IX
Compensation of Directors and Members of Committees
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable
honoraria or fees for attending meetings of the Board of Directors as the
Board of Directors may from time to time determine. Directors and associate
directors who serve as members of committees, other than salaried employees
of the Company, shall be paid such reasonable honoraria or fees for services
as members of committees as the Board of Directors shall from time to time
determine and directors and associate directors may be employed by the
Company for such special services as the Board of Directors may from time to
time determine and shall be paid for such special services so performed
reasonable compensation as may be determined by the Board of Directors.
ARTICLE X
Indemnification
Section 1. (A) The Corporation shall indemnify and hold harmless,
to the fullest extent permitted by applicable law as it presently exists or
may hereafter be amended, any person who was or is made or is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding") by
reason of the fact that he, or a person for whom he is the legal
representative, is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or agent of another corporation or of
a partnership, joint venture, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all
liability and loss suffered and expenses reasonably incurred by such person.
The Corporation shall indemnify a person in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Board
of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a Director officer in his
capacity as a Director or officer in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by the Director
or officer to repay all amounts advanced if it should be ultimately
determined that the Director or officer is not entitled to be indemnified
under this Article or otherwise.
(C) If a claim for indemnification or payment of expenses,
under this Article X is not paid in full within ninety days after a written
claim therefor has been received by the Corporation the claimant may file
suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action the Corporation shall have the burden of proving
that the claimant was not entitled to the requested indemnification of
payment of expenses
9
<PAGE>
under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions of
this Article X shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time
of such repeal or modification.
ARTICLE XI
Amendments to the By-Laws
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all
the members of the Board of Directors then in office.
<PAGE>
EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of
examinations by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
requests therefor.
WILMINGTON TRUST COMPANY
Dated: September 30, 1998 By: /s/ Norma P. Closs
----------------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved
by any state banking authorities. Refer to your appropriate state
banking authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ----------------------------------------------------------- -----------------
Name of Bank City
in the State of DELAWARE , at the close of business on June 30, 1998.
-------------
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins. . . . . . . . 232,976
Interest-bearing balances. . . . . . . . . . . . . . . . . . . . . 0
Held-to-maturity securities. . . . . . . . . . . . . . . . . . . . . . . . . . 195,579
Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . 1,416,957
Federal funds sold and securities purchased under agreements to resell . . . . 150,100
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,978,706
LESS: Allowance for loan and lease losses. . . . . . 63,164
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve. . 3,915,542
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . 0
Premises and fixed assets (including capitalized leases). . . . . . . . . . . . 135,596
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,696
Investments in unconsolidated subsidiaries and associated companies . . . . . . 1,066
Customers' liability to this bank on acceptances outstanding. . . . . . . . . . 0
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,759
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,586
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,208,857
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,568,934
Noninterest-bearing . . . . . . . . 838,655
Interest-bearing. . . . . . . . . . 3,730,279
Federal funds purchased and Securities sold under agreements to repurchase. . . 418,382
Demand notes issued to the U.S. Treasury. . . . . . . . . . . . . . . . . . . . 99,350
Trading liabilities (from Schedule RC-D). . . . . . . . . . . . . . . . . . . . 0
Other borrowed money: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ///////
With original maturity of one year or less. . . . . . . . . . . . . 524,000
With original maturity of more than one year. . . . . . . . . . . . 43,000
Bank's liability on acceptances executed and outstanding. . . . . . . . . . . . 0
Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . 0
Other liabilities (from Schedule RC-G). . . . . . . . . . . . . . . . . . . . . 91,728
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,745,394
EQUITY CAPITAL
Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . 0
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Surplus (exclude all surplus related to preferred stock). . . . . . . . . . . . 62,118
Undivided profits and capital reserves. . . . . . . . . . . . . . . . . . . . . 394,325
Net unrealized holding gains (losses) on available-for-sale securities. . . . . 6,520
Total equity capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463,463
Total liabilities, limited-life preferred stock, and equity capital . . . . . . 6,208,857
</TABLE>
2
<PAGE>
Exhibit 25.3
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)__________
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
ARGO BANCORP, INC.
(Exact name of obligor as specified in its charter)
Delaware 36-3620612
(State of incorporation (I.R.S. employer identification no.)
or formation)
7600 West 63rd Street
Summit, Illinios 60501
(Address of principal executive offices) (Zip Code)
ARGO Bancorp, Inc. Guarantee
with respect to Capital Securities
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the
obligor is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington
Trust Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Wilmington Trust Company, a corporation organized and existing under
the laws of Delaware, has duly caused this Statement of Eligibility to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the City of
Wilmington and State of Delaware on the 30th day of September, 1998.
[SEAL] WILMINGTON TRUST COMPANY
Attest: /s/ Emmett R. Harmon By: /s/ Norma P. Closs
-------------------- --------------------------------
Assistant Secretary Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT A
AMENDED CHARTER
Wilmington Trust Company
Wilmington, Delaware
As existing on May 9, 1987
<PAGE>
Amended Charter
or
Act of Incorporation
of
Wilmington Trust Company
Wilmington Trust Company, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "Wilmington Trust Company" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
First: - The name of this corporation is Wilmington Trust Company.
Second: - The location of its principal office in the State of Delaware
is at Rodney Square North, in the City of Wilmington, County of New
Castle; the name of its resident agent is Wilmington Trust Company
whose address is Rodney Square North, in said City. In addition to such
principal office, the said corporation maintains and operates branch
offices in the City of Newark, New Castle County, Delaware, the Town of
Newport, New Castle County, Delaware, at Claymont, New Castle County,
Delaware, at Greenville, New Castle County Delaware, and at Milford
Cross Roads, New Castle County, Delaware, and shall be empowered to
open, maintain and operate branch offices at Ninth and Shipley Streets,
418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in
the City of Wilmington, New Castle County, Delaware, and such other
branch offices or places of business as may be authorized from time to
time by the agency or agencies of the government of the State of
Delaware empowered to confer such authority.
Third: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this Corporation
are to do any or all of the things herein mentioned as fully and to the
same extent as natural persons might or could do and in any part of the
world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter the
seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE>
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for
money, to buy gold and silver bullion and foreign coins, to
buy and sell bills of exchange, and generally to use,
exercise and enjoy all the powers, rights, privileges and
franchises incident to a corporation which are proper or
necessary for the transaction of the business of the
Corporation hereby created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or claims,
adverse to his interest therein, and to prepare and give
certificates of title for any lands or premises in the State
of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every
description, and to carry on the business of conveyancing in
all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property of
every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other persons
and individuals, and from all corporations whether state,
municipal, corporate or private, and to rent boxes, safes,
vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond
or other instrument issued by any state, municipality, body
politic, corporation, association or person, either alone or
in conjunction with any other person or persons, corporation
or corporations.
2
<PAGE>
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any trust,
office, duty, contract or agreement, either by itself or in
conjunction with any other person, or persons, corporation, or
corporations, or in like manner become surety upon any bond,
recognizance, obligation, judgment, suit, order, or decree to
be entered in any court of record within the State of Delaware
or elsewhere, or which may now or hereafter be required by any
law, judge, officer or court in the State of Delaware or
elsewhere.
(9) To act by any and every method of appointment as trustee,
trustee in bankruptcy, receiver, assignee, assignee in
bankruptcy, executor, administrator, guardian, bailee, or in
any other trust capacity in the receiving, holding, managing,
and disposing of any and all estates and property, real,
personal or mixed, and to be appointed as such trustee,
trustee in bankruptcy, receiver, assignee, assignee in
bankruptcy, executor, administrator, guardian or bailee by any
persons, corporations, court, officer, or authority, in the
State of Delaware or elsewhere; and whenever this Corporation
is so appointed by any person, corporation, court, officer or
authority such trustee, trustee in bankruptcy, receiver,
assignee, assignee in bankruptcy, executor, administrator,
guardian, bailee, or in any other trust capacity, it shall not
be required to give bond with surety, but its capital stock
shall be taken and held as security for the performance of the
duties devolving upon it by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or be
called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to receive
a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to receive,
collect, receipt for, and dispose of interest, dividends and
income upon and from any of the bonds, mortgages, debentures,
notes, shares of capital stock, securities, obligations,
contracts, evidences of indebtedness and other property held
and owned by it, and to exercise in respect of all such bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of indebtedness
and other property, any and all the rights, powers and
privileges of individual
3
<PAGE>
owners thereof, including the right to vote thereon; to invest
and deal in and with any of the moneys of the Corporation upon
such securities and in such manner as it may think fit and
proper, and from time to time to vary or realize such
investments; to issue bonds and secure the same by pledges or
deeds of trust or mortgages of or upon the whole or any part
of the property held or owned by the Corporation, and to sell
and pledge such bonds, as and when the Board of Directors
shall determine, and in the promotion of its said corporate
business of investment and to the extent authorized by law, to
lease, purchase, hold, sell, assign, transfer, pledge,
mortgage and convey real and personal property of any name and
nature and any estate or interest therein.
(b) In furtherance of, and not in limitation, of the powers conferred
by the laws of the State of Delaware, it is hereby expressly provided
that the said Corporation shall also have the following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and franchises
and to undertake the whole or any part of the assets and
liabilities of any person, firm, association or corporation,
and to pay for the same in cash, stock of this Corporation,
bonds or otherwise; to hold or in any manner to dispose of the
whole or any part of the property so purchased; to conduct in
any lawful manner the whole or any part of any business so
acquired, and to exercise all the powers necessary or
convenient in and about the conduct and management of such
business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or corporation,
and, without limit as to amount, to draw, make, accept,
endorse, discount, execute and issue promissory notes, drafts,
bills of exchange, warrants, bonds, debentures, and other
negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same
extent as natural persons might or could do, to purchase or
otherwise acquire, to hold, own, to mortgage, sell, convey or
otherwise dispose of, real and personal property, of every
class and description, in any State, District, Territory or
Colony of the United States, and in any foreign country or
place.
4
<PAGE>
(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall
(except where otherwise expressed in said paragraph) be nowise
limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes and
powers specified in each of the clauses of this paragraph
shall be regarded as independent objects, purposes and powers.
Fourth: - (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-one million
(41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as "Preferred
Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of
Directors each of said series to be distinctly designated. All shares
of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative. The
voting powers and the preferences and relative, participating, optional
and other special rights of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of
any and all other series at any time outstanding; and, subject to the
provisions of subparagraph 1 of Paragraph (c) of this Article Fourth,
the Board of Directors of the Corporation is hereby expressly granted
authority to fix by resolution or resolutions adopted prior to the
issuance of any shares of a particular series of Preferred Stock, the
voting powers and the designations, preferences and relative, optional
and other special rights, and the qualifications, limitations and
restrictions of such series, including, but without limiting the
generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the number
of shares thereof then outstanding) from time to time by like
action of the Board of Directors;
(2) The rate and times at which, and the terms and conditions
on which, dividends, if any, on Preferred Stock of such series
shall be paid, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other
class or classes, or series of the same or other class of
5
<PAGE>
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same for,
shares of any other class or classes or of any series of the
same or any other class or classes of stock of the Corporation
and the terms and conditions of such conversion or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on
which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the generality
of the foregoing include the right, voting as a series or by
itself or together with other series of Preferred Stock or all
series of Preferred Stock as a class, to elect one or more
directors of the Corporation if there shall have been a
default in the payment of dividends on any one or more series
of Preferred Stock or under such circumstances and on such
conditions as the Board of Directors may determine.
(c) (1) After the requirements with respect to preferential dividends
on the Preferred Stock (fixed in accordance with the provisions of
section (b) of this Article Fourth), if any, shall have been met and
after the Corporation shall have complied with all the requirements, if
any, with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of section (b) of this Article Fourth), and subject further
to any conditions which may be fixed in accordance with the provisions
of section (b) of this Article Fourth, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as
may be declared from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount, if
any, (fixed in accordance with the provisions of section (b)
of this Article Fourth), to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation, the holders of the Common
Stock shall be entitled to
6
<PAGE>
receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be adopted
by the Board of Directors pursuant to section (b) of this
Article Fourth, each holder of Common Stock shall have one
vote in respect of each share of Common Stock held on all
matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have
any preemptive right to purchase or subscribe for any unissued stock of
any class or series or any additional shares of any class or series to
be issued by reason of any increase of the authorized capital stock of
the Corporation of any class or series, or bonds, certificates of
indebtedness, debentures or other securities convertible into or
exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class
or series of stock or securities convertible into or exchangeable for
stock, or carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, whether such holders or
others, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case, be
as fixed from time to time by the Board of Directors in the resolution
or resolutions adopted pursuant to authority granted in section (b) of
this Article Fourth and the consent, by class or series vote or
otherwise, of the holders of such of the series of Preferred Stock as
are from time to time outstanding shall not be required for the
issuance by the Board of Directors of any other series of Preferred
Stock whether or not the powers, preferences and rights of such other
series shall be fixed by the Board of Directors as senior to, or on a
parity with, the powers, preferences and rights of such outstanding
series, or any of them; provided, however, that the Board of Directors
may provide in the resolution or resolutions as to any series of
Preferred Stock adopted pursuant to section (b) of this Article Fourth
that the consent of the holders of a majority (or such greater
proportion as shall be therein fixed) of the outstanding shares of such
series voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
7
<PAGE>
(f) Subject to the provisions of section (e), shares of any series of
Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board
of Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a majority
of the stock of the Corporation entitled to vote thereon.
Fifth: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of directors
constituting the entire Board shall be not less than five nor more than
twenty-five as fixed from time to time by vote of a majority of the
whole Board, provided, however, that the number of directors shall not
be reduced so as to shorten the term of any director at the time in
office, and provided further, that the number of directors constituting
the whole Board shall be twenty-four until otherwise fixed by a
majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office for
a term expiring at the next succeeding annual meeting, directors of the
second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting and directors of the third class shall
be elected to hold office for a term expiring at the third succeeding
annual meeting. Any vacancies in the Board of Directors for any reason,
and any newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a
majority of the directors then in office, although less than a quorum,
and any directors so chosen shall hold office until the next annual
election of directors. At such election, the stockholders shall elect a
successor to such director to hold office until the next election of
the class for which such director shall have been chosen and until his
successor shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation), any
director or the entire Board of Directors of the
8
<PAGE>
Corporation may be removed at any time without cause, but only by the
affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as
one class) cast at a meeting of the stockholders called for that
purpose.
(d) Nominations for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing,
delivered or mailed by first class United States mail, postage prepaid,
to the Secretary of the Corporation not less than 14 days nor more than
50 days prior to any meeting of the stockholders called for the
election of directors; provided, however, that if less than 21 days'
notice of the meeting is given to stockholders, such written notice
shall be delivered or mailed, as prescribed, to the Secretary of the
Corporation not later than the close of the seventh day following the
day on which notice of the meeting was mailed to stockholders. Notice
of nominations which are proposed by the Board of Directors shall be
given by the Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of
such nominee and (iii) the number of shares of stock of the Corporation
which are beneficially owned by each such nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance
with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be
disregarded.
(g) No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
Sixth: - The Directors shall choose such officers, agent and servants
as may be provided in the By-Laws as they may from time to time find
necessary or proper.
Seventh: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
Eighth: - This Act shall be deemed and taken to be a private Act.
9
<PAGE>
Ninth: - This Corporation is to have perpetual existence.
Tenth: - The Board of Directors, by resolution passed by a majority of
the whole Board, may designate any of their number to constitute an
Executive Committee, which Committee, to the extent provided in said
resolution, or in the By-Laws of the Company, shall have and may
exercise all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, and shall have power to
authorize the seal of the Corporation to be affixed to all papers which
may require it.
Eleventh: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
Twelfth: - The Corporation may transact business in any part of the
world.
Thirteenth: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation by a
vote of the majority of the entire Board. The stockholders may make,
alter or repeal any By-Law whether or not adopted by them, provided
however, that any such additional By-Laws, alterations or repeal may be
adopted only by the affirmative vote of the holders of two-thirds or
more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for
this purpose as one class).
Fourteenth: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be from
time to time designated by them.
Fifteenth: - (a) In addition to any affirmative vote required by law,
and except as otherwise expressly provided in sections (b) and (c) of
this Article Fifteenth:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation, would
be an Affiliate (as hereinafter defined) of an Interested
Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair market
value of $1,000,000 or more, or
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(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate
fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any similar transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder, or any Affiliate of any Interested
Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article Fifteenth shall mean any transaction which is
referred to any one or more of clauses (A) through
(E) of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article Fifteenth
shall not be applicable to any particular business combination
and such business combination shall require only such
affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article Fifteenth:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary)
who or which as of the record date for the determination of
stockholders entitled to notice of and to vote on
11
<PAGE>
such business combination, or immediately prior to the consummation of
any such transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within
two years prior thereto was the beneficial owner, directly or
indirectly, of not less than 10% of the then outstanding
voting Shares, or
(C) is an assignee of or has otherwise succeeded in any share
of capital stock of the Corporation which were at any time
within two years prior thereto beneficially owned by any
Interested Stockholder, and such assignment or succession
shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates
(as hereafter defined) beneficially own, directly or
indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of capital stock of the
Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights, warrants or options or otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1981.
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<PAGE>
(6) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect in December 31, 1981) is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Investment Stockholder set forth in paragraph (2) of this section
(c), the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty to
determine for the purposes of this Article Fifteenth on the
basis of information known to them, (1) the number of Voting
Shares beneficially owned by any person (2) whether a person
is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as
to the matters referred to in paragraph (3) of section (c), or
(4) whether the assets subject to any business combination or
the consideration received for the issuance or transfer of
securities by the Corporation, or any Subsidiary has an
aggregate fair market value of $1,000,000 or more.
(e) Nothing contained in this Article Fifteenth shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
Sixteenth: Notwithstanding any other provision of this Charter or Act
of Incorporation or the By-Laws of the Corporation (and in addition to
any other vote that may be required by law, this Charter or Act of
Incorporation by the By-Laws), the affirmative vote of the holders of
at least two-thirds of the outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) shall be required to amend,
alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth
or Sixteenth of this Charter or Act of Incorporation.
Seventeenth: (a) a Director of this Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Laws as the same exists or may hereafter be
amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect to
any act or omission occurring prior to the time of such repeal
or modification."
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<PAGE>
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
As existing on January 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
Stockholders' Meetings
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given by
mailing to each stockholder at least ten (10) days before said meeting, at his
last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the Company
issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
Directors
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72) years
shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed and
conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office of
the Company or elsewhere in its discretion at such times to be determined by a
majority of its
<PAGE>
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be called at
any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of any
special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal, inability
to act, or disqualification of any director, the Board of Directors, although
less than a quorum, shall have the right to elect the successor who shall hold
office for the remainder of the full term of the class of directors in which the
vacancy occurred, and until such director's successor shall have been duly
elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
Committees
Section 1. Executive Committee
(A) The Executive Committee shall be composed of
not more than nine members who shall be selected by the Board of Directors from
its own members and who
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<PAGE>
shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the
powers of the Board of Directors when it is not in session to transact all
business for and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the
principal office of the Company or elsewhere in its discretion at such times to
be determined by a majority of its members, or at the call of the Chairman of
the Executive Committee or at the call of the Chairman of the Board of
Directors. The majority of its members shall be necessary to constitute a quorum
for the transaction of business. Special meetings of the Executive Committee may
be held at any time when a quorum is present.
(D) Minutes of each meeting of the Executive
Committee shall be kept and submitted to the Board of Directors at its next
meeting.
(E) The Executive Committee shall advise and
superintend all investments that may be made of the funds of the Company, and
shall direct the disposal of the same, in accordance with such rules and
regulations as the Board of Directors from time to time make.
(F) In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Company by its directors and officers as contemplated by these
By-Laws any two available members of the Executive Committee as constituted
immediately prior to such disaster shall constitute a quorum of that Committee
for the full conduct and management of the affairs and business of the Company
in accordance with the provisions of Article III of these By-Laws; and if less
than three members of the Trust Committee is constituted immediately prior to
such disaster shall be available for the transaction of its business, such
Executive Committee shall also be empowered to exercise all of the powers
reserved to the Trust Committee under Article III Section 2 hereof. In the event
of the unavailability, at such time, of a minimum of two members of such
Executive Committee, any three available directors shall constitute the
Executive Committee for the full conduct and management of the affairs and
business of the Company in accordance with the foregoing provisions of this
Section. This By-Law shall be subject to implementation by Resolutions of the
Board of Directors presently existing or hereafter passed from time to time for
that purpose, and any provisions of these By-Laws (other than this Section) and
any resolutions which are contrary to the provisions of this Section or to the
provisions of any such implementary Resolutions shall be suspended during such a
disaster period until it shall be determined by any interim Executive Committee
acting under this section that it shall be to the advantage of the Company to
resume the conduct and management of its affairs and business under all of the
other provisions of these By-Laws.
3
<PAGE>
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not
more than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general
supervision over the Trust Department and the investment of trust funds, in all
matters, however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee
shall be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to
appoint Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general
supervision over the Audit Division in all matters however subject to the
approval of the Board of Directors; it shall consider all matters brought to its
attention by the officer in charge of the Audit Division, review all reports of
examination of the Company made by any governmental agency or such independent
auditor employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and
wherever the majority of its members shall deem it to be proper for the
transaction of its business, and a majority of its Committee shall constitute a
quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of
not more than
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<PAGE>
five (5) members who shall be selected by the Board of Directors
from its own members who are not officers of the Company and who shall hold
office during the pleasure of the Board.
(B) The Compensation Committee shall in general
advise upon all matters of policy concerning the Company brought to its
attention by the management and from time to time review the management of the
Company, major organizational matters, including salaries and employee benefits
and specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be
called at any time by the Chairman of the Compensation Committee, the Chairman
of the Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to
attend all directors meetings and participate in the discussion of all matters
brought to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any
member of any Committee created under Article III of the By-Laws of this
Company, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absence or disqualified member.
ARTICLE IV
Officers
Section 1. The Chairman of the Board of Directors shall preside at all
meetings of the Board and shall have such further authority and powers and shall
perform such duties as the Board of Directors may from time to time confer and
direct. He shall also exercise such powers and perform such duties as may from
time to time be agreed upon between himself and the President of the Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of
5
<PAGE>
Directors shall preside at all meetings of the Board of Directors at which the
Chairman of the Board shall not be present and shall have such further authority
and powers and shall perform such duties as the Board of Directors or the
Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining to
the office of the President conferred or imposed upon him by statute or assigned
to him by the Board of Directors in the absence of the Chairman of the Board the
President shall have the powers and duties of the Chairman of the Board.
Section 4. The Chairman of the Board of Directors or the President as
designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all assets
and liabilities of the Company. He shall be custodian of and responsible for all
monies, funds and valuables of the Company and for the keeping of proper records
of the evidence of property or indebtedness and of all the transactions of the
Company. He shall have general supervision of the expenditures of the Company
and shall report to the Board of Directors at each regular meeting of the
condition of the Company, and perform such other duties as may be assigned to
him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE>
There may be one or more subordinate accounting or controller officers
however denominated, who may perform the duties of the Controller and such
duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit Officers,
however denominated, who may perform all the duties of the Auditor and such
duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank to
all Vice Presidents with such functional titles as shall be determined from time
to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the Company
shall be those usually pertaining to their respective offices, subject to the
direction of the Board of Directors, the Executive Committee, Chairman of the
Board of Directors or the President and the officer in charge of the department
or division to which they are assigned.
ARTICLE V
Stock and Stock Certificates
Section 1. Shares of stock shall be transferrable on the books of the
Company and a transfer book shall be kept in which all transfers of stock shall
be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to fix
in advance a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
7
<PAGE>
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
Seal
Section 1. The corporate seal of the Company shall be in the following
form:
Between two concentric circles the words
"Wilmington Trust Company" within the inner circle
the words "Wilmington, Delaware."
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of the Company shall be the calendar year.
ARTICLE VIII
Execution of Instruments of the Company
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
8
<PAGE>
ARTICLE IX
Compensation of Directors and Members of Committees
Section 1. Directors and associate directors of the Company, other than
salaried officers of the Company, shall be paid such reasonable honoraria or
fees for attending meetings of the Board of Directors as the Board of Directors
may from time to time determine. Directors and associate directors who serve as
members of committees, other than salaried employees of the Company, shall be
paid such reasonable honoraria or fees for services as members of committees as
the Board of Directors shall from time to time determine and directors and
associate directors may be employed by the Company for such special services as
the Board of Directors may from time to time determine and shall be paid for
such special services so performed reasonable compensation as may be determined
by the Board of Directors.
ARTICLE X
Indemnification
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred
in defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a Director officer in his
capacity as a Director or officer in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by the Director or
officer to repay all amounts advanced if it should be ultimately determined that
the Director or officer is not entitled to be indemnified under this Article or
otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses
9
<PAGE>
under applicable law.
(D) The rights conferred on any person by this
Article X shall not be exclusive of any other rights which such person may have
or hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
Amendments to the By-Laws
Section 1. These By-Laws may be altered, amended or repealed, in whole
or in part, and any new By-Law or By-Laws adopted at any regular or special
meeting of the Board of Directors by a vote of the majority of all the members
of the Board of Directors then in office.
10
<PAGE>
EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: September 30, 1998 By: /s/ Norma P. Closs
------------------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved
by any state banking authorities. Refer to your appropriate state
banking authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
------------------------------------------------- -----------------
Name of Bank City
in the State of DELAWARE , at the close of business on June 30, 1998.
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.............................................232,976
Interest-bearing balances........................................................................... 0
Held-to-maturity securities................................................................................ 195,579
Available-for-sale securities.............................................................................1,416,957
Federal funds sold and securities purchased under agreements to resell......................................150,100
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,978,706
LESS: Allowance for loan and lease losses. . . . . . 63,164
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve..............................3,915,542
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................135,596
Other real estate owned...................................................................................... 1,696
Investments in unconsolidated subsidiaries and associated companies...........................................1,066
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets............................................................................................55,759
Other assets................................................................................................103,586
Total assets..............................................................................................6,208,857
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices.......................................................................................4,568,934
Noninterest-bearing . . . . . . . . 838,655
Interest-bearing. . . . . . . . . . 3,730,279
Federal funds purchased and Securities sold under agreements to repurchase................................. 418,382
Demand notes issued to the U.S. Treasury.....................................................................99,350
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less......................................................524,000
With original maturity of more than one year.....................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 91,728
Total liabilities.........................................................................................5,745,394
EQUITY CAPITAL
Perpetual preferred stock and related surplus.....................................................................0
Common Stock....................................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................394,325
Net unrealized holding gains (losses) on available-for-sale securities........................................6,520
Total equity capital........................................................................................463,463
Total liabilities, limited-life preferred stock, and equity capital.......................................6,208,857
</TABLE>
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK>0000883502
<NAME> ARGO CAPITAL TRUST CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 8703
<INT-BEARING-DEPOSITS> 9923
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4993
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 200,879
<ALLOWANCE> 880
<TOTAL-ASSETS> 259,758
<DEPOSITS> 201,463
<SHORT-TERM> 28,388
<LIABILITIES-OTHER> 11,182
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 18,720
<TOTAL-LIABILITIES-AND-EQUITY> 259,758
<INTEREST-LOAN> 8044
<INTEREST-INVEST> 204
<INTEREST-OTHER> 313
<INTEREST-TOTAL> 8561
<INTEREST-DEPOSIT> 4583
<INTEREST-EXPENSE> 5651
<INTEREST-INCOME-NET> 2910
<LOAN-LOSSES> 235
<SECURITIES-GAINS> 318
<EXPENSE-OTHER> 10,865
<INCOME-PRETAX> 627
<INCOME-PRE-EXTRAORDINARY> 627
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 667
<EPS-PRIMARY> .34
<EPS-DILUTED> .32
<YIELD-ACTUAL> 0
<LOANS-NON> 5120
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3620
<ALLOWANCE-OPEN> 814
<CHARGE-OFFS> 19
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 880
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 880
</TABLE>
