<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IMPERIAL CREDIT CAPITAL TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6733 95-4639513
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
23550 HAWTHORNE BOULEVARD, BUILDING 1, SUITE 110
TORRANCE, CALIFORNIA 90505
(310) 373-1704
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHASE MANHATTAN BANK DELAWARE
1201 MARKET STREET
WILMINGTON, DELAWARE 19801
(302) 428-3375
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
IMPERIAL CREDIT INDUSTRIES, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 6122 95-4054791
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
23550 HAWTHORNE BOULEVARD, BUILDING 1, SUITE 110
TORRANCE, CALIFORNIA 90505
(310) 373-1704
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF CO-
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. WAYNE SNAVELY
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMPERIAL CREDIT INDUSTRIES, INC.
23550 HAWTHORNE BOULEVARD, BUILDING 1, SUITE 110
TORRANCE, CALIFORNIA 90505
(310) 373-1704
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
IMPERIAL BUSINESS CREDIT, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 6159 33-0664339
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
16935 WEST BERNARDO DRIVE, SUITE 150
SAN DIEGO, CALIFORNIA 92127
(619) 675-1070
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF CO-
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<PAGE>
IMPERIAL CREDIT ADVISORS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 6282 33-0648410
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
20371 IRVINE AVENUE
SANTA ANA HEIGHTS, CALIFORNIA 92707
(214) 474-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF CO-
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. WAYNE SNAVELY
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMPERIAL CREDIT INDUSTRIES, INC.
23550 HAWTHORNE BOULEVARD, BUILDING 1, SUITE 110
TORRANCE, CALIFORNIA 90505
(310) 373-1704
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 6159 06-1429737
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2029 CENTURY PARK EAST, SUITE 1190
LOS ANGELES, CALIFORNIA 90067
(800) 661-3622
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF CO-
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. WAYNE SNAVELY
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMPERIAL CREDIT INDUSTRIES, INC.
23550 HAWTHORNE BOULEVARD, BUILDING 1, SUITE 110
TORRANCE, CALIFORNIA 90505
(310) 373-1704
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
AUTOMARKETING NETWORK, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 6141 65-0310419
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2101 CORPORATE BOULEVARD, SUITE 316
BOCA RATON, FLORIDA 33431
(561) 997-2440
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF CO-
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN S. RASKIN
AUTO MARKETING NETWORK, INC.
2101 CORPORATE BOULEVARD, SUITE 316
BOCA RATON, FLORIDA 33431
(561) 997-2440
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
<PAGE>
COPIES TO:
THOMAS J. POLETTI, ESQ.
SUSAN B. KALMAN, ESQ.
DARREN O. BIGBY, ESQ.
FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN
9100 WILSHIRE BOULEVARD, 8TH FLOOR EAST
BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE (310) 273-1870
FACSIMILE (310) 274-8357
----------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Remarketed Par Securities,
Series B of
Imperial Credit Capital
Trust I .................. $70,000,000 100.000% $70,000,000 $21,212.12
- --------------------------------------------------------------------------------
Resettable Rate Debentures
of Imperial Credit
Industries, Inc........... * * * --(2)
- --------------------------------------------------------------------------------
Guarantee of Imperial
Credit Industries, Inc. of
Remarketed Par Securities,
Series B.................. * * * --(3)
- --------------------------------------------------------------------------------
Guarantee of Resettable
Rate Debentures, Series B. * * * --(4)
- --------------------------------------------------------------------------------
Total............................................................. $21,212.12
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2) The Resettable Rate Debentures, Series B will be exchanged for outstanding
unregistered Resettable Rate Debentures, Series A which were purchased by
Imperial Credit Capital Trust I with the proceeds of the sale of
unregistered Remarketed Par Securities, Series A. No separate
consideration will be received for the issuance of Resettable Rate
Debentures, Series B. Pursuant to Rule 457(a), no separate fee is payable
with respect to the Resettable Rate Debentures, Series B.
(3) Imperial Credit Industries, Inc. will guarantee certain payments and
distributions of the Remarketed Par Securities, Series B as set forth in
the Registration Statement. Pursuant to Rule 457(n), no filing fee is
required.
(4) Imperial Business Credit, Inc., Imperial Credit Advisors, Inc., Auto
Marketing Network, Inc. and Franchise Mortgage Acceptance Company LLC will
guarantee the payment of the Resettable Rate Debentures, Series B.
Pursuant to Rule 457(n), no filing fee is required.
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, as amended, or until the
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated June , 1997
PRELIMINARY PROSPECTUS
$70,000,000
OFFER FOR ALL OUTSTANDING REMARKETED PAR SECURITIES, SERIES A IN EXCHANGE FOR
REMARKETED PAR SECURITIES, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OF
IMPERIAL CREDIT CAPITAL TRUST I
(LIQUIDATION AMOUNT $1,000 PER SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT SET FORTH HEREIN BY
[LOGO OF IMPERIAL CREDIT INDUSTRIES, INC.]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON , UNLESS
EXTENDED
Imperial Credit Capital Trust I, a Delaware statutory business trust (the
"Trust"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal" which, together with this Prospectus, constitute the "Exchange
Offer"), to exchange an aggregate liquidation amount of up to $70,000,000 of
its Remarketed Par Securities, Series B (the "New Par Securities") of the
Trust, which have been registered under the Securities Act, for a like
liquidation amount of the issued and outstanding Remarketed Par Securities,
Series A (the "Old Par Securities") (together, the "Par Securities") of the
Trust from the registered holders thereof. Concurrently herewith, the following
exchanges will also occur: (i) Imperial Credit Industries, Inc., a California
corporation (the "Company"), will exchange its guarantee of the payment of
distributions and payments on liquidation or redemption of the Old Par
Securities (the "Old Trust Guarantee") for a like guarantee of the New Par
Securities (the "New Trust Guarantee"); (ii) the Company will exchange all of
its outstanding Resettable Rate Debentures, Series A (the "Old Debentures") for
a like amount of its Resettable Rate Debentures, Series B (the "New
Debentures"); (iii) Auto Marketing Network, Inc., a Florida corporation
("AMN"), Imperial Business Credit, Inc., a California corporation ("IBC"),
Imperial Credit Advisors, Inc., a California corporation ("ICAI"), and
Franchise Mortgage Acceptance Company LLC, a California limited liability
company ("FMAC") (collectively the "Subsidiary Guarantors") will exchange their
guarantee of the Old Debentures (the "Old Subsidiary Guarantees") for a
guarantee of the New Debentures (the "New Subsidiary Guarantees") (these
transactions, together with the exchange of the Old Par Securities for the New
Par Securities, are collectively referred to herein as the "Exchange"). The New
Trust Guarantee, the New Debentures, and the New Subsidiary Guarantees have
also been registered under the Securities Act. The Old Par Securities, the Old
Trust Guarantee, the Old Debentures and the Old Subsidiary Guarantees are
referred to collectively herein as the "Old Securities," and the New Par
Securities, New Trust Guarantee, New Debentures and the New Subsidiary
Guarantees are collectively referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to the
Old Securities, except for certain transfer restrictions relating to the Old
Securities.
The Par Securities represent undivided beneficial ownership interests in the
assets of the Trust. The Company indirectly owns all of the beneficial
ownership interests represented by common securities of the Trust (the "Common
Securities" and together with the Par Securities, the "Trust Securities"). On
June 9, 1997, the Trust issued $72,165,000 liquidation amount of Trust
Securities pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Trust exists for the sole purposes of issuing the Trust Securities
and investing the proceeds thereof in the Old Debentures, which will be
exchanged for the New Debentures (together, the "Debentures"). New Debentures
will evidence the same class of debt as the Old Debentures and will be issued
pursuant to, and entitled to the benefits of, the Indenture governing the Old
Debentures (the "Indenture").
(continued on page i)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD PAR SECURITIES IN THE EXCHANGE
OFFER AND FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE PAR
SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH
PAYMENTS OF DISTRIBUTIONS ON THE PAR SECURITIES MAY BE DEFERRED AND THE RELATED
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES 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.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
PRINCIPAL OPERATING SUBSIDIARIES AND DIVISIONS
--------------------
IMPERIAL CREDIT
INDUSTRIES, INC.
"ICII"
--------------------
------------------------------------------------------------------
100% 100% 100% 66.7% 100%
owned owned owned owned owned
- -------------- ----------- --------------- ---------------
Imperial Imperial Franchise Auto
Business Credit Mortgage Marketing
Credit, Inc. Advisors, Acceptance Co. Network, Inc.
"IBC" Inc. LLC "AMN"
"ICAI" "FMAC"
- -------------- ----------- --------------- ---------------
------------------
Southern Pacific
Thrift & Loan
Association
"SPTL"
------------------
--------------------------------------------------------
------------- ---------- ----------- ----------
Auto Consumer Income Coast
Lend Group Credit Property Business
"Auto Lend" Division Lending Credit
"CCD" Division "CBC"
"IPLD"
------------- ---------- ----------- ----------
-------------- ---------------
Auto Lending Loan
Division Participation
"ALD" and Investment
Group
"LPIG"
-------------- ---------------
<PAGE>
(Continued from cover page)
The Debentures will mature on June 15, 2032, or earlier in certain
circumstances following the occurrence of a Tax Event (as defined herein). See
"Description of Securities--Redemption--Special Event Redemption or
Distribution of Debentures; Shortening of Stated Maturity." The Par Securities
will have a preference under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the Common Securities. See "Description of Securities--Subordination of Common
Securities."
Holders of Par Securities are entitled to receive cumulative cash
distributions ("Distributions"), accumulating from the date of original
issuance, at a rate per annum equal to 10 1/4% (the "Initial Distribution
Rate") of the liquidation amount of $1,000 per Par Security from the date of
original issuance until but excluding the Remarketing Settlement Date (as
defined herein) . From and after the Remarketing Settlement Date, holders of
Par Securities will be entitled to receive Distributions at the rate per annum
that results from the implementation of the remarketing procedures described
herein (the "Remarketing") consummated on the Remarketing Settlement Date. See
"Prospectus Summary--Remarketing" and "Description of Securities--
Remarketing." The Remarketing is scheduled to occur on June 11, 2002, and the
Remarketing Settlement Date is scheduled to be June 14, 2002. Distributions
accumulate and are payable semi-annually in arrears on June 15th (June 14 in
2002) and December 15th of each year commencing December 15, 1997, and on the
Scheduled Remarketing Settlement Date (as defined herein). At all times, the
distribution rate in effect on the Par Securities (the "Applicable
Distribution Rate"), the distribution payment dates and other payment dates
for the Par Securities will correspond to the interest rate, interest payment
dates and other payment dates for the Debentures, which are the sole assets of
the Trust. See "Description of Securities--Distributions."
The Company guarantees the payment of Distributions and payments on
liquidation of the Trust or redemption of the Par Securities, but only in each
case to the extent of funds held by the Trust, as described herein. See
"Description of Guarantee." If the Company does not make interest payments on
the Debentures held by the Trust, the Trust will have insufficient funds to
pay Distributions on the Par Securities.
The Debentures are unconditionally guaranteed on a senior unsecured basis by
each of the Subsidiary Guarantors, which consist of all of the Company's
Restricted Subsidiaries other than Southern Pacific Thrift and Loan
Association ("SPTL") and the Special Purpose Subsidiaries (as defined herein)
until the Remarketing Settlement Date. The Subsidiary Guarantees will be
released on the Remarketing Settlement Date.
The Company's obligations under the Guarantee, taken together with its
obligations under the Debentures and the Indenture, including its obligation
to pay all costs, expenses and liabilities of the Trust (other than with
respect to the Par Securities), constitute a full and unconditional guarantee
of all of the Trust's obligations under the Par Securities. Until the
Remarketing Settlement Date, the Debentures and the Guarantee will be general
unsecured obligations of the Company ranking on a parity with all Indebtedness
of the Company, if any, that is not subordinated to the Debentures or the
Guarantee and senior to any Indebtedness of the Company that is subordinated
to the Debentures or the Guarantee. Until the Remarketing Settlement Date,
when the Subsidiary Guarantees will be released, the Subsidiary Guarantees
will rank on a parity with all Indebtedness of the Subsidiary Guarantors, if
any, that is not subordinated to the Subsidiary Guarantees and senior to any
Indebtedness of the Subsidiary Guarantors that is subordinated to the
Subsidiary Guarantees. Until the Remarketing Settlement Date, the Debentures
and the Guarantee will be effectively subordinated to all Indebtedness and
other liabilities of SPTL and the Special Purpose Subsidiaries, and the
Debentures, the Guarantee and the Subsidiary Guarantees will be effectively
subordinated to secured Indebtedness of the Company and the Subsidiary
Guarantors. As of March 31, 1997, on a pro forma basis after giving effect to
the sale of the Par Securities by the Trust (the "Offering") and the
application of proceeds thereof, the Debentures and the Guarantee would have
been effectively subordinated to approximately $1.3 billion of deposits and
other borrowings at SPTL and the Debentures, the Guarantee and the Subsidiary
Guarantees would have been effectively subordinated to approximately $304.9
million of secured Indebtedness of the Subsidiary Guarantors.
<PAGE>
After the Remarketing Settlement Date, the Debentures and the Guarantee will
be subordinated and junior in right of payment to all Senior Debt (as defined
herein) of the Company and will be effectively subordinated to all
Indebtedness and other liabilities of all the Subsidiaries of the Company. As
of March 31, 1997, on a pro forma basis after giving effect to the Offering,
and the application of proceeds thereof and the Remarketing, the Debentures
and the Guarantee would have been subordinated to approximately $220.2 million
of Senior Debt of the Company and would have been effectively subordinated to
approximately $1.6 billion of Indebtedness of the Company's Subsidiaries
(including approximately $1.3 billion of deposits and other borrowings at SPTL
and approximately $304.9 million of secured Indebtedness of the Company's
Subsidiaries, but not including the Trust's guarantee of $200.0 million of the
9 7/8% Senior Notes due 2007 (the "9 7/8% Senior Notes")). After the
Remarketing Settlement Date, the terms of the Debentures place no limitation
on the amount of Indebtedness that may be incurred by the Company or on the
amount of liabilities and obligations of the Company's subsidiaries. See
"Description of Debentures--Ranking."
Following the Remarketing Settlement Date, the Company has the right to
defer payment of interest on the Debentures at any time or from time to time
for a period not exceeding 10 consecutive semi-annual periods with respect to
each deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity (as defined herein) of the
Debentures. Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date (as defined herein), the
Company may elect to begin a new Extension Period subject to the requirements
set forth herein. Accordingly, there could be multiple Extension Periods of
varying lengths throughout the term of the Debentures. If interest payments on
the Debentures are so deferred, distributions on the Par Securities will also
be deferred and the Company may not, and may not permit any subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, the
Company's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities that
rank on a parity with or junior to the Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiary of the Company if such guarantee ranks on a parity with or
junior to the Debentures (other than (a) dividends or distributions in common
stock of the Company, (b) payments under the Guarantee, (c) any declaration of
a dividend in connection with the implementation of a stockholders' rights
plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto, and (d)
purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans). During an Extension Period,
interest on the Debentures will continue to accrue (and the amount of
Distributions to which holders of the Par Securities are entitled will
accumulate) at the Adjusted Distribution Rate (as defined herein), compounded
semi-annually, and holders of the Par Securities will be required to accrue
interest income for United States federal income tax purposes prior to receipt
of the cash related to such interest income. See "Description of Debentures--
Option to Extend Interest Payment Period" and "Certain United States Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
The Par Securities are subject to mandatory redemption, in whole or in part,
upon repayment of the Debentures held by the Trust at maturity or their
earlier redemption, in an amount equal to the amount of related Debentures
maturing or being redeemed and at a redemption price equal to the redemption
price of such Debentures, in each case plus accumulated and unpaid
Distributions thereon to the date of redemption.
The Debentures are redeemable at the option of the Company, in whole or in
part, at any time or from time to time through and including June 15, 2001, at
a redemption price equal to the greater of (i) 100% of the principal amount of
such Debentures or (ii) the present value of the principal amount of such
Debentures if such Debentures were redeemed on June 14, 2002 together with
scheduled payments of interest from the prepayment date to but excluding June
14, 2002 (the "Remaining Life") discounted at the Adjusted Treasury Rate (as
defined herein), plus, in each case, accrued and unpaid interest, if any, to
the date of redemption. On and after June 15, 2012, the Debentures are
redeemable prior to maturity, at the option of the Company, in whole or in
part, at a redemption price equal to 100% of the principal amount thereof,
plus a premium which will decline ratably on each June 15 thereafter to zero
on and after June 15, 2022, plus accrued and unpaid interest thereon,
ii
<PAGE>
if any, to the date of redemption. If the Exchange Offer has occurred, any Old
Par Securities which have not been exchanged for New Par Securities pursuant
to the Exchange Offer will be mandatorily redeemed by the Company on the
Remarketing Settlement Date, as described under "Description of Securities--
Redemption--Transfer Restricted Security Redemption." After the Remarketing
Settlement Date, the Debentures are also redeemable by the Company at any
time, in whole (but not in part), upon the occurrence and continuation of a
Special Event, at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption, subject to the further conditions described under "Description of
Securities--Redemption."
If, by 4:00 P.M., New York City time, on any Scheduled Remarketing Date (as
defined herein), the Remarketing Agent (as defined herein) is unable to
remarket, at a price of $1,000 per Par Security, all of the Par Securities
tendered or deemed tendered for purchase in the Remarketing on such Scheduled
Remarketing Date, then such unsold Par Securities will be exchanged on the
related Scheduled Remarketing Settlement Date with the Trust for Debentures
having an aggregate principal amount equal to the aggregate liquidation amount
of such unsold Par Securities and such Debentures shall be immediately
redeemed, unless as a result of such redemption, less than $25.0 million
principal amount of Debentures would remain outstanding. In such latter event,
the Company is required to redeem on such Scheduled Remarketing Settlement
Date all of the Debentures and the consummation of purchases and sales of Par
Securities pursuant to such Remarketing will not occur. In either such case (a
"Special Mandatory Redemption"), the redemption price of the Debentures will
be 100% of the principal amount of the Debentures so redeemed. See
"Description of the Securities--Remarketing."
Upon the occurrence and continuation of a Special Event, the Company will
have the right, if certain conditions are met, (i) to terminate the Trust and
cause the Debentures to be distributed to the holders of the Par Securities in
exchange therefor upon liquidation of the Trust, (ii) to shorten the Stated
Maturity of the Debentures, in the case of a Tax Event, to a date not earlier
than June 14, 2012, or (iii) after the Scheduled Remarketing Date, to redeem
the Debentures in whole (but not in part) within 90 days following the
occurrence of such Special Event and thereby cause a mandatory redemption of
the Par Securities. See "Description of Securities--Redemption--Special Event
Redemption or Distribution of Debentures; Shortening of Stated Maturity."
Moreover, the Debentures are also redeemable on the Remarketing Settlement
Date in connection with a Tax Opinion Redemption. See "Description of
Securities--Redemption--Tax Opinion Redemption."
In the event of the liquidation of the Trust, after satisfaction of the
claims of creditors of the Trust, if any, as provided by applicable law, the
holders of the Par Securities will be entitled to receive a liquidation amount
of $1,000 per Par Security, plus accumulated and unpaid Distributions thereon
to the date of payment, which may be in the form of a distribution of such
amount in Debentures as described above. If such liquidation amount can be
paid only in part because the Trust has insufficient assets available to pay
in full the aggregate liquidation amount, then the amounts payable directly by
the Trust on the Par Securities will be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any
such liquidation pro rata with the holders of the Par Securities, except that
if an Indenture Event of Default (as defined herein) has occurred and is
continuing, the Par Securities will have a priority over the Common
Securities. See "Description of Securities--Liquidation Distribution Upon
Dissolution."
The Trust is making the Exchange Offer of the New Par Securities in reliance
on the position of the Staff of the Division of Corporation Finance of the
Securities and Exchange Commission (the "Commission") as set forth in certain
interpretive letters addressed to third parties in other transactions relating
to the transferability of the exchanged securities following registration.
However, none of the Company, the Trust nor the Subsidiary Guarantors
(collectively, the "Registrants") has sought its own interpretive letter and
there can be no assurance that the Staff of the Division of Corporation
Finance of the Commission would make a similar determination with respect to
the Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the Staff of the Division of Corporation
Finance, and subject to the two immediately following sentences, the
Registrants believe that New Par Securities issued pursuant to this Exchange
Offer in exchange for Old Par Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than
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a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Par Securities are acquired in the ordinary course of
such holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Par Securities.
However, any holder of Old Par Securities who is an "affiliate" of the
Registrants (within the meaning of Rule 405 under the Securities Act) or who
intends to participate in the Exchange Offer for the purpose of distributing
New Par Securities, or any broker-dealer who purchased Old Par Securities from
the Trust to resell them pursuant to Rule 144A under the Securities Act ("Rule
144A") or any other available exemption under the Securities Act, (a) will not
be able to rely on the interpretations of the Staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Par Securities in the Exchange Offer and (c) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of such Old Par Securities unless such sale is made
pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Par Securities acquired for its own
account as a result of market-making or other trading activities and exchanges
such Old Par Securities for New Par Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Par Securities.
Each holder of Old Par Securities who wishes to exchange Old Par Securities
for New Par Securities in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of any of the Registrants (ii) any New Par
Securities to be received by it are being acquired in the ordinary course of
its business, (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Par Securities, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Par Securities. In
addition, the Registrants may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to the
Registrants (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act")) on behalf of whom such holder holds
the Par Securities to be exchanged in the Exchange Offer. Each broker-dealer
that receives New Par Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the New Par Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Par Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the Staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Registrants believe that
broker-dealers who acquired Old Par Securities for their own accounts, as a
result of market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery requirements with
respect to the New Par Securities received upon exchange of such Old Par
Securities with this Prospectus, as it may be amended or supplemented from
time to time. Subject to certain exceptions, the Registrants have agreed that
this Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of such
New Par Securities for a period ending one year after the Registration
Statement of which this Prospectus constitutes a part is declared effective.
Any Participating Broker-Dealer who is an "affiliate" of the Registrants
(within the meaning of Rule 405 under the Securities Act) may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--"Purpose and Effect."
Any Old Par Securities not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Declaration
(except for those rights relating to the Exchange Offer which terminate upon
consummation of the Exchange Offer). Following consummation of the Exchange
Offer, the holders of Old Par Securities will continue to be subject to all of
the existing restrictions upon transfer thereof and none of the Registrants
will have any
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further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Par Securities held by them. Any Old Par Securities which have not been
exchanged for New Par Securities pursuant to the Exchange Offer will be
mandatorily redeemed by the Company on the Remarketing Settlement Date, as
described under "Description of the Securities--Redemption--Transfer
Restricted Security Redemption." To the extent that Old Par Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Par Securities could be adversely affected. See "Risk Factors--
Consequences of a Failure to Exchange Old Par Securities."
The New Par Securities will be a new issue of securities for which there
currently is no established trading market. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Par
Securities. See "Risk Factors--Lack of Public Market."
Old Par Securities may be tendered for exchange on or prior to 5:00 p.m.,
Eastern Daylight Time, on , 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Trust (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.) Tenders of Old Par Securities
may be withdrawn at any time on or prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum liquidation amount of Old Par
Securities being tendered for exchange. However, the Exchange Offer is subject
to certain events and conditions which may be waived by the Company or the
Trust. The Company has agreed to pay all expenses of the Exchange Offer. See
"The Exchange Offer--Fees and Expenses." This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Old Par
Securities as of , 1997.
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Par Securities offered hereby. No dealer-manager is being
used in connection with this Exchange Offer. See "Use of Proceeds."
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE DOCUMENTS
INCORPORATED OR DEEMED INCORPORATED BY REFERENCE HEREIN, AND ANY INFORMATION
OR REPRESENTATIONS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SUBSIDIARY GUARANTORS OR THE TRUST
OR BY ANY AGENT, DEALER OR UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED
HEREBY IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"). All statements other
than statements of historical facts included in this Prospectus, including,
without limitation, the statements under "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and located elsewhere herein regarding industry prospects and the
Company's financial position are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in this Prospectus including, without limitation,
the forward-looking statements included in this Prospectus and under "Risk
Factors." All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
---------------
AVAILABLE INFORMATION
The Company and Franchise Mortgage Acceptance Company LLC ("FMAC") are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith file
reports and other information with the Commission. The Company, the Trust and
the Subsidiary Guarantors have filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act with
respect to the New Securities. This Prospectus does not contain all the
information, exhibits and undertakings contained in the Registration
Statement, to which reference is hereby made. Statements contained in this
Prospectus as to the terms of any contract or other document are not
necessarily complete with respect to each such contract or other document
filed as an exhibit to the Registration Statement. Reference is made to the
exhibits for a more complete description of the matter involved. Such reports,
proxy statements and other information filed by the Company and FMAC with the
Commission pursuant to the informational requirements of the Exchange Act may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, Suite 1400, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade
Center, 13th Floor, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. Documents filed by the Company can also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. The Commission also maintains a Web site (http://www.sec.gov) that
contains reports, proxy statements and other information regarding the Company
and FMAC.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not believe such financial
statements would be material to holders of the Securities because (i) all of
the voting securities of the Trust will be owned, directly or indirectly, by
the Company, a reporting company under the Exchange Act, (ii) the Trust has no
independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in its assets and investing the
proceeds thereof in Debentures issued by the Company and (iii) the obligations
of the Trust under the Securities are guaranteed by the Company to the extent
described herein. See "Relationship Among the Securities, the Debentures and
the Guarantee."
No separate financial statements of AMN, IBC or ICAI, have been included or
incorporated by reference herein. The Company does not believe that such
financial statements would be material to holders of the Par Securities
because (i) all of the common stock of AMN, IBC, and ICAI is owned by the
Company, a reporting company under the Exchange Act and (ii) each of AMN, IBC,
and ICAI fully and unconditionally guarantees the obligations of the Company
under the Debentures. See "Description of Debentures" and "Description of
Guarantee."
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INCORPORATION BY REFERENCE
The Company's annual report on Form 10-K for the fiscal year ended December
31, 1996 and the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997, filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference.
The reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Exchange Offer hereunder shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such reports and documents. Any statement contained in
this Prospectus or in a document incorporated by reference herein will be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded will not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, copies of any and all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference into the information incorporated
herein). Requests for such documents should be directed to Imperial Credit
Industries, Inc., 23550 Hawthorne Boulevard, Building One, Suite 240, Torrance
California 90505, telephone number (310) 791-8040. Attention: General Counsel.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH ABOVE. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LATER
THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors" and
the consolidated financial statements and the notes thereto appearing elsewhere
in this Prospectus. References in this Prospectus to "ICII" refer to the
Company as a separate entity from its subsidiaries. All references to the
"Company" in this Prospectus refer, unless otherwise stated or unless the
context otherwise requires, to ICII and its subsidiaries on a consolidated
basis.
THE TRUST
The Trust is a statutory business trust formed under the Delaware Business
Trust Act, as amended (the "Trust Act"), pursuant to (i) a declaration of trust
(as so amended and restated, the "Declaration") dated as of May 28, 1997,
executed by the Company, as sponsor, and the trustees of the Trust and (ii) a
certificate of trust, dated as of May 28, 1997, filed with the Secretary of
State of the State of Delaware. The Trust exists for the exclusive purpose of
(i) issuing and selling the Trust Securities representing undivided beneficial
ownership interests in the assets of the Trust, (ii) investing the gross
proceeds from such sales in the Debentures and (iii) engaging in only those
other activities necessary or incidental thereto.
All of the Common Securities of the Trust are owned by the Company. The Par
Securities rank on a parity, and payments will be made thereon pro rata, with
the Common Securities; provided, however, that if on any Distribution Date (as
defined herein) or Redemption Date (as defined herein) an Indenture Event of
Default (as defined herein) shall have occurred and be continuing, the rights
of the holders of the Common Securities to payment in respect of distributions
and payments upon liquidation, redemption and otherwise will be subordinated to
the rights of holders of the Par Securities. See "Description of Securities--
Subordination of Common Securities."
The Trust's affairs are conducted by the trustees (the "Trustees") appointed
by the Company as the owner of all of the Common Securities. The holder of the
Common Securities is entitled to appoint, remove or replace any of, or increase
or reduce the number of, the Trustees (as defined herein). The duties and
obligations of the Trustees are governed by the Declaration. As of the date of
this Prospectus, the Trust has five Trustees. Three Trustees (the "Regular
Trustees") are employees or officers of the Company. A fourth Trustee (the
"Property Trustee") of the Trust is a financial institution that is not
affiliated with the Company and has a minimum amount of combined capital and
surplus of not less than $50,000,000, which acts as property trustee and as
indenture trustee for the purposes of compliance with the provisions of Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The fifth
Trustee of the Trust is an entity having a principal place of business in, or a
natural person resident of, the State of Delaware (the "Delaware Trustee"). The
Company will pay all fees and expenses related to the Trust and the Exchange
Offer.
The Property Trustee for the Trust is The Chase Trust Company of California
and its principal corporate trust office is at 101 California Street, Suite
2725, San Francisco, California 94111. The Delaware Trustee for the Trust is
The Chase Manhattan Bank Delaware and its address in the State of Delaware is
1201 Market Street, Wilmington, Delaware 19801.
THE COMPANY
Imperial Credit Industries, Inc. (the "Company") is a diversified commercial
and consumer finance company. In 1995, the Company began to reposition its
business from originating and selling conforming residential mortgage loans to
offering higher margin loan and lease products. The Company accomplished this
repositioning through a business strategy that emphasizes: (i) opportunistic
expansion and acquisitions of businesses in niche segments of the financial
services industry, (ii) conservative and disciplined underwriting
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and credit risk management, (iii) loan and lease originations, where possible,
on a wholesale basis, (iv) securitization or sale in the secondary market of
substantially all of the Company's loans and leases, other than those held by
SPTL for investment and (v) maintaining business and financial flexibility to
take advantage of changing market conditions with respect to specific financial
services businesses.
The Company has diversified its loan and lease products by focusing on the
creation and acquisition of additional finance businesses in order to reduce
its dependency on residential mortgage lending. When acquiring new businesses
or targeting expansion opportunities, the Company seeks to retain existing
management and recruit additional experienced management to increase growth and
profitability and to reduce the risks associated with operating the newly
acquired entity. As a result, the Company has divested substantially all of its
residential mortgage lending and residential mortgage servicing businesses and
expanded its presence in other specialty finance markets. Throughout this
realignment, the Company's core business has remained consistent in that it
originates loans and leases funded primarily by warehouse lines of credit and
repurchase facilities and securitizations and whole loan sales in the secondary
market. For the three months ended March 31, 1997 and the years ended December
31, 1996 and 1995, the Company originated or acquired $275.8 million,
$2.2 billion and $3.0 billion of loans and leases, respectively. In addition,
during the three months ended March 31, 1997 and the years ended December 31,
1996 and 1995, the Company completed securitization transactions totaling
$97.9 million, $1.3 billion and $1.0 billion, respectively.
For the year ended December 31, 1996, a substantial portion of the Company's
operations were conducted through its non-conforming residential mortgage
lending subsidiary, SPFC. In June 1996, as part of the Company's repositioning,
SPFC completed an initial public offering of its common stock pursuant to which
ICII was a selling shareholder. During the fourth quarter of 1996 and the first
quarter of 1997, ICII sold additional shares of its SPFC common stock reducing
its ownership percentage to 49.4% as of March 31, 1997. As a result, commencing
with the three months ended March 31, 1997, the financial statements of SPFC
are no longer consolidated with those of ICII. As a result of this
deconsolidation, certain of the financial and operating data presented for the
three months ended March 31, 1997 and thereafter will not be comparable with
such data for periods prior to the deconsolidation. For a further description
of the effect of such deconsolidation, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General--
Deconsolidation."
The Company offers loan and lease products in the following sectors:
FRANCHISE LENDING. Franchise lending is conducted through ICII's 66.7% owned
subsidiary, Franchise Mortgage Acceptance Company LLC ("FMAC"), the assets of
which were acquired from a division of Greenwich Financial Capital Products,
Inc. in June 1995. FMAC is a full service franchise finance company which
originates loans and equipment leases to top-tier national and regional
franchisee concept operators. While FMAC historically focused on franchise
concepts such as Taco Bell, Burger King, Hardee's, Wendy's, Pizza Hut and KFC,
it is currently expanding its marketing focus to include other food and non-
food related franchise concepts. In addition, FMAC recently established
divisions to provide financing to experienced golf course operators and energy
and retail related franchisees. For the three months ended March 31, 1997, the
year ended December 31, 1996 and the six months ended December 31, 1995, FMAC
originated or acquired $133.4 million, $449.3 million and $163.5 million of
franchise loans and securitized $0, $325.1 million and $105.2 million of loans,
respectively.
BUSINESS FINANCE LENDING. Business finance lending is conducted through the
Imperial Business Credit, Inc. ("IBC") subsidiary of the Company and three
divisions of the Company's SPTL subsidiary: Coast Business Credit ("CBC") the
Loan Participation and Investment Group ("LPIG") and the Auto Lend Group ("Auto
Lend").
Coast Business Credit. CBC is an asset-based lender specializing in
lending to middle market manufacturing and high-technology businesses.
CBC's predecessor operated as a division of Coast Federal
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Bank until its acquisition by the Company in September 1995. CBC originates
loans and commitments subject to stringent underwriting and collateral
requirements. As of March 31, 1997, CBC had total loan commitments of
$589.0 million of which $318.0 million of loans were outstanding.
Imperial Business Credit. IBC leases business equipment including
copying, data processing, communication, printing and manufacturing
equipment exclusively to business users. IBC was formed in May 1995 to
combine the Company's existing leasing business with the assets acquired
from First Concord Acceptance Corporation ("FCAC"). In October 1996, IBC
expanded its business through the acquisition of substantially all of the
assets of Avco Leasing Services, Inc. and all of the assets of Avco
Financial Services of Southern California, Inc. related to its business of
originating and servicing business equipment leases. For the three months
ended March 31, 1997 and the years ended December 31, 1996 and 1995, IBC
originated $30.1 million, $87.2 million and $36.0 million of leases and
securitized $97.9 million, $87.0 million and $85.2 million of leases,
respectively.
Loan Participation and Investment Group. LPIG was formed in September
1995 to invest in and purchase syndicated commercial loan participations in
the secondary market originated by commercial banks. As of March 31, 1997,
LPIG had total loan commitments of $276.4 million of which $161.2 million
of loans were outstanding.
Auto Lend Group. Auto Lend was formed in September 1996 to finance
automobile dealership inventories. As of March 31, 1997, Auto Lend had
total loan commitments of $28.8 million of which $9.4 million of loans were
outstanding.
COMMERCIAL MORTGAGE LENDING. The Company conducts its commercial mortgage
lending operations through the Income Property Lending Division ("IPLD") of
SPTL. IPLD was formed in February 1994 to expand the Company's apartment and
commercial property lending business. The focus of IPLD's lending activities is
the small loan market (consisting of loans less than $2.5 million) for multi-
family apartments and commercial buildings. For the three months ended March
31, 1997 and the years ended December 31, 1996 and 1995, IPLD loan originations
totaled $75.9 million, $260.9 million and $160.0 million, respectively.
CONSUMER LENDING. Consumer lending is conducted through the Auto Marketing
Network, Inc. ("AMN") subsidiary of the Company and through the Auto Lending
Division ("ALD") and Consumer Credit Division ("CCD") of SPTL.
Auto Marketing Network. AMN was acquired on March 14, 1997 to finance on
a nationwide basis the purchase of new and used automobiles primarily to
sub-prime borrowers. At March 31, 1997, AMN was headquartered in Florida
and had regional offices in Texas, Virginia, Tennessee, and operations
facilities in Oklahoma. For the period from its acquisition through March
31, 1997, AMN originated $16.1 million in sub-prime auto loans.
Auto Lending Division. ALD was formed in October 1994 and lends primarily
to credit-impaired buyers of new and used automobiles who are unable to
access traditional sources of financing from banks and automobile finance
companies. ALD currently operates from three retail offices in Northern
California and expects to further expand its operations within California.
For the three months ended March 31, 1997 and the years ended December 31,
1996 and 1995, ALD originated $16.3 million, $35.0 million and
$19.0 million, respectively, of sub-prime auto loans.
Consumer Credit Division. CCD was formed in early 1994 and offers loans
to finance home improvements and consumer goods. For the three months ended
March 31, 1997 and the years ended December 31, 1996 and 1995, CCD
originated $4.0 million, $22.0 million and $14.6 million respectively, in
loans and had $42.6 million of loans outstanding as of March 31, 1997.
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ADVISORY, INVESTMENT AND OTHER ACTIVITIES. The Company conducts advisory
services through its Imperial Credit Advisors, Inc. ("ICAI") subsidiary and has
substantial investments in Southern Pacific Funding Corporation ("SPFC"), a
publicly traded non-conforming residential mortgage lender, Dabney/
Resnick/Imperial, LLC ("DRI"), an investment banking firm, and Imperial Credit
Mortgage Holdings, Inc. ("IMH"), a publicly traded real estate investment trust
engaged in mortgage finance activities.
Imperial Credit Advisors. ICAI oversees the day-to-day operations of IMH
pursuant to a management agreement more fully described in "Certain
Transactions--Relationships with IMH--Other Arrangements and Transactions
with IMH." For the three months ended March 31, 1997 and the years ended
December 31, 1996 and 1995, ICAI earned $1.6 million, $3.3 million and
$37,888 in management fees and incentive payments pursuant to the
management agreement.
Southern Pacific Funding Corporation. SPFC is a publicly traded specialty
finance company (NYSE Symbol: "SFC") which originates, purchases and sells
high yielding, single family non-conforming mortgage loans. Substantially
all of SPFC's loans are secured by first or second mortgages on owner
occupied single family residences. The majority of the originated and
purchased loans are made to borrowers who do not qualify for or are
unwilling to obtain financing from conventional mortgage sources. As of
March 31, 1997, ICII owned 10,242,500 shares of SPFC common stock,
representing 49.4% of the outstanding common stock of SPFC, which,
commencing with the three months ended March 31, 1997, is reflected on the
Company's financial statements as "Investment in Southern Pacific Funding
Corporation." ICII's investment in SPFC constituted 2.3% of the Company's
total assets and contributed 15.5% of the Company's total revenue for the
three months ended March 31, 1997.
Dabney/Resnick/Imperial. In September 1996, ICII entered into various
transactions with Dabney/Resnick, Inc., subsequently renamed
Dabney/Resnick/Imperial, LLC, and its affiliated entities. DRI engages in
investment banking activities. ICII has acquired a 1% equity interest in
DRI and has purchased a warrant to acquire an additional 48% interest
therein.
Imperial Credit Mortgage Holdings. Simultaneously with IMH's initial
public offering in November 1995, the Company contributed certain operating
assets of ICII's mortgage conduit operations and SPTL's warehouse lending
operations for 500,000 shares of IMH's common stock. IMH is a publicly
traded specialty finance company (AMEX Symbol: "IMH") which operates three
businesses: (i) long-term investment operations which invests primarily in
nonconforming residential mortgage loans and securities backed by such
loans, (ii) warehouse lending operations which provides short-term lines of
credit to originators of mortgage loans and (iii) conduit operations,
through its affiliate ICI Funding Corporation ("ICIFC"), which primarily
purchases and sells or securitizes non-conforming mortgage loans. As of
March 31, 1997, the Company owned 462,269 shares of IMH common stock,
representing 4.9% of the outstanding common stock of IMH.
ICII was incorporated in California in 1986. The Company's principal
executive offices are located at 23550 Hawthorne Boulevard, Building One, Suite
110, Torrance, California 90505 and its telephone number is (310) 373-1704.
FUNDING STRATEGY
Pending loan securitization transactions or whole loan sales, the Company has
historically funded its loan originations from warehouse lines of credit and
repurchase facilities, equity and debt offerings in the capital markets and
deposits or borrowings at SPTL.
As of March 31, 1997, the Company had warehouse lines of credit and
commitments of $500.0 million. Amounts outstanding under these facilities at
March 31, 1997 totaled $304.9 million. The Company plans to use
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existing warehouse lines to fund the business operations and securitization
programs of its subsidiaries. Business operations are conducted through
divisions of SPTL and are also financed through deposits, capital contributions
from ICII to SPTL and Federal Home Loan Bank of San Francisco ("FHLB") and
commercial borrowings. At March 31, 1997, SPTL had total deposits of
approximately $1.2 billion (excluding deposits of the Company maintained with
SPTL).
On January 23, 1997, the Company concurrently completed a tender offer (the
"Tender Offer") for its 9 3/4% Senior Notes due 2004 (the "9 3/4% Senior
Notes") and issued $200.0 million of the 9 7/8% Senior Notes for net proceeds
of approximately $193.8 million. The Company used approximately $73.2 million
of the net proceeds to consummate the Tender Offer. Approximately $20.2 million
of the 9 3/4% Senior Notes remain outstanding.
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THE EXCHANGE OFFER
On June 9, 1997, the Trust issued $70,000,000 liquidation amount of Old Par
Securities. The Old Par Securities were sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Lehman Brothers Inc. (the "Initial
Purchaser"), as a condition to their purchase of the Old Par Securities,
required that the Trust, the Company and the Subsidiary Guarantors agreed to
commence the Exchange Offer following the offering of the Old Par Securities.
The New Par Securities will evidence the same class of security as the Old Par
Securities and will be issued pursuant to, and entitled to the benefits of, the
Indenture. As used herein, the term "Par Securities" means the Old Par
Securities and the New Par Securities, treated as a single class.
SECURITIES OFFERED.... Up to $70,000,000 aggregate liquidation amount of New
Par Securities which have been registered under the
Securities Act. The terms of the New Par Securities and
the Old Par Securities are identical in all material
respects, except for certain transfer restrictions
relating to the Old Par Securities.
THE EXCHANGE OFFER.... The New Par Securities are being offered in exchange
for a like principal amount of Old Par Securities. The
issuance of the New Par Securities is intended to
satisfy obligations of the Trust, the Company and the
Subsidiary Guarantors contained in the Registration
Rights Agreement, dated June 9, 1997, among the Trust,
the Company, the Subsidiary Guarantors and the Initial
Purchaser (the "Registration Rights Agreement"). The
Company will issue, promptly after the Expiration Date,
$1,000 liquidation amount of New Par Securities in
exchange for each $1,000 liquidation amount of
outstanding Old Par Securities tendered and accepted in
connection with the Exchange Offer. For a description
of the procedures for tendering Old Par Securities, see
"The Exchange Offer--Procedures for Tendering Old Par
Securities."
TENDERS, EXPIRATION
DATE; WITHDRAWAL..... The Exchange Offer will expire at 5:00 P.M., New York
City time, on , 1997, or such later date and time to
which it is extended (as so extended, the "Expiration
Date"). A tender of Old Par Securities pursuant to the
Exchange Offer may be withdrawn at any time prior to
the Expiration Date. Any Old Par Security not accepted
for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
PROCEDURES FOR
TENDERING OLD PAR
SECURITIES........... Tendering holders of Old Par Securities must complete
and sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any
other required documents, to the Exchange Agent, either
with the Old Par Securities to be tendered or in
compliance with the specified procedures for guaranteed
delivery of Old Par Securities. Certain brokers,
dealers, commercial banks, trust companies and other
nominees may also effect tenders by book-entry
transfer. Holders of Old Par Securities registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee are urged to contact such
person promptly if they wish to tender Old Par
Securities pursuant to the Exchange Offer. See "The
Exchange Offer--Procedures for Tendering Old Par
Securities."
6
<PAGE>
Letters of Transmittal and certificates representing
Old Par Securities should not be sent to the Trust, the
Company, or the Subsidiary Guarantors. Such documents
should only be sent to the Exchange Agent. Questions
regarding how to tender and requests for information
should be directed to the Exchange Agent. See "The
Exchange Offer-Exchange Agent."
ACCRUED
DISTRIBUTIONS........ Each New Par Security will pay cumulative distributions
from June 9, 1997. Holders of the Old Par Securities
whose Old Par Securities are accepted for exchange will
not receive any accumulated distributions on such Old
Par Securities and will be deemed to have waived the
right to receive any distributions on such Old
Preferred Securities accumulated from and after June 9,
1997.
FEDERAL INCOME TAX
CONSEQUENCES......... The exchange pursuant to the Exchange Offer should not
constitute a taxable event for United States federal
income tax purposes. Holders of Old Par Securities
should review the information set forth under "Certain
United States Federal Income Tax Consequences" prior to
tendering Old Par Securities in the Exchange Offer.
USE OF PROCEEDS....... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
EXCHANGE AGENT........ The Chase Trust Company of California is serving as the
Exchange Agent in connection with the Exchange Offer.
SHELF REGISTRATION
STATEMENT............ Under certain circumstances described in the
Registration Rights Agreement, certain holders of Par
Securities (including holders who are not permitted to
participate in the Exchange Offer or who may not freely
resell New Par Securities received in the Exchange
Offer) may require the Trust, the Company and the
Subsidiary Guarantors to file, and use best efforts to
cause to become effective, a shelf registration
statement under the Securities Act, which would cover
resales of Par Securities by such holders. See "The
Exchange Offer--Purpose and Effect."
CONDITIONS TO THE
EXCHANGE OFFER....... The Exchange Offer is not conditioned on any minimum
principal amount of Old Par Securities being tendered
for exchange. The Exchange Offer is subject to certain
other customary conditions, each of which may be waived
by the Trust. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
CONSEQUENCES OF
FAILURE TO EXCHANGE.. Any Old Par Securities not tendered and accepted in the
Exchange Offer will remain outstanding and will be
entitled to all the same rights and will be subject to
the same limitations applicable thereto under the
Declaration (except for those rights which terminate
upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old
Par Securities will continue to be subject to all of
the existing restrictions upon transfer thereof and
neither the Company nor the Trust will have any further
obligation to such holders (other than under certain
limited circumstances to provide for registration under
the Securities Act of the Old Par Securities held by
them. Any Old Par Securities which have not been
7
<PAGE>
exchanged for New Par Securities pursuant to the
Exchange Offer will be mandatorily redeemed by the
Company on the Remarketing Settlement Date, as
described under "Description of the Securities--
Redemption--Transfer Restricted Security Redemption."
To the extent that Old Par Securities are tendered and
accepted in the Exchange Offer, a holder's ability to
sell untendered Old Par Securities could be adversely
affected. See "Risk Factors--Consequences of a Failure
to Exchange Old Par Securities."
THE NEW PAR SECURITIES
THE TRUST............. Imperial Credit Capital Trust I, a Delaware statutory
business trust. The sole assets of the Trust are the
Debentures.
SECURITIES OFFERED.... $70,000,000 aggregate liquidation amount of the Trust's
Remarketed Par Securities, Series B, which have been
registered under the Securities Act (liquidation amount
$1,000 per Par Security). The terms of the New Par
Securities are identical in all material respects to
the terms of the Old Par Securities, except for certain
transfer restrictions relating to the Old Par
Securities. See "The Exchange Offer--Purpose and Effect
of the Exchange Offer," "Description of Securities" and
"Description of "Old Securities."
DISTRIBUTIONS......... From the date of original issuance until but excluding
the Remarketing Settlement Date, holders of the Par
Securities will be entitled to receive Distributions at
a rate per annum equal to 10 1/4% of the liquidation
amount of $1,000 per Par Security. From and after the
Remarketing Settlement Date, holders of Par Securities
will be entitled to receive Distributions at the rate
per annum that results from the Remarketing consummated
on the Remarketing Settlement Date. See "--Remarketing"
below. The Remarketing is scheduled to occur on June
11, 2002, and the Remarketing Settlement Date is
scheduled to be June 14, 2002. See "Description of
Securities--Distributions." Distributions accumulate
and will be payable semi-annually in arrears on June
15th (June 14 in 2002) and December 15th of each year,
commencing December 15, 1997, and on each Scheduled
Remarketing Settlement Date. The distribution rate,
distribution payment dates and other payment dates for
the Par Securities will correspond to the interest
rate, interest payment dates and other payment dates on
the Debentures. See "Description of Securities."
DEBENTURES............ The Trust invested the proceeds from the issuance of
the Trust Securities in an equivalent amount of
Debentures of the Company. The Debentures will mature
on June 15, 2032, or earlier in certain circumstances,
following the occurrence of a Tax Event (the "Stated
Maturity"). See "Risk Factors--Ranking of Obligations
Under the Debentures, the Guarantee, and the Subsidiary
Guarantees" and "Description of Debentures--Ranking."
SUBSIDIARY
GUARANTEES........... Until the Remarketing Settlement Date, the Debentures
will be unconditionally guaranteed on a senior
unsecured basis by each of the Company's Restricted
Subsidiaries (as defined herein) other than SPTL and
the Special Purpose Subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantees will be
released on the Remarketing Settlement Date. See
"Description of Debentures--Subsidiary Guarantees."
8
<PAGE>
GUARANTEE............. Payment of distributions out of monies held by the
Trust, and payments on liquidation of the Trust or the
redemption of Par Securities, are guaranteed by the
Company to the extent the Trust has funds available
therefor. If the Company does not make principal or
interest payments on the Debentures, the Trust will not
have sufficient funds to make Distributions on the Par
Securities, in which event the Guarantee shall not
apply to such Distributions until the Trust has
sufficient funds available therefor. The Company's
obligations under the Guarantee, taken together with
its obligations under the Debentures and the Indenture,
including its obligation to pay all costs, expenses and
liabilities of the Trust (other than with respect to
the Par Securities), constitute a full and
unconditional guarantee of all of the Trust's
obligations under the Par Securities. See "Description
of Guarantee" and "Relationship Among the Par
Securities, the Debentures and the Guarantee."
RANKING............... Until the Remarketing Settlement Date, the Debentures
and the Guarantee will be general unsecured obligations
of the Company ranking on a parity with all
Indebtedness of the Company, if any, that is not
subordinated to the Debentures or Guarantee and senior
to any Indebtedness of the Company that is subordinated
to the Debentures or Guarantee. Until the Remarketing
Settlement Date, when the Subsidiary Guarantees will be
released, the Subsidiary Guarantees will rank on a
parity with all Indebtedness of the Subsidiary
Guarantors, if any, that is not subordinated to the
Subsidiary Guarantees and senior to any Indebtedness of
the Subsidiary Guarantors that is subordinated to the
Subsidiary Guarantees. Until the Remarketing Settlement
Date, the Debentures and the Guarantees will be
effectively subordinated to all Indebtedness and other
liabilities of SPTL and the Special Purpose
Subsidiaries, and the Debentures, the Guarantee and the
Subsidiary Guarantees will be effectively subordinated
to secured Indebtedness of the Company and the
Subsidiary Guarantors. As of March 31, 1997, on a pro
forma basis after giving effect to the Offering and the
application of proceeds thereof, the Debentures and the
Guarantee would have been effectively subordinated to
approximately $1.3 billion of deposits and other
borrowings at SPTL and the Debentures, the Guarantee
and the Subsidiary Guarantees would have been
effectively subordinated to approximately $304.9
million of secured Indebtedness of the Subsidiary
Guarantors.
After the Remarketing Settlement Date, the Debentures
and the Guarantee will be subordinated and junior in
right of payment to all Senior Debt (as defined) of the
Company, will be effectively subordinated to secured
Indebtedness of the Company and will be effectively
subordinated to all Indebtedness and other liabilities
of all of the Subsidiaries of the Company. As of March
31, 1997, on a pro forma basis after giving effect to
the Offering and the application of proceeds thereof,
and the Remarketing, the Debentures and the Guarantee
would have been subordinated to approximately $220.2
million of Senior Debt of the Company, and would have
been effectively subordinated to approximately $1.6
billion of Indebtedness of the Company's Subsidiaries
(including approximately $1.3 billion of deposits and
other borrowings at SPTL and approximately $304.9
million of secured Indebtedness of the Company's
subsidiaries but not including the Trust's guarantee of
$200.0 million of the 9 7/8% Senior Notes). See "Risk
Factors--Ranking of Obligations under the Debentures,
the Guarantee and the
9
<PAGE>
Subsidiary Guarantees." "Description of Debentures--
Ranking" and "Description of Guarantee--Status of
Guarantee."
REMARKETING......... On the Scheduled Remarketing Date, Lehman Brothers Inc.
(the "Remarketing Agent") will use commercially
reasonable efforts to remarket, at a price equal to 100%
of the liquidation amount thereof, Par Securities (or,
if the Debentures have been distributed to holders of
the Par Securities in liquidation of the Trust,
Debentures) which holders of the Par Securities have
tendered or have been deemed to have tendered for
purchase in the Remarketing. In the Remarketing, the
Remarketing Agent will determine, after canvassing the
market and considering prevailing market conditions at
the time for the Par Securities and similar securities,
the lowest distribution rate per annum, if any, on the
Par Securities, not exceeding the Maximum Adjusted
Distribution Rate (as defined herein), that will enable
it to remarket, at a price of $1,000 per Par Security,
all Par Securities tendered or deemed tendered for
purchase in the Remarketing (the "Adjusted Distribution
Rate"). Notwithstanding the foregoing, if the
Remarketing Agent is able to market some, but is unable
to remarket all, of the Par Securities tendered or
deemed tendered for purchase in the Remarketing, the
Adjusted Distribution Rate will be the highest rate, not
exceeding the Maximum Adjusted Distribution Rate,
required to remarket the Par Securities sold in the
Remarketing. See "Description of Par Securities--
Remarketing."
Each holder of Par Securities will be given the
opportunity to indicate irrevocably, no later than the
second Business Day prior to the Scheduled Remarketing
Date (the "Election Date"), whether it wishes (i) to
tender all or any portion of such Par Securities for
purchase in the Remarketing or (ii) to retain and not
have all or any portion of the Par Securities owned by
it remarketed in the Remarketing. IF ANY HOLDER OF PAR
SECURITIES FAILS TIMELY TO DELIVER A NOTICE OF ELECTION
(AS DEFINED HEREIN), THE PAR SECURITIES OWNED BY IT WILL
BE DEEMED TO BE TENDERED FOR PURCHASE IN THE
REMARKETING. See "Description of Securities--
Remarketing."
If a holder of Par Securities has indicated by timely
delivery of a Notice of Election that it wishes to
tender Par Securities held by it for purchase in the
Remarketing and such holder desires to purchase Par
Securities in the Remarketing at or above a specified
rate, such holder should separately notify the
Remarketing Agent in accordance with the procedures
specified in the Notice of Remarketing and indicate the
specified rate per annum at or above which such holder
will purchase Par Securities. In such case, the
Remarketing Agent will give priority to such holder's
purchase of a number of Par Securities equal to the
number of Par Securities tendered by such holder in the
Remarketing, provided that the Adjusted Distribution
Rate is not less than the specified rate.
If, by 4:00 P.M., New York City time, on any Scheduled
Remarketing Date, the Remarketing Agent is unable to
remarket, at a price of $1,000 per Par Security, all of
the Par Securities tendered or deemed tendered for
purchase in the Remarketing on such Scheduled
Remarketing Date, then such unsold Par Securities will
be exchanged on the related Scheduled Remarketing
Settlement Date with the Trust for Debentures having an
aggregate principal amount equal to the aggregate
liquidation amount of such unsold Par Securities and
such Debentures shall be immediately redeemed, unless as
a result of such redemption, less than $25.0 million
principal amount of Debentures would remain outstanding.
In such latter event, the Company is required to redeem
on such Scheduled Remarketing
10
<PAGE>
Settlement Date all of the Debentures and the
consummation of purchases and sales of Par Securities
pursuant to such Remarketing will not occur. In either
such case, the redemption price of the Debentures will
be 100% of the principal amount of the Debentures so
redeemed.
AS A RESULT OF SUCH SPECIAL MANDATORY REDEMPTION, ALL
PAR SECURITIES TENDERED OR DEEMED TENDERED FOR PURCHASE
IN THE REMARKETING WILL BE PURCHASED IN THE REMARKETING,
OR MANDATORILY REDEEMED, ON THE REMARKETING SETTLEMENT
DATE.
RIGHT TO DEFER
INTEREST........... Following the Remarketing Settlement Date, the Company
has the right to defer payment of interest on the
Debentures by extending the interest payment period on
the Debentures, from time to time, for up to 10
consecutive semi-annual periods. There could be multiple
Extension Periods of varying lengths throughout the term
of the Debentures. If interest payments on the
Debentures are so deferred, distributions on the Par
Securities will also be deferred for an equivalent
period and the Company may not, and may not permit any
subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to,
the Company's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities that rank on a
parity with or junior to the Debentures or make any
guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the
Company if such guarantee ranks on a parity with or
junior to the Debentures (other than (a) dividends or
distributions in common stock of the Company, (b)
payments under the Guarantee, (c) any declaration of a
dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (d)
purchases of common stock related to the issuance of
common stock or rights under any of the Company's
benefit plans). During an Extension Period, interest on
the Debentures will continue to accrue (and the amount
of Distributions to which holders of the Par Securities
are entitled will accumulate) at the Adjusted
Distribution Rate, compounded semi-annually. During an
Extension Period, holders of Par Securities will be
required to include the stated interest on their pro
rata share of Debentures in their gross income as
original issue discount ("OID") even though the cash
payments attributable thereto have not been made. See
"Description of Debentures--Option to Extend Interest
Payment Period" and "Certain United States Federal
Income Tax Consequences--Interest Income and Original
Issue Discount."
REDEMPTION.......... The Trust Securities will be redeemed upon repayment of
the Debentures held by the Trust at maturity or their
earlier redemption. The Debentures are redeemable at the
option of the Company, in whole or in part, at any time
or from time to time prior to June 15, 2001, at a
redemption price equal to the greater of (i) 100% of the
principal amount of such Debentures and (ii) the present
value of the principal amount of such Debentures as if
redeemed on June 14, 2002, together with scheduled
prepayments of interest from the prepayment date to but
excluding June 14, 2002, discounted at the Adjusted
Treasury Rate, plus, in each case, accrued and unpaid
interest, if any, to the date of redemption. On and
after June 15, 2012, the Debentures are redeemable by
the Company, in whole or in part, at a redemption price
equal to 100% of the aggregate principal amount thereof
plus a premium which will decline ratably on each June
15 thereafter to zero on and after June 15, 2022, plus
accrued and unpaid interest, if any, to the date of
redemption. In
11
<PAGE>
addition, the Debentures are redeemable at the option of
the Company at any time after the Remarketing Settlement
Date, in whole, upon the occurrence and continuation of
a Special Event, as described under "--Special Event"
below, at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid
interest to the date of redemption.
If all Par Securities tendered or deemed tendered in the
Remarketing are not remarketed at a price of $1,000 per
Par Security, Debentures (and, thus, Par Securities) are
subject to redemption as part of a Special Mandatory
Redemption. As a result, investors who do not validly
elect to hold the Par Securities following the
Remarketing Settlement Date are entitled to receive, on
the Remarketing Settlement Date, an amount equal to 100%
of the liquidation amount of such Par Securities. If the
Exchange Offer has occurred, any Par Securities which
have not been exchanged for New Par Securities pursuant
to such Exchange Offer must be redeemed by the Company
on the Remarketing Settlement Date, as described under
"Description of Securities--Redemption--Transfer
Restricted Security Redemption" and "--Registration
Rights."
SPECIAL EVENT....... Upon the occurrence and continuation of a Special Event
(including a Tax Event), the Company will have the
right, if certain conditions are met, (i) to terminate
the Trust and cause the Debentures to be distributed to
the holders of the Trust Securities in exchange therefor
upon liquidation of the Trust, (ii) to shorten the
stated maturity of the Debentures, in the case of a Tax
Event, to a date not earlier than June 14, 2012, or
(iii) after the Scheduled Remarketing Date, to redeem
the Debentures in whole (but not in part) within 90 days
following the occurrence of such Special Event and
thereby cause a mandatory redemption of the Trust
Securities. See "Description of Securities--Redemption--
Special Event Redemption or Distribution of Debentures;
Shortening of Stated Maturity." Moreover, the Debentures
are redeemable on the Remarketing Settlement Date in
connection with a Tax Opinion Redemption. See
"Description of Securities--Redemption--Tax Opinion
Redemption."
LIQUIDATION OF THE
TRUST.............. In the event of the liquidation of the Trust, after
satisfaction of the claims of creditors of the Trust, if
any, as provided by applicable law, the holders of the
Trust Securities will be entitled to receive a
liquidation amount of $1,000 per Trust Security plus
accumulated and unpaid Distributions thereon to the date
of payment, which may be in the form of a distribution
of such amount in Debentures as described above. If such
liquidation amount can be paid only in part because the
Trust has insufficient assets available to pay in full
the aggregate liquidation amount, then the amounts
payable directly by the Trust on the Trust Securities
shall be paid on a pro rata basis. The holder of the
Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with
the holders of the Par Securities, except that if an
Indenture Event of Default has occurred and is
continuing, the Par Securities shall have a priority
over the Common Securities. See "Description of
Securities--Liquidation Distribution Upon Dissolution."
12
<PAGE>
An explanation of the significance of ratings may be
obtained from S&P and Moody's. Generally, rating
agencies base their ratings on such material and
information, and such of their own investigations,
studies and assumptions, as they deem appropriate. A
credit rating of a security is not a recommendation to
buy, sell or hold securities. There is no assurance
that any rating will apply for any given period of time
or that a rating may not be adjusted or withdrawn.
ABSENCE OF MARKET FOR
THE NEW PAR
SECURITIES........... The New Par Securities will be a new issue of
securities for which there currently is no established
trading market. Accordingly, there can be no assurance
as to the development or liquidity of any market for
the New Par Securities. The Company currently is
obligated to apply for listing of the New Par
Securities, upon request of the holders of a majority
in aggregate liquidation amount of the New Par
Securities, provided that the New Par Securities
qualify for listing.
----------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE PAR SECURITIES, SEE "RISK FACTORS" BEGINNING ON
PAGE .
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary historical and unaudited pro forma
consolidated financial and other data for the periods indicated. The following
summary historical balance sheet data and income statement data are derived
from the consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, which have been audited by KPMG Peat Marwick LLP,
independent auditors. The report of KPMG Peat Marwick LLP covering the
December 31, 1996 consolidated financial statements contains an explanatory
paragraph regarding the adoption of Statement of Financial Accounting
Standards No. 122 "Accounting for Mortgage Servicing Rights" ("SFAS 122") in
1995. This data should be read in conjunction with the consolidated financial
statements and related notes for these periods and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The selected consolidated balance sheet data as
of December 31, 1994, 1993 and 1992 and the income statement data for the
years ended December 31, 1993 and 1992 are derived from audited consolidated
financial statements of the Company, which have been audited by KPMG Peat
Marwick LLP, but are not included in this Prospectus. The balance sheet data
as of March 31, 1997, and income statement data for the three-month periods
ended March 31, 1997 and 1996 have been derived from the unaudited
consolidated financial statements of the Company and, in the opinion of
management, include all adjustments (consisting of normal, recurring and other
adjustments) necessary for a fair presentation of such information. The
unaudited consolidated pro forma income statement data and other operating
data for the three month period ended March 31, 1997 give effect to the
application of the net proceeds of $67.3 million from the Offering and the
acquisition by the Company of all of the capital stock of AMN as if they had
occurred at the beginning of such period (the "Pro Forma Transactions"). The
unaudited consolidated pro forma balance sheet data gives effect to the
Offering as if it had occurred on March 31, 1997. The pro forma consolidated
financial data are unaudited and do not purport to represent what the
Company's financial position or results of operations would actually have been
if the Pro Forma Transactions, as applicable, had occurred on the dates
specified and do not project the Company's financial position or results of
operations for any future periods. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ -----------------------------------------------------------
PRO FORMA
1997(1) 1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gain on sale of loans
and leases............ $8,758 $ 8,666 $ 21,711 $ 88,156 $ 39,557 $ 8,628 $ 18,149 $ 20,606
Net interest income
after provision
for loan losses....... 15,499 17,938 11,237 62,662 28,304 15,959 21,423 13,264
Gains on sale of SPFC
stock................. 4,306 4,306 -- 82,690 -- -- -- --
Equity in net income of
SPFC.................. 6,253 6,253 -- -- -- -- -- --
Other income........... 3,878 3,132 11,277 23,425 17,448 48,217 31,854 13,222
------ --------- --------- --------- ---------- --------- ---------- --------
Total revenue........ 38,694 40,295 44,225 256,933 85,309 72,804 71,426 47,092
Personnel expense...... 12,849 10,671 12,435 48,355 34,053 33,477 24,520 15,678
Other expenses......... 12,662 10,463 14,733 50,649 27,127 28,037 15,433 8,190
------ --------- --------- --------- ---------- --------- ---------- --------
Total expenses....... 25,511 21,134 27,168 99,049 61,180 61,514 39,953 23,868
------ --------- --------- --------- ---------- --------- ---------- --------
Income before income
taxes............... 13,183 19,161 17,057 157,884 24,129 11,290 31,473 23,224
Income taxes........... 5,587 7,976 6,901 69,874 10,144 4,685 13,055 9,583
Minority interest in
income (loss) of
consolidated
subsidiaries.......... 153 153 1,540 12,026 (208) -- -- --
------ --------- --------- --------- ---------- --------- ---------- --------
Income before
extraordinary item.. 7,443 11,032 8,616 75,984 14,193 6,605 18,418 13,641
Extraordinary item-
repurchase of 9 3/4%
Senior Notes due 2004,
net of income taxes... (3,995) (3,995) -- -- -- 919 -- --
------ --------- --------- --------- ---------- --------- ---------- --------
Net income............. $3,448 $ 7,037 $ 8,616 $ 75,984 $ 14,193 $ 7,524 $ 18,418 $ 13,641
====== ========= ========= ========= ========== ========= ========== ========
CASH FLOW DATA:
Net cash provided by
(used in) operating
activities............ $ 357,524 $ 284,377 $ 199,407 $ (668,666) $ 961,579 $ (903,050) $(78,865)
Net cash (used in)
provided by investing
activities............ (45,968) 295,771 (51,117) (364,076) (796,638) (145,701) 21,302
Net cash (used in)
provided by financing
activities............ (356,710) (584,368) (113,209) 1,047,004 (177,314) 1,066,584 70,216
--------- --------- --------- ---------- --------- ---------- --------
Net change in cash... $ (45,154) $ (4,220) $ 35,081 $ 14,262 $ (12,373) $ 17,833 $ 12,653
========= ========= ========= ========== ========= ========== ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------
PRO FORMA
1997(1) 1997 1996 1996 1995 1994 1993 1992
--------- ----- ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND FINANCIAL
DATA(2):
Loans originated:
ICII.................. $ -- $ -- $ 297 $ 310 $1,816 $4,260 $6,019 $3,383
SPTL.................. 96 96 66 531 724 NA(3) NA(3) NA(3)
SPFC(4)............... -- -- 85 790 288 190 -- --
FMAC.................. 134 134 101 450 164 -- -- --
IBC................... 30 30 14 87 36 -- -- --
AMN................... 67 16 -- -- -- -- -- --
----- ----- ------ ------ ------ ------ ------ ------
Total................ $ 327 $ 276 $563 $2,168 $3,028 $4,450 $6,019 $3,383
===== ===== ====== ====== ====== ====== ====== ======
Loans securitized:
ICII.................. $ -- $ -- $ -- $ -- $ 177 $ -- $ -- $ --
SPTL.................. -- -- -- 277 511 46 -- --
SPFC(4)............... -- -- 103 657 165 -- -- --
FMAC.................. -- -- -- 325 105 -- -- --
IBC................... 98 98 19 87 85 -- -- --
AMN................... -- -- -- -- -- -- -- --
----- ----- ------ ------ ------ ------ ------ ------
Total................ $ 98 $ 98 $ 122 $1,346 $1,043 $ 46 $ -- $ --
===== ===== ====== ====== ====== ====== ====== ======
Outstanding balance of
loans and leases
securitized (at the
end of period)(5)..... $ 373 $ 373 $1,117 $2,118 $1,047 $ 45 $ -- $ --
SELECTED RATIOS:
Ratio of earnings to
fixed charges(6)...... 1.4x 1.7x 1.5x 2.2x 1.3x 1.2x 2.1x 2.2x
Pre-tax interest
coverage ratio(7)..... 3.1 5.2 8.4 17.0 3.9 2.4 -- --
Ratio of indebtedness
to total
capitalization (at
end of period)(8)..... 53.9% 47.0% 46.1% 40.5% 46.1% 51.4% -- % -- %
Average equity to
average assets........ 12.02 12.45 3.78 7.27 4.72 4.86 6.71 7.71
Return on average
common equity......... 5.66 11.55 39.86 45.55 17.59 10.57 31.76 37.75
Return on average
assets................ 0.68 1.44 1.51 3.31 0.82 0.51 2.13 2.91
SPTL REGULATORY CAPITAL
RATIOS (AT END OF
PERIOD):
California leverage
limitation(9)......... 11.58% 11.58% 11.63% 13.50% 11.58% 11.50% 7.29% 8.73%
Risk-based--Tier 1..... 8.57 8.57 8.83 9.71 11.72 14.21 10.27 14.94
Risk-based--Total...... 12.13 12.13 9.91 10.87 13.18 15.13 10.73 15.74
FDIC Leverage Ratio.... 8.61 8.61 8.02 9.35 8.04 8.08 9.47 8.78
ASSET QUALITY RATIOS (AT
END OF PERIOD):
Non-performing assets
as a percentage of
total assets.......... 3.08% 3.19% 2.32% 2.64% 1.55% 1.16% 0.64% 0.79%
Allowance for loan
losses as a
percentage of non-
performing loans...... 44.47 44.47 34.63 38.94 44.30 53.83 65.91 79.10
Net charge-offs as a
percentage of average
total loans held for
investment............ 0.67 0.67 0.90 0.94 0.36 0.23 0.89 0.18
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
--------------------- ----------------------------------------------------
PRO FORMA
1997(1) 1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................... $ 96,418 $ 29,093 $ 74,247 $ 39,166 $ 24,904 $ 37,277 $ 19,444
Interest bearing
deposits.............. 88,670 88,670 3,369 267,776 10,600 90,000 30,000
Loans held for sale ... 700,110 700,110 940,096 1,341,810 263,807 1,238,006 328,575
Loans held for
investment, net....... 1,013,359 1,013,359 1,068,599 668,771 1,029,556 154,595 84,843
Securitization related
assets................ 33,000 33,000 159,707 58,272 4,558 529 982
Total assets........... 2,166,241 2,096,241 2,470,639 2,510,635 1,420,409 1,572,663 479,430
Deposits............... $1,161,357 $1,161,357 $1,069,184 $1,092,989 $ 934,621 $1,001,468 $422,551
Borrowings from FHLB... 79,500 79,500 140,500 190,000 295,000 320,000 --
Other borrowings....... 304,902 304,902 694,352 987,810 -- 147,611 --
Senior notes(10)....... 219,782 219,782 88,209 80,472 80,344 -- --
Debentures(11)......... 70,000 -- -- -- -- -- --
Total liabilities...... 1,918,600 1,848,600 2,231,131 2,416,533 1,344,536 1,504,411 429,652
Shareholders' equity... 247,641 247,641 239,508 94,102 75,873 68,253 49,778
</TABLE>
- --------
(1) Income statement and related data and ratios for the three months ended
March 31, 1997 reflect the Pro Forma Transactions and balance sheet and
related data and ratios reflect the Offering as of March 31, 1997 as
follows:
(a) The sale of the Debentures generated estimated net proceeds of $67.3
million. As a result, cash and total assets were increased by $67.3
million and $70.0 million, respectively, and the Debentures and total
liabilities were increased by $70.0 million.
(b) The acquisition of AMN and the issuance of the Debentures are reflected
as if they occurred on January 1, 1997. Interest expense was increased
on a pro forma basis by $1.8 million reflecting interest on the
Debentures at 10.25%. Results of operations for AMN are reflected for
the period from January 1 to March 31, 1997. Earnings on investment of
the proceeds of the issuance of the Debentures have not been included.
Assuming such proceeds had been invested at 5% at January 1, 1997, pro
forma income for the three months ended March 31, 1997 before
extraordinary item would have been $7.9 million.
(2) Does not include loans originated or securitized by ICIFC. Commencing
with the three months ended March 31, 1997, the financial statements of
ICIFC are no longer consolidated with those of ICII.
(3) Information not available.
(4) Commencing with the three months ended March 31, 1997, the financial
statements of SPFC are no longer consolidated with those of ICII.
(5) Represents outstanding balance of loans and leases securitized, excluding
loans held for sale and investment.
(6) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes and extraordinary item,
plus fixed charges. Fixed charges represent interest expense on all
indebtedness and the interest factor of rent expense estimated to be one-
third of occupancy expense.
(7) Ratio of (i) the sum of income before income taxes and extraordinary item
plus interest expense on non-funding indebtedness to (ii) interest
expense on non-funding indebtedness.
(8) Ratio of (i) non-funding indebtedness to (ii) non-funding indebtedness
plus total shareholders' equity.
(9) Ratio of (i) SPTL's total shareholders' equity to (ii) total deposits.
(10) At March 31, 1997, represents $200.0 million of the 9 7/8% Senior Notes
and approximately $20.2 million of the 9 3/4% Senior Notes not tendered
pursuant to the Tender Offer , net of discount of $392,000 related to the
9 3/4% Senior Notes.
(11) Represents Guaranteed Preferred Beneficial Interests in the Debentures.
16
<PAGE>
RISK FACTORS
Prospective purchasers of the Par Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters. To the extent any of the information contained
in this Prospectus constitutes a "forward-looking statement" as defined in
Section 27A(i)(1) of the Securities Act, the risk factors set forth below are
cautionary statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking statement. See
"Special Note Regarding Forward-Looking Statements."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE OUTSTANDING INDEBTEDNESS
The Company is highly leveraged. At March 31, 1997, on a pro forma basis
after giving effect to the Offering, the Company's total Indebtedness
(excluding deposits and borrowings at SPTL) was $595.1 million and its total
shareholders' equity was $247.6 million.
The Company's ability to make scheduled payments of the principal of, or to
pay the interest on, or to refinance its Indebtedness (including the
Debentures) will depend upon its future performance which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors beyond its control. Management believes that,
based on current levels of operations, cash flows from operations and
available borrowings will enable the Company to fund its liquidity and capital
expenditure requirements for the foreseeable future, including scheduled
payments of interest on the Debentures and payments of interest and principal
on the Company's other Indebtedness. There can be no assurance, however, that
the Company's business will generate sufficient cash flow from operations or
that future borrowings will be available in an amount sufficient to enable the
Company to service its Indebtedness, including the Debentures, or to make
anticipated capital expenditures. It may be necessary for the Company to
refinance all or a portion of the principal of the Debentures on or prior to
maturity, under certain circumstances, but there can be no assurance that the
Company will be able to effect such refinancing on commercially reasonable
terms or at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The degree to which the Company is leveraged could have material adverse
effects on the Company and the holders of Debentures, including, but not
limited to, the following: (i) the Company's ability to obtain additional
financing in the future for acquisitions, working capital, capital
expenditures, and general corporate or other purposes may be impaired, (ii) a
substantial portion of the Company's cash flow from operations will be
dedicated to debt service and will be unavailable for other purposes, (iii)
certain of the Company's borrowings may be at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates and (iv) the Company will be subject to a variety of
restrictive covenants, the failure to comply with which could result in events
of default that, if not cured or waived, could restrict the Company's ability
to make payments of principal of, and interest and Additional Interest (as
defined herein), if any, on the Debentures. See "Business--Funding and
Securitizations" and "Description of Debentures."
DIVERSIFICATION STRATEGY
Beginning in 1995, the Company diversified away from the conforming
residential mortgage lending business, the Company's traditional focus, and
expanded into other commercial and consumer finance lending businesses. In
connection with the Company's diversification strategy, the Company sold
substantially all of its conforming residential mortgage loan origination
business. In addition, the Company sold or subcontracted out substantially all
of the servicing with respect to such loans. The Company significantly
expanded several existing businesses and commenced several new businesses,
including equipment leasing, non-conforming residential mortgage lending,
franchise lending, asset-based commercial lending and loan participations.
Furthermore, in March 1997, the Company reduced its percentage ownership of
SPFC, its former non-conforming residential mortgage subsidiary, to 49.4% as
of March 31, 1997. Prior to the expansion and commencement of these new
businesses, the Company had little or no experience in operating certain of
such businesses. Although the Company believes that these new and expanded
businesses are currently managed by individuals who have
17
<PAGE>
significant experience in the applicable areas, there can be no assurance that
the Company's efforts to develop as a diversified commercial and consumer
finance company will prove successful or that it can manage these new and
expanded businesses successfully.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is highly dependent upon the members
of the senior management of the Company. The loss of the services of one or
more of them could have a material adverse effect upon the Company's business
and development. In addition, the Company conducts its business through a
number of subsidiary companies operated by individual management teams. In
each subsidiary, there are key personnel, the loss of whom may have a
temporary adverse effect on that subsidiary. The Company believes that its
ability to successfully manage the growth of its subsidiaries as well as the
Company itself is due in part to its proven ability to retain and attract
highly skilled and qualified personnel. Although the Company has established
incentive compensation plans and entered into employment agreements to retain
key executives, no assurances can be made that key personnel will not depart,
or that their departure would not have adverse consequences to the operations
of the Company or any of its subsidiaries.
VOLATILITY OF SECURITIZATION RELATED ASSETS
As a fundamental part of its business and financing strategy, the Company
sells substantially all of its loans and leases, except loans held for
investment by SPTL, through securitization. In a securitization, the Company
sells loans or leases that it has originated or purchased to a trust or
special purpose entity for a cash purchase price and an interest in the loans
or leases securitized. The cash price is raised through an offering of pass-
through certificates by the trust or special purpose entity. Following the
securitization, the purchasers of the pass-through certificates receive the
principal collected and the investor pass-through interest rate on the
principal balance of the loans or leases, while the Company receives the
excess cash flows generated by the securitized assets. The interests
representing the excess cash flows are classified either as trading securities
or retained interest in loan and lease securitizations.
Each loan or lease securitization has specific overcollateralization
requirements which must be met before the Company receives cash flows due. As
the securitized assets produce excess cash flows, they are initially used to
pay down the balance of the pass-through certificates until such time as the
ratio of securitized assets to pass-through certificates reaches the
overcollateralization requirement specified in each securitization. This
overcollateralization amount is carried on the balance sheet as retained
interest in loan and lease securitizations. After the overcollateralization
requirement and the other requirements specified in the pooling and servicing
agreement have been met, the Company receives the remaining excess cash flows
and a portion of the retained interest on a monthly basis.
The Company's securitization related assets and trading securities currently
include interest-only securities and overcollateralization amounts and may in
the future include principal-only and subordinated securities. Realization of
these securitization related assets and trading securities in cash is subject
to the timing and ultimate realization of cash flows associated therewith,
which is in turn effected by the prepayment and loss characteristics of the
underlying loans and leases. The Company estimates future cash flows from
these securitization related assets and trading securities and values such
securities utilizing assumptions that it believes are consistent with those
that would be utilized by an unaffiliated third party purchaser. If actual
experience differs from the assumptions used in the determination of the asset
value, future cash flows and earnings could be negatively impacted, and the
Company could be required to reduce the value of its securitization related
assets and trading securities. The value of such securities can therefore
fluctuate widely and may be extremely sensitive to changes in discount rates,
projected mortgage loan prepayments and loss assumptions. To the Company's
knowledge, the market for the sale of the securitization related assets and
trading securities is limited. No assurance can be given that securitization
related assets and trading securities could be sold at their reported value,
if at all.
18
<PAGE>
LIQUIDITY NEEDS AND DEPENDENCE ON SECURITIZATION AND WAREHOUSE FACILITIES TO
FINANCE LENDING ACTIVITIES
The Company has an ongoing need for capital to finance its lending
activities. This need is expected to increase as the volume of the Company's
loan and lease originations and acquisitions increases. The Company's primary
cash requirements include the funding of (i) loan and lease originations and
acquisitions pending their pooling and sale, (ii) points and expenses paid in
connection with the acquisition of wholesale loans, (iii) fees and expenses
incurred in connection with its securitization programs, (iv)
overcollateralization or reserve account requirements in connection with loans
and leases pooled and securitized, (v) ongoing administrative and other
operating expenses and (vi) the costs of the Company's warehouse credit and
repurchase facilities with certain financial institutions. The Company has
financed its activities through warehouse lines of credit and repurchase
facilities from financial institutions, equity and debt offerings in the
capital markets, deposits or borrowings at SPTL and securitizations. The
Company believes that such sources, together with the net proceeds of the
Offering, will be sufficient to fund the Company's liquidity requirements for
the foreseeable future.
The Company currently pools and sells through securitization substantially
all of the loans or leases which it originates or purchases, other than loans
held by SPTL for investment. Accordingly, adverse changes in the
securitization market could impair the Company's ability to originate,
purchase and sell loans or leases on a favorable or timely basis. Any such
impairment could have a material adverse effect upon the Company's business
and results of operations. In addition, the securitization market for many
types of assets is relatively undeveloped and may be more susceptible to
market fluctuations or other adverse changes than more developed capital
markets. Finally, any delay in the securitization of a loan or lease pool
could cause the Company's earnings to fluctuate from quarter to quarter.
In a securitization, the Company recognizes a gain on sale of the loans or
leases securitized upon the closing of the securitization but does not receive
the cash representing such gain until it receives the excess cash flows which
are payable over the actual life of the loans or leases securitized. As a
result, such transactions may not generate cash flows to the Company for an
extended period.
In addition, in order to gain access to the secondary market for loans and
leases, the Company has historically relied on monoline insurance companies to
provide guarantees on outstanding senior interests in the special purpose
entities to which such loans and leases are sold to enable it to obtain
investment grade ratings for such interests. In addition, the Company also
relies on overcollateralization to support outstanding senior interests.
However, any unwillingness of the monoline insurance companies to guarantee
the senior interests in the Company's loan or lease pools could have a
material adverse effect on the Company's financial position and results of
operations.
The Company is dependent upon its ability to access warehouse credit and
repurchase facilities in addition to its ability to continue to pool and sell
loans and leases in the secondary market, in order to fund new originations
and purchases. The Company has warehouse lines of credit and repurchase
facilities under which it had available an aggregate of approximately $500.0
million in financing at March 31, 1997. See "Business--Other Activities."
These credit and repurchase facilities expire between April 10, 1997 and
December 31, 1997. The Company expects to be able to maintain existing
warehouse lines of credit and repurchase facilities (or to obtain replacement
or additional financing) as current arrangements expire or become fully
utilized; however, there can be no assurance that such financing will be
obtainable on favorable terms. To the extent that the Company is unable to
arrange new warehouse lines of credit and repurchase facilities, the Company
may have to curtail its loan origination and purchasing activities, which
could have a material adverse effect on the Company's operations and financial
position. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
19
<PAGE>
ECONOMIC CONDITIONS
General
The risks associated with the Company's businesses become more acute in any
economic slowdown or recession. Periods of economic slowdown or recession may
be accompanied by decreased demand for consumer and commercial credit and
declining real estate and other asset values. In the secured lending business,
any material decline in collateral values increases the loan-to-value ratios
of loans previously made and leases previously entered into by the Company,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of a default. Delinquencies, foreclosures and losses generally
increase during economic slowdowns or recessions. In addition, in an economic
slowdown or recession, the Company's servicing costs will increase. Any
sustained period of increased delinquencies, foreclosures, losses or increased
costs could adversely affect the Company's ability to sell loans or leases
through securitization and could increase the cost of selling loans or leases
through securitization, which in either case could adversely affect the
Company's financial condition and results of operations.
Interest Rates
The Company's profitability may be directly affected by the level of and
fluctuations in interest rates because they affect the Company's ability to
earn a spread between interest received on its loans and leases and the costs
of its liabilities. While the Company monitors the interest rate environment
and employs a hedging strategy designed to reduce the impact of changes in
interest rates, there can be no assurance that the profitability of the
Company would not be adversely affected during any period of changes in
interest rates. In addition, an increase in interest rates may decrease the
demand for consumer or commercial credit. A substantial and sustained increase
in interest rates could adversely affect the Company's ability to purchase or
originate loans or leases, reduce the average size of loans and leases
underwritten by the Company and reduce the gains recognized by the Company
upon their securitization and sale. A significant decline in interest rates
could decrease the size of the Company's securitized loan and lease portfolio
by increasing the level of loan and lease prepayments which shortens the
average life and impairs the value of the securitization related assets.
Fluctuating interest rates also may affect the net income earned by the
Company resulting from the difference between the yield to the Company on
loans and leases held pending sale and funds borrowed by the Company to
finance the origination or purchase of such loans and leases. In addition,
inverse or flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans or leases pooled and sold by
the Company are priced based on longer-term interest rates as compared to the
senior interests in the related trusts.
To reduce risks associated with its originations and purchases of loans and
leases, the Company may enter into transactions designed to hedge interest
rate risks, including buying and selling of futures and forwards. The nature
and quantity of the hedging transactions is determined by management based on
various factors, including market conditions and the expected volume of
mortgage loan and equipment lease originations and purchases. No assurance can
be given that such hedging transactions will offset the risks of changes in
interest rates, and it is possible that there will be periods during which the
Company could incur losses after accounting for or resulting from its hedging
activities.
CONTINGENT RISKS
Although the Company sells a majority of the loans and leases which it
originates or purchases (other than those held for investment by SPTL), the
Company retains some degree of risk on substantially all loans and leases
sold. During the period of time that loans or leases are held pending sale or
securitization, the Company is subject to various risks associated with the
lending business, including the risk of borrower default, the risk of
foreclosure and the risk that an increase in interest rates would result in a
decline in the value of such loans or leases. The documents governing the
Company's securitization programs generally require (i) the Company to
establish deposit accounts or (ii) the related trust or special purpose entity
to build overcollateralization levels by retaining excess cash flows or
applying excess cash flows to reduce the principal balances of the senior
interests
20
<PAGE>
issued by the trust or special purpose entity. These actions serve as credit
enhancement for the related trust or special purpose entity and are therefore
available to fund losses realized on loans or leases held by such trust or
special purpose entity. At March 31, 1997 and December 31, 1996, credit
enhancement amounts provided by the Company (in the form of deposit accounts
and overcollateralization levels) aggregated approximately $33.0 million and
$49.5 million, respectively. The Company is subject to the risks of default
and foreclosure following the sale of the loans or leases sold through
securitizations. In addition, documents governing the Company's securitization
programs require the Company to commit to repurchase or replace loans or
leases which do not conform to the representations and warranties made by the
Company at the time of the sale. When borrowers are delinquent in making
monthly payments on loans or leases included in a trust or special purpose
entity and serviced by the Company, the servicer is required to advance
interest and principal payments with respect to such delinquent loans or
leases. The Company may be required to fund such advances from the Company's
available capital resources, but such advances will have priority of repayment
from the succeeding month's payments.
CREDIT-IMPAIRED BORROWERS
In the Company's sub-prime lending businesses, such as AMN's sub-prime auto
loan business and certain of the Company's other businesses, the Company
markets some of its loan products specifically to credit-impaired borrowers.
Loans made to such borrowers may entail a higher risk of delinquency and
higher losses than loans made to more creditworthy borrowers. While the
Company believes that its underwriting policies and collection methods enable
it to control the higher risks inherent in loans made to credit-impaired
borrowers, no assurance can be given that such criteria or methods will afford
adequate protection against such risks. In the event that loans originated or
acquired by the Company, as the case may be, (whether held for investment or
serviced for others) experience higher delinquencies, foreclosures or losses
than anticipated, the Company's financial condition or results of operations
could be adversely affected.
GOVERNMENT REGULATION
The Company's operations are subject to regulation by federal, state and
local government authorities, as well as to various laws and judicial and
administrative decisions, that impose requirements and restrictions affecting,
among other things, the Company's loan originations, credit activities,
maximum interest rates, finance and other charges, disclosures to customers,
the terms of secured transactions, collection, repossession and claims-
handling procedures, multiple qualification and licensing requirements for
doing business in various jurisdictions, and other trade practices. Except as
set forth below, the Company believes that it is in compliance in all material
respects with applicable local, state and federal laws, rules and regulations.
There can be no assurance that more restrictive laws, rules or regulations
will not be adopted in the future that could make compliance much more
difficult or expensive, restrict the Company's ability to originate, purchase
or sell loans or leases, further limit or restrict the amount of interest and
other charges earned on loans originated or purchased by the Company, further
limit or restrict the terms of loan or lease agreements, or otherwise
adversely affect the business of the Company. In addition, changes in
government sponsored loan programs could adversely affect the Company's
business.
SPTL, as a California chartered industrial loan company with deposits
insured by the Bank Insurance Fund of the FDIC, is subject to extensive
federal and state governmental supervision, regulation and control, including
regulation by the FDIC and the Commissioner. Future legislation and government
policy could adversely affect the thrift and loan industry, including SPTL.
The full impact of such legislation and regulation cannot be predicted and
future changes may alter the structure and competitive relationship among
financial institutions. In addition, federal and state laws impose standards
with respect to, and regulatory authorities have the power in certain
circumstances to limit or prohibit, transactions between ICII and SPTL and
between SPTL and any of ICII's other subsidiaries, the growth of SPTL's assets
and liabilities and the payment of dividends from SPTL to ICII, among other
things. SPTL is also required to maintain capital ratios in accordance with
regulatory requirements. See "Business--Thrift and Loan Operations--Recent
Legislation."
21
<PAGE>
In January 1996, the California Department of Corporations and the FDIC
conducted a joint examination of SPTL. As a result of such examination, SPTL
entered into a joint memorandum of understanding with the FDIC and the
California Department of Corporations. The memorandum of understanding
requires certain measures to be taken in the areas of: (i) hiring and
retention of management, (ii) adoption of systems to monitor and control risk,
(iii) correction of certain violations of law, (iv) credit review and (v)
enhancement of other operational policies. SPTL does not believe that this
informal agreement has had or will have an adverse effect on the Company. In
the event that SPTL fails to comply with the memorandum of understanding, SPTL
could be subject to various enforcement actions, including cease and desist
orders, criminal or civil penalties, removal of management and directors from
office, termination of deposit insurance or the revocation of SPTL's charter.
Any such enforcement action could have a material adverse effect on the
Company. See "Business--Regulation."
COMPETITION
The businesses in which the Company operates are highly competitive. The
Company faces significant competition from other commercial and consumer
finance lenders, commercial banks, credit unions, thrift institutions and
securities firms, among others. Many of these competitors are substantially
larger and have more capital and other resources than the Company. Competition
can take many forms, including convenience in obtaining a loan or lease,
customer service, marketing and distribution channels and interest rates
charged to borrowers. In addition, the current level of gains realized by the
Company and its competitors on the sale of their loans and leases could
attract additional competitors into these markets, with the possible effect of
lowering gains that may be realized on the Company's future loan and lease
sales.
Wholesale originations are expected to remain a significant part of the
Company's loan and lease production programs. As a wholesale purchaser of
loans and leases, the Company is exposed to fluctuations in the volume and
cost of wholesale loans and leases resulting from competition with other
purchasers of such loans and leases, market conditions and other factors.
ENVIRONMENTAL LIABILITIES
In the course of its business, the Company has acquired, and may in the
future acquire, real property 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 might be required to remove such
substances from the affected properties at its sole cost and expense. There
can be no assurances that the cost of such removal would not substantially
exceed the value of the affected properties or the loans secured by such
properties or that the Company would have adequate remedies against the prior
owners or other responsible parties, or that the Company would not find it
difficult or impossible to sell the affected real properties either prior to
or following any such removal.
EFFECT OF SPFC'S OPERATIONS
As of March 31, 1997, ICII owned 49.4% of SPFC's outstanding common stock.
ICII's investment in SPFC, which is recorded on the Company's financial
statements in "Investment in Southern Pacific Funding Corporation," accounted
for 2.3% of the Company's total assets and contributed 15.5% to the Company's
total revenue for the three months ended March 31, 1997. Of the net income or
loss of SPFC, 49.4% is recognized on a pre-tax basis in the Company's
financial statements. Any such recognized net loss may adversely affect the
Company's ability to conduct future activities under the covenants of the
Indenture and otherwise. As an originator of non-conforming residential
mortgage loans, SPFC is or may be subject to many of the same risks set forth
in "--Dependence on Key Personnel," "--Volatility of Securitization Related
Assets," "--Liquidity Needs and Dependence on Securitization and Warehouse
Facilities to Finance Lending Activities," "--Economic Conditions," "--
Contingent Risks," "--Credit Impaired Borrowers," "--Government Regulation,"
"--Competition" and "--Environmental Liabilities." In addition, SPFC is
specifically subject to additional risks relating to the following:
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Limited History of Independent Operations
SPFC commenced operations in January 1993 as a division of SPTL and became
an operating subsidiary of ICII in April 1995. Although SPFC has been
profitable for each year since inception and has experienced substantial
growth in mortgage loan originations and total revenues, there can be no
assurance that SPFC will be profitable in the future or that these rates of
growth will be sustainable or indicative of future results. Since inception in
January 1993, SPFC's growth in originating and purchasing loans has been
significant. In light of this growth, the historical financial performance of
SPFC may be of limited relevance in predicting future performance. Also, the
loans originated and purchased by SPFC and included in SPFC's securitizations
have been outstanding for a relatively short period of time. As of March 31,
1997, SPFC's delinquency ratio (representing mortgage loans 30 days or more
past due) was 7.6%, with total foreclosures of $36.5 million. Also, the
mortgage loans related to the interest-only and residual certificates retained
by SPTL which were not contributed to SPFC by the Company in connection with
SPFC's initial public offering have generally had higher delinquency ratios
than SPFC's delinquency ratios, even though such loans were generally
underwritten to SPFC's underwriting standards. Consequently, the delinquency
and loss experience of SPFC's loans to date may not be indicative of future
results. It is unlikely that SPFC will be able to maintain delinquency and
loan loss ratios at their present levels as SPFC's loan portfolio becomes more
seasoned.
Adjustable Rate Mortgage Loans
SPFC originates adjustable rate residential mortgage loans ("ARMs").
Substantially all such ARMs include a "teaser" rate, i.e., an initial interest
rate significantly below the fully-indexed interest rate at origination.
Although these loans are underwritten at the fully-indexed rate at
origination, credit-impaired borrowers may encounter financial difficulties as
a result of increases in the interest rate over the life of the loan. Further,
some non-conforming ARMs may be subject to periodic and lifetime payment caps
that result in some portion of the interest accruing on such ARMs being
deferred and added to the principal outstanding. This could result in receipt
by SPFC of less cash income on its non-conforming ARMs than it is required to
pay in interest on the related borrowings, which do not have such payment
caps.
Recent Expansion
SPFC's operations have substantially expanded since inception and SPFC
intends to continue to pursue a growth strategy for the forseeable future.
There can be no assurance that SPFC will anticipate and respond effectively to
all of the changing demands that its expanding operations will have on SPFC's
management, information and operating systems and cash reserves and the
failure of SPFC to meet challenges of any such expansion could have a material
adverse effect on SPFC's results of operations and financial condition. There
can be no assurance that SPFC will successfully achieve its planned expansion
or, if achieved, that the expansion will result in profitable operations.
Risks of Contracted Servicing
SPFC currently contracts for the servicing of all loans it originates,
purchases and holds for sale. As with any external service provider, SPFC is
subject to risks associated with inadequate or untimely services. Many of
SPFC's borrowers require notices and reminders to keep their loans current and
to prevent delinquencies and foreclosures. A substantial increase in SPFC's
delinquency rate or foreclosure rate could adversely affect its ability to
access profitably the capital markets for its financing needs, including
future securitizations. SPFC has no plans to establish and perform servicing
operations at this time. If any contract servicer were to be terminated either
by SPFC or by any outside third party in connection with a securitization, the
change in servicing may result in greater delinquencies and losses on the
related loans, which in turn would adversely impact the value of the interest-
only and residual certificates held by SPFC in connection with any
securitization.
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FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Subsidiary Guarantees.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any
present of future creditor or the Subsidiary Guarantor contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (y) a Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Subsidiary
Guarantee and such Subsidiary Guarantor (i) was insolvent, (ii) was rendered
insolvent by reason of the issuance of such Subsidiary Guarantee, (iii) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Subsidiary Guarantor constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or believed that
it would incur, debts beyond its ability to pay such debts as they matured,
the court could avoid or subordinate such Subsidiary Guarantee in favor of the
Subsidiary Guarantor's creditors. Among other things, a legal challenge of a
Subsidiary Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Subsidiary Guarantor as a result of the
Company's issuance of the Debentures. The Indenture contains a savings clause,
which generally limits the obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee to the maximum amount as will, after giving effect to all
of the liabilities of such Subsidiary Guarantor, result in such obligations
not constituting a fraudulent conveyance. To the extent a Subsidiary Guaranty
of any Subsidiary Guarantor was avoided or limited as a fraudulent conveyance
or held unenforceable for any other reason, holders of the Debentures would
cease to have any claim against such Subsidiary Guarantor and would be
creditors solely of the Company and any Subsidiary Guarantor whose Subsidiary
Guarantee was not avoided or held unenforceable. In such event, the claims of
the holders of the Debentures against the issuer of an invalid Subsidiary
Guarantee would be subject to the prior payment of all liabilities (including
trade payables) of such Subsidiary Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Debentures relating to any avoided
portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally,
however, a Subsidiary Guarantor may be considered insolvent if the sum of its
debts, including contingent liabilities, is greater than the fair marketable
value of all of its assets at a fair valuation or if the present fair
marketable value of its assets is less than the amount that would be required
to pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature. Based upon financial and
other information, the Company and the Subsidiary Guarantors believe that the
Subsidiary Guarantees are being incurred for proper purposes and in good faith
and that the Company and each Subsidiary Guarantor is solvent and will
continue to be solvent after issuing its Subsidiary Guarantee, will have
sufficient capital for carrying on its business after such issuance and will
be able to pay its debts as they mature. There can be no assurance, however,
that a court passing on such standards would agree with the Company. See
"Description of Debentures--Subsidiary Guarantees."
CHANGE OF CONTROL
The Declaration provides that upon the occurrence of a Change of Control on
or prior to the Remarketing Settlement Date, each holder of Par Securities
will have the right to require the Trust to cause all or any part (equal to
$1,000 liquidation amount or any integral multiple thereof) of the Par
Securities to be exchanged for an equivalent principal amount of Debentures.
Promptly thereafter, such Debentures will be repurchased by the Company
pursuant to the Indenture (the "Change of Control Offer"), at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest thereon to the date of purchase. See "Description of
Securities--Change of Control."
Certain future credit or other borrowing agreements may contain similar
restrictions. The Company's ability to pay cash to the holders of Debentures
upon a repurchase may prohibit the Company from purchasing any Debentures
prior to their stated maturity and may provide that certain Change of Control
events would constitute a default thereunder. See "Description of Debentures--
Certain Covenants of the Company."
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If a Change of Control were to occur, it is unlikely that the Company would
be able to both repurchase all of the Debentures and repay all of its
obligations under other indebtedness that would become payable upon the
occurrence of such Change of Control, unless it could obtain alternate
financing. There can be no assurance that the Company would be able to obtain
any such financing on commercially reasonable terms or at all, and
consequently no assurance can be given that the Company would be able to
purchase any of the Debentures issued in exchange for Securities tendered
pursuant to a Change of Control Offer.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF SECURITIES
If a Trust Enforcement Event (as defined herein) occurs and is continuing,
then the holders of Par Securities would rely on, and in certain circumstances
could cause, the enforcement by the Property Trustee (as defined herein) of
its rights as a holder of the Debentures against the Company. In addition, the
holders of a majority in liquidation amount of the Par Securities will 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 under the Declaration,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the Debentures. If the Property Trustee fails
to enforce its rights with respect to the Debentures held by the Trust, any
holder of Par Securities may institute legal proceedings directly against the
Company to enforce the Property Trustee's rights under such Debentures without
first instituting any legal proceedings against such Property Trustee or any
other person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Debentures, the Trust would lack funds for the payment of
Distributions or amounts payable on redemption of the Par Securities or
otherwise, and, in such event, holders of the Par Securities would not be able
to rely upon the Guarantee for payment of such amounts. However, in the event
the Company failed to pay interest on or principal of the Debentures on the
payment date on which such payment is due and payable, then a holder of Par
Securities may directly institute a proceeding against the Company for
enforcement of payment to such holder of the interest or Additional Interest
on, premium, if any, or principal of such Debentures having a principal amount
equal to the aggregate liquidation amount of the Par Securities of such holder
(a "Direct Action"). In connection with such Direct Action, the Company will
be subrogated to the rights of such holder of Par Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Securities in such Direct Action. Except as set forth herein, holders of Par
Securities will not be able to exercise directly any other remedy available to
the holders of Debentures or assert directly any other rights in respect of
the Debentures. See "Description of Securities--Trust Enforcement Events,"
"Description of Guarantee" and "Description of Debentures--Indenture Events of
Default." The Declaration provides that each holder of Par Securities by
acceptance thereof agrees to the provisions of the Guarantee and the
Indenture.
RANKING OF OBLIGATIONS UNDER THE DEBENTURES, THE GUARANTEE AND THE SUBSIDIARY
GUARANTEES
Until the Remarketing Settlement Date, the Debentures and the Guarantee will
be general unsecured obligations of the Company ranking on a parity with all
Indebtedness of the Company, if any, that is not subordinated to the
Debentures or Guarantee and senior to any Indebtedness of the Company that is
subordinated to the Debentures or Guarantee. Until the Remarketing Settlement
Date, when the Subsidiary Guarantees will be released, the Subsidiary
Guarantees will rank on a parity with all Indebtedness of the Subsidiary
Guarantors, if any, that is not subordinated to the Subsidiary Guarantees, and
senior to any Indebtedness of the Subsidiary Guarantors that is subordinated
to the Subsidiary Guarantees. Until the Remarketing Settlement Date, the
Debentures and the Guarantee will be effectively subordinated to all
Indebtedness and other liabilities of SPTL and the Special Purpose
Subsidiaries, and the Debentures, the Guarantee and the Subsidiary Guarantees
will be effectively subordinated to secured Indebtedness of the Company and
the Subsidiary Guarantors. As of March 31, 1997, on a pro forma basis after
giving effect to the Offering and the application of proceeds thereof, the
Debentures and Guarantee would have been effectively subordinated to
approximately $1.3 billion of deposits and other borrowings at SPTL and the
Debentures, Guarantee and Subsidiary Guarantees would have been effectively
subordinated to approximately $304.9 million of secured Indebtedness of the
Subsidiary Guarantors.
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After the Remarketing Settlement Date, the Debentures and the Guarantee will
be subordinated and junior in right of payment to all Senior Debt of the
Company, will be effectively subordinated to secured Indebtedness of the
Company and will be effectively subordinated to all Indebtedness and other
liabilities of all of the Subsidiaries of the Company. As of March 31, 1997,
on a pro forma basis after giving effect to the Offering and the application
of proceeds thereof, the Debentures and Guarantee would have been subordinated
to approximately $220.2 million of Senior Debt of the Company and would have
been effectively subordinated to approximately $1.6 billion of Indebtedness of
the Company's Subsidiaries (including approximately $1.3 billion of deposits
and FHLB borrowings at SPTL and $304.9 million of secured Indebtedness of the
Company's Subsidiaries).
ICII is a holding company that conducts substantially all of its business
operations through its subsidiaries. For the three months ended March 31, 1997
and the years ended December 31, 1996 and 1995, approximately 21.1%, 34.8% and
30.2%, respectively, of the Company's total revenue was generated by the
operations of ICII, with 78.9%, 65.2% and 69.8%, respectively, being generated
by the Company's subsidiaries. Consequently, the Company's operating cash flow
and its ability to service its Indebtedness, including the Debentures, are
dependent upon the cash flow of the Company's subsidiaries and the payment of
funds by such subsidiaries to ICII in the form of loans, dividends or
otherwise. The Restricted Subsidiaries are separate and distinct legal
entities apart from ICII and each Subsidiary Guarantor has agreed to guarantee
payment of the Debentures on a senior unsecured basis until the Remarketing
Settlement Date.
In addition, although a substantial portion of the Company's business is
conducted through SPTL, SPTL is not a Subsidiary Guarantor and SPTL's ability
to pay dividends to ICII is dependent upon its ability to generate earnings
and is subject to a number of regulatory and other restrictions described
below. Because SPTL will not execute a Subsidiary Guarantee, the Debentures
will be effectively subordinated to all indebtedness of SPTL. As of March 31,
1997, SPTL had approximately $1.3 billion of deposits and other borrowings,
all of which would have been effectively senior to the Debentures. In
addition, due to these restrictions and SPTL's rapid growth, SPTL has retained
most of its internally generated earnings and has required the infusion of
significant amounts of additional capital by ICII. The Company expects such
trends to continue for the foreseeable future and has contributed
approximately $35.0 million of the proceeds of the 9 7/8% Senior Notes
offering to the capital of SPTL in the form of subordinated indebtedness. In
addition, the Company intends to contribute approximately $25.0 million of the
proceeds of the Offering to SPTL. Depending upon SPTL's growth, ICII may be
required to make additional capital contributions to SPTL. There can be no
assurance that the Company's operations will generate sufficient cash flow to
support payment of interest or principal on the Debentures, or that dividend
distributions will be available from SPTL or any ICII subsidiary to fund such
payments.
Certain provisions of the Federal Deposit Insurance Corporation Improvements
Act of 1991 ("FDICIA") generally prohibit any state nonmember bank (including,
for this purpose, SPTL) from making a capital distribution (including payment
of dividends) if it would cause the institution to become "undercapitalized"
(as defined for purposes of those provisions). See "Business--Regulation--
Thrift and Loan Operations." In addition, the Federal Deposit Insurance
Corporation (the "FDIC") has advised insured institutions that the payment of
cash dividends in excess of current earnings from operations is inappropriate
and may be cause for supervisory action. As a result of this policy, SPTL may
find it difficult to pay dividends out of retained earnings from historical
periods prior to the most recent fiscal year or to take advantage of earnings
generated by extraordinary items. Federal regulators also have authority to
prohibit financial institutions from engaging in business practices which are
considered to be unsafe or unsound. It is possible, depending upon the
financial condition of SPTL and other factors, that such regulators could
assert that the payment of dividends to ICII in some circumstances might
constitute unsafe or unsound practices and prohibit payment of dividends.
Under California law, a thrift and loan is subject to certain leverage
limitations that are not generally applicable to commercial banks or savings
and loan associations. In particular, a financial institution that has been in
operation in excess of 60 months may have outstanding at any time deposits not
to exceed 20 times paid-up and unimpaired capital and surplus as restricted by
the institution's by-laws not to be available for dividends, with the exact
limitation subject to order by the California Commissioner of Corporations
(the "Commissioner"). The Commissioner has issued an order to SPTL authorizing
the maximum 20 times leverage standard.
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Under California law, SPTL is not permitted to declare dividends on its
capital stock unless it has at least $750,000 of unimpaired capital plus
additional capital stock of $50,000 for each branch office. In addition, no
distribution of dividends is permitted unless: (i) such distribution would not
exceed a thrift and loan's retained earnings, (ii) any payment would not
result in a violation of the approved minimum capital to thrift and loan
deposit leverage ratio and (iii) in the alternative, after giving effect to
the distribution, either (y) the sum of a thrift and loan's assets (net of
goodwill, capitalized research and development expenses and deferred charges)
would not be less than 125% of its liabilities (net of deferred taxes, income
and other credits), and (z) current assets would not be less than current
liabilities (except that if a thrift and loan's average earnings before taxes
for the last two years had been less than average interest expense, current
assets must be not less than 125% of current liabilities). A portion of SPTL's
capital and surplus is currently restricted from the payment of dividends. As
of March 31, 1997, the amount SPTL could dividend to ICII under California law
would be limited to $59.6 million.
TENDER OF PAR SECURITIES IN THE REMARKETING; EFFECT OF ELECTION TO RETAIN
Any Notice of Election to retain or tender Par Securities for purchase in
the Remarketing will be irrevocable. In addition, if any holder of Par
Securities fails timely to deliver a Notice of Election, the Par Securities of
such holder will be deemed tendered for purchase in the Remarketing. See
"Description of Securities--Remarketing."
If a holder of Par Securities makes a valid election to retain Par
Securities, following the Remarketing Settlement Date, the distribution rate
on such holder's retained Securities will be the Adjusted Distribution Rate
and the Distributions on such holder's retained Par Securities may be deferred
as described in "--Option to Extend Interest Payment Period; Tax
Consequences." In addition, the obligations of the Company under the Guarantee
and under the Debentures will no longer be senior unsecured obligations of the
Company and will rank subordinate and junior in right of payment to all
Indebtedness of the Company. See "--Ranking of Obligations under the
Debentures, the Guarantee and the Subsidiary Guarantees."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
Following the Remarketing Settlement Date, the Company has the right under
the Indenture to defer the payment of interest on the Debentures at any time
or from time to time for a period not exceeding 10 consecutive semi-annual
periods, provided that no Extension Period may extend beyond the Stated
Maturity of the Debentures. As a consequence of any such deferral, semi-annual
Distributions on the Securities by the Trust will be deferred during such
Extension Period but would continue to accumulate at the Adjusted Distribution
Rate, compounded semi-annually during any such Extension Period. During any
such Extension Period, the Company may not, and may not permit any subsidiary
of the Company to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the Company's capital stock or (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of
the Company that rank on a parity with or junior to the Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks on a
parity with or junior to the Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) payments under the Guarantee
(c) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
and (d) purchases of common stock related to the issuance of common stock or
rights under any of the Company's benefit plans). Prior to the termination of
any such Extension Period, the Company may further extend the Extension
Period, provided that no Extension Period may exceed 10 consecutive semi-
annual periods or extend beyond the Stated Maturity of the Debentures. Upon
the termination of any 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. See "Description of
Securities--Distributions" and "Description of Debentures--Option to Extend
Interest Payment Period."
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Should the Company defer payment of interest on the Debentures, a holder of
Par Securities will be required to accrue income (in the form of original
issue discount) for United States federal income tax purposes in respect of
its pro rata share of the Debentures held by the Trust. As a result, a holder
of Par Securities will include such interest income in gross income for United
States federal income tax purposes in advance of the receipt of cash
attributable to such interest income, and will not receive the cash related to
such income from the Trust if the holder disposes of the Par Securities prior
to the record date for the payment of Distributions with respect to such
Extension Period. See "Certain United States Federal Income Tax Consequences--
Interest Income and Original Issue Discount" and "--Sales of Par Securities."
The Company has no current intention of exercising its right, following the
Remarketing Settlement Date, to defer payments of interest by extending the
interest payment period on the Debentures. However, should the Company elect
to exercise such right in the future, the market price of the Par Securities
is likely to be adversely affected. A holder that disposes of its Par
Securities during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its Par
Securities. In addition, as a result of the existence of the Company's right
to defer interest payments, the market price of the Par Securities (which
represent undivided beneficial ownership interests in the Debentures),
following the Remarketing Settlement Date, may be more volatile than the
market prices of other similar securities where the issuer does not have such
right to defer interest payments.
SPECIAL EVENT REDEMPTION; SHORTENING OF STATED MATURITY
Upon the occurrence and continuation of a Special Event, the Company will
have the right, if certain conditions are met, (i) to terminate the Trust and
cause the Debentures to be distributed to the holders of the Par Securities in
exchange therefor upon liquidation of the Trust, (ii) to shorten the Stated
Maturity of the Debentures, in the case of a Tax Event, to a date not earlier
than June 14, 2012 or (iii) after the Remarketing Settlement Date, to redeem
the Debentures in whole (but not in part) within 90 days following the
occurrence of such Special Event and thereby cause a mandatory redemption of
the Par Securities. See "Description of Securities--Redemption--Special Event
Redemption or Distribution of Debentures; Shortening of Stated Maturity."
There can be no assurance as to the market prices for the Par Securities or
the Debentures that may be distributed in exchange for Par Securities if a
dissolution or liquidation of the Trust were to occur or if the Stated
Maturity of the Debentures is shortened. Because holders of Par Securities may
receive Debentures upon the occurrence of a Special Event, prospective
purchasers of Par Securities are also making an investment decision with
regard to the Debentures and should carefully review all the information
regarding the Debentures contained herein. See "Description of Securities--
Redemption--Special Event Redemption or Distribution of Debentures; Shortening
of Stated Maturity" and "Description of Debentures--General."
PROPOSED TAX LEGISLATION
Both the United States Senate and the House of Representatives have approved
proposals regarding certain changes to United States federal income tax law.
While President Clinton previously proposed legislation that would have denied
an issuer an interest deduction, for United States federal income tax
purposes, on instruments such as the Debentures, the proposed provisions
approved by both the United States Senate and the House of Representatives do
not include any such provision. There can be no assurance, however, that
future legislative proposals or final legislation will not adversely affect
the ability of the Company to deduct interest on the Debentures or otherwise
affect the tax treatment of the transactions described herein. Moreover, such
legislation could give rise to a Tax Event which would permit the Company to
distribute the Debentures to the holders of the Par Securities, shorten the
maturity of the Debentures or cause a redemption of the Par Securities as
described more fully under "Description of Securities--Redemption--Special
Event Redemption or Distribution of Debentures; Shortening of Stated
Maturity."
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LIQUIDATION DISTRIBUTION OF DEBENTURES
Upon the occurrence and continuation of a Special Event, the Company will
have the right to terminate the Trust and cause the Debentures to be
distributed, after the satisfaction of liabilities to creditors (if any), to
the holders of the Trust Securities in liquidation of the Trust. In addition,
upon liquidation of the Trust and certain other events, the Debentures may be
distributed to such holders. Under current United States federal income tax
law and interpretations thereof and assuming, as expected, the Trust is
treated as a grantor trust for United States federal income tax purposes, a
distribution by the Trust of the Debentures pursuant to a liquidation of the
Trust will not be a taxable event to the Trust or to holders of the Par
Securities and will result in a holder of the Par Securities receiving
directly such holder's pro rata share of the Debentures (previously held
indirectly through the Trust). If, however, the liquidation of the Trust were
to occur because the Trust is subject to United States federal income tax with
respect to income accrued or received on the Debentures as a result of the
occurrence of a Tax Event or otherwise, the distribution of Debentures to
holders of the Par Securities by the Trust could be a taxable event to the
Trust and each holder, and holders of the Par Securities may be required to
recognize gain or loss as if they had exchanged their Par Securities for the
Debentures they received upon the liquidation of the Trust. See "Certain
United States Federal Income Tax Consequences--Distribution of Debentures or
Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for Par Securities or
Debentures that may be distributed in exchange for Par Securities if a
liquidation of the Trust occurs. Accordingly, the Par Securities that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Debentures that a holder of Par Securities may
receive on liquidation of the Trust, may trade at a discount to the price that
the investor paid to purchase the Par Securities offered hereby. Because
holders of Par Securities may receive Debentures on termination of the Trust,
prospective purchasers of Par Securities are also making an investment
decision with regard to the Debentures and should carefully review all the
information regarding the Debentures contained herein. See "Description of
Securities--Redemption--Special Event Redemption or Distribution of
Debentures; Shortening of Stated Maturity" and "Description of Debentures--
General."
If the holders of Par Securities receive Debentures upon liquidation or
dissolution of the Trust, the Debentures will be subject to the remarketing
procedures that would have been applicable to the Par Securities. See
"Description of Securities--Remarketing."
LIMITED VOTING RIGHTS
Holders of Par Securities generally will have limited voting rights relating
only to the modification of the Par Securities and certain other matters
described herein. Holders of Par Securities will not be entitled to vote to
appoint, remove or replace any of the Trustees (as defined below), which
voting rights are vested exclusively in the holder of the Common Securities.
The Trustees and the Company may amend the Declaration without the consent of
holders of Par Securities to ensure that the Trust will be classified as a
grantor trust for United States federal income tax purposes, even if such
action adversely affects the interests of such holders. See "Description of
Securities--Voting Rights; Amendment of the Declaration."
LACK OF PUBLIC MARKET
The New Par Securities are being offered to the holders of the Old Par
Securities. The Old Par Securities constitute a new class of securities with
no established trading market. The Old Par Securities are eligible for trading
in the PORTAL market. To the extent that Old Par Securities are tendered and
accepted in the Exchange Offer, the trading market for the remaining
untendered Old Par Securities could be adversely affected. There is no
existing trading market for the New Par Securities, and there can be no
assurance regarding the future development of a market for the New Par
Securities, or the ability of holders of the New Par Securities to sell their
New Par Securities or the price at which such holders may be able to sell
their New Par Securities. If such a market were to develop, the New Par
Securities could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the
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Company's operating results and the market for similar securities. The Initial
Purchaser has advised the Company that it currently intends to make a market
in the New Par Securities. The Initial Purchaser is not obligated to do so,
however, and any market-making with respect to the New Par Securities may be
discontinued at any time without notice. Therefore, there can be no assurance
as to the liquidity of any trading market for the New Par Securities or that
an active public market for the New Par Securities will develop. The Company
does not intend to apply for listing or quotation of the New Par Securities on
any securities exchange or stock market unless requested to do so by the
holders of a majority in aggregate principal amount of the New Par Securities
or the managing underwriter, if any.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD PAR SECURITIES
Holders of Old Par Securities who do not exchange their Old Par Securities
for New Par Securities pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Par Securities as set
forth in the legend thereon as a consequence of the issuance of the Old Par
Securities pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Par Securities may not be offered or
sold, unless registered under the Securities Act and applicable state
securities laws. None of the Trust, the Company nor the Subsidiary Guarantors
(collectively, the "Registrants") currently anticipate that it will register
Old Par Securities under the Securities Act. Based on interpretations by the
Staff of the Division of Corporation Finance of the Commission, as set forth
in no-action letters issued to third parties, the Registrants believe that New
Par Securities issued pursuant to this Exchange Offer in exchange for Old Par
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Par Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Par Securities. However, any holder of Old Par Securities who is an
"affiliate" of the Registrants (within the meaning of Rule 405 under the
Securities Act) or who intends to participate in the Exchange Offer for the
purpose of distributing New Par Securities, or any broker-dealer who purchased
Old Par Securities from the Trust to resell them pursuant to Rule 144A under
the Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the
Staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Old Par Securities in the Exchange Offer and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old Par
Securities unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds Old
Par Securities acquired for its own account as a result of market-making or
other trading activities and exchanges such Old Par Securities for New Par
Securities, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Par Securities.
Each holder of Old Par Securities who wishes to exchange Old Par Securities
for New Par Securities in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Registrants, (ii) any New Par
Securities to be received by it are being acquired in the ordinary course of
its business, (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Par Securities, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Par Securities. In
addition, the Registrants may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to the
Registrants (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act")) on behalf of whom such holder holds
the Par Securities to be exchanged in the Exchange Offer. Each broker-dealer
that receives New Par Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Old Par Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Par Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
30
<PAGE>
taken by the Staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Registrants believe that
broker-dealers who acquired Old Par Securities for their own accounts, as a
result of market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery requirements with
respect to the New Par Securities received upon exchange of such Old Par
Securities with this Prospectus, as it may be amended or supplemented from
time to time. Subject to certain exceptions, the Registrants have agreed that
this Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of such
New Par Securities for a period ending one year after the Registration
Statement of which this Prospectus constitutes a part is declared effective.
Any Participating Broker-Dealer who is an "affiliate" of the Registrants
(within the meaning of Rule 405 under the Securities Act) may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Par Securities" and "--
Broker-Dealer Considerations."
Any Old Par Securities not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Declaration
(except for those rights relating to the Exchange Offer which terminate upon
consummation of the Exchange Offer). Following consummation of the Exchange
Offer, the holders of Old Par Securities will continue to be subject to all of
the existing restrictions upon transfer thereof and none of the Registrants
will have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act of
the Old Par Securities held by them. Any Old Par Securities which have not
been exchanged for New Par Securities pursuant to the Exchange Offer will be
mandatorily redeemed by the Company on the Remarketing Settlement Date, as
described under "Description of the Securities--Redemption--Transfer
Restricted Security Redemption." To the extent that Old Par Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Par Securities could be adversely affected. See "The Exchange
Offer--Consequences of a Failure to Exchange Old Par Securities." In addition,
to comply with the securities laws of certain jurisdictions, if applicable,
the New Par Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The
Registrants have agreed, pursuant to the Registration Rights Agreement,
subject to certain limitations specified therein, to register or qualify the
New Par Securities for offer or sale under the securities laws of such
jurisdiction as any holder reasonably requests in writing. Unless a holder so
requests, the Registrants do not currently intend to register or qualify the
sale of the New Par Securities in any such jurisdictions. See "The Exchange
Offer."
USE OF PROCEEDS
None of the Registrants will receive any cash proceeds from the issuance of
the New Par Securities offered hereby. The New Par Securities will be
exchanged for Old Par Securities in like liquidation amount, which will be
retired and canceled. The cash proceeds from the sale of the Old Par
Securities were used to purchase the Old Debentures.
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 Par Securities will
be classified in the consolidated balance sheet of the Company as a liability
under the caption "Guaranteed Preferred Beneficial Interests in Company's
Debentures" and appropriate disclosures about the Par Securities will be
included in the notes to the consolidated financial statements. For financial
reporting purposes, the Company will record Distributions payable on the Par
Securities as an expense in the consolidated statements of income.
31
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 and as adjusted to give effect to the consummation of the Offering.
In addition, at March 31, 1997, the Company had other debt consisting of
deposits ($1.2 billion) and FHLB borrowings ($79.5 million) incurred in the
ordinary course of business. This table should be read in conjunction with the
consolidated financial statements of the Company, including the related notes
thereto.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash.................................................. $ 29,093 $ 96,418(1)
Loans held for sale................................... 700,110 700,110
Other borrowings...................................... 304,902 304,902
Long-term debt:
9 3/4% Senior Notes due 2004(2)..................... $ 19,782 $ 19,782
9 7/8% Senior Notes due 2007........................ 200,000 200,000
Debentures.......................................... -- 70,000
Shareholders' equity:
Preferred Stock; 8,000,000 shares authorized; none
issued and outstanding............................. -- --
Common Stock, no par value; 80,000,000 shares
authorized; 38,476,418 shares issued and
outstanding........................................ 146,767 146,767
Retained earnings..................................... 96,014 96,014
Unrealized gain on securities available for sale, net. 4,860 4,860
-------- --------
Total shareholders' equity.......................... 247,641 247,641
-------- --------
Total capitalization.............................. $467,423 $537,423
======== ========
</TABLE>
- --------
(1) Reflects net proceeds to the Company of $67.3 million from the Offering.
(2) Represents approximately $20.2 million of the 9 3/4% Senior Notes not
tendered pursuant to the Tender Offer net of discount of $392,000.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated income statement data for each of the years in the
three-year period ended December 31, 1996 and the selected consolidated
balance sheet data as of December 31, 1996 and 1995 have been derived from
audited financial statements of the Company which, together with the notes
thereto and the related report of KPMG Peat Marwick LLP, independent certified
public accountants, are included in this Prospectus. The report of KPMG Peat
Marwick LLP covering the December 31, 1996 consolidated financial statements
contains an explanatory paragraph regarding the adoption of SFAS 122 in 1995.
The selected consolidated balance sheet data as of December 31, 1994, 1993 and
1992 and the income statement data for the years ended December 31, 1992 and
1991 are derived from audited consolidated financial statements of the
Company, which have been audited by KPMG Peat Marwick LLP but are not included
in this Prospectus. The following selected income statement data and balance
sheet data as of March 31, 1997 and for each of the three month periods ended
March 31, 1997 and 1996 have been derived from the unaudited financial
statements of the Company and include all adjustments, consisting only of
normal recurring accruals, which management considers necessary for a fair
presentation of such financial information for those periods. Results for the
three months ended March 31, 1997 are not necessarily indicative of results to
be expected for the year ending December 31, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- -------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gain on sale of loans.. $ 8,666 $21,711 $ 88,156 $ 39,557 $ 8,628 $18,149 $20,606
--------- --------- -------- -------- ------- ------- -------
Interest on loans...... 42,930 45,194 188,242 120,244 79,173 51,612 32,741
Interest on
investments........... 5,625 2,185 10,807 6,630 3,610 1,972 1,162
Interest on other
finance activities.... 657 2,141 8,422 2,608 -- -- --
--------- --------- -------- -------- ------- ------- -------
Total interest
income.............. 49,212 49,520 207,471 129,482 82,783 53,584 33,903
Interest expense....... 28,404 36,783 135,036 95,728 61,674 29,811 19,959
--------- --------- -------- -------- ------- ------- -------
Net interest income.. 20,808 12,737 72,435 33,754 21,109 23,773 13,944
Provision for loan and
lease losses.......... 2,870 1,500 9,773 5,450 5,150 2,350 680
--------- --------- -------- -------- ------- ------- -------
Net interest income
after provision for
loan and lease
losses.............. 17,938 11,237 62,662 28,304 15,959 21,423 13,264
Loan servicing income.. 1,280 2,010 1,680 12,718 16,332 6,785 5,910
Gain on sale of
servicing rights...... -- 8,065 7,591 3,578 30,837 23,655 6,658
Sale of SPFC stock..... 4,306 -- 82,690 -- -- -- --
Equity in net income
of SPFC 6,253 -- -- -- -- -- --
Other income........... 1,852 1,202 14,154 1,152 1,048 1,414 654
--------- --------- -------- -------- ------- ------- -------
Total other income... 13,691 11,277 106,115 17,448 48,217 31,854 13,222
--------- --------- -------- -------- ------- ------- -------
Total revenues....... 40,295 44,225 256,933 85,309 72,804 71,426 47,092
Expenses:
Personnel expense...... 10,671 12,435 48,355 34,053 33,477 24,520 15,678
Other expenses......... 10,463 14,733 50,694 27,127 28,037 15,433 8,190
--------- --------- -------- -------- ------- ------- -------
Total expenses....... 21,134 27,168 99,049 61,180 61,514 39,953 23,868
--------- --------- -------- -------- ------- ------- -------
Income before income
taxes, minority
interest and
extraordinary item.. 19,161 17,057 157,884 24,129 11,290 31,473 23,224
Income taxes............ 7,976 6,901 69,874 10,144 4,685 13,055 9,583
Minority interest in
income (loss) of
consolidated
subsidiaries........... 153 1,540 12,026 (208) -- -- --
--------- --------- -------- -------- ------- ------- -------
Income before
extraordinary item.. 11,032 8,616 75,984 14,193 6,605 18,418 13,641
Extraordinary item-
repurchase of 9 3/4%
Senior Notes due 2004,
net of income taxes.... (3,995) -- -- -- 919 -- --
--------- --------- -------- -------- ------- ------- -------
Net income........... $ 7,037 $ 8,616 $ 75,984 $ 14,193 $ 7,524 $18,418 $13,641
========= ========= ======== ======== ======= ======= =======
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- -------- ---------- --------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME PER SHARE--FULLY
DILUTED(1):
Income before
extraordinary item.... $ 0.27 $ 0.24 $ 1.95 $ 0.40 $ 0.19 $ 0.54 $ 0.45
Extraordinary item-
repurchase of 9 3/4%
Senior Notes due
2004.................. (0.10) -- -- -- 0.03 -- --
--------- --------- -------- ---------- --------- ---------- --------
Net income........... $ 0.17 $ 0.24 $ 1.95 $ 0.40 $ 0.22 $ 0.54 $ 0.45
========= ========= ======== ========== ========= ========== ========
Weighted average fully
diluted shares
outstanding (000s).... 40,885 35,271 38,975 35,122 33,582 33,880 30,229
CASH FLOW DATA:
Net cash provided by
(used in) operating
activities............ $ 357,524 $ 284,377 $199,407 $ (668,666) $ 961,579 $ (903,050) $(78,865)
Net cash (used in)
provided by investing
activities............ (45,968) 295,771 (51,117) (364,076) (796,638) (145,701) 21,302
Net cash (used in)
provided by financing
activities............ (356,710) (584,368) (113,209) 1,047,004 (177,314) 1,066,584 70,216
--------- --------- -------- ---------- --------- ---------- --------
Net change in cash... $ (45,154) $ (4,220) $ 35,081 $ 14,262 $ (12,373) $ 17,833 $ 12,653
========= ========= ======== ========== ========= ========== ========
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- -------- ---------- --------- ---------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND FINANCIAL
DATA(2):
Loans originated:
ICII................. $ -- $ 297 $ 310 $ 1,816 $ 4,260 $ 6,019 $ 3,383
SPTL................. 96 66 531 724 NA(3) NA(3) NA(3)
SPFC(4).............. -- 85 790 288 190 -- --
FMAC................. 134 101 450 164 -- -- --
IBC.................. 30 14 87 36 -- -- --
AMN(5)............... 16 -- -- -- -- -- --
--------- --------- -------- ---------- --------- ---------- --------
Total.............. $ 276 $ 563 $ 2,168 $ 3,028 $ 4,450 $ 6,019 $ 3,383
========= ========= ======== ========== ========= ========== ========
Loans securitized:
ICII................. $ -- $ -- $ -- $ 177 $ -- $ -- $ --
SPTL................. -- -- 277 511 46 -- --
SPFC(4).............. -- 103 657 165 -- -- --
FMAC................. -- -- 325 105 -- -- --
IBC.................. 98 19 87 85 -- -- --
AMN.................. -- -- -- -- -- -- --
--------- --------- -------- ---------- --------- ---------- --------
Total.............. $ 98 $ 122 $ 1,346 $ 1,043 $ 46 $ -- $ --
========= ========= ======== ========== ========= ========== ========
Outstanding balance of
loans and leases
securitized
(at end of
period)(6)............ $373 $1,117 $2,118 $1,047 $45 $ -- $ --
SELECTED RATIOS:
Ratio of earnings to
fixed charges(7)...... 1.7x 1.5x 2.2x 1.3x 1.2x 2.1x 2.2x
Pre-tax interest
coverage ratio(8)..... 5.2 8.4 17.0 3.9 2.4 -- --
Ratio of indebtedness
to total
capitalization (at
end of period)(9)..... 47.0% 46.1% 40.5% 46.1% 51.4% -- % -- %
Average equity to
average assets........ 12.45 3.78 7.27 4.72 4.86 6.71 7.71
Return on average
common equity......... 11.55 39.86 45.55 17.59 10.57 31.76 37.75
Return on average
assets................ 1.44 1.51 3.31 0.82 0.51 2.13 2.91
SPTL REGULATORY CAPITAL
RATIOS (AT END OF PERI-
OD):
California leverage
limitation(10)........ 11.58% 11.63% 13.50% 11.58% 11.50% 7.29% 8.73%
Risk-based--Tier 1..... 8.57 8.83 9.71 11.72 14.21 10.27 14.94
Risk-based--Total...... 12.13 9.91 10.87 13.18 15.13 10.73 15.74
FDIC Leverage Ratio.... 8.61 8.02 9.35 8.04 8.08 9.47 8.78
ASSET QUALITY RATIOS (AT
END OF PERIOD):
Non-performing assets
as a percentage of
total assets.......... 3.19% 2.32% 2.64% 1.55% 1.16% 0.64% 0.79%
Allowance for loan
losses as a
percentage of non-
performing loans...... 44.47 34.63 38.94 44.30 53.83 65.91 79.10
Net charge-offs as a
percentage of average
total loans held for
investment............ 0.67 0.90 0.94 0.36 0.23 0.89 0.18
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................... $ 29,093 $ 74,247 $ 39,166 $ 24,904 $ 37,277 $ 19,444
Interest bearing
deposits.............. 88,670 3,369 267,776 10,600 90,000 30,000
Investment securities,
including FHLB Stock.. 54,444 101,448 28,713 18,817 18,000 5,000
Loans held for sale.... 700,110 940,096 1,341,810 263,807 1,238,006 328,575
Loans held for
investment, net....... 1,013,359 1,068,599 668,771 1,029,556 154,595 84,843
Securitization related
assets................ 33,000 159,707 58,272 4,558 529 982
Total assets........... 2,096,241 2,470,639 2,510,635 1,420,409 1,572,663 479,430
Deposits............... $1,161,357 $1,069,184 $1,092,989 $ 934,621 $1,001,468 $422,551
Borrowings from FHLB... 79,500 140,500 190,000 295,000 320,000 --
Other borrowings....... 304,902 694,352 987,810 -- 147,611 --
Senior notes (11)...... 219,782 163,209 80,472 80,343 -- --
Total liabilities...... 1,848,600 2,231,131 2,416,533 1,344,536 1,504,411 429,652
Shareholders' equity... 247,641 239,508 94,102 75,873 68,253 49,778
</TABLE>
- --------
(1) Income per share and weighted average shares outstanding reflect 1-for-
10, 1-for-10 and 1-for-19 stock dividends paid in 1996, 1993 and 1992,
respectively, a 3-for-2 stock split effected in 1995 and a 2-for-1 stock
split effected in 1996.
(2) Does not include loans originated or securitized by ICIFC. Commencing
with the three months ended March 31, 1997, the financial statements of
ICIFC are no longer consolidated with those of ICII.
(3) Information not available.
(4) Commencing with the three months ended March 31, 1997, the financial
statements of SPFC are no longer consolidated with those of ICII.
(5) Represents loans originated for the period from AMN's acquisition (March
14, 1997) through March 31, 1997.
(6) Represents the outstanding balance of loans and leases securitized,
excluding loans held for sale and investment.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes, plus fixed charges. Fixed
charges represent interest expense on all indebtedness and the interest
factor of rent expense estimated to be one-third of occupancy expense.
(8) Ratio of (i) the sum of income before income taxes plus interest expense
on non-funding indebtedness to (ii) interest expense on non-funding
indebtedness.
(9) Ratio of (i) non-funding indebtedness to (ii) non-funding indebtedness
plus total shareholders' equity.
(10) Ratio of (i) SPTL's total shareholders' equity to (ii) total deposits.
(11) At March 31, 1997, represents $200.0 million of the 9 7/8% Senior Notes
and approximately $20.2 million of the 9 3/4% Senior Notes not tendered
pursuant to the Tender Offer, net of discount of $392,000 related to the
9 3/4% Senior Notes.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Organization
The consolidated financial statements include Imperial Credit Industries,
Inc. ("ICII") and its wholly-owned and majority-owned subsidiaries
(collectively the "Company"). All material intercompany balances and
transactions have been eliminated. The wholly-owned subsidiaries include
Southern Pacific Thrift and Loan Association ("SPTL"), Imperial Business
Credit, Inc. ("IBC"), Imperial Credit Advisors, Inc. ("ICAI") and Auto
Marketing Network, Inc. ("AMN"). The majority-owned consolidated subsidiary is
Franchise Mortgage Acceptance Company LLC ("FMAC"). Minority interests in
these subsidiaries (other than AMN which was acquired in March 1997) are
reflected in other liabilities at December 31, 1995 and in Minority Interest
in Consolidated Subsidiaries at December 31, 1996 and March 31, 1997 on the
Company's consolidated balance sheet. As of March 31, 1997, FMAC was owned
66.7% by ICII and 33.3% by the President of FMAC. As of March 31, 1997, ICII
owned 49.4% of the outstanding capital stock of SPFC. In March 1997, the
Company disposed of its common stock interest in ICIFC. As a result,
commencing with the three months ended March 31, 1997, the financial
statements of SPFC and ICIFC are no longer consolidated with those of ICII.
See "-- Deconsolidation."
General
Historically, the Company's primary business was the origination and sale of
conforming residential mortgage loans. This business experienced substantial
growth due to high levels of mortgage loan refinancing activity in 1992 and
1993, as interest rates dropped to historically low levels. However, as
interest rates increased and refinancing activity declined in 1994, conforming
residential mortgage loan originations on an industry-wide basis decreased
dramatically and pricing became increasingly competitive. The Company
recognized that the non-conforming residential mortgage loan market provided
greater opportunities for mortgage loan origination growth. As a result,
during 1995 and 1996, the Company directed additional capital and resources to
its non-conforming residential mortgage lending subsidiary, SPFC, and divested
substantially all of its conforming mortgage lending and servicing businesses.
At the same time, the Company entered or expanded its presence in higher
margin commercial and consumer lending markets. 1995 marked the first year for
the Company that included operations from both its historical operations and
newly acquired or recently started business lines. The Company now operates as
a commercial and consumer finance company providing loan and lease products in
the following sectors: franchise lending, business finance lending, commercial
mortgage lending, consumer lending and non-conforming residential mortgage
lending.
Strategic Divestitures
During the fourth quarter of 1995, the Company sold its mortgage conduit
operations and SPTL's warehouse lending operations to Imperial Credit Mortgage
Holdings, Inc. ("IMH"), a real estate investment trust, which subsequently
completed an initial public offering of its common stock. In exchange for
these assets, the Company received 11.8% of the capital stock of IMH. As of
March 31, 1997, the Company owned 4.9% of the capital stock of IMH.
Additionally, the Company's wholly-owned subsidiary, ICAI, entered into a
management agreement with IMH pursuant to which it provides management
advisory services to IMH in exchange for management fees. See "Business--
Advisory, Investment and Other Activities."
In the first quarter of 1996, the Company sold the majority of its wholesale
mortgage origination offices related to its former conforming residential
mortgage lending business. The Company's wholesale offices in Colorado,
Florida, Oregon and Washington were converted to SPFC offices.
The Company recognized that maintaining a mortgage loan servicing
infrastructure was not economically viable in the absence of a conforming
residential mortgage loan origination business. Commencing in March 1996, the
Company sold substantially all of its conforming residential mortgage loan
servicing rights. The Company continues servicing all loans and leases
originated by its equipment leasing and franchise lending businesses, as well
as all loans originated or acquired by SPTL.
36
<PAGE>
Strategic Focus and Acquisitions
Part of the Company's strategy to diversify away from the conforming
residential mortgage business was to focus its residential mortgage
operations, through SPFC, on the origination, purchase and sale of non-
conforming residential mortgage loans secured primarily by single family
residences. During 1995 and 1996, a substantial portion of the Company's
operations were conducted through SPFC.
In May 1995, the Company expanded its existing commercial equipment leasing
business conducted by IBC through the acquisition of the assets of First
Concord Acceptance Corporation ("FCAC"). This business was again expanded in
October 1996 when IBC acquired substantially all of the assets of Avco Leasing
Services, Inc. and all of the assets of Avco Financial Services of Southern
California, Inc. related to its business of originating and servicing business
equipment leases and agreed to assume certain related liabilities in
connection therewith from Avco Financial Services, Inc. (the "Avco
Acquisition"). IBC's lease originations were $30.1 million, $87.2 million and
$36.0 million and it securitized, including leases acquired through purchase
transactions, $97.9 million, $87.0 million and $85.2 million of leases during
the three months ended March 31, 1997 and the years ended December 31, 1996
and 1995, respectively.
In June 1995, the Company expanded into franchise lending by establishing
FMAC, the assets of which were acquired from Greenwich Financial Capital
Products, Inc. During the three months ended March 31, 1997, the year ended
December 1996, and for the six-month period ended December 31, 1995, FMAC
originated or acquired $133.4 million, $449.3 million and $163.5 million and
securitized $0, $325.1 million and $105.2 million of franchise loans,
respectively.
In September 1995, the Company began making asset-based loans to middle
market companies by acquiring CoastFed Business Credit Corporation ("CBCC")
from Coast Federal Bank. This business, now a division of SPTL, was renamed
Coast Business Credit ("CBC"). At March 31, 1997 and December 31, 1996 and
1995, CBC had total commitments of $589.0 million, $547.7 million and $364.2
million, respectively, of which $318.0 million of loans were outstanding at
March 31, 1997.
In September 1996, the Company entered into various transactions with
Dabney/Resnick, Inc., subsequently renamed Dabney/Resnick/Imperial, LLC
("DRI"), and its affiliated entities. DRI engages in investment banking
activities. ICII has acquired a 1% equity interest in DRI and has purchased a
warrant to acquire an additional 48% interest therein.
In March 1997, the Company acquired all of the outstanding shares of Auto
Marketing Network, Inc. ("AMN"), a sub-prime auto lender, for $750,000. The
Company then advanced AMN $11.6 million to repay amounts owed pursuant to
operating lines of credit and for working capital purposes. For the period
from its acquisition (March 14, 1997) through March 31, 1997, AMN originated
$16.1 million of sub-prime auto loans.
As a part of the Company's diversification strategy, and the related
acquisitions of FMAC, FCAC and CBCC as well as the Avco Acquisition, the
product mix of the Company's interest earning assets changed in 1996 to
include a much larger percentage of higher-yielding loan and lease products as
compared to the previous year.
Deconsolidation
During the three months ended March 31, 1997, ICII reduced its ownership
percentage of SPFC to 49.4%. As a result, commencing with the three months
ended March 31, 1997, the financial statements of SPFC are no longer
consolidated with those of ICII. ICII's investment in SPFC, which is recorded
on the Company's financial statements in "Investment in Southern Pacific
Funding Corporation," accounted for 2.3% of the Company's total assets and
contributed 15.5% to the Company's total revenue for the three months ended
March 31, 1997. Of the net income or loss of SPFC, 49.4% is recognized on a
pre-tax basis in the Company's financial statements. Any such recognized net
loss may adversely affect the Company's ability to conduct future activities
under the
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covenants of the Indenture and otherwise. As a result of this deconsolidation,
certain of the financial and operating data presented for the three months
ended March 31, 1997 and thereafter will not be comparable with such data for
periods prior to the deconsolidation.
Prior to March 31, 1997, ICII owned 100% of the voting common stock of ICIFC
which entitled it to a 1% economic interest. ICIFC is the corporation through
which IMH conducts its mortgage conduit operations. Since 100% of the common
stock of ICIFC was owned by ICII, ICII consolidated the financial statements
of ICIFC in its financial statements. As a result, the assets and liabilities
of the Company reflected on its balance sheet were greater than they would
otherwise be absent such consolidation. However, since ICII only owned 1% of
the economic interest of ICIFC, it considered ICIFC's operations immaterial to
the Company. Therefore, to more properly reflect the Company's true financial
condition, in March 1997 the Company disposed of its common stock interest in
ICIFC. As a result, commencing with the three months ended March 31, 1997, the
financial statements of ICIFC are no longer consolidated with those of ICII.
The aforementioned deconsolidations of SPFC and ICIFC are collectively
referred to as the "Deconsolidation."
Securitization Related Assets
During the three months ended March 31, 1997, the Company completed lease
securitizations totaling $97.9 million. The Company has retained interests in
loan and lease securitizations representing the excess of the total amount of
loans sold in the securitization over the amounts represented by interests in
the security sold to investors. The retained interests in the loan and lease
securitizations were $33.0 million and $49.5 million at March 31, 1997 and
December 31, 1996, respectively. At March 31, 1997 and December 31, 1996, the
Company's consolidated balance sheet reflected Capitalized Excess Servicing
Fees Receivable of $0 and $23.1 million, respectively. At March 31, 1997 and
December 31, 1996, the Company's consolidated balance sheet reflected Interest
Only and Residual Certificates of $0 and $87.0 million, respectively. The
decline in Capitalized Excess Servicing Fees Receivable and Interest Only and
Residual Certificates resulted from the deconsolidation of SPFC and ICIFC.
Servicing Rights
When the Company purchases servicing rights from others, or loans which
include the associated servicing rights, the price paid for the servicing
rights, net of amortization based on assumed prepayment rates, is included on
the consolidated balance sheet as "Purchased and Originated Servicing Rights,"
("PMSRs" and "OMSRs"). At March 31, 1997, PMSRs and OMSRs outstanding were
$6.1 million, consisting of $5.5 million at SPTL and $600,000 at ICAI. At
December 31, 1996, PMSRs and OMSRs were $14.9 million, consisting of $5.5
million at SPTL, $600,000 at ICAI and $8.8 million at ICIFC. During the three
months ended March 31, 1997, the Company disposed of its ownership interest in
ICIFC and, therefore, ICIFC is no longer consolidated.
Accounting for IBC Leases
For financial reporting purposes, most of the IBC leases are classified as
direct financing leases. IBC accounts for its investment in direct financing
leases by recording as assets the total lease receivable, plus the estimated
residual value of the leased equipment, less the unearned income. The unearned
lease income represents the excess of the total lease receivable, plus the
estimated residual value, over the cost of the related equipment. The unearned
lease income is recognized as revenue over the term of the lease by using the
interest method.
Upon inception of a direct financing lease, IBC estimates the residual value
it expects to realize with respect to the leased equipment when the initial
term expires. A substantial amount of IBC's leases have a recorded residual
value. The recorded residual value will not exceed 10% of IBC's original
acquisition cost. Following expiration of the initial lease term, IBC will
seek to recover its recorded residual value through: (i) renewal of the
original lease, (ii) sale of the leased equipment to the original lessee,
(iii) trade-in of the equipment or (iv) sale or lease of the equipment to
another party.
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Following expiration of the initial term of a direct financing lease, if IBC
sells or trades the leased equipment for more than the recorded residual
value, it recognizes a gain. If IBC sells or trades the equipment for less
than such value, it recognizes a loss. When IBC renews a lease or re-leases
the equipment to another party, it records the rental payments as income when
earned and depreciates the carrying value of the leased equipment over its
remaining useful life.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Income for the three months ended March 31, 1997 before extraordinary item
was $11.0 million, as compared to $8.6 million for the same period in 1996.
Net income, including a $4.0 million extraordinary item representing a loss on
the early retirement of debt for the three months ended March 31, 1997, was
$7.0 million.
Total revenues for the three months ended March 31, 1997 were $40.3 million,
a decrease of $3.9 million or 8.9% from the $44.2 million for the same period
in 1996. Revenue for the three months ended March 31, 1997, included a pre-tax
gain of $4.3 million from the sale of 370,000 shares of SPFC. As of March 31,
1997, the Company owned 49.4% of SPFC's outstanding common stock which,
commencing with the three months ended March 31, 1997, is reflected on the
Company's financial statements as "Investment in Southern Pacific Funding
Corporation." ICII's investment in SPFC accounted for 15.5% of total revenues
for the three months ended March 31, 1997.
Gain on sale of loans and leases decreased $13.0 million to $8.7 million
during the three months ended March 31, 1997 from $21.7 million for the same
period in 1996. Gain on sale of loans consists primarily of gains recorded
upon the sale of loans, net of associated expenses, and to a lesser extent,
fees received on the origination of loans, and fees received for commitments
to fund loans. The decrease was primarily attributable to the Deconsolidation,
partially offset by an increase in gain on sale of leases for IBC.
Net interest income, which consists of interest income and fees net of
interest expense, increased by $8.1 million to $20.8 million for the three
months ended March 31, 1997 from $12.7 million for the same period in 1996.
Excluding net interest income for SPFC and ICIFC from the three months ended
March 31, 1996, net interest income increased by $9.6 million for the three
months ended March 31, 1997, when compared to the same period last year. Net
interest margin at SPTL increased to 4.28% for the three months ended March
31, 1997, an increase of 60 basis points from the same period in 1996. The
improvement in SPTL's net interest margin is primarily the result of the
Company's emphasis on the origination of higher yielding loan and lease
products.
Interest income decreased $300,000 to $49.2 million for the three months
ended March 31, 1997 from $49.5 million for the same period in 1996. The
decrease was primarily attributable to the Deconsolidation. Excluding interest
income for SPFC and ICIFC from the three months ended March 31, 1996, interest
income increased by $13.9 million for the three months ended March 31, 1997,
when compared to the same period in 1996. The increase was primarily
attributable to an overall increase in the yield on outstanding loan and lease
products.
Interest expense decreased $8.4 million to $28.4 million for the three
months ended March 31, 1997 from $36.8 million for the same period in 1996.
The decrease primarily resulted from the Deconsolidation partially offset by
higher borrowing costs and increased outstanding average balances of warehouse
lines of credit. Excluding interest expense for SPFC and ICIFC from the first
quarter of 1996, interest expense for the three months ended March 31, 1997
increased $4.3 million, when compared to the same period in 1996.
Loan servicing income totaled $1.3 million for the three months ended March
31, 1997 as compared to income of $2.0 million for the same period in 1996.
The decrease was primarily attributable to two factors: the sale of
substantially all of the Company's residential conforming mortgage loan
servicing portfolio in the first quarter of 1996, and continuing foreclosure
and liquidation costs associated with servicing the remaining residential
conforming mortgage loan portfolio.
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During the three months ended March 31, 1996, mortgage loan servicing rights
relating to $2.6 billion of loans were sold resulting in a gain on sale of
servicing rights of $8.1 million as compared to no sale of servicing rights
for the three months ended March 31, 1997.
Other income totaled $2.3 million during the three months ended March 31,
1997 as compared to $1.2 million for the same period in 1996. Other income
includes fee income generated from the Company's advisory contract with IMH
during the first quarter of 1997.
Total expenses for the Company during the three months end March 31, 1997
were $21.1 million, a decrease of $6.1 million from the $27.2 million reported
for the same period in 1996. The decrease was primarily attributable to the
Deconsolidation. Excluding total expenses for SPFC and ICIFC from the three
months ended March 31, 1996, total expenses decreased by $1.7 million for the
three months ended March 31, 1997, when compared to the same period in 1996.
This decrease primarily resulted from the Company's exit from the residential
mortgage banking business in 1996.
Personnel expenses decreased to $10.7 million for the three months ended
March 31, 1997 as compared to $12.4 million for the same period of the
previous year. This decrease was primarily the result of the Deconsolidation.
Excluding personnel expenses for SPFC and ICIFC from the three months ended
March 31, 1996, personnel expense increased from $9.6 million to $10.7 million
for the three months ended March 31, 1997. The increase, excluding SPFC and
ICIFC, results from the Company's acquisition and expansion activities
throughout 1996 and during the three months ended March 31, 1997.
Amortization of PMSRs and OMSRs decreased to $19,000 for the three months
ended March 31, 1997 as compared to $718,000 for the same period in 1996. The
decrease was primarily the result of the Deconsolidation and from the sale in
the quarter ended March 31, 1996 of substantially all of the Company's
servicing rights on conforming residential mortgage loans generated by the
former mortgage banking operations.
Occupancy expense decreased to $907,000 for the three months ended March 31,
1997 as compared to $1.3 million for the same period of the previous year. The
decrease primarily results from the Deconsolidation and from the Company's
exit from the mortgage banking business in 1996.
Net expenses of Other Real Estate Owned ("OREO") decreased to $757,000 for
the three months ended March 31, 1997 as compared to $2.8 million for the same
period last year. The decrease in net expense of OREO was primarily the result
of reduced levels of OREO writedowns on the existing OREO properties.
In the quarter ended March 31, 1996, the Company recorded a $3.8 million
restructuring charge representing the costs anticipated to be incurred in
connection with the Company's exit from the conforming mortgage business. For
the three months ended March 31, 1997, there was no additional restructuring
charge required.
All other general and administrative expenses, including the Federal Deposit
Insurance Corporation ("FDIC") insurance premium, data processing,
professional services, and telephone and other communications expense,
increased to $8.8 million for the three months ended March 31, 1997 as
compared to $6.1 million for the same period in 1996. Excluding SPFC and
ICIFC, such expenses were $4.9 million for the three months ended March 31,
1996. The overall increase was primarily attributable to the Company's
acquisition and expansion activities throughout 1996 and during the first
quarter of 1997.
As a result of the growth in the loan portfolio and the change in its
product mix, the Company continued to add to the allowance for loan and lease
losses. The provision for loan and lease losses increased $1.4 million to $2.9
million for the three months ended March 31, 1997 from $1.5 million for the
same period in 1996. The increase in the loan and lease loss provision for the
three months ended March 31, 1997 was primarily the result of the continuing
change in the composition of the Company's investment loan portfolio to higher
yielding loan products. Nonaccrual loans and leases as of March 31, 1997 and
December 31, 1996 remained essentially stable at $51.6 million and $50.1
million or 4.98% and 4.60% of gross loans held for investment, respectively.
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The balance of nonaccrual loans relating to the Company's former mortgage
banking operations included $19.6 million and $19.9 million of loans at March
31, 1997 and December 31, 1996, respectively. The Company periodically reviews
the allowance for loan and lease losses in connection with the overall loan
and lease portfolio. Based on the Company's charge-off experience and
relatively stable nonaccrual loans, the current balance of the allowance for
loan and lease losses is sufficient in relation to the amount of risk in the
loan and lease portfolio. The Company believes that the allowance for loan and
lease losses is adequate.
Non-performing assets ("NPAs") consist of nonaccrual loans, loans with
modified terms and OREO. Total NPAs increased 5% to $66.8 million at March 31,
1997, as compared to $63.6 million at December 31, 1996. The ratio of the
allowance for loan and lease losses to nonaccrual loans increased to 45.2% at
March 31, 1997 from 39.9% at December 31, 1996. NPAs as a percentage of total
assets were 3.19% and 2.64% at March 31, 1997 and December 31, 1996,
respectively.
The Company believes the overall increase in NPAs was primarily a result of
the acquisition of a portfolio of sub-prime residential mortgage loans by SPTL
late in 1995. Nonaccrual loans in the acquired portfolio increased to $22.0
million at March 31, 1997 from $18.2 million at December 31, 1996. Although
the levels of nonaccrual loans have increased, actual losses from the acquired
portfolio were $29,000 and $337,000 in the three months ended March 31, 1997
and the year ended December 31, 1996, respectively. The Company considered the
level of NPAs related to its other lending activities to be acceptable due to
the attractive yield on these loans.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's consolidated net income for the year ended December 31, 1996
was $76.0 million as compared to $14.2 million for 1995, an increase of 435%.
The increase in net income is attributable to several factors: gains on sale
of SPFC stock; a 123% increase in gain on sale of loans; a 115% increase in
net interest income; and an improved net interest margin. These positive
factors were partially offset by an increase in total expenses and the
provision for loan and lease losses.
Revenues for the year ended December 31, 1996 increased 201% to $256.9
million as compared to $85.3 million for 1995. Expenses for the year ended
December 31, 1996 increased 62% to $99.0 million as compared to $61.2 million
for 1995. Total revenues included a pre-tax gain of $82.7 million from the
sales of SPFC's common stock through an initial public offering in August 1996
and a secondary offering in November 1996. Prior to the sale of SPFC stock,
SPFC was a wholly owned subsidiary of the Company. In SPFC's initial public
offering, ICII sold 3.5 million shares, and recorded a gain of $30.6 million
with SPFC selling 5.2 million primary shares to the public, resulting in a
gain to the Company of $31.4 million. In November 1996, ICII sold an
additional 1.5 million shares of SPFC common stock through a secondary
offering in which ICII was the sole selling shareholder, resulting in a gain
to the Company of $20.6 million, and reducing its ownership in SPFC to 51.2%
at December 31, 1996.
Gain on sale of loans increased 123% to $88.2 million for the year ended
December 31, 1996 as compared to $39.6 million for 1995. The increase was
primarily the result of substantially increased volume and profitability on
the sale of various variable and fixed rate loan products through
securitizations. Gain on sale of loans includes $55.4 million in gains
recorded as the result of the securitization of $657.4 million of the
Company's sub prime residential mortgage loans at SPFC, $11.2 million in gains
resulting from the securitization of $277.0 million of commercial and multi-
family loans at SPTL, $3.6 million gain on sale of the Company's retained
interest in the securitization of $105.2 million of franchise loans at FMAC
which were accounted for as a financing at December 31, 1995 and a gain on
sale of $13.7 million resulting from the securitization of $325.1 million of
franchise loans during the second and fourth quarters of 1996. During the year
ended December 31, 1996, the Company wrote down the carrying value of its
Capitalized Excess Servicing Fees Receivable by $4.7 million due to actual
performance results differing from original excess cash flows estimated by the
Company.
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For the year ended December 31, 1996, net interest income, increased $38.6
million or 115% to $72.4 million as compared to $33.8 million for 1995. The
increase in interest income was due to acquisitions completed throughout the
last half of 1995, and the change in the composition of loans held for sale
and investment from primarily conforming single family residential mortgage
loans to a more diversified mix of loan products. The product mix of the
Company's interest earning assets in 1996 includes a larger percentage of
higher-yielding loan and lease products as compared to 1995.
For the year ended December 31, 1996, interest income increased $78.0
million or 60% to $207.5 million from $129.5 million for 1995. The increase in
interest on loans was primarily attributable to an overall increase in the
yield on outstanding loan and lease products. Interest income also increased
as a result of the Company's loan and lease securitizations, which contributed
interest income of $8.4 million from the accretion of discounts on the
Company's Capitalized Excess Servicing Fees Receivable.
For the year ended December 31, 1996, interest expense increased $39.3
million or 41% to $135.0 million from $95.7 million for 1995. The increase in
interest expense primarily resulted from increased outstanding average
balances of warehouse lines of credit.
For the year ended December 31, 1996, consolidated net interest margin
increased to 3.40%, an increase of 132 basis points as compared to 2.08% for
1995. The improvement in net interest income and margin is largely the result
of the Company's repositioning itself with the origination and acquisition of
higher yielding loan and lease products. Acquisitions have added to the
improvement in net interest income and net interest margin. For the year ended
December 31, 1996, net interest margin and net income benefited from a full
year of operation from CBC as well as the fourth quarter purchase of equipment
leases totaling approximately $85 million with a weighted average interest
rate of 15.5% from Avco Leasing Services, a division of Avco Financial
Services of Southern California, Inc.
Loan servicing income for the year ended December 31, 1996 decreased 87% to
$1.7 million as compared to $12.7 million for 1995. The decrease in loan
servicing income was primarily due to a decreased average balance of
conforming residential mortgage loans serviced for others, primarily as a
result of the Company's sale or transfer of substantially all of its
conforming residential mortgage servicing rights in connection with the
Company's exit from the conforming mortgage banking business. Additionally,
loan servicing income continues to be negatively affected by increased direct
servicing costs related to the loan foreclosure and property liquidation
process of the remaining delinquent conforming residential mortgage servicing
portfolio of the Company's former mortgage banking operations.
During the years ended December 31, 1996 and 1995, the Company sold mortgage
loan servicing rights relating to $3.2 billion and $957.2 million principal
amount of loans, resulting in pre-tax gains of $7.6 million and $3.6 million,
respectively. Gain on the sale of servicing rights consisted of the cash
proceeds received on the "bulk" sale of servicing rights, net of the related
capitalized purchased or originated servicing rights. The decline in
profitability on the sale of the conforming residential mortgage servicing
rights was due to a lower average sales price and the increased amounts of
capitalized servicing rights on the portfolio sold during the year ended
December 31, 1996 as compared to 1995 as a result of the Company's adoption of
SFAS 122 in the first quarter of 1995. The decision to sell servicing rights
was based upon the Company's plan to exit the conforming mortgage banking
business.
Other income, including management fees, for the year ended December 31,
1996 increased to $14.2 million as compared to $1.2 million for 1995. This
increase was primarily due to fee income generated from ICAI's management
contract with IMH and dividend payments received by the Company on its
investment in IMH. Additionally, increasing other income was the resolution
and recovery of $2.5 million of certain outstanding reconciling items at SPTL.
Personnel expenses increased 42% to $48.4 million for the year ended
December 31, 1996 as compared to $34.1 million for 1995. This increase was
primarily the result of personnel expenses related to the Company's
acquisition and expansion activities throughout the second half of 1995,
partially offset by reductions in personnel expense at the Company's former
mortgage banking operations.
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Amortization of PMSRs and OMSRs decreased 72% to $1.1 million for the year
ended December 31, 1996 as compared to $4.0 million for 1995. The decrease was
the result of a decreased outstanding balance of PMSRs and OMSRs as a result
of the Company's sale of servicing rights on conforming residential mortgage
loans generated by the former mortgage banking operations.
Occupancy expense increased 19% to $4.7 million for the year ended December
31, 1996 as compared to $3.9 million for 1995. The increase primarily
reflected an increase in lease expenses as a result of the Company's
acquisition of FMAC, FCAC and CBCC in the second half of 1995, as well as to
the continued expansion of SPFC throughout 1996.
Net expenses of OREO increased 267% to $7.0 million for the year ended
December 31, 1996 as compared to $1.9 million for 1995. The increase in net
expense of OREO was primarily the result of the increase in the volume of
properties foreclosed on and liquidated by the Company's former mortgage
banking operations.
FDIC insurance premiums decreased 71% to $327,000 for the year ended
December 31, 1996 as compared to $1.1 million for 1995. FDIC insurance
premiums decreased primarily as a result of a decrease in the rate of the
insurance premium charged to SPTL for FDIC deposit insurance.
Restructuring charges of $3.8 million were recognized during the year ended
December 31, 1996. The charge represents those costs incurred in connection
with the Company's exit from the conforming mortgage banking business. During
the three months ended March 31, 1996, the Company committed itself to, and
began the execution of, an exit plan that specifically identified the
necessary actions to be taken to complete the exit from the origination, sale
and servicing of conforming residential mortgage loans. During the year ended
December 31, 1996, the Company incurred actual charges of approximately $3.2
million. The Company believes that significant changes to the exit plan are
not likely, and that the exit plan should be completed in the second quarter
of 1997. The Company has included in the restructuring provision those costs
resulting from the exit plan that are not associated with, nor would have
benefit for, the continuing operations of the Company.
All other general and administrative expenses, including data processing,
professional services, and telephone and other communications expense,
increased 109% to $33.8 million for the year ended December 31, 1996 as
compared to $16.2 million for 1995. The increase in general and administrative
expenses was due primarily to the Company's acquisition of FMAC, FCAC, and
CBCC, as well as to the start up of ICAI in 1995, and the continued expansion
of SPFC throughout 1996.
As a result of the growth in the loan portfolio and the change in its
product mix, the Company continued to add to the allowance for loan and lease
losses. For the year ended December 31, 1996, the provision for loan losses
increased $4.3 million to $9.8 million as compared to $5.5 million for 1995.
The increase in the loan and lease loss provision for the year ended
December 31, 1996 was primarily the result of an increase in nonaccrual loans
(specifically one purchased loan portfolio) and due to the continuing change
in the composition of the Company's investment loan portfolio to include
higher yielding loan products.
At December 31, 1996, of the $50.1 million of nonaccrual loans, 89%, 3% and
8% were single family, multi-family and non-residential loans, respectively,
as compared to 76%, 18% and 6%, respectively, at December 31, 1995. The
increase in nonaccrual loans represented by residential loans was due to the
expansion of the investment loan portfolio with residential (one-to-four
family) loans originated by the Company's former mortgage banking operations.
The Company's non-residential loans were comprised of commercial mortgages,
commercial loans, indirect equipment leases and consumer loans.
Total NPAs increased 63% to $63.6 million at December 31, 1996, as compared
to $39.0 million at December 31, 1995. The ratio of the allowance for loan and
lease losses to nonaccrual loans decreased to 39.9% at December 31, 1996 from
44.3% at December 31, 1995. NPAs as a percentage of total assets were 2.64%
and 1.55% at December 31, 1996 and 1995, respectively.
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The Company believes the overall increase in NPAs was primarily a result of
the acquisition of a portfolio of sub-prime residential mortgage loans by SPTL
late in 1995. Nonaccrual loans in the acquired portfolio increased to $18.2
million from $0.6 million at December 31, 1996 and 1995, respectively.
Although the levels of nonaccrual loans has increased, actual losses from the
acquired portfolio have been minor at $337,000 and $0 in 1996 and 1995,
respectively. The Company considered the level of NPAs related to its other
lending activities to be acceptable due to the attractive yield on these
loans.
The Company evaluated expected losses on nonaccrual loans in both periods on
a loan-by-loan basis and determined that the allowance was adequate to cover
both expected losses on nonaccrual loans and inherent losses in the remainder
of the Company's loans held for investment portfolio.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues for the year ended December 31, 1995 increased 17% to $85.3 million
as compared to $72.8 million for 1994. Income before extraordinary items
increased 115% to $14.2 million as compared to $6.6 million for 1994. Net
income for the year ended December 31, 1995 increased 89% to $14.2 million as
compared to $7.5 million for 1994. The 17% increase in revenue and the
relatively unchanged level of expenses accounted for the increase in the
Company's net income.
Gain on sale of loans increased 359% to $39.6 million for the year ended
December 31, 1995 as compared to $8.6 million for 1994. The increase was
primarily the result of substantially increased profitability on the sale of
various servicing retained variable and fixed rate loan products through
securitizations, together with an increase in the volume of loans sold on a
servicing released basis. Gain on sale of loans includes $28.9 million in
gains recorded as a result of the securitization of $404.9 million of the
Company's sub-prime residential mortgage loans, $98.3 million of non-
conforming residential mortgage loans, $290.9 million of conforming
residential mortgage loans, $57.7 million of multi-family mortgage loans, and
$85.2 million of gross lease receivables. Also during the year ended December
31, 1995, the Company securitized $105.2 million of franchise mortgage loans
which was accounted for as a financing.
Net interest income, which consists of interest and fees net of interest
charges, and net interest margin for the year ended December 31, 1995
increased 60% and 32% to $33.8 million and 2.08% compared to $21.1 million and
1.57% for 1994, respectively. The increase in net interest income and net
interest margin was due primarily to two factors. The Company began 1995 with
a loan portfolio consisting primarily of ARMs tied to either the 11th District
Cost of Funds index, or the 6 Month London Interbank Offering Rate ("LIBOR")
index. These loans were originated during 1994 by the Company's mortgage
lending operations, and the majority of these loans included a "teaser" period
(typically three months) in which the borrower paid an interest rate to the
mortgage lender that is substantially lower than the fully-indexed loan
interest rate. As these loans repriced throughout 1995 out of the "teaser"
period and became fully indexed, the Company's related interest income
increased commensurately. Interest income also increased as a result of the
Company's loan and lease securitizations, which contributed interest income of
$2.6 million from the accretion of discounts on the Company's Capitalized
Excess Servicing Fees Receivable. The increase in interest income due to the
factors described above was partially offset by an increase in the average
costs of borrowing from all sources, including warehouse lines of credit,
borrowings from the FHLB, and SPTL customer deposits.
Loan servicing income for the year ended December 31, 1995 decreased 22% to
$12.7 million as compared to $16.3 million for 1994. The decrease in loan
servicing income was primarily due to a decreased average balance of
residential mortgage loans serviced for others, coupled with an increase in
direct servicing costs related to the loan foreclosure and property
liquidation process. As interest rates decreased throughout 1995, the
prepayment rate on the Company's residential mortgage loan servicing portfolio
did not increase dramatically, primarily the result of the relatively low
weighted average interest rate of 8.35% on the Company's residential mortgage
loan servicing portfolio. Total runoff amounted to $612.3 million or 13% of
the beginning balance of the residential mortgage loan servicing portfolio for
the year ended December 31, 1995 as compared to
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$841.9 million or 22% of the beginning balance of the residential mortgage
loan servicing portfolio for 1994. The residential mortgage loan servicing
portfolio decreased 8% to $4.5 billion at December 31, 1995 from $4.9 billion
at December 31, 1994.
During the years ended December 31, 1995 and 1994, the Company sold mortgage
loan servicing rights relating to $957.2 million and $2.9 billion principal
amount of loans, resulting in pre-tax gains of $3.6 million and $30.8 million,
respectively. During the year ended December 31, 1995, the average gain on
sale of servicing rights decreased 66% to 37 basis points as compared to 108
basis points for 1994. The profitability on the sale of servicing decreased
primarily as a result of the Company's adoption of SFAS 122 which required the
Company to capitalize servicing rights related to loans originated. Gain on
the sale of servicing rights consists of the cash proceeds received on the
"bulk" sale of servicing rights, net of the related capitalized PMSRs and
OMSRs. The decision to buy or sell servicing rights is based upon management's
assessment of the market for and current market value of servicing rights and
the Company's current and future earnings and cash flow objectives.
Expenses for the year ended December 31, 1995 were substantially unchanged
from the previous year at $61.2 million as compared to $61.5 million in 1994.
Personnel expenses increased 1.7% to $34.1 million in 1995 as compared to
$33.5 million in 1994. This increase was primarily the result of increased
personnel expenses related to the Company's acquisition and expansion
activities throughout 1995, partially offset by reductions in personnel
expense at the Company's mortgage banking operations.
Amortization of capitalized servicing rights increased 26% to $4.0 million
in the year ended December 31, 1995 as compared to $3.2 million in 1994,
despite the decrease in the runoff rate of the Company's residential servicing
portfolio. This increase was the result of an increase in prepayments of loans
in the Company's servicing portfolio with related capitalized servicing.
Amortization as a result of loan prepayments increased 275% to $1.2 million in
the year ended December 31, 1995, as compared to $0.3 million in 1994.
Scheduled amortization of capitalized servicing rights was $2.8 million in the
year ended December 31, 1995, substantially equal to the $2.9 million in 1994.
Occupancy expense increased 15% to $3.9 million in the year ended December
31, 1995 as compared to $3.4 million in 1994. The increase primarily reflected
an increase in lease expenses as a result of the Company's acquisition of
FMAC, FCAC and CBCC in 1995.
Net expenses of OREO increased 97% to $1.9 million in the year ended
December 31, 1995 as compared to $1.0 million in 1994. The increase in OREO
expenses in 1995 was primarily the result of an increase in OREO writedowns.
OREO writedowns increased 465% to $2.1 million in the year ended December 31,
1995 as compared to $0.4 million in 1994.
FDIC insurance premiums decreased 48% to $1.1 million in the year ended
December 31, 1995 as compared to $2.2 million in 1994. FDIC insurance premiums
decreased primarily as a result of a decrease in the premium charged for FDIC
insurance in 1995. On June 1, 1995, the premium charged to SPTL decreased from
0.23% of deposits outstanding to $2,000 annually. SPTL has been considered to
be well capitalized by its regulators.
All other general and administrative expenses, including data processing,
professional services, and telephone and other communications expense
decreased 12% to $16.2 million in the year ended December 31, 1995 as compared
to $18.3 million in 1994. The decrease was the result of the reversal in 1995
of $1.8 million of the $2.0 million provision established in 1994 for
potential operating losses. The allowance was established as a result of the
discovery of the lack of timely reconciliation of several cash and loans in
process clearing accounts at the Company's principal subsidiary, SPTL. The
Company corrected the accounting deficiencies at SPTL that included the use of
significant Company and external resources to complete the reconciliations.
At the completion of the reconciliation process, nothing came to the attention
of management that caused the Company to believe any irregularities had taken
place. Based on the resolution of the unidentified reconciling items at
45
<PAGE>
December 31, 1994, $1.8 million of the remaining allowance was reversed.
Excluding the establishment in 1994 and the reversal in 1995 of the provision
for operating losses, general and administrative expenses as described
increased 10% to $18.0 million in 1995 as compared to $16.3 million in 1994.
The increase in general and administrative expenses was due primarily to the
Company's acquisition of FMAC, FCAC, and CBCC, as well as to the start up of
ICAI in 1995.
As a result of the change in the composition of the Company's investment
loan portfolio, earnings were reduced by an increase in the provision for loan
losses. The provision for loan losses was $5.5 million for the year ended
December 31, 1995, an increase of 6% from $5.2 million for 1994. The increase
in the provision was primarily the result of the increase in nonaccrual loans,
and the increase in the amount of net charge-offs. Total nonaccrual loans
increased 136% to $31.0 million at December 31, 1995, as compared to $13.1
million at December 31, 1994. Total nonaccrual loans as a percentage of loans
held for investment were 4.50% and 1.26% at December 31, 1995 and 1994,
respectively. Net charge-offs were $3.1 million for 1995, as compared to
$1.4 million for 1994.
At December 31, 1995, of the $31.0 million of nonaccrual loans, 76%, 18% and
6% were single family, multi-family and non-residential loans, respectively,
as compared to 74%, 9% and 17%, respectively, at December 31, 1994. The
increase in nonaccrual loans represented by residential loans was due to the
expansion of the investment loan portfolio with residential (one-to-four
family) loans originated by the Company's former mortgage banking operations.
The Company's non-residential loans were comprised of commercial mortgages,
commercial loans, indirect equipment leases and consumer loans.
Total NPAs increased 137% to $39.0 million at December 31, 1995, as compared
to $16.4 million at December 31, 1994. The ratio of the allowance for loan
losses to nonaccrual loans decreased to 44.3% at December 31, 1995 from 53.8%
at December 31, 1994. NPAs as a percentage of total assets were 1.55% and
1.16% at December 31, 1995 and 1994, respectively. The Company believes the
overall increase in NPAs was a result of the transfer of unsalable loans
originated by the Company's former mortgage banking operations to the held for
investment portfolio. The Company considered the level of NPAs related to its
other lending activities to be acceptable due to the attractive yield on these
loans.
The ratio of the allowance for loan losses to nonaccrual loans decreased to
44.3% at December 31, 1995 from 53.8% at December 31, 1994. The Company
evaluated expected losses on nonaccrual loans in both periods on a loan-by-
loan basis and determined that the allowance was adequate to cover both
expected losses on nonaccrual loans and inherent losses in the remainder of
the Company's loans held for investment portfolio. On an ongoing basis,
management monitors the loan portfolio and evaluates the adequacy of the
allowance for losses considering such factors as historical loan loss
experience, evaluations made by bank regulators, assessment of economic
conditions and other appropriate data to identify the risks in the loan
portfolio.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company has an ongoing need for capital to finance its lending
activities. This need is expected to increase as the volume of the Company's
loan and lease originations and acquisitions increases. The Company's primary
cash requirements include the funding of (i) loan and lease originations and
acquisitions pending their pooling and sale, (ii) points and expenses paid in
connection with the acquisition of wholesale loans, (iii) fees and expenses
incurred in connection with its securitization programs, (iv)
overcollateralization or reserve account requirements in connection with loans
and leases pooled and sold, (v) ongoing administrative and other operating
expenses and (vi) the costs of the Company's warehouse credit and repurchase
facilities with certain financial institutions. The Company has financed its
activities through warehouse lines of credit and repurchase facilities with
financial institutions, equity and debt offerings in the capital markets,
deposits or borrowings at SPTL and securitizations. The Company believes that
such sources, together with the net proceeds of the Offering, will be
sufficient to fund the Company's liquidity requirements for the foreseeable
future. There can be no assurance
46
<PAGE>
that the Company will have access to the capital markets in the future or that
financing will be available to satisfy the Company's operating and debt
service requirements or to fund its future growth.
Through the first quarter of 1995, funding for the Company's former
residential mortgage banking operations was provided primarily by SPTL. In
order for SPTL to provide funding for the Company's mortgage banking business,
SPTL historically originated and held substantially all of the Company's
mortgage loans held for sale. In accordance with a series of agreements, ICII
provided loan solicitation, originations and acquisitions, and servicing to
SPTL. The agreements provided for the purchase of mortgage loans by ICII
concurrent with sales to outside investors. In the first quarter of 1995, the
former residential mortgage banking business became self-funded by using a
gestation repurchase line provided by DLJ Mortgage Capital, Inc. While the
repurchase line reduced the net interest income earned on loans held for sale,
holding the loans at ICII provides an additional source of cash for the parent
company, and provides additional liquidity for SPTL to finance all of its
other lending activities.
SPTL historically obtained the liquidity necessary to fund the Company's
former residential mortgage banking operations and its own investing
activities through deposits and, if necessary through borrowings under lines
of credit and from the FHLB. See "--Lines Of Credit and Warehouse Facilities."
At March 31, 1997 and December 31, 1996 and 1995, SPTL had maximum FHLB
borrowings available equal to $524.1 million, $484.4 million and $501.4
million, respectively. These borrowings must be fully collateralized by
qualifying mortgage loans and may be in the form of overnight funds or term
borrowings at SPTL's option. The highest FHLB advance outstanding during the
year ended December 31, 1996 was $338.0 million, with an average outstanding
balance of $188.8 million. The outstanding balance of FHLB advances was $140.5
million at December 31, 1996. The highest FHLB advance outstanding during the
three months ended March 31, 1997 was $140.5 million, with an average
outstanding balance of $98.9 million. The highest FHLB advance outstanding
during the year ended December 31, 1995 was $435.0 million, with an average
outstanding balance of $292.0 million. The outstanding balance of FHLB
advances was $190.0 million at December 31, 1995. During 1993 and 1994, ICII
contributed $26.0 million and $25.0 million, respectively, to SPTL's capital
in order to provide SPTL with adequate capital to increase its deposits and
borrowings.
SPTL has been able to acquire new deposits through its local marketing
strategies as well as domestic money markets. Additionally, SPTL maintains
liquidity in the form of cash and interest bearing deposits with financial
institutions. The Company tracks on a daily basis all new loan applications by
office and, based on historical closing statistics, estimates expected
fundings. Cash management systems at SPTL allow SPTL to anticipate both
funding and sales and adjust deposit levels and short-term investments against
the demands of the Company's lending activities. For a further description of
SPTL's deposit generating activities and available funding, see "Business--
Funding and Securitizations."
In addition to warehouse lines of credit and SPTL borrowings, the Company
has also accessed the capital markets to fund its operations. In the second
quarter of 1992, the Company completed its initial public offering of
8,750,211 shares, raising net proceeds of $15.9 million. In April 1996, the
Company completed a stock offering of 4,879,808 shares of its common stock at
$13.00 per share for net proceeds of $59.2 million.
In January 1994, the Company issued $90.0 million principal amount of the 9
3/4% Senior Notes due 2004. In October 1994, the Company repurchased $8.5
million of said notes. As of December 31, 1995, the Company was not in
compliance with certain debt covenants related to these notes. Subsequent to
December 31, 1995, these defaults were corrected. In March 1996, the Company
reissued the $8.5 million of the notes which it purchased in October 1994. At
December 31, 1996, $90.0 million of these notes were outstanding.
In January 1997, the Company issued $200.0 million principal amount of the 9
7/8% Senior Notes and used a portion of the proceeds to purchase approximately
$69.8 million of the 9 3/4% Senior Notes.
In June 1996, SPFC completed an initial public offering of its common stock
pursuant to which ICII was a selling shareholder. SPFC and ICII received net
proceeds from such offering of approximately $53.8 million and $35.9 million,
respectively. In November 1996, (i) SPFC issued $75.0 million of convertible
subordinated notes
47
<PAGE>
due 2006 and (ii) ICII sold 1.0 million shares of SPFC common stock held by
ICII for net proceeds of approximately $28.0 million. In March 1997, ICII sold
an additional 370,000 shares of SPFC common stock for net proceeds of
approximately $6.2 million. After the sale of such common stock by ICII, ICII
owned approximately 49.4% of the issued and outstanding shares of SPFC's
common stock as of March 31, 1997, excluding shares issuable upon exercise of
options granted or to be granted pursuant to SPFC's stock option plans and
shares issuable upon conversion of the $75.0 million of convertible
subordinated notes, mentioned above.
Limitations on Dividends
Under the California Industrial Loan Law, a thrift and loan may declare
dividends on its capital stock only if it has at least $750,000 of unimpaired
capital stock plus additional capital stock of $50,000 for each branch office.
In addition, no distribution of dividends is permitted unless: (i) such
distribution would not exceed a thrift and loan's retained earnings, (ii) any
payment would not result in a violation of the approved minimum capital to
thrift and loan certificate of deposit ratio and (iii) after giving effect to
the distribution, either (y) the sum of a thrift and loan's assets (net of
goodwill, capitalized research and development expenses and deferred charges)
would be not less than 125% of its liabilities (net of deferred taxes,
deferred income and other deferred credits), and (z) current assets would be
not less than current liabilities (except that if a thrift and loan's average
earnings before taxes for the last two fiscal years had been less than average
interest expense, current assets must be not less than 125% of current
liabilities).
Under California law, in order for capital (including surplus) of an
institution to be included in calculating the leverage limitation described
above, thrift institutions must amend their by-laws to restrict such capital
from the payment of dividends. The amount of restricted capital maintained by
a thrift also provides the basis for establishing the maximum amount that a
thrift may lend to one single borrower. As of March 31, 1997 and December 31,
1996, $80.5 million and $80.5 million, respectively, of SPTL's capital was so
restricted.
The FDIC has advised insured institutions that the payment of cash dividends
in excess of current earnings from operations is inappropriate and may be
cause for supervisory action. As a result of this policy, thrift and loans may
find it difficult to pay dividends out of retained earnings from historical
periods prior to the most recent fiscal year or to take advantage of earnings
generated by extraordinary items. Under the Financial Institutions Supervisory
Act and FIRREA, federal regulators also have authority to prohibit financial
institutions from engaging in business practices which are considered to be
unsafe or unsound. It is possible, depending upon the financial condition of a
thrift and other factors, that such regulators could assert that the payment
of dividends in some circumstances might constitute unsafe or unsound
practices and prohibit payment of dividends even though technically
permissible.
Pursuant to FDICIA, SPTL is prohibited from paying dividends if the payment
of such dividends would cause the institution to become "undercapitalized."
These limitations on the payment of dividends may restrict the Company's
ability to utilize cash from SPTL which may have been otherwise available to
the Company for working capital.
Lines of Credit and Warehouse Facilities
The Company is dependent upon its ability to access warehouse lines of
credit and repurchase facilities, in addition to its ability to continue to
pool and sell loans and leases in the secondary market, in order to fund new
originations and purchases. The Company has warehouse lines of credit and
repurchase facilities under which it had available an aggregate of
approximately $500.0 million in financing at March 31, 1997. The Company
expects to be able to maintain existing warehouse lines of credit and
repurchase facilities (or to obtain replacement or additional financing) as
current arrangements expire or become fully utilized; however, there can be no
assurance that such financing will be obtainable on favorable terms. To the
extent that the Company is unable to arrange new warehouse lines of credit and
repurchase facilities, the Company may have to curtail its loan origination
and purchasing activities, which could have a material adverse effect on the
Company's operations and financial position.
48
<PAGE>
ICII and its subsidiaries, as indicated in the table below, have warehouse
lines of credit available where each indicated entity can close loans in its
name. The loan collateral for each facility is held by an independent third-
party custodian and each entity has the ability to borrow against such
collateral at a percentage of the original principal balance. The following
table sets forth certain terms of such lines of credit as of March 31, 1997:
<TABLE>
<CAPTION>
SPREAD
WEIGHTED TO
AVERAGE PRINCIPAL LIBOR
INTEREST COMMITMENT AMOUNT (BASIS
RATE AMOUNT* OUTSTANDING EXPIRATION DATE POINTS)
-------- ---------- ----------- ------------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Greenwich Capital Finan-
cial (AMN)............. 6.94% $125,000 $ 82,275 30 days on demand 125
Banco Santander (FMAC).. 7.94 50,000 45,577 Under extension 225
Sanwa Bank of California
(FMAC)................. 7.69 15,000 6,110 September 30, 1997 200
Credit Suisse First Bos-
ton (FMAC)............. 6.94 200,000 161,202 December 31, 1997 125
CoreStates Bank, N.A.
(IBC).................. 7.99 10,000 7,452 November 30, 1997 230
Conti Financial Servic-
es, Inc. (IBC)......... 8.19 100,000 2,286 April 10, 1997 250
-------- --------
$500,000 $304,902
======== ========
</TABLE>
- --------
* In the second quarter of 1997, the commitment amounts under AMN's warehouse
line of credit with Greenwich Capital Financial and FMAC's line with Credit
Suisse First Boston were increased to $160.0 million and $350.0 million
(decreasing to $300.0 million upon FMAC's initial securitization in 1997),
respectively. IBC's warehouse line of credit with Conti Financial Services,
Inc. expired during the second quarter of 1997. Additionally, SPTL is
currently negotiating and expects to enter into a $200.0 million line of
credit with a major investment bank.
Securitizations
The Company currently pools and sells through securitization a substantial
portion of the loans or leases which it originates or purchases, other than
loans held by SPTL for investment. Accordingly, adverse changes in the
securitization market could impair the Company's ability to originate,
purchase and sell loans or leases on a favorable or timely basis. Any such
impairment could have a material adverse effect upon the Company's business
and results of operations. In addition, the securitization market for many
types of assets is relatively undeveloped and may be more susceptible to
market fluctuations or other adverse changes than more developed capital
markets. Finally, any delay in the sale of a loan or lease pool could cause
the Company's earnings to fluctuate from quarter to quarter.
In a securitization, the Company recognizes a gain on sale of the loans or
leases securitized upon the closing of the securitization but does not receive
the cash representing such gain until it receives the excess cash flows, which
are payable over the actual life of the loans or leases securitized. As a
result, such transactions may not generate cash flows to the Company for an
extended period.
In addition, in order to gain access to the secondary market for loans and
leases, the Company has relied on monoline insurance companies to provide
guarantees on outstanding senior interests in the special purpose entities to
which such loans and leases are sold to enable it to obtain investment grade
ratings for such interests. The Company also relies on overcollateralization
to support outstanding senior interests. However, any unwillingness of the
monoline insurance companies to guarantee the senior interests in the
Company's loan or lease pools could have a material adverse effect on the
Company's financial position and results of operations.
The pooling and servicing agreements that govern the distribution of cash
flows from the loans included in securitizations require either (i) the
establishment of a reserve account that may be funded with an initial cash
deposit by the Company or (ii) the overcollateralization of the senior
interests by using interest receipts on the loans to reduce the outstanding
principal balance of the senior interests. The Company's interest in the
49
<PAGE>
overcollateralized amount is reflected in the Company's financial statements
as retained interest in loan and lease securitization. To the extent that a
loss is realized on the loans, the loss will either be paid out of the reserve
account or the overcollateralization amount.
The Company may be required either to repurchase or to replace loans which
do not conform to the representations and warranties made by the Company in
the pooling and servicing agreements entered into when the loans are pooled
and sold through securitizations.
Franchise Lending. FMAC sells a majority of its loan origination volume in
securitizations and to a lesser extent through whole loan sales. FMAC
securitized $0, $325.1 million and $105.2 million of franchise loans during
the three months ended March 31, 1997, the year ended December 31, 1996 and
the period from its inception at June 30, 1995 through December 31, 1995,
respectively.
Business Finance Lending. IBC sells its lease originations primarily through
a revolving securitization facility administered by Citicorp North America,
Inc. ("CNAI"). The facility has a three-year revolving period, which expires
on December 29, 1998, and a three and one-half year amortization period. The
purchase limit under the facility is $110.0 million and as of March 31, 1997,
there was approximately $104.0 million of commercial paper outstanding under
the facility. In addition to the CNAI facility, during the three months ended
March 31, 1997, IBC completed a securitization of $97.9 million of lease
receivables through a term finance facility with Conti Financial Services.
Commercial Mortgage Lending. During the three months ended March 31, 1997
and the year ended December 31, 1996, SPTL securitized $0 and $277.0 million,
respectively, of multi-family and commercial real estate loans. SPTL retained
subordinated bonds of approximately $22.0 million from the securitization and
delivered the bonds into a total rate of return swap with a financial
institution. The provisions of the swap entitle the Company to receive the
total return on the subordinated bonds delivered in exchange for a floating
payment of LIBOR plus a spread of 1.95%. The swap is an off balance sheet
instrument.
The following table sets forth the securitizations effected by the Company
since inception:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
ISSUE DATE ISSUANCE NAME SECURITIZED
---------- ------------- -------------
(IN MILLIONS)
<C> <S> <C>
December 1994 Prudential Securities 1994-6................. $ 45.5
March 1995 Prudential Securities 1995-1................. 95.5
June 1995 Southern Pacific Secured Assets Corp. 55.3
("SPSAC") 1995-1.............................
August 1995 Second delivery of SPSAC 1995-1.............. 20.0
August 1995 Donaldson, Lufkin & Jenrette ("DLJ") 1995-4.. 290.9
September 1995 SPSAC 1995-2................................. 261.7
November 1995 DLJ 1995-5................................... 98.3
November 1995 Second delivery of SPSAC 1995-2.............. 28.0
December 1995 Third delivery of SPSAC 1995-2............... 2.3
December 1995 Franchise Loan Receivables Trust ("FLRT") 105.2
1995-B.......................................
March 1996 SPSAC 1996-1................................. 102.4
June 1996 SPSAC 1996-2................................. 130.0
June 1996 FLRT 1996-A.................................. 167.4
July 1996 Second delivery of SPSAC 1996-2.............. 40.0
August 1996 SPSAC 1996-3................................. 150.0
September 1996 Southern Pacific Thrift & Loan 1996 C-1...... 277.0
October 1996 Second delivery of SPSAC 1996-3.............. 50.0
December 1996 SPSAC 1996-4................................. 185.0
December 1996 FLRT 1996-B.................................. 157.7
March 1997 IBCI 1997-1.................................. 97.9
--------
Total(1)..................................... $2,360.1
========
</TABLE>
- --------
(1) Excludes IBC's monthly deliveries to a CNAI securitization vehicle which
totaled $13.3 million, $87.0 million and $85.2 million for the three
months ended March 31, 1997 and the year ended December 31, 1996 and 1995,
respectively
50
<PAGE>
INFLATION
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars
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. Inflation affects the Company
primarily through its effect on interest rates, since interest rates normally
increase during periods of high inflation and decrease during periods of low
inflation. During periods of decreasing interest rates, borrowers are more
likely to refinance their existing loans which may negatively impact the
Company's investments in capitalized excess servicing related assets.
ASSET QUALITY
As a result of the continuing change in the composition of the Company's
investment loan portfolio, earnings were reduced by an increase in the
provision for loan losses. The provision for loan losses increased to
$2.9 million for the three months ended March 31, 1997, as compared to $1.5
million, $9.8 million, $5.5 million and $5.2 million for the three months
ended March 31, 1996, and the years ended December 31, 1996, 1995 and 1994,
respectively. The increase in the provision for loan losses was primarily the
result of an increase in nonaccrual loans, an increase in the amount of net
charge-offs, and the continuing change in the composition of the investment
loan portfolio to higher-yielding loan products.
NPAs consist of nonaccrual loans, loans with modified terms and OREO. The
Company's policy is to place all loans 90 days or more past due on nonaccrual.
Any mortgage loans held for sale originated or acquired as part of the
Company's former mortgage banking operations which are held more than 90 days
after origination are classified as mortgage loans held for investment and are
transferred at the lower of carrying value or market value. Such loans may be
unsalable for a variety of reasons, including documentation deficiencies,
payment defaults or borrower misrepresentations.
The former mortgage banking operations' OREO arises primarily through
foreclosure on mortgage loans repurchased from investors, typically due to a
breach of representations or warranties. The Company incurred losses of
approximately $5 million related to the former mortgage banking OREO during
the year ended December 31, 1996. During the three months ended March 31, 1997
and for year ended December 31, 1995, the impact of loans repurchased as the
result of borrower misrepresentations was not material.
51
<PAGE>
The following table sets forth the amount of NPAs attributable to the
Company's former mortgage banking operations and to all of its other lending
activities:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
MARCH 31, 1997 1996 1995 1994
---------------------- ---------------------- ---------------------- ---------------------
FORMER FORMER FORMER FORMER
ALL OTHER MORTGAGE ALL OTHER MORTGAGE ALL OTHER MORTGAGE ALL OTHER MORTGAGE
LENDING BANKING LENDING BANKING LENDING BANKING LENDING BANKING
ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS ACTIVITIES OPERATIONS
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
One to four family..... $ 24,497 $19,616 $ 24,711 $19,928 $ 2,652 $ 20,990 $ 4,012 $ 5,697
Commercial property.... 2,153 -- 3,052 -- 1,824 -- 2,201 --
Multi-family property.. 1,967 -- 1,421 -- 5,522 -- 1,195 --
Leases................. 3,384 -- 997 -- -- -- -- --
---------- ------- ---------- ------- ---------- -------- -------- ----------
Total nonaccrual loans.. 32,001 19,616 30,181 19,928 9,998 20,990 7,408 5,697
---------- ------- ---------- ------- ---------- -------- -------- ----------
OREO:
One to four family..... 8,840 2,601 6,639 3,508 1,937 4,173 1,217 1,277
Commercial property.... 2,436 -- 1,200 -- 211 -- 445 --
Multi-family property.. 516 -- 867 -- 858 -- 329 --
---------- ------- ---------- ------- ---------- -------- -------- ----------
Total OREO.............. 11,792 2,601 8,706 3,508 3,006 4,173 1,991 1,277
---------- ------- ---------- ------- ---------- -------- -------- ----------
Total loans with
modified terms......... 800 -- 1,256 -- 870 -- 76 --
---------- ------- ---------- ------- ---------- -------- -------- ----------
Total NPAs.............. $ 44,593 $22,217 $ 40,143 $23,436 $ 13,874 $ 25,163 $ 9,475 $ 6,974
========== ======= ========== ======= ========== ======== ======== ==========
Total loans and OREO.... $1,728,703 $36,325 $2,012,704 $40,955 $1,168,783 $869,463 $216,555 $1,094,144
Total NPAs as a
percentage of loans and
OREO................... 2.58% 61.16% 1.99% 57.22% 1.19% 2.89% 4.38% 0.64%
</TABLE>
52
<PAGE>
The following table summarizes certain information regarding the Company's
allowance for loan and lease losses and OREO losses:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance................. $19,999 $13,729 $13,729 $ 7,054 $ 3,255
Provision for loan and lease
losses........................... 2,870 1,500 9,773 5,450 5,150
Business acquisitions............. 4,864 -- 4,500 4,320 --
Lease sales....................... (2,000) -- -- -- --
Deconsolidation of ICIFC.......... (687) -- -- -- --
------- ------- ------- ------- -------
25,046 15,229 28,002 16,824 8,405
------- ------- ------- ------- -------
Loans charged off:
Mortgage........................ (591) (464) (2,485) (2,024) (1,397)
Multi-family.................... (161) (836) (1,095) (334) --
Commercial...................... (36) (3) (465) (169) --
Leases.......................... (677) (370) (3,465) (461) (39)
Consumer........................ (557) (248) (816) (118) --
------- ------- ------- ------- -------
Total......................... (2,022) (1,921) (8,326) (3,106) (1,436)
------- ------- ------- ------- -------
Recoveries on loans previously
charged off:
Mortgage........................ 61 25 -- 11 7
Leases.......................... 175 -- 323 -- 64
Consumer........................ 50 3 -- -- 14
------- ------- ------- ------- -------
Total......................... 286 28 323 11 85
------- ------- ------- ------- -------
Net charge-offs................... (1,736) (1,893) (8,003) (3,095) (1,351)
------- ------- ------- ------- -------
Ending balance.................... $23,310 $13,336 $19,999 $13,729 $ 7,054
======= ======= ======= ======= =======
Ratio of allowance for loan losses
to total loans held for
investment....................... 2.22% 1.98% 1.82% 1.99% 0.68%
Ratio of allowance for loan losses
to nonaccrual loans.............. 45.2 35.9 39.9 44.3 53.8
Total nonaccrual loans as a
percentage of loans held for
investment....................... 4.91 5.53 4.55 4.50 1.26
OREO losses:
OREO writedowns................. $ 543 $ -- $ 3,252 $ 2,085 $ 369
Loss (gain) on sale of OREO..... 956 978 2,843 (957) (119)
------- ------- ------- ------- -------
Total OREO losses............. $ 1,499 $ 978 $ 6,095 $ 1,128 $ 250
======= ======= ======= ======= =======
</TABLE>
The increase in the provision for loan and lease losses was primarily the
result of the increase in nonaccrual loans and the increase in the amount of
net charge-offs. Although nonaccrual loans increased for the three months ended
March 31, 1997 from December 31, 1996, with a corresponding decrease in
allowance coverage, the Company evaluated expected losses on nonaccrual loans
on a loan-by-loan basis and determined that the allowance was adequate to cover
both expected losses on nonaccrual loans and inherent losses in the remainder
of the Company's loans held for investment portfolio. The Company considers the
allowance for loan losses to be adequate.
The percentage of the allowance for loan losses to nonaccrual loans does not
remain constant due to the nature of the Company's portfolio of loans. The
collateral for each nonperforming mortgage loan is analyzed by the Company to
determine potential loss exposure, and in conjunction with other factors, this
loss exposure contributes to the overall assessment of the adequacy of the
allowance for loan losses. On an ongoing basis,
53
<PAGE>
management monitors the loan portfolio and evaluates the adequacy of the
allowance for loan losses. In determining the adequacy of the allowance for
loan losses, management considers such factors as historical loan loss
experience, underlying collateral values, evaluations made by bank regulatory
authorities, assessment of economic conditions and other appropriate data to
identify the risks in the loan portfolio. Loans deemed by management to be
uncollectible are charged to the allowance for loan losses. Recoveries on
loans previously charged off are credited to the allowance. Provisions for
loan losses are charged to expense and credited to the allowance in amounts
deemed appropriate by management based upon its evaluation of the known and
inherent risks in the loan portfolio. Future additions to the allowance for
loan losses may be necessary.
ASSET/LIABILITY MANAGEMENT
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of falling interest rates, the net earnings of an institution with a
positive gap theoretically may be adversely affected due to its interest-
earning assets repricing to a greater extent than its interest-bearing
liabilities. Conversely, during a period of rising interest rates,
theoretically, the net earnings of an institution with a positive gap position
may increase as it is able to invest in higher yielding interest-earning
assets at a more rapid rate than its interest-bearing liabilities reprice. In
addition, a positive gap may not protect an institution with a large portfolio
of ARMs from increases in interest rates for extended time periods as such
instruments generally have periodic and lifetime interest rate caps. The
Company's ARMs are predominantly tied to LIBOR. Interest rates and the
resulting cost of funds increases in a rapidly increasing rate environment
could exceed the cap levels on these loan products and negatively impact net
interest income.
The Company has managed interest rate risk through the aggressive marketing
and funding of adjustable rate loans, which generally reprice at least semi-
annually and are generally indexed to LIBOR. As a result of this strategy, at
March 31, 1997, the Company's total interest-earning assets maturing or
repricing within one year exceeded its total interest-bearing liabilities
maturing or repricing in the same time by $264.6 million, representing a
positive cumulative gap ratio of 118.2%. The Company closely monitors its
interest rate risk as such risk relates to operational strategies. The
Company's cumulative gap position is at a level satisfactory to management and
the Company is currently attempting to maintain a positive gap position in
light of the current interest rate environment. However, there can be no
assurances that the Company will be able to maintain its positive gap position
or that its strategies will not result in a negative gap position in the
future. The level of the movement of interest rates, up or down, is an
uncertainty and could have a negative impact on the earnings of the Company.
Hedging
The Company has implemented various hedging strategies with respect to its
origination of loans and leases for sale. To date, this has included selling
short comparable maturity United States Treasury securities and preselling
loans through prefunding accounts in its securitizations. The Company is
subject to the risk of rising mortgage interest rates between the time it
commits to fund or purchase mortgage loans at a fixed price and the time it
sells or securitizes those mortgage loans. To mitigate this risk, the Company
enters into transactions designed to hedge interest rate risks, including
mandatory and optional forward selling of mortgage-backed securities or United
States Treasury securities, and buying and selling of futures on United States
Treasury securities. The nature and quantity of these hedging transactions is
and will be determined by the management of the Company based on various
factors including market conditions and the expected volume of mortgage loan
originations and purchases.
54
<PAGE>
The Company believes that it has implemented a cost-effective hedging
program to provide a level of protection against interest rate risks. However,
an effective hedging strategy is complex and no hedging strategy can
completely insulate the Company from interest rate risks. In addition, hedging
involves transaction and other costs which could increase as the period
covered by the hedging protection increases, such costs could also increase in
periods of risk and fluctuating interest rates. Therefore, the Company may be
prevented from effectively hedging its interest rate risks, without
significantly reducing the Company's return on equity.
The Company does not currently engage in the speculative use of trading
activities, including derivatives and synthetic instruments or hedging
activities, in controlling interest rate risk on its portfolio of loans held
for investment.
INTEREST RATE SWAPS
The Company may enter into interest rate cap, floor, and swap transactions
to manage its exposure to fluctuations in interest rates and market movements
in securities values. These instruments involve, to varying degrees, elements
of credit and interest rate risk. The contract or notional amounts do not
represent exposure to credit loss. Risk originates from the inability of
counterparties to meet the terms of the contracts and from market movements in
securities values and interest rates. The Company controls the credit risk of
its interest rate cap, floor and swap agreements through credit approvals,
limits and monitoring procedures.
As a part of the SPTL securitization in the third quarter of 1996 of $277.0
million of multi-family and commercial mortgage loans, the Company delivered
subordinate bonds of approximately $22 million into a total rate of return
swap with JP Morgan. The provisions for the swap entitle the Company to
receive the total return on the subordinate bonds delivered in exchange for a
floating payment of LIBOR plus a spread of 1.95%. The termination date of the
swap, September 30, 1997, could be accelerated in the event the securities
delivered into the swap decline in value more than $3.0 million over a three
month period. In the event of the early termination of the swap, the Company
would be required to pay a fee representing 1.95% of the calculated value of
the underlying securities over the period from the accelerated termination
date to September 30, 1997. The remaining deposit associated with the swap was
$2.5 million at March 31, 1997. The swap is an off balance sheet instrument.
55
<PAGE>
REPRICING/MATURITY OF INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1997, which are
anticipated by the Company to reprice or mature in each of the future time
periods shown. The amounts of assets and liabilities shown which reprice or
mature during a particular period were determined in accordance with the
earlier of term to repricing or the contractual terms of the asset or
liability.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
---------------------------------------------------------------------------------------------------
MORE THAN MORE THAN
MORE THAN MORE THAN MORE THAN 3 YEARS 5 YEARS NON-
3 MONTHS 3 MONTHS TO 6 MONTHS 1 YEAR TO TO 5 TO 10 MORE THAN INTEREST
OR LESS 6 MONTHS TO 1 YEAR 3 YEARS YEARS YEARS 10 YEARS BEARING TOTAL
---------- ----------- --------- --------- --------- --------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Cash................... $ 29,093 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 29,093
Other interest-bearing
deposits.............. 88,670 -- -- -- -- -- -- -- 88,670
Trading securities, at
market................ 23,734 -- -- -- -- -- -- -- 23,734
Securities available
for sale, at market... 24,180 -- -- -- -- -- -- -- 24,180
FHLB stock............. 6,530 -- -- -- -- -- -- -- 6,530
Loans held for sale.... 700,110 -- -- -- -- -- -- -- 700,110
Loans held for
investment, net of
unearned discount and
deferred loan
fees(1)............... 548,160 177,370 124,896 46,526 2,580 48,839 88,298 -- 1,036,669
---------- --------- --------- -------- -------- --------- -------- -------- ----------
Total interest-earning
assets............... 1,420,477 177,370 124,896 46,526 2,580 48,839 88,298 -- 1,908,986
---------- --------- --------- -------- -------- --------- -------- -------- ----------
Less:
Allowance for loan and
lease losses.......... -- -- -- -- -- -- -- (23,310) (23,310)
---------- --------- --------- -------- -------- --------- -------- -------- ----------
Net interest-earning
assets................ 1,420,477 177,370 124,896 46,526 2,580 48,839 88,298 (23,310) 1,885,676
Non-interest-earning
assets................ -- -- -- -- -- -- -- 210,565 210,565
---------- --------- --------- -------- -------- --------- -------- -------- ----------
Total assets.......... $1,420,477 $ 177,370 $ 124,896 $ 46,526 $ 2,580 $ 48,839 $ 88,298 $187,255 $2,096,241
========== ========= ========= ======== ======== ========= ======== ======== ==========
Interest-bearing
liabilities:
Deposits............... $ 432,118 $ 287,735 $ 353,863 $ 87,641 $ -- $ -- $ -- $ -- $1,161,357
Borrowings from FHLB... 34,500 45,000 -- -- -- -- -- -- 79,500
Other borrowings....... 304,902 -- -- -- -- -- -- -- 304,902
Senior notes .......... -- -- -- -- -- 219,782 -- -- 219,782
Convertible notes...... -- -- -- -- -- -- -- -- --
---------- --------- --------- -------- -------- --------- -------- -------- ----------
Total interest-bearing
liabilities.......... 771,520 332,735 353,863 87,641 -- 219,782 -- -- 1,765,541
Non-interest-bearing
liabilities........... -- -- -- -- -- -- -- 83,059 83,059
Shareholders' equity... -- -- -- -- -- -- -- 247,641 247,641
---------- --------- --------- -------- -------- --------- -------- -------- ----------
Total liabilities and
shareholders'
equity............... $ 771,520 $ 332,735 $ 353,863 $ 87,641 $ -- $ 219,782 $ -- $330,700 $2,096,241
========== ========= ========= ======== ======== ========= ======== ======== ==========
Interest rate
sensitivity gap(2).... $ 648,957 $(155,365) $(228,967) $(41,115) $ 2,580 $(170,943) $ 88,298 $ -- $ 143,445
========== ========= ========= ======== ======== ========= ======== ======== ==========
Cumulative interest
sensitivity gap....... $ 648,957 $ 493,592 $ 264,625 $223,510 $226,090 $ 55,147 $143,445 $143,445
========== ========= ========= ======== ======== ========= ======== ========
Cumulative interest
sensitivity gap as a
percentage of total
assets................ 30.96% 23.55% 12.62% 10.66% 10.79% 2.63% 6.84%
Cumulative net interest
earning assets as a
percent of interest
bearing liabilities... 184.11% 144.70% 118.15% 114.46% 114.63% 103.12% 108.12% 108.12%
</TABLE>
- -------
(1) For purposes of the gap analysis, unearned discount and deferred fees are
pro rated for loans receivable.
(2) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as ARMs, have
features which restrict changes in interest rates on a short term basis and
over the life of the asset. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate
significantly from those reflected in the table. Finally, the ability of many
borrowers to service their ARMs may decrease in the event of an interest rate
increase.
56
<PAGE>
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 upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's net interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), (iii) changes in interest due to
both rate and volume and (iv) the net change.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 OVER 1996 DECEMBER 31, 1996 OVER 1995
------------------------------------ ------------------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
-------- ------- ------- -------- -------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase/(decrease)
in:
Investments and
interest bearing
deposits.......... $ 156 $ 3,035 $ 244 $ 3,435 $ 507 $ 3,400 $ 314 $ 4,221
FHLB stock........ (63) 91 (23) 5 (194) 185 (35) (44)
Loans held for
sale.............. (12,056) 5,133 (2,576) (9,499) 35,161 15,746 33,977 84,884
Loans held for
investment, net... 4,997 1,799 439 7,235 (29,704) 18,010 (5,192) (16,886)
Capitalized
excess servicing
fees receivable... (836) (1,063) 415 (1,484) 3,609 924 1,281 5,814
-------- ------- ------- -------- -------- ------- ------- --------
Total interest
income.......... (7,802) 8,995 (1,501) (308) 9,379 38,265 30,345 77,989
-------- ------- ------- -------- -------- ------- ------- --------
Deposits.......... 984 780 62 1,826 11,700 (1,908) (358) 9,434
Borrowings from
Imperial Bank..... (293) (293) 293 (293) 302 -- -- 302
FHLB borrowings... (202) 232 (29) 1 (6,807) (869) 311 (7,365)
Other borrowings.. (11,971) (1,853) 1,285 (12,539) 25,586 3,951 6,150 35,687
Senior notes ..... 2,695 (31) (38) 2,626 706 (122) (9) 575
Convertible
subordinated
debentures........ -- -- -- -- 675 -- -- 675
-------- ------- ------- -------- -------- ------- ------- --------
Total interest
expense......... (8,787) (1,165) 1,573 (8,379) 32,162 1,052 6,094 39,308
-------- ------- ------- -------- -------- ------- ------- --------
Change in net
interest income.... $ 985 $10,160 $(3,074) $ 8,071 $(22,783) $37,213 $24,251 $ 38,681
======== ======= ======= ======== ======== ======= ======= ========
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 OVER 1994
-------------------------------------
RATE/
VOLUME RATE VOLUME TOTAL
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Increase/(decrease)
in:
Investments and
interest bearing
deposits.......... $ 1,302 $ 1,079 $ 503 $ 2,884
FHLB stock........ 61 70 5 136
Loans held for
sale.............. (14,656) 3,022 (1,496) (13,130)
Loans held for
investment, net... 54,467 (156) (110) 54,201
Capitalized
excess servicing
fees receivable... 2,608 -- -- 2,608
-------- -------- ------- --------
Total interest
income.......... 43,782 4,015 (1,098) 46,699
-------- -------- ------- --------
Deposits.......... (5,297) 17,278 (2,181) 9,800
Borrowings from
Imperial Bank..... (129) -- -- (129)
FHLB borrowings... 3,315 4,270 1,339 8,924
Other borrowings.. 11,664 281 3,472 15,417
Senior notes ..... 177 (136) 1 42
Convertible
subordinated
debentures........ -- -- -- --
-------- -------- ------- --------
Total interest
expense......... 9,730 21,693 2,631 34,054
-------- -------- ------- --------
Change in net
interest income.... $ 34,052 $(17,678) $(3,729) $ 12,645
======== ======== ======= ========
</TABLE>
57
<PAGE>
AVERAGE BALANCE SHEET
The following tables set forth certain information relating to the Company
for the three months ended March 31, 1997 and the years ended December 31,
1996, 1995 and 1994. The yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown except where noted otherwise. Average balances are derived from
average month-end balances. Management does not believe that the use of
average monthly balances instead of average daily balances has caused any
material differences in the information presented for the three months ended
March 31, 1997 and the years ended December 31, 1996, 1995 and 1994. The
average balance of loans receivable includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- --------------------------- ---------------------------
YIELD/ YIELD/ YIELD/
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Investments and
interest bearing
deposits........ $ 150,460 $ 5,370 14.28% $ 143,067 $ 9,862 6.89% $ 131,277 $ 5,641 4.30%
FHLB stock...... 13,462 255 7.58 15,853 945 5.96 19,720 989 5.02
Loans held for
sale............ 563,622 14,463 10.26 1,140,790 101,170 8.87 361,156 16,286 4.51
Loans held for
investment,
net(1).......... 1,033,809 28,467 11.01 779,522 87,072 11.17 1,091,536 103,958 9.52
Capitalized
excess servicing
fees receivable. 28,635 657 9.18 53,052 8,422 15.87 22,257 2,608 11.72
---------- ------- ---------- -------- ---------- --------
Total interest-
earning assets.. 1,789,988 49,212 11.00 2,132,284 207,471 9.73 1,625,946 129,482 7.96
---------- ------- ---------- -------- ---------- --------
Non interest-
earning assets... 168,576 163,055 45,167
---------- ---------- ----------
Total assets.... $1,958,564 $2,295,339 $1,671,113
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
Interest-bearing
liabilities:
Deposits........ $1,145,580 $17,157 5.99% $1,063,799 $ 60,999 5.73% $ 867,162 $ 51,565 5.95%
Borrowings from
Imperial Bank... -- -- -- 3,311 302 9.12 -- -- --
Borrowings from
FHLB............ 98,922 1,595 6.45 201,693 12,055 5.98 310,425 19,420 6.26
Other
borrowings...... 269,402 4,866 7.22 645,313 52,050 8.07 251,684 16,363 6.50
Senior notes.... 184,077 4,786 10.40 88,365 8,955 10.13 81,500 8,380 10.28
Convertible
subordinated
debentures...... -- -- -- 10,068 675 6.70
---------- ------- ---------- -------- ---------- --------
Total interest-
bearing
liabilities(2).. 1,697,981 28,404 6.69 2,012,549 135,036 6.71 1,510,771 95,728 6.34
---------- ------- ---------- -------- ---------- --------
Non interest-
bearing
liabilities...... 16,786 115,962 88,306
Shareholders'
equity........... 243,797 166,828 72,036
---------- ---------- ----------
Total
liabilities and
shareholders'
equity.......... $1,958,564 $2,295,339 $1,671,113
========== ========== ==========
Net interest rate
spread........... $20,808 4.31% $ 72,435 3.02% $ 33,754 1.62%
======= ======== ========
Net interest
margin(2)........ 4.65% 3.40% 2.08%
Ratio of
interest-earning
assets to
interest-bearing
liabilities...... 105.42% 105.95% 107.62%
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
---------------------------
YIELD/
AVERAGE AVERAGE
BALANCE INTEREST COST
---------- -------- -------
<S> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Investments and
interest bearing
deposits........ $ 89,155 $ 2,757 3.09%
FHLB stock...... 18,398 853 4.64
Loans held for
sale............ 719,487 29,416 4.09
Loans held for
investment,
net(1).......... 521,200 49,757 9.55
Capitalized
excess servicing
fees receivable. -- -- --
---------- -------
Total interest-
earning assets.. 1,348,240 82,783 6.14
---------- -------
Non interest-
earning assets... 70,117
----------
Total assets.... $1,418,357
==========
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
Interest-bearing
liabilities:
Deposits........ $ 992,972 $41,765 4.21%
Borrowings from
Imperial Bank... 1,415 129 9.12
Borrowings from
FHLB............ 235,922 10,496 4.45
Other
borrowings...... 18,877 946 5.01
Senior notes.... 79,807 8,338 10.45
Convertible
subordinated
debentures......
---------- -------
Total interest-
bearing
liabilities(2).. 1,328,993 61,674 4.64
---------- -------
Non interest-
bearing
liabilities...... 19,025
Shareholders'
equity........... 70,339
----------
Total
liabilities and
shareholders'
equity.......... $1,418,357
==========
Net interest rate
spread........... $21,109 1.50%
=======
Net interest
margin(2)........ 1.57%
Ratio of
interest-earning
assets to
interest-bearing
liabilities...... 101.45%
</TABLE>
- ----
(1) Net of deferred income and the allowance for loan losses, includes
nonaccrual loans.
(2) Average interest cost and net interest margin excluding the interest
expense from the senior notes and convertible subordinated debentures
during the three months ended March 31, 1997 and the years ended
December 31, 1996, 1995 and 1994 were 6.24% and 5.72%, 6.55% and 3.85%,
6.11% and 2.59%, and 4.27% and 2.18%, respectively.
58
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 supersedes APB Opinion No. 15, "Earnings per Share" ("APB
15"), and specifies the computation, presentation, and disclosure requirements
for earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS 128 will replace the presentation of primary EPS
with a presentation of basic EPS, and fully diluted EPS with diluted EPS. SFAS
128 will also require dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator of the diluted EPS computation. This statement
shall be effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
The Company has determined that this statement will have no significant impact
on the financial position, results of operations, or income per share for
1997.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129"). This statement requires disclosures
about capital structures that had been included in a number of previously
existing separate statements and opinions. This statement shall be effective
for the financial statements for both interim and annual periods ending after
December 15, 1997. At this time the Company has determined that this statement
will have no significant impact on its financial position or results of
operations for 1997.
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 125"). This statement specifies when financial assets and
liabilities are to be removed from an entity's financial statements, the
accounting for servicing assets and liabilities and the accounting for assets
that can be contractually prepaid in such a way that the holder would not
recover substantially all of its recorded investment.
Under SFAS 125, an entity recognizes only assets it controls and liabilities
it has incurred, discontinues recognition of assets only when control has been
surrendered, and discontinues recognition of liabilities only when they have
been extinguished. SFAS 125 requires that the selling entity continue to carry
retained interests, including servicing assets, relating to assets it no
longer recognizes. Such retained interests are based on the relative fair
values of the retained interests of the subject assets at the date of
transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
SFAS 125 requires an entity to recognize its obligation to service financial
assets that are retained in a transfer of assets in the form of a servicing
asset or liability. The servicing asset or liability is to be amortized in
proportion to, and over the period of, net servicing income or loss. Servicing
assets and liabilities are to be assessed for impairment based on their fair
value.
SFAS 125 modifies the accounting for interest-only strips or retained
interests in securitizations, such as capitalized servicing fees receivable,
that can be contractually prepaid or otherwise settled in such a way that the
holder would not recover substantially all of its recorded investment. In this
case, it requires that they be classified as available for sale or as trading
securities. Interest-only strips and retained interests are to be recorded at
market value.
Under the provisions of SFAS 125, management has determined that mortgage
backed securities retained by the Company as a result of securitization
transactions will be classified as trading securities. All other retained
securities will be classified as available for sale or trading as determined
at the time of securitization.
Changes in market value are included in operations, if classified as trading
securities, or in shareholders' equity as unrealized gains or losses, net of
the related tax effect, if classified as available for sale. SFAS 125 was
effective for the Company on January 1, 1997. The implementation of SFAS 125
did not have a material impact on the Company's financial condition or results
of operations.
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<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
The Company is a diversified commercial and consumer finance company. In
1995, the Company began to reposition its business from originating and
selling conforming residential mortgage loans to offering higher margin loan
and lease products. The Company accomplished this repositioning through a
business strategy that emphasizes: (i) opportunistic expansion and
acquisitions of businesses in niche segments of the financial services
industry, (ii) conservative and disciplined underwriting and credit risk
management, (iii) loan and lease originations, where possible, on a wholesale
basis, (iv) securitization or sale in the secondary market of substantially
all of the Company's loans and leases, other than those held for investment by
SPTL and (v) maintaining business and financial flexibility to take advantage
of changing market conditions with respect to specific financial services
businesses.
The Company has diversified its loan and lease products by focusing on the
creation and acquisition of additional finance businesses in order to reduce
dependency on residential mortgage lending. When acquiring new businesses or
targeting expansion opportunities, the Company seeks to retain existing
management and recruit additional experienced management to increase growth
and profitability and to reduce the risks associated with operating the newly
acquired entity. As a result, the Company has divested substantially all of
its residential mortgage lending and residential mortgage servicing businesses
and expanded its presence in other specialty finance markets. Throughout this
realignment, the Company's core business has remained consistent in that it
originates loans and leases funded primarily by warehouse lines of credit and
repurchase facilities, and securitizations and whole loan sales in the
secondary market. For the three months ended March 31, 1997 and the years
ended December 31, 1996 and 1995, the Company originated or acquired $275.8
million, $2.2 billion and $3.0 billion of loans and leases, respectively. In
addition, during the three months ended March 31, 1997 and the years ended
December 31, 1996 and 1995, the Company completed securitization transactions
of $97.9 million, $1.3 billion and $1.0 billion, respectively.
For the year ended December 31, 1996, a substantial portion of the Company's
operations were conducted through its non-conforming residential mortgage
lending subsidiary, SPFC. In June 1996, as part of the Company's
repositioning, SPFC engaged in an initial public offering of its common stock
pursuant to which ICII was a selling shareholder. During the fourth quarter of
1996 and the first quarter of 1997, ICII sold additional shares of its SPFC
common stock reducing its ownership percentage to 49.4% as of March 31, 1997.
As a result, commencing with the three months ended March 31, 1997 the
financial statements of SPFC are no longer consolidated with those of ICII. As
a result of this deconsolidation, certain of the financial and operating data
presented for the three months ended March 31, 1997 and thereafter will not be
comparable with such data for periods prior to the deconsolidation. For a
further description of the effect of such deconsolidation, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
General--Deconsolidation."
FRANCHISE LENDING
Acquisition of FMAC
In June 1995, the Company established FMAC, whose assets were acquired from
a division of Greenwich Financial Capital Products, Inc. ("Greenwich"),
including all of Greenwich's rights under certain servicing contracts entered
into by FMAC's predecessor (the "Servicing Contracts"). The Servicing
Contracts pertained to the servicing of franchise mortgage loans that were
previously securitized by Greenwich through FMAC's
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<PAGE>
predecessor. In connection with the acquisition, the Company and its
affiliates assumed certain liabilities related to the Servicing Contracts and
Greenwich agreed to act as the Company's exclusive agent in connection with
the securitization of franchise mortgage loans for a period of 24 months. The
net purchase price for these assets was approximately $7.6 million.
Concurrently with the closing of the transactions described above, the
Company entered into an operating agreement with Wayne L. Knyal ("Knyal"), the
former president of FMAC's predecessor, for the formation of FMAC. FMAC was
formed to originate, securitize and service franchise mortgage loans. Under
the terms of the operating agreement, in exchange for a 66.7% ownership
interest in FMAC, the Company contributed to FMAC approximately $1.3 million
in cash and all of the assets purchased from Greenwich other than the
Servicing Contracts. In exchange for a 33.3% ownership interest in FMAC, Knyal
caused his wholly-owned subsidiary, Franchise Mortgage Acceptance Corporation
("FMAC Corporation"), to contribute to FMAC all of its rights under a
servicing contract pertaining to franchise mortgage loans that were previously
securitized by FMAC Corporation. FMAC's headquarters and operations center are
located in Greenwich, Connecticut.
General
FMAC is a full service franchise finance company engaged in the business of
originating loans and equipment leases to top-tier established franchisees of
national and regional franchise concepts, most of which are then securitized
into investment grade structures and sold to institutional investors. During
the three months ended March 31, 1997, the year ended December 31, 1996 and
the six-month period ended December 31, 1995, FMAC originated or acquired
$133.4 million, $449.3 million and $163.5 million and securitized $0,
$325.1 million and $105.2 million of franchise mortgage loans, respectively.
At March 31, 1997, the year ended December 31, 1996 and December 31, 1996,
none of the loans included on the Company's consolidated balance sheet
originated by FMAC were delinquent. FMAC's current product line consists of
enterprise loans, which are loans to finance the operation of existing
franchise units, development loans, which are loans to fund construction of
new units, other real estate loans, which are loans to acquire additional
units, and equipment financing, which are loans and leases for franchise
equipment. To reduce credit risk, the FMAC strategically focuses on lending to
established franchise owners who typically own three or more units, have three
or more years of ownership experience in the concept, or have an equivalent
ownership tenure in a different major concept.
FMAC historically has focused on lending to national and regional franchise
concepts such as Taco Bell, Burger King, Hardee's, Pizza Hut, Wendy's and KFC.
FMAC intends to further expand its lending within the food service industries
to casual dining and buffet style restaurant franchises. Additionally, FMAC
intends to expand into other food and non-food related franchise concepts.
In connection with its lending activities, FMAC has taken equity positions
in borrowers and intends to expand such interests in the future to improve its
returns. For example, in June 1996, FMAC provided a $40.0 million acquisition
loan to Summerwood LP ("Summerwood") for the acquisition of 65 Taco Bell and
six KFC restaurants in the greater Philadelphia area. The restaurant assets
were comprised of a mixture of fee and leased properties, restaurant operating
equipment, and the development rights for the Philadelphia markets for 34
additional Taco Bell and 10 KFC restaurants. Included in the transaction were
warrants to acquire in excess of one-third of the ownership of Summerwood.
Additionally, FMAC has effected three additional transactions wherein it
acquired ownership interests in the borrowers.
FMAC is currently expanding its marketing focus to include other food and
non-food related franchise concepts. In February 1996, FMAC established a
division doing business under the name Imperial Golf Finance Group, which
expands FMAC's financing to owners and operators of golf courses nationwide,
with a focus on lending to experienced golf course operators. For the three
months ended March 31, 1997 and the year ended December 31, 1996, FMAC
originated $1.3 million and $21.0 million in loans related to the golf
industry. In addition, in the first quarter of 1997, FMAC established a
division focusing on providing financing to energy and retail related
franchisees.
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Industry Data
According to the 1996 Edition of the Franchise Opportunities Guide (the
"Guide"), there are more than 550,000 domestic franchise businesses currently
generating more than $800 billion in sales. According to the Guide, sales by
franchised businesses now total more than one-third of the United States
retail market and more than seven million people draw their paychecks from
franchised businesses.
FMAC believes that substantial business opportunities exist in the growing
franchise finance market. Although the term franchise is typically associated
with fast food restaurants, there are a multitude of franchise businesses
offering a variety of products and services such as home sales, car
maintenance and hair cutting.
Members of FMAC's management group have gained extensive experience in the
development and refinement of systems of operation, management and research
which have enhanced FMAC's ability to identify, evaluate and structure new
investments. FMAC's experience in the restaurant franchise industry results in
efficient, in-house performance of loan origination, real estate acquisition
and management. FMAC utilizes experienced loan originators recruited from
banking and commercial finance companies to analyze operations data, assess
real estate values, process and document loan files, and implement FMAC's
business growth strategy.
Loan Originations
Overview
Enterprise loans--Enterprise loans are fixed or variable rate loans offered
to finance the value of existing franchise units. These loans are used
primarily to refinance existing franchise debt of the borrower, provide
business expansion proceeds based on the value of the franchise or for the
franchisees' working capital needs. Enterprise loans generally have a term and
amortization of up to 15 years and are partially secured by taking a first
lien on all available franchise furniture, fixtures and equipment. In the
origination process for enterprise loans, FMAC focuses on the cash flow of the
franchise business, the continuing ability of the borrower to operate the
franchise in a cash positive manner and the borrower's ability to repay the
loan since neither the franchise mortgage nor the franchise agreement is
generally assignable to secure the loan.
Development loans--Development loans are offered to fund the development and
construction of new franchise units. Development loans generally have a term
and amortization of up to 16 years and are secured by the franchise mortgage
or leasehold interest as well as all available franchise furniture, fixtures
and equipment. Development loans may be interest only for the first year and
fully amortizing for the subsequent 15 years, and may be fixed or variable
rate.
Other real estate loans--Other real estate loans are fixed or variable rate
loans offered to acquire additional franchise units, which may include the
underlying real estate interest. Other real estate loans generally have a term
and amortization of up to 15 years and are secured by the franchise mortgage
or leasehold interest as well as all available franchise furniture, fixtures
and equipment.
Equipment financing--FMAC offers both equipment loans and equipment leases
to finance the acquisition of franchise concept equipment. Equipment loans and
leases generally have a term and amortization of up to seven years and are
secured by the underlying financed equipment.
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<PAGE>
The following table sets forth FMAC's loan originations by type of loans for
the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------- -------------------------------------------
WEIGHTED WEIGHTED
NUMBER OF PRINCIPAL AVERAGE NUMBER OF PRINCIPAL AVERAGE
LOANS AMOUNT % OF TOTAL INTEREST LOANS AMOUNT % OF TOTAL INTEREST
ORIGINATED ORIGINATED ORIGINATIONS RATE ORIGINATED ORIGINATED ORIGINATIONS RATE
---------- ---------- ------------ -------- ---------- ---------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Enterprise Loans
Fixed rate loans....... 118 $ 63,357 14.1% 10.30% 82 $ 52,740 32.3% 10.11%
Variable rate loans.... 74 43,606 9.7 8.96% 30 12,377 7.6 8.53%
--- -------- ----- --- -------- -----
Total.................. 192 106,963 23.8 9.75% 112 65,117 39.9 9.81%
--- -------- ----- --- -------- -----
Development Loans
Fixed rate loans ...... -- -- -- -- % -- -- -- --
Variable rate loans.... 103 105,706 23.5 9.50% 6 5,955 3.6 9.38%
--- -------- ----- --- -------- -----
Total.................. 103 105,706 23.5 9.50% 6 5,955 3.6 9.38%
--- -------- ----- --- -------- -----
Other Real Estate Loans
Fixed rate loans....... 175 163,737 36.5 10.30% 84 73,643 45.0 9.97%
Variable rate loans.... 83 72,904 16.2 9.05% 20 18,784 11.5 8.57%
--- -------- ----- --- -------- -----
Total.................. 258 236,641 52.7 9.92% 104 92,427 56.5 9.69%
--- -------- ----- --- -------- -----
Total(1).............. 553 $449,310 100.0% 9.78% 222 $163,499 100.0% 9.72%
=== ======== ===== === ======== =====
</TABLE>
- --------
(1) Excludes $3.2 million of equipment leases originated during the year ended
December 31, 1996. There were no equipment leases originated during the
period from June 30, 1995 through December 31, 1995.
All of FMAC's borrowers must have a franchise agreement in place with an
approved concept franchisor. The following table sets forth FMAC's loan
originations by franchise concept.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------- ----------------------------------
NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL
LOANS AMOUNT % OF TOTAL LOANS AMOUNT % OF TOTAL
ORIGINATED ORIGINATED ORIGINATIONS ORIGINATED ORIGINATED ORIGINATIONS
---------- ---------- ------------ ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Taco Bell............... 233 $167,544 37.3% 44 $ 33,599 20.6%
Burger King............. 116 109,782 24.4 54 38,503 23.6
Hardee's................ 57 40,586 9.0 39 33,447 20.4
Wendy's................. 41 32,905 7.3 22 16,769 10.3
Pizza Hut............... 16 8,093 1.8 44 27,925 17.0
TGI Friday's............ 4 9.120 2.0 1 2,550 1.6
Long John Silvers....... 15 6,850 1.5 -- -- --
KFC..................... 21 13,411 3.0 18 10,706 6.5
Other................... 50 61,019 13.7 -- -- --
--- -------- ----- --- -------- -----
Total................ 553 $449,310 100.0% 222 $163,499 100.0%
=== ======== ===== === ======== =====
</TABLE>
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<PAGE>
Geographic Distribution--The following table sets forth by state the number
of loans originated by FMAC for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------- ----------------------------------
NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL
LOANS AMOUNT % OF TOTAL LOANS AMOUNT % OF TOTAL
ORIGINATED ORIGINATED ORIGINATIONS ORIGINATED ORIGINATED ORIGINATIONS
---------- ---------- ------------ ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania............ 59 $ 35,693 7.9% -- $ -- --%
Connecticut............. 36 34,620 7.7 14 7,859 4.8
California.............. 40 32,871 7.3 16 10,475 6.4
New Jersey.............. 32 31,031 6.9 6 6,258 3.8
Texas................... 41 29,189 6.5 16 13,445 8.2
Virginia................ 14 24,724 5.5 25 18,819 11.5
North Carolina.......... 21 23,106 5.1 17 9,588 5.9
Maryland................ 20 22,343 5.0 2 1,407 0.9
Alabama................. 20 18,480 4.1 -- -- --
South Carolina.......... 20 16,927 3.8 8 5,391 3.3
New York................ 21 13,500 3.0 9 6,464 4.0
Wisconsin............... 14 11,868 2.6 13 9,327 5.7
Nevada.................. 18 11,284 2.5 -- -- --
Georgia................. 11 11,052 2.5 16 11,583 7.1
Tennessee............... 15 10,980 2.4 -- -- --
New Hampshire........... 13 9,780 2.2 -- -- --
Delaware................ 13 8,685 1.9 -- -- --
Minnesota............... 8 8,650 1.9 7 5,781 3.4
New Mexico.............. 20 8,623 1.9 1 189 0.1
Massachusetts........... 11 8,003 1.8 4 4,197 2.6
Utah.................... 5 7,482 1.7 -- -- --
Ohio.................... 9 6,395 1.4 7 8,192 5.0
Illinois................ 10 5,855 1.3 6 4,986 3.1
Mississippi............. 8 5,270 1.2 -- -- --
Michigan................ 7 4,848 1.1 6 4,828 3.0
West Virginia........... 5 4,274 1.0 -- -- --
Louisiana............... 5 4,243 0.9 -- -- --
Florida................. 7 4,168 0.9 6 4,634 2.8
Oregon.................. 6 3,910 0.9 -- -- --
Oklahoma................ 13 3,445 0.8 9 1,929 1.2
Maine................... 3 3,300 0.7 -- -- --
Indiana................. 5 3,257 0.7 -- -- --
Kansas.................. 1 3,029 0.7 3 1,927 1.2
Colorado................ 5 2,790 0.6 6 3,807 2.3
Montana................. 2 2,661 0.6 -- -- --
Rhode Island............ 4 2,100 0.5 -- -- --
Wyoming................. 2 1,850 0.4 -- -- --
Washington.............. 2 1,647 0.4 -- -- --
Arkansas................ 1 1,600 0.3 -- -- --
Washington, D.C......... 1 1,250 0.3 -- -- --
Kentucky................ 1 1,177 0.3 4 5,423 3.3
Idaho................... 1 1,170 0.3 -- -- --
Iowa.................... 1 800 0.2 2 1,954 1.2
Alaska.................. 1 750 0.2 11 8,259 5.1
Nebraska................ 1 630 0.1 -- -- --
Missouri................ -- -- -- 4 3,884 2.4
Other................... -- -- -- 4 2,893 1.7
--- -------- ----- --- -------- -----
Total................ 553 $449,310 100.0% 222 $163,499 100.0%
=== ======== ===== === ======== =====
</TABLE>
Underwriting
Under FMAC's current underwriting guidelines, each franchisee loan is
originated after a review of the following criteria: (i) the applicant's
ability to repay the franchisee loan, (ii) the adequacy of the cash flow of
both the franchise unit and the borrower, and (iii) the real and tangible
personal property that serves as collateral for such franchisee loan. FMAC has
created an underwriting model which incorporates management's assumptions,
which are based upon industry statistics, into an underwriting formula. Loan
officers input data provided by potential borrowers and determine whether or
not a loan would qualify under FMAC's underwriting guidelines. FMAC's loan
originations typically range in size from $250,000 to $2.0 million for each
franchise location. The majority of borrowers are multiple unit operators.
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<PAGE>
For all loans, the borrower completes an environmental questionnaire and
FMAC obtains a report from a third party service which identifies
environmental risks in the vicinity. Certificates of occupancy are requested
on all units. Additionally, Uniform Commercial Code searches are conducted for
all borrowers before and after origination of a loan. FMAC prefers franchisees
to pay off all existing loans and equipment leases with FMAC loan proceeds.
For cases in which encumbrances will survive the funding of the franchisee
loan, FMAC reviews all such notes, pledge and security agreements, and loan
documents.
Although the franchise agreement is not assigned to secure the franchisee
loan, the continued ability of the borrower to operate the franchise is
essential to ensure the borrower's ability to repay the franchisee loan. FMAC
reviews a copy of the executed franchise agreement to verify (i) that the
borrower is the franchisee or has been granted an assignment of franchisee
rights from the franchisor, (ii) that the duration of the franchise term is as
reported by the borrower and (iii) that the renewal section of the agreement
provides for renewals of the franchise term, particularly when the franchise
term does not exceed the loan term. In the event a loan term exceeds the term
of a borrower's franchise agreement, the loan documentation provides that it
is an event of default (entitling FMAC to accelerate the loan at a premium) if
the franchise agreement is not renewed. If a franchise agreement is not
renewed, FMAC can permit a borrower to provide substitute collateral
satisfying FMAC's underwriting guidelines. Additionally, a certificate of good
standing is required from the franchisor. Units must meet minimum seasoning
requirements which are typically 12 months of operation. The amount of
seasoning generally required is three years for single unit borrowers and
three to 12 months for multi-unit borrowers.
FMAC reviews the organizational documents of borrowers which are business
entities and reviews the personal net worth of borrowers who are individuals.
Business credit reports are obtained for all borrowers. Personal credit
reports are obtained for majority owners of all borrowers. For borrowers
organized as sole proprietorships (other than multi-unit borrowers) and in
certain other cases, personal guarantees are required from the principals. All
former bankruptcies must be discharged and the time since discharge must be at
least five years except in extraordinary circumstances.
Three years of historical operating statements, if available, are required
of all borrowers. FMAC analyzes the revenue and expense numbers to determine
the ability of the unit to support the repayment of a prospective franchisee
loan. Two measures are calculated for this purpose: fixed charge coverage
ratio, i.e., the ratio of cash flow to fixed charges of both the borrower and
the unit, which is generally required to be 1.15x to 1.25x and loan-to-
business value of the unit. The "business value" of a franchise unit is
derived from a formula based upon the franchise concept and the revenues
(sales) and cash flow generated by the franchise unit through its operations,
which in turn is dependent upon and derived from a borrower's franchise
agreement with (or license from) the franchisor. In the case of development
loans, the maximum loan-to-business value is 70% and, in the case of
enterprise loans, the maximum loan-to-business value is 65%. Exceptions to
these maximum loan-to-business values may be made in certain circumstances and
with respect to single-unit borrowers more stringent loan-to-business value
standards are required.
Marketing
FMAC originates the majority of its loans through its marketing department,
comprised of account executives located in seven offices that have established
relationships with franchise operators located in all 50 states. FMAC's
offices are in Alabama, California, Colorado, Connecticut, Georgia, Nebraska
and Washington. FMAC is actively seeking to expand and diversify its financing
operations pursuant to selected franchise operating statistics and other
criteria developed by FMAC, which are intended to identify attractive markets
for FMAC's products.
Applicants are identified through direct solicitation, targeted mailings,
phone solicitations, participation at franchisee conventions, and through
existing customer contacts. Prospective borrowers are contacted by a lending
officer and complete an application for each franchisee location. In addition
to an application, FMAC reviews substantial required documentation depending
on the nature of the borrower and the collateral securing the loan.
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<PAGE>
If a borrower meets FMAC's underwriting criteria, the account executive uses
the FMAC underwriting model to generate a loan proposal. FMAC funds over 90%
of all loan proposals generated by its underwriting model.
FMAC's databases include specific franchise location data for over 20
franchise concepts, including demographic information, traffic volumes and
information about surrounding retail and other commercial development that
generate customer traffic for franchise establishments. FMAC also maintains a
database of approximately 3,000 chain restaurant industry participants, as
well as databases of unit-level financial performance for existing and
prospective clients. FMAC has the ability to integrate information collected
on sales performance and restaurant location with a mapping system which
contains demographic, retail space, traffic count and street location
information for every significant market in the United States. FMAC also has
collected extensive data regarding management practices within several
franchised industries, franchisor practices and industry trends.
The information collected by FMAC is actively used to assess lending
opportunities, measure prospective credit risk, evaluate portfolio performance
and manage underperforming assets. FMAC intends to continually develop,
improve and use its knowledge of franchised enterprises through research and
broader application of information technology to lower portfolio risk, improve
performance, expand into other franchise concepts and improve its competitive
advantage.
BUSINESS FINANCE LENDING
The Company, through IBC, and SPTL's CBC, LPIG and Auto Lend divisions,
engages in business finance lending, which consists of commercial equipment
leasing, asset-based lending, loan participations and automobile inventory
financing for automobile dealers.
ASSET-BASED LENDING
Acquisition of CBC
On September 30, 1995, as part of the Company's strategy to diversify its
lending operations, the Company acquired from Coast Federal Bank, all of the
outstanding capital stock of CoastFed Business Credit Corporation ("CBCC"), a
financial services company engaged primarily in the asset-based commercial
lending business. The purchase price was approximately $150.0 million.
Concurrently with the closing of the transaction described above, CBCC was
merged with and into SPTL. Upon consummation of the merger, CBCC became the
Coast Business Credit operating division of SPTL ("CBC").
General
CBC is a senior secured asset-based lender located in West Los Angeles,
California which has historically conducted its lending business activities
primarily with California-based companies. During 1996, CBC executed an
expansion plan which has increased its customer base outside of California.
CBC now operates three loan production centers in California and additional
loan production centers in Boston, Minneapolis, Atlanta, Portland, Chicago and
Seattle. At March 31, 1997, and December 31, 1996, CBC had outstanding loans
totaling $318.0 million and $288.5 million, respectively. CBC had unused loan
commitments of $271.0 million at March 31, 1997.
CBC's principal business is asset-based lending to small- to medium-sized
businesses with annual revenues ranging from approximately $10 million to $100
million. Generally, such businesses are constrained from obtaining financing
from more traditional credit sources such as commercial banks due to
inadequate equity capitalization, limited operating history, lack of
profitability or financing needs below commercial bank minimum size
requirements. CBC has focused its lending activities on high technology
businesses engaged in the computer industry, many of which are backed by
venture capital investors. At March 31, 1997, CBC had outstanding loans
totaling $125.3 million to technology companies.
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<PAGE>
At March 31, 1997, CBC's loan portfolio represented lending relationships
with 111 customers, with an average total loan per customer of $2.9 million.
The Company believes that CBC's relationships with venture capital investors
and its industry expertise contribute to CBC's ability to distinguish itself
from its competitors and grow its lending relationships.
The Company believes that CBC's pricing is competitive with pricing charged
by other commercial finance companies. In addition, CBC attempts to be
flexible in the structuring of its revolving credit lines and to provide
prompt service in order to gain an advantage over its competitors. When CBC
competes against more traditional lenders, it competes less on price and more
on flexibility, speed of funding and the relative simplicity of its
documentation. CBC strives to fund its initial advance under a loan to an
approved client within three weeks of CBC's receipt of required information
with respect to the client, and strives to fund future advances generally by
the next business day after CBC's receipt of required documentation.
Loan Products and Originations
CBC's loans are categorized based on the type of collateral securing the
loan. CBC makes revolving loans primarily secured by accounts receivable and
secondarily by inventory. It also makes term loans secured by real property,
equipment or other fixed assets. CBC also periodically enters into
participations with other commercial finance companies. CBC's loans typically
have maturities of two to five years, providing borrowers with greater
flexibility to manage their borrowing needs. These loans have an automatic
renewal for a one year period at the end of such contract term unless
terminated by either party (usually requiring 60 days written notice prior to
the end of such term). Equipment loans are term loans typically with three- to
five-year amortization periods, but are due and payable upon termination of
the master loan and security agreement.
The principal types of loans made by CBC are as follows:
Accounts Receivable Loans--These loans are revolving lines of credit that
are collateralized principally by accounts receivable. Borrowers normally
remit their customer accounts receivable payments directly to CBC, usually on
a daily basis. CBC deposits the payments daily and applies the funds to the
borrowers' loan balances. CBC typically lends up to 80% of the principal
balance of accounts receivable that meet CBC's eligibility requirements. CBC's
auditors conduct quarterly audits of the collateral and financial condition of
each borrower.
Inventory Loans--These loans are revolving lines of credit that are
collateralized by eligible inventory that is restricted to raw materials and
finished goods. Inventory loans are generally made in conjunction with
accounts receivable loans to qualifying borrowers. Borrowers are required to
provide CBC with monthly inventory designations that are supported by a
physical listing or a copy of a perpetual computer listing. These reports are
compared to the borrower's financial statements for accuracy and CBC advances
the loan proceeds as a percentage of the eligible inventory value. Inventory
loans are primarily structured as revolving lines of credit, but under certain
circumstances may be structured to incorporate monthly amortization.
Participation Loans--These loans consist of term loans or revolving lines of
credit in which CBC and other lenders (banks or other asset-based lenders)
jointly lend to borrowers when the loan amount exceeds the lending limits of
an individual lender.
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<PAGE>
Set forth below is a table showing the principal amount of CBC's loans
outstanding as of March 31, 1997, December 31, 1996, and 1995, and the
percentage of CBC's portfolio comprised of each loan type as of such date.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
OUTSTANDING % OF OUTSTANDING % OF OUTSTANDING % OF
BALANCE TOTAL BALANCE TOTAL BALANCE TOTAL
----------- ----- ----------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable
loans.................. $235.9 74.2% $208.1 72.1% $127.3 82.6%
Inventory loans......... 36.3 11.4 34.9 12.1 18.9 12.3
Participation loans(1).. 45.8 14.4 45.5 15.8 8.0 5.1
------ ----- ------ ----- ------ -----
Total................. $318.0 100.0% $288.5 100.0% $154.2 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
- --------
(1) Participation loans include $48.6 million, $48.4 million and $10.3 million
purchased and $2.7 million, $2.9 million and $2.3 million sold at March
31, 1997 and December 31, 1996 and 1995, respectively.
The weighted average yield on CBC's loans outstanding was 12.45%, 12.41% and
13.25% at March 31, 1997 and December 31, 1996 and 1995, respectively.
CBC had commitments to make additional fundings on lines of credit with
existing borrowers totaling approximately $271.0 million, $259.2 million and
$209.9 million at March 31, 1997 and December 31, 1996 and 1995, respectively;
however, each additional funding is contingent upon the borrower's maintaining
both sufficient collateral and compliance with the terms and conditions of the
loan documents.
Underwriting
Before a credit line is established, CBC policy requires a review of the
prospective client, its principals, business and customer base, including a
review of financial statements and other financial information, legal
documentation, samples of invoices and related documentation, operational
matters and accounts receivable and payable. Following this review, CBC
confirms certain matters with respect to the prospective client's business and
the collectibility of the client's commercial receivables and other potential
collateral by conducting public record searches for liens, conducting credit
reviews of the prospective client and its principals, contacting major
customers and suppliers to identify potential problems, and conducting an on-
site audit of the prospective client's invoice, bookkeeping and collection
procedures to verify that they are properly conducted and operationally
compatible with CBC's operations. For high technology borrowers, particular
emphasis is placed on comprehending the underlying value of the technology
itself, including the value of the borrowers' intangible assets.
After the preliminary review and diligence, CBC requires the prospective
borrower to provide a deposit for fees, orders appraisals if lending against
inventory, equipment or real estate and schedules an audit. CBC's audit staff
conducts an audit generally consisting of a due diligence review of the
prospective borrower's accounting and financial records, including a
statistical review of accounts receivable and charge-off history. CBC auditors
then submit their audit reports and work papers to CBC's credit committee for
review prior to the extension of credit.
In making a decision to approve a credit line, CBC establishes credit limits
under the revolving credit line and analyzes the prospective client's customer
base to assure compliance with CBC's policies generally limiting CBC's overall
exposure to individual borrowers, especially with respect to privately held or
non-investment grade borrowers. When deemed necessary for credit approval, CBC
may obtain guaranties or other security from a client or its affiliates and
may also obtain subordination and intercreditor agreements from the borrower's
other lenders. Although CBC's underwriting guidelines specify a review of the
factors described above, CBC does not apply a rigid scoring system to
prospective borrowers and decisions to enter into a relationship with a
prospective client are made on a case-by-case basis.
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<PAGE>
CBC's underwriting guidelines and policies provide that, prior to each
funding of a loan, the account executive assigned to the borrower (i) obtains
the original or a copy of the invoice to be sent to the borrower and the
purchase order (if one is required by CBC) related to such invoice, (ii)
confirms the validity and accuracy of a representative sampling of invoices
and (iii) mails a letter, on the borrower's letterhead, to the new borrower's
customer which introduces CBC and requests that payment be made directly to
CBC.
Credit Monitoring and Controls
An assigned CBC account executive monitors each borrower's credit,
collateral and advances. All account executives are required to meet with each
of their assigned borrowers at least quarterly to monitor the borrower's
business, physically inspect the borrower's facilities and equipment and
discuss problems the borrower may be experiencing.
CBC monitors borrowers' accounts receivable using three forms. The first
form is an accounts receivable aging analysis report prepared monthly by the
loan processor and reviewed by the account executive, and which includes,
among other things, details pertaining to account concentrations and aging
trends. The second is an accounts receivable activity summary prepared weekly
by the loan processor and reviewed by the account executive, summarizing
borrowings, repayments and pledged collateral. The third is a daily report
prepared by the borrower and reviewed by the account executive to determine
credit availability for a particular day.
In addition to the foregoing monitoring procedures, interim audits of all
borrowers are scheduled as deemed appropriate. Also, each account is reviewed
on its anniversary date and revolving lines are reviewed and reconciled on a
monthly basis.
Where liquidation is required for repayment of an outstanding loan, CBC
attempts to effect a consensual possession of the subject collateral property
and joint collection of accounts receivable. In certain instances, court
action may be required to ensure collection of receivables and possession of
pledged assets. CBC has not experienced any loan losses since its acquisition
by the Company.
Marketing
CBC obtains business through referrals from banks, venture capitalists,
accounting firms, management consultants, existing borrowers, other finance
companies and independent brokers. CBC's marketing officers call on CBC's
referral sources to identify and receive introductions to potential clients
and to identify potential clients from database searches. CBC currently
compensates its marketing personnel with what it believes are competitive base
salaries and commissions based on funded transactions in order to motivate and
reward the creation of new business and the renewal of existing business. Such
commissions can be a significant portion of the total compensation paid to
CBC's marketing personnel. CBC's marketing personnel have no credit decision
authority.
The Company believes that CBC's marketing strengths are its rapid response
time and high level of service. The Company believes that, based on CBC's
experience with technology credits and valuation of their associated tangible
and intangible assets, CBC is able to quickly evaluate potential borrowers,
providing it with a competitive advantage over other lenders with less
experience lending to high technology companies. The Company also believes
that CBC's ability to quickly evaluate credit decisions and provide loans to
borrowers who, for various reason, have not established relationships with
traditional lenders, has resulted in a loyal customer base.
COMMERCIAL EQUIPMENT LEASING
In May 1995, the Company expanded its existing commercial equipment leasing
business conducted by its wholly-owned subsidiary, Imperial Business Credit,
Inc. ("IBC"), through the acquisition of the assets and the assumption of
certain liabilities of First Concord Acceptance Corporation ("FCAC"), a
Colorado corporation
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<PAGE>
engaged in the origination, acquisition and servicing of business equipment
leases. The sale was effectuated pursuant to an asset purchase agreement among
the Company, FCAC and Oren L. Benton, FCAC's majority shareholder ("Benton").
In connection with the purchase of FCAC's assets, the Company or its
affiliates also purchased 100% of the partnership interests of three
partnerships controlled by Benton that were formed for the purpose of
securitizing certain of FCAC's lease receivables. The net purchase price for
FCAC's assets and the partnership interests was approximately $21 million.
In October 1996, IBC acquired substantially all of the assets of Avco
Leasing Services, Inc. and all of the assets of Avco Financial Services of
Southern California, Inc. related to its business of originating and servicing
business equipment leases and agreed to assume certain related liabilities in
connection therewith from Avco Financial Services, Inc. The net purchase price
for the Avco Acquisition was approximately $94.8 million.
General
IBC's corporate headquarters are located in San Diego, California. IBC
carries out its business equipment leasing operations from both its
headquarters and its sales offices in Irvine, California, Denver, Colorado and
Atlanta, Georgia.
IBC's lease originations totaled $30.1 million, $87.2 million and $36.0
million for the three months ended March 31, 1997 and the years ended December
31, 1996 and 1995, respectively. During the three months ended March 31, 1997
and the years ended December 31, 1996 and 1995, IBC securitized $97.9 million,
$87.0 million and $85.2 million of leases, respectively.
Lease Finance Operations
IBC is in the business of leasing equipment, including copying, data
processing, communication, printing and manufacturing equipment, exclusively
to business users. Initial lease terms typically range from 24 months to 60
months. IBC will commit to purchase this equipment only when it has a signed
lease with a lessee who satisfies its credit and funding requirements.
Substantially all the leases written by IBC are full-payout ("direct
financing") leases that allow IBC to sell or re-lease the equipment upon
termination of the lease. IBC also purchases small portfolios of existing
equipment leases from brokers with whom it has established relationships.
These portfolios are evaluated on an individual basis according to IBC's
established credit policy. The Company believes that these acquisitions allow
IBC to grow with greater efficiency than usual at a level of decreased risk
due to the portfolio aging that has occurred on the books of the originating
broker. IBC uses an established computer system and related software systems
to process lease applications, book leases and post lease payments and closely
monitor credit processing and collections. These systems have in part been
developed by IBC management.
Upon expiration of the initial lease terms of its direct-financing leases,
IBC expects, on average, to realize slightly more than the "residual value" at
which the leased equipment is carried on IBC's books. IBC's ability to recover
the recorded estimated residual value depends on the accuracy of initial
estimates of the equipment's useful life, the market conditions for used
equipment when leases expire, and the effectiveness of IBC's program for re-
leasing or otherwise disposing of leased equipment. Residual recovery,
however, is not required for IBC to achieve a profitable return on its
investment. The residual is usually worth 1% to 2% of the gross yield
depending upon the original lease term, further mitigating against the
residual risk inherent in the portfolio.
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The following table sets forth IBC's lease originations by equipment type
for the period presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
---------------------------------- ----------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LEASES AMOUNT % OF TOTAL OF LEASES AMOUNT % OF TOTAL
ORIGINATED ORIGINATED ORIGINATIONS ORIGINATED ORIGINATED ORIGINATIONS
---------- ---------- ------------ ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Computers............... 548 $ 9,459 31.5% 857 $21,331 24.5%
Automotive.............. 358 2,675 8.9 475 4,279 4.9
Restaurant.............. 222 2,652 8.8 395 6,238 7.2
Furniture and fixtures.. 204 2,649 8.8 242 5,963 6.8
Manufacturing/Machine
work................... 121 2,905 9.7 380 11,289 13.0
Radio television
production equipment... 60 1,081 3.6 202 3,838 4.4
Heavy equipment......... 38 689 2.3 163 3,938 4.5
Health/Sports equipment. 36 1,028 3.4 125 3,069 3.5
Print/Typeset equipment. 27 710 2.4 141 3,251 3.7
Dry cleaning/Washing.... 18 313 1.0 102 2,387 2.7
Clothing manufacture.... 10 430 1.4 59 2,373 2.7
Other................... 304 5,418 18.2 1,204 19,251 22.1
----- ------- ----- ----- ------- -----
Total................. 1,946 $30,009 100.0% 4,345 $87,207 100.0%
===== ======= ===== ===== ======= =====
</TABLE>
IBC uses a non-cancelable lease, the terms and conditions of which vary only
slightly from transaction to transaction. In substantially all of the leases,
lessees are obligated to: (i) remit all rents due, regardless of the
performance of the equipment, (ii) operate the equipment in a careful and
proper manner and in compliance with governmental rules and regulations, (iii)
maintain and service the equipment, (iv) insure the equipment against casualty
losses and public liability, bodily injury and property damage and (v) pay
directly, or reimburse IBC for, any taxes associated with the equipment, its
use, possession or lease, except those relating to net income derived by IBC
therefrom. The lease provides that IBC, in the event of a default by a lessee,
may declare the entire unpaid balance of rentals due and payable immediately,
and may seize and remove the equipment for subsequent sale, re-lease or other
disposition.
Underwriting
IBC maintains written credit policies that IBC believes are prudent and
customary within the lease finance industry. Such policies form the basis for
IBC's standardized lease forms and approval processes. On occasion, IBC will
make exceptions to its written credit policy for lease brokers with whom IBC
has had past positive experience. In general, IBC's credit policies encourage
leasing of income-generating equipment. Within these guidelines, there are few
specific equipment or industry prohibitions.
IBC's credit policies allow it to accept credit investigations provided by
select brokers and has generated a database about the brokers with whom it
does business. IBC also maintains a written collection policy to provide
standard collection guidelines. In those instances when a portfolio of leases
is acquired, documentation provided by the originating lessor is checked for
compliance with IBC's documentation standards before accepting the portfolio
for purchase.
Marketing
IBC markets its equipment lease products through its own in-house sales
force and through its network of professional equipment lease brokers. IBC's
20 person in-house sales force calls end user customers and vendors to solicit
their equipment lease transactions. IBC intends to expand its marketing
efforts to include more vendors. The sales force also calls on IBC's network
of professional equipment lease brokers to solicit these professionals to send
their lease transactions to IBC.
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<PAGE>
IBC's broker advisory panel consists of a group of its most productive
brokers brought together on an annual basis, so that they may have an open
interchange of ideas and information regarding IBC and the leasing
marketplace. IBC believes the advisory panel serves a multi-purpose function
by allowing IBC to reward those brokers that provide a profitable base of
business to IBC, and also providing IBC the opportunity to market new ideas
and concepts to those brokers before a general release to the leasing
community. IBC believes that it benefits by obtaining information on how the
brokers work with IBC's competitors (such as special programs and market
trends), and this information can then be used to drive future marketing
plans.
LOAN PARTICIPATION AND INVESTMENT GROUP
SPTL's Loan Participation and Investment Group ("LPIG") was formed in
September 1995 to invest in and purchase syndicated commercial loan
participations in the primary and secondary market originated by commercial
banks. During the three months ended March 31, 1997 and the year ended
December 31, 1996, LPIG purchased senior secured loan participations with
outstanding loan commitments totaling $276.4 million and $267.1 million,
respectively. Loans outstanding under commitments as of March 31, 1997 were
$161.2 million. At March 31, 1997, none of LPIG's loans were 30 days or more
delinquent.
The principal types of loans acquired by LPIG are senior secured bank loans
consisting of: (i) revolving lines of credit which allow the borrower to
borrow and repay proceeds as needed for working capital purposes, (ii) long-
term loans with a specific amortization schedule which requires the borrower
to repay the borrowed loans over time, usually on a quarterly basis or (iii)
letters of credit which are normally funded as a sublimit under the revolving
line of credit commitment. The loans are generally secured by a first priority
lien on all of the borrower's property including accounts receivable,
inventory and furniture, fixtures and equipment, as well as liens on owned
real estate. At March 31, 1997, loan participations held by LPIG ranged in
size from approximately $850,000 to approximately $15.0 million.
LPIG believes that its purchase of senior secured loan participations allows
it to build and maintain a loan portfolio without costly direct customer loan
servicing and loan origination costs. In addition, such purchases facilitate
the maintenance of a portfolio which is diversified both geographically and by
industry.
LPIG's loan underwriting policy requires an analysis of the borrower's
ability to repay its debts, as well as an evaluation of the effects of general
economic and industry trends and various competitive factors affecting the
borrower.
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<PAGE>
LPIG's commitments/outstandings by industry type at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31, 1996
---------------------------------------------- ----------------------------------------------
% OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
COMMITMENT COMMITMENT OUTSTANDING OUTSTANDING COMMITMENT COMMITMENT OUTSTANDING OUTSTANDING
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
---------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing (all
segments).............. $ 69,171 25.3% $ 46,734 29.0% $ 69,893 26.2% $ 43,865 27.3%
Hotels.................. 33,720 12.2 15,660 9.7 33,942 12.7 14,436 9.0
Broadcasting (TV)....... 24,465 8.8 13,890 8.6 24,625 9.2 15,040 9.4
Broadcasting (Radio).... 20,000 7.2 7,744 4.8 -- -- -- --
Outdoor advertising..... 19,000 6.9 11,110 6.9 19,000 7.1 6,479 4.0
Supermarkets............ 16,950 6.1 13,895 8.6 14,474 5.4 10,784 6.7
Defense................. -- -- -- -- 4,643 1.7 1,427 .9
Office products
distributor............ 15,000 5.4 2,708 1.7 15,000 5.6 9,205 5.7
Air carrier (cargo)..... 15,000 5.4 6,711 4.2 -- -- -- --
Cable television........ -- -- -- -- 10,000 3.8 6,937 4.3
Paper (all segments).... 14,851 5.3 7,690 4.8 15,195 5.7 7,670 4.8
Collection Services..... 10,819 3.9 6,299 3.9 11,000 4.1 6,054 3.8
Waste disposal services. 10,127 3.7 4,940 3.1 10,000 3.8 6,129 3.8
Air carrier (passenger). 8,833 3.2 8,833 5.5 20,000 7.5 16,484 10.2
Food distribution....... 4,917 1.8 4,917 3.0 4,917 1.8 4,917 3.1
Direct mail advertising. 4,705 1.7 2,486 1.5 4,758 1.8 2,664 1.7
Park management......... 4,620 1.6 3,420 2.1 4,620 1.7 3,580 2.2
Restaurants............. 4,179 1.5 4,179 2.6 5,000 1.9 5,000 3.1
-------- ----- -------- ----- -------- ----- -------- -----
Total................. $276,357 100.0% $161,216 100.0% $267,067 100.0% $160,671 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
AUTO LEND GROUP
SPTL's Auto Lend Group ("Auto Lend") was established in September 1996, to
provide automobile inventory financing for automobile dealers. The principal
types of loans originated are fixed-rate lines of credit. Auto Lend had $9.4
million of loans outstanding at March 31, 1997. SPTL believes that Auto Lend's
products offer synergistic opportunities, when offered in connection with
SPTL's sub-prime auto lending ability, to provide car dealers a complete
financing package. See "--Consumer Lending--Auto Lending Division."
COMMERCIAL MORTGAGE LENDING
SPTL's Income Property Lending Division ("IPLD") was formed in February 1994
to expand the Company's apartment and commercial property lending business.
For the three months ended March 31, 1997 and the years ended December 31,
1996 and 1995, IPLD funded approximately $75.9 million, $260.9 million and
$160.0 million in loans, respectively. During the three months ended March 31,
1997 and the years ended December 31, 1996 and 1995, SPTL completed
securitizations of $0, and approximately $277.0 million and $57.7 million of
multi-family and commercial mortgage loans originated or purchased by IPLD,
respectively. At March 31, 1997 and December 31, 1996 and 1995 $2.4 million,
$1.9 million and $0.4 million or 1.0% and 1.1% and 0.04%, respectively, of
IPLD's outstanding loans were 30 days or more delinquent. At March 31, 1997
and December 31, 1996 and 1995, $4.5 million, $4.4 million and $0.4 million,
respectively, of IPLD originated loans were held for investment by SPTL. IPLD
generally seeks to make 70% of its loans secured by apartment buildings and
30% of its loans secured by other commercial properties. Most of IPLD's
business is generated through in-house loan representatives who market the
loans directly to mortgage brokers and borrowers. Most of IPLD's loans have
been secured by properties in California.
The focus of IPLD's lending activity is the small loan market for apartments
and commercial loans and its maximum loan amount is $2.5 million. SPTL
believes that IPLD employs conservative underwriting criteria, which include a
maximum loan-to-value ratio of 70% and minimum debt coverage ratio of 1.2x on
all loans. Loans secured by income properties entail additional risk as
compared to single family residential lending. The payment experience
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<PAGE>
on such loans is generally dependent on the successful operation of the
related commercial or multi-family property and can be greatly impacted by
adverse conditions in local real estate markets or in the economy.
All of IPLD's loan programs include 30-year adjustable rate loans tied to
the 6-month LIBOR, 1-year Treasury, or Bank of America prime indexes. Margins
vary depending on product type, property location and credit history of the
borrower. With respect to apartment loans, IPLD uses standard government
agency documentation and approved independent appraisers.
CONSUMER LENDING
Through AMN and the Auto Lending Division of SPTL, the Company makes sub-
prime automobile finance loans. The Company also makes home improvement loans
and other consumer credit available through the Consumer Credit Division of
SPTL.
AUTO MARKETING NETWORK, INC.
In March 1997, the Company acquired all of the outstanding shares of AMN for
$750,000 and advanced AMN $11.6 million to repay amounts owed pursuant to
operating lines of credit and for working capital purposes. AMN is
headquartered in Boca Raton, Florida and offers loans to finance the purchase
of new and used automobiles primarily to sub-prime borrowers. At March 31,
1997, AMN had regional offices in Texas, Virginia, Tennessee, and operations
facilities in Oklahoma and is currently licensed in 45 states. Automobile
finance contracts are acquired principally from an active dealer base of
approximately 900 franchised automobile dealers. AMN provides its dealers with
training and support designed to allow dealers to accelerate underwriting and
final loan approval.
For the period from its acquisition (March 14, 1997) through March 31, 1997,
AMN originated $16.1 million in sub-prime auto loans. At March 31, 1997, $5.0
million or 6.4% of AMN's outstanding loans were 30 days or more delinquent.
AUTO LENDING DIVISION
ALD was formed in October 1994 to finance new and used automobile purchase
contracts. ALD's borrowers are generally credit-impaired and therefore are
unable to access alternative sources of financing from banks and captive
automobile finance companies. ALD seeks to offset the increased risk of
default in its portfolio with higher yields and aggressive servicing and
collection activities.
During the three months ended March 31, 1997 and the years ended December
31, 1996 and 1995, ALD originated approximately $16.3 million, $35.0 million
and $19.0 million, respectively, in automobile loans. SPTL currently generates
automobile loans through three Northern California retail offices and
anticipates expanding its activities within California.
HOME IMPROVEMENT LOANS AND OTHER CONSUMER CREDIT
CCD was formed in early 1994 to offer loans primarily to finance home
improvements and consumer goods. CCD's business is developed through a network
of retailers and contractors throughout California. All loans are centrally
processed, approved and funded at CCD's headquarters in Irvine, California.
Home improvement loans offered by CCD range from $5,000 to $350,000 and
include major remodeling projects that are sometimes coupled with
refinancings. CCD's typical loan is secured by a junior lien. In addition, CCD
purchases unsecured installment sales contracts to finance certain home
improvements such as air conditioning, roofing and kitchen and bathroom
remodeling.
During the three months ended March 31, 1997 and the year ended December 31,
1996, CCD originated $4.0 million and $22.0 million in loans, respectively,
all of which are held for investment. At March 31, 1997 and December 31, 1996,
$1.0 million and $0.9 million or 2.4% and 2.4%, respectively, of CCD's
outstanding loans were 30 days or more delinquent.
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<PAGE>
ADVISORY, INVESTMENT AND OTHER ACTIVITIES
The Company conducts advisory services through its Imperial Credit Advisors,
Inc. ("ICAI") subsidiary and has substantial investments in Southern Pacific
Funding Corporation ("SPFC"), a publicly traded non-conforming residential
mortgage lender, Dabney/Resnick/Imperial, LLC, ("DRI"), an investment banking
firm and Imperial Credit Mortgage Holdings, Inc. ("IMH"), a publicly traded
real estate investment trust engaged in mortgage finance activities.
IMPERIAL CREDIT ADVISORS, INC.
ICAI oversees the day-to-day operations of IMH pursuant to a management
agreement more fully described in "Certain Transactions--Relationships with
IMH--Other Transactions--General." For the three months ended March 31, 1997
and the years ended December 31, 1996 and 1995, ICAI earned $1.6 million,
$3.3 million and $37,888 in management fees and incentive payments pursuant to
the management agreement.
SOUTHERN PACIFIC FUNDING CORPORATION
SPFC is a publicly traded specialty finance company (NYSE Symbol: "SFC")
which originates, purchases and sells high yielding, single family non-
conforming mortgage loans. Substantially all of SPFC's loans are secured by
first or second mortgages on owner occupied single family residences. The
majority of the originated and purchased loans are made to borrowers who do
not qualify for or are unwilling to obtain financing from conventional
mortgage sources. As of March 31, 1997, ICII owned 10,242,500 shares of SPFC
common stock, representing 49.4% of the outstanding common stock of SPFC
which, commencing with the three months ended March 31, 1997, is reflected on
the Company's financial statements as "Investment in Southern Pacific Funding
Corporation." ICII's investment in SPFC constituted 2.3% of the Company's
total assets and contributed 15.5% of the Company's total revenue for the
three months ended March 31, 1997.
DABNEY/RESNICK/IMPERIAL, LLC
In September 1996, the Company entered into various transactions with
Dabney/Resnick, Inc. subsequently renamed Dabney/Resnick/Imperial, LLC
("DRI"). ICII has acquired a 1% equity interest in DRI and has purchased a
warrant to acquire an additional 48% interest therein. DRI is an investment
bank that serves institutional, high net worth, and corporate clients. DRI's
services include securities underwriting, sales and trading, financial
advisory services, investment research, and asset management. DRI manages and
underwrites public offerings and securities, arranges private placements and
provides advisory and other services in connection with mergers, acquisitions,
restructurings, and other financial transactions.
IMPERIAL CREDIT MORTGAGE HOLDINGS, INC.
Simultaneously with IMH's initial public offering in November 1995, the
Company contributed certain operating assets of ICII's mortgage conduit
operations and SPTL's warehouse lending operations for 500,000 shares of IMH's
common stock. IMH is a publicly traded specialty finance company (AMEX Symbol:
"IMH") which operated three businesses: (i) the long-term investment
operations which invests primarily in nonconforming residential mortgage loans
and securities backed by such loans, (ii) the conduit operations which
primarily purchases and sells or securitizes non-conforming mortgage loans and
(iii) the warehouse lending operations which provides short-term lines of
credit to originators of mortgage loans. As of March 31, 1997, the Company
owned 462,269 shares of IMH common stock, representing 4.9% of the outstanding
common stock of IMH.
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<PAGE>
LOANS HELD FOR INVESTMENT
The following table sets forth certain information regarding the Company's
loans held for investment. Substantially all of the Company's loans held for
investment are held by SPTL:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------------
1997 1996 1995 1994
------------ ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans secured by real
estate:
One to four family......... $ 339,597 $ 375,476 $228,721 $ 897,494
Multi-family............... -- 2,527 7,028 82,004
Commercial................. 4,522 11,011 133,189 30,287
---------- ---------- -------- ----------
344,119 389,014 368,938 1,009,785
---------- ---------- -------- ----------
Leases..................... 9,548 99,717 7,297 23,667
Installment loans.......... 59,517 34,248 1,900 4,290
Franchise loans............ 118,385 115,910 46,766 --
Asset-based loans.......... 314,063 288,528 154,252 --
Commercial loans........... 204,893 173,932 110,104 5,882
---------- ---------- -------- ----------
1,050,525 1,101,349 689,257 1,043,624
---------- ---------- -------- ----------
Unearned income............ (7,305) (6,336) (5,217) (5,900)
Deferred loan fees......... (6,551) (6,415) (1,540) (1,115)
---------- ---------- -------- ----------
1,036,669 1,088,598 682,500 1,036,609
Allowance for loan losses.. (23,310) (19,999) (13,729) (7,054)
---------- ---------- -------- ----------
Total.................. $1,013,359 $1,068,599 $668,771 $1,029,555
========== ========== ======== ==========
</TABLE>
The Company's loans held for investment are primarily comprised of first and
second lien mortgages secured by residential and income producing real
property in California, leases secured by equipment, asset-based loans to
middle market companies mainly in California, and loans to experienced
franchisees of national and regional restaurant franchises. As a result, the
loan portfolio has a high concentration in the same geographic region.
Although the Company has a diversified portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon the economy of
California.
With respect to loans held for investment at SPTL, a continuing decline in
California real estate values may adversely affect the underlying loan
collateral. In order to reduce the Company's risk of loss on any one credit,
the Company has historically sought to maintain a fairly low average loan size
within the portfolio of loans held for investment. The average loan size and
single largest loan, excluding loans originated by CBC, of the loans
originated by and held for investment at SPTL at March 31, 1997 and
December 31, 1996 and 1995 were $45,000, $0.1 million and $11.0 million, and
$11.0 million, $0.1 million and $3.4 million, respectively. The largest loan
held for investment at September 30, 1996 and December 31, 1996 and 1995 was a
performing loan secured by a first deed of trust.
FUNDING AND SECURITIZATIONS
The Company's liquidity requirements are met primarily by repurchase
facilities, warehouse lines of credit from financial institutions,
securitizations, whole loan sales, SPTL customer deposits and FHLB and
commercial borrowings. The Company has also accessed the capital markets
through equity and debt offerings. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Lines of Credit and Warehouse Facilities" and "--Securitizations."
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SPTL Deposits
SPTL obtains its funds from depositors by issuing FDIC insured passbook
accounts and term certificates of deposit. SPTL solicits both individual and
institutional depositors for new accounts through print advertisements and
computerized referral networks. SPTL currently maintains two deposit gathering
facilities in Southern California. At such facilities, tellers provide banking
services to customers such as accepting deposits and permitting withdrawals.
However, customers are not offered check writing services or offered demand
deposit accounts. Generally, certificates of deposit are offered for terms of
one to 12 months. See "Thrift and Loan Operations--Limitations on Types of
Deposits" for a description of limitations on types of deposits that SPTL, as
a thrift and loan, can accept.
The following table sets forth the distribution of SPTL's deposit accounts
(prior to intercompany elimination), and the weighted average nominal interest
rates on each category of deposits:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------
AT MARCH 31, 1997 1996 1995
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
% OF INTEREST % OF INTEREST % OF INTEREST
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
---------- -------- -------- ---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 72,453 6.0% 5.03% $ 47,890 4.5% 4.73% $ 51,146 4.7% 1.27%
Time deposits of less
than $100,000.......... 889,994 73.6 5.87 803,556 74.9 5.84 755,499 69.1 5.67
Time deposits of
$100,000 and over...... 247,354 20.4 5.76 220,820 20.6 5.74 286,794 26.2 5.97
---------- ----- ---------- ----- ---------- -----
Total................. $1,209,801 100.0% 5.80% $1,072,266 100.0% 5.77% $1,093,439 100.0% 5.54%
========== ===== ========== ===== ========== =====
</TABLE>
The following table sets forth the dollar amount of deposits by time
remaining to maturity:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
AT MARCH 31, 1997 1996 1995
------------------- ------------------- -------------------
% OF % OF % OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
---------- -------- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Three months or less.... $ 480,562 39.7% $ 404,565 37.7% $ 356,353 32.6%
Over three months
through six months..... 287,735 23.8 279,397 26.1 259,300 23.7
Over six months through
twelve months.......... 353,863 29.3 311,862 29.1 367,285 33.6
Over twelve months...... 87,641 7.2 76,442 7.1 110,501 10.1
---------- ----- ---------- ----- ---------- -----
Total................. $1,209,801 100.0% $1,072,266 100.0% $1,093,439 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
Certificates of deposit of $100,000 and over totaled approximately $247.4
million, $220.8 million and $286.8 million at March 31, 1997 and December 31,
1996 and 1995, respectively. Interest expense associated with certificates of
deposit of $100,000 and over was approximately $3.6 million, $13.6 million and
$15.4 million for the three months ended March 31, 1997, the years ended
December 31, 1996 and 1995, respectively.
Since December 31, 1991, SPTL has increased its deposits as necessary so
that deposits together with cash, liquid assets and FHLB borrowings, have been
sufficient to provide SPTL funding for its lending activities. The weighted
average interest rate of the deposit accounts was 5.80% at March 31, 1997 as
compared to 5.77% at December 31, 1996 and 5.54% at December 31, 1995. The
Company believes that SPTL's local marketing strategies, as well as its
utilization of domestic money markets, have been the basis by which SPTL has
been able to acquire new deposits at levels consistent with management's
financial targets. Certain levels of growth of SPTL's assets and deposits
require notice to the FDIC.
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As an additional source of funds, SPTL was approved in 1991 to become a
member of the FHLB. Currently, SPTL is approved for borrowings from the FHLB
pursuant to a secured line of credit that is automatically adjusted subject to
applicable FHLB regulations and available pledged collateral. At March 31,
1997, $79.5 million was outstanding bearing an average interest rate of 6.21%.
COMPETITION
The businesses in which the Company operates are highly competitive. The
Company faces significant competition from other commercial and consumer
finance lenders, commercial banks, credit unions, thrift institutions and
securities firms, among others. Many of these competitors are substantially
larger and have more capital and other resources than the Company. Competition
can take many forms, including convenience in obtaining a loan or lease,
customer service, marketing and distribution channels and interest rates
charged to borrowers. In addition, the current level of gains realized by the
Company and its competitors on the sale of their loans and leases could
attract additional competitors into these markets, with the possible effect of
lowering gains that may be realized on the Company's future loan and lease
sales.
Wholesale originations are expected to remain a significant part of the
Company's loan and lease production programs. As a wholesale purchaser of
loans and leases, the Company is exposed to fluctuations in the volume and
cost of wholesale loans and leases resulting from competition with other
purchasers of such loans and leases, market conditions and other factors.
Management believes that SPTL's most direct competition for deposits comes
from savings and loan associations, other thrift and loan companies,
commercial banks and credit unions. The Company's cost of funds fluctuates
with general market interest rates. During certain interest rate environments,
additional significant competition for deposits may be expected from corporate
and governmental debt securities as well as money market mutual funds.
REGULATION
The Company's businesses are subject to extensive regulation in the United
States at both the federal and state level. In the Company's home equity loan
and financing businesses, regulated matters include loan origination, credit
activities, maximum interest rates and finance and other charges, disclosure
to customers, the terms of secured transactions, the collection, repossession
and claims handling procedures utilized by the Company, multiple qualification
and licensing requirements for doing business in various jurisdictions and
other trade practices. As a part of the financing and asset securitization
business, the Company is required to register as a broker-dealer with certain
Federal and state securities regulatory agencies and is a member of the NASD.
Truth in Lending
The Truth in Lending Act ("TILA") and Regulation Z promulgated thereunder
contain disclosure requirements designed to provide consumers with uniform,
understandable information with respect to the terms and conditions of loans
and credit transactions in order to give them the ability to compare credit
terms. TILA also guarantees consumers a three day right to cancel certain
credit transactions including loans of the type originated by the Company. The
Company believes that it is in compliance with TILA in all material respects.
The enforcement provisions applicable to TILA grant broad powers to the
appropriate federal regulatory agencies or the Federal Trade Commission to
enforce TILA with respect to those entities not otherwise subject to federal
regulations, such as the Company. TILA also contains criminal penalties for
wilful violations and grants a private right of action with specified
statutory damage rewards for certain violations. If the Company were found not
to be in compliance with TILA with respect to certain loans, aggrieved
borrowers could have the right to rescind their mortgage loan transactions and
to demand the return of finance charges paid to the Company, and other damages
provided under TILA. The Board of Governors of the Federal Reserve System
recently amended Regulation Z to add rescission "tolerances" to the rule to
limit the rule's rescission remedy to disclosure
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<PAGE>
inaccuracies of the finance charge which amount to over one percent of the
face amount of the note. The new rule also implements amendments to TILA which
provide for rescission after the initiation of foreclosure proceedings under
certain circumstances.
TILA applies to all individuals and businesses that regularly extend
consumer credit which is subject to a finance charge or is payable by a
written agreement in more than four installments and is primarily for
personal, family or household purposes. As such, TILA is applicable to the
Company and its subsidiaries. Generally, TILA requires a creditor to make
certain disclosures to the consumer concerning, among other things, finance
charges and annual percentage rates. In addition to these general
requirements, recent amendments to TILA require additional disclosures in
connection with certain types of mortgage loans. These additional disclosure
requirements apply to loans (other than mortgage loans to finance the
acquisition or initial construction of a dwelling) with (i) total points and
fees upon origination in excess of eight percent of the loan amount or $400,
whichever is greater or (ii) an annual percentage rate of more than ten
percentage points higher than comparably maturing United States Treasury
securities ("Covered Loans"). Effective January 1, 1996, the $400 figure was
adjusted by the Board of Governors of the Federal Reserve System to $412, in
accordance with Regulation Z. These TILA provisions prohibit lenders from
originating Covered Loans that are underwritten solely on the basis of the
borrower's home equity without regard to the borrower's ability to repay the
loan. The Company believes that only a small portion of loans originated in
1995 are of the type that, unless modified, are prohibited by TILA. It is the
Company's policy to apply to all Covered Loans underwriting criteria that take
into consideration the borrower's ability to repay.
TILA also prohibits lenders from including prepayment fee clauses in Covered
Loans to borrowers except in cases in which the penalty can be exercised only
during the first five years following consummation of the loan, the consumer's
total monthly debt-to-income ratio does not exceed 50% and the Covered Loans
are not used to refinance existing loans originated by the same lender. The
Company will continue to collect prepayment fees on loans originated prior to
October 1995 (the effective date of the prepayment provision of TILA) and on
non-Covered Loans, as well as on Covered Loans in permitted circumstances, but
the level of prepayment fee revenue may decline in future years. TILA imposes
other restrictions on Covered Loans, including restrictions on balloon
payments and negative amortization features, which the Company does not
believe will have a material impact on its operations.
Other Lending Laws
The Company and its subsidiaries are also required to comply with the Equal
Credit Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors
from discriminating against applicants on the basis of race, color, religion,
sex, age or marital status. The ECOA also prohibits discrimination in the
extension of credit based on the fact that all or part of the applicant's
income derives from a public assistance program or the fact that the applicant
has in good faith exercised any right under the Consumer Credit Protection
Act. Regulation B promulgated under ECOA restricts creditors from obtaining
certain types of information from loan applicants. It also requires certain
disclosures by the lender regarding consumer rights and requires lenders to
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. The Company
is also subject to the Real Estate Settlement Procedures Act of 1974, as
amended, and is required to file an annual report with the Department of
Housing and Urban Development pursuant to the Home Mortgage Disclosure Act.
In addition, the Company is subject to various other Federal and state laws,
rules and regulations governing, among other things, the licensing of, and
procedures which must be followed by, mortgage lenders and servicers, and
disclosures which must be made to consumer borrowers. Failure to comply with
such laws may result in civil and criminal liability and may, in some cases,
give consumer borrowers the right to rescind their mortgage loans and to
demand the return of finance charges paid to the Company.
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<PAGE>
In addition, certain of the loans originated or purchased by the Company,
such as Title I home improvement loans, are insured by an agency of the
Federal government. Such loans are subject to extensive government regulation.
Environmental Liability
In the course of its business, the Company may foreclose on properties
securing loans that are in default. There is a risk that hazardous or toxic
substances or petroleum constituents could be on such properties. In such
event, it is possible that the Company could be held responsible for the cost
of cleaning up or removing such waste depending upon the lender's activities,
and such cost could exceed the value of the underlying properties.
Under the laws of certain states, contaminated property may be subject to a
lien on the property to assure payment for cleanup costs. In several states,
such a lien has priority over the lien of an existing mortgage or owner's
interest. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), a lender may become liable for cleanup of a property and adjacent
properties that are contaminated by releases from the mortgaged property if
the lender engages in certain activities. In 1996 CERCLA was amended to
eliminate federal lender liability under CERCLA in certain circumstances,
including foreclosure if the lender resells the property at the earliest
practicable, commercially reasonable time on commercially reasonable terms. In
addition, the amendments defined the term participation in management, which
provided some guidance to lenders about the nature of activities that would
and would not give rise to liability under CERCLA. These amendments do not
apply to state Superfund laws. Also, foreclosure and other activities on
contaminated property may subject a lender to state tort liability.
Future Laws
Because each of the Company's businesses is highly regulated, the laws,
rules and regulations applicable to the Company are subject to modification
and change. There are currently proposed various laws, rules and regulations
which, if adopted, could impact the Company. There can be no assurance that
these proposed laws, rules and regulations, or other such laws, rules or
regulations will not be adopted in the future which could make compliance more
difficult or expensive, restrict the Company's ability to originate, broker,
purchase or sell loans, further limit or restrict the amount of commissions,
interest and other charges earned on loans originated, brokered, purchased or
sold by the Company, or otherwise adversely affect the business or prospects
of the Company.
THRIFT AND LOAN OPERATIONS
SPTL is subject to regulation, supervision and examination under both
Federal and California law. SPTL is subject to supervision and regulation by
the California Commissioner of Corporations (the "Commissioner") and, by the
FDIC. Neither the Company's mortgage banking operations nor SPTL's thrift
business is regulated or supervised by the Office of Thrift Supervision, which
regulates savings and loan institutions. ICII is not directly regulated or
supervised by the Commissioner, the FDIC, the Federal Reserve Board or any
other bank regulatory authority, except with respect to the general regulatory
and enforcement authority of the Commissioner and the FDIC over transactions
and dealings between ICII or any of its other subsidiaries and SPTL, and
except with respect to both the specific limitations regarding ownership of
the capital stock of a parent company of any thrift and loan association and
the specific limitations regarding the payment of dividends from SPTL
discussed below.
General
SPTL is governed by the California Industrial Loan Law and the rules and
regulations of the Commissioner that, among other things, regulate in certain
limited circumstances the maximum interest rates payable on, and the terms of,
certain thrift deposits as well as the collateral requirements and maximum
maturities of the various types of loans that are permitted to be made by
California chartered industrial loan companies, also known as
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<PAGE>
thrift and loan companies or thrifts. As SPTL's primary regulator, the
Commissioner has broad supervisory and enforcement authority with respect to
SPTL and its affiliates. The enforcement authority of the Commissioner over
thrift and loan companies includes the ability to impose penalties for and to
seek correction of violations of laws or regulations or unsafe or unsound
practices by assessing monetary penalties, issuing cease and desist or
removal and prohibition orders against a company, its directors, officers or
employees and other persons, initiating injunctive actions or even taking
possession of the business and property of a thrift and loan company. In
general, such enforcement actions may be initiated for violations of laws,
regulations, cease and desist orders or the thrift and loan company's articles
of incorporation or for unsafe or unsound conditions or practices. Certain
provisions of the California Industrial Loan Law also provide for the
institution of civil or criminal actions against thrift and loan companies and
their officers, directors, employees and affiliates with respect to violations
of the law and related regulations.
SPTL's deposits are insured by the Bank Insurance Fund of the FDIC to the
full extent permissible by law. As an insurer of deposits, the FDIC issues
regulations, conducts examinations, requires the filing of reports and
generally regulates the operations of institutions to which it provides
deposit insurance. SPTL is subject to the rules and regulations of the FDIC to
the same extent as other state financial institutions that are insured by that
entity. This regulation is intended primarily for the protection of
depositors, and to ensure services for the public's convenience and advantage
and to ensure the safety and soundness of the regulated institution. The
approvals of the FDIC and the Commissioner are required before any merger,
consolidation or change in control, or the establishment, relocation or
closure of an office facility of SPTL. However, only the Commissioner's
approval is required to establish a loan production office limited to the
solicitation of loans.
The FDIC, as insurer of SPTL's deposits, also has broad enforcement
authority over state-chartered thrift and loan companies, including the power
in appropriate circumstances to issue cease-and-desist orders and removal and
prohibition orders and to terminate the insurance of their insured accounts.
The FDIC is required to notify the Commissioner of its intent to take certain
types of enforcement actions with respect to a California chartered, FDIC
insured thrift and loan company and of the grounds therefor. If satisfactory
corrective action is not effectuated within an appropriate time, the FDIC may
proceed with its enforcement action. The FDIC may also terminate the deposit
insurance of any insured depository institution if it determines that the
institution has engaged or is engaging in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, order or any condition imposed by in writing by
the FDIC. The Commissioner also has the authority, independent of the FDIC, to
issue cease and desist orders, impose operating restrictions, and take other
actions to assure the safety and soundness of the institution.
In September 1996, President Clinton signed into law, as part of a 1997
omnibus spending bill, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996, which simplifies and streamlines across a broad spectrum the
regulation of federally-insured depository institutions in diverse areas
including consumer credit, truth-in-lending, real estate residential lending,
regulatory applications, branching, disclosures and advertising, regulatory
examinations, insider lending and lender and fiduciary exposure for
environmental contamination under the Comprehensive Environmental Response,
Compensation and Liability Act (i.e., "Superfund" Liability) and the Solid
Waste Disposal Act, and the elimination (after five years) of civil liability
under the Truth in Savings Act.
In January 1996, the California Department of Corporations and the FDIC
conducted a joint examination of SPTL. As a result of such examination, SPTL
entered into a joint memorandum of understanding with the FDIC and the
California Department of Corporations. The memorandum of understanding
requires certain measures to be taken in the areas of: (i) hiring and
retention of management, (ii) adoption of systems to monitor and control risk,
(iii) correction of certain violations of law, (iv) credit review and (v)
enhancement of other operational policies. SPTL does not believe that this
informal agreement has had or will have a material adverse effect on the
Company. In the event that SPTL fails to comply with the memorandum of
understanding, SPTL and its affiliates, officers and directors could be
subject to various enforcement actions, including cease and desist orders,
criminal and civil penalties, removal from office, termination of deposit
insurance or the revocation of SPTL's charter. Any such enforcement action
could have a material adverse effect on the Company.
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Limitations on Investments
Subject to restrictions imposed by California law, SPTL is permitted to make
secured and unsecured consumer and non-consumer loans. The maximum term for
repayment of loans made by thrift and loan companies may be as long as 40
years and 30 days depending upon collateral and priority of the lender's lien
on the collateral, except that loans with repayment terms in excess of 30
years and 30 days may not in the aggregate exceed five percent of total
outstanding loans and obligations of the thrift. Although secured loans may
generally be repayable in unequal periodic payments during their respective
terms, consumer loans secured by real property with terms in excess of three
years must be repayable in substantially equal periodic payments unless such
loans were made or purchased by the thrift and loan under the Garn-St. Germain
Depository Institutions Act of 1982 (which applies primarily to one to four
unit single family residential loans).
California law limits lending activities outside of California by thrift and
loan companies to no more than 20% of total assets or 40% with the approval of
the Commissioner. California law contains requirements for the diversification
of the loan portfolios of thrift and loan companies. A thrift and loan with
outstanding certificates of deposit may not, among other things: (i) place
more than 25% of its loans or other obligations in loans or obligations that
are secured only partially, but not primarily, by real property; (ii) make any
loan secured primarily by improved real property that exceeds 20% of its paid-
up and unimpaired capital stock and surplus not available for dividends; (iii)
make any loan secured primarily by unimproved real property in an amount in
excess of 10% of its unimpaired capital stock and surplus not available for
dividends; (iv) lend an amount in excess of five percent of its paid-up and
unimpaired capital stock and surplus not available for dividends upon the
security of the stock of any one corporation; (v) make loans to, or hold the
obligations of, any one person as primary obligor in an aggregate principal
amount exceeding 20% of its paid-up and unimpaired capital stock and surplus
not available for dividends; and (vi) have more than 70% of its total assets
in loans that have remaining terms to maturity in excess of seven years and
are secured solely or primarily by real property. SPTL had paid-up and
unimpaired capital stock and surplus not available for dividends of $80.5
million at each of March 31, 1997 and December 31, 1996 and 1995.
At March 31, 1997 and December 31, 1996 and 1995, SPTL was in compliance
with its California investment law restrictions. SPTL originates and holds a
portion of the Company's loans held for sale, of which a majority have a
maturity of greater than seven years. SPTL believes that it will be able to
continue to meet its requirements by managing the types of loans originated
and where the loans are domiciled.
Under California law, thrift and loan companies are generally limited to
investments that are legal investments for commercial banks. A thrift and loan
company may acquire real property only in satisfaction of debts previously
contracted, pursuant to certain foreclosure transactions, or as may be
necessary as premises for the transaction of its business, in which case such
investment is limited to one-third of a thrift and loan's paid-in capital
stock and surplus not available for dividends.
Effective January 1, 1997, as a result of changes in the California
Industrial Loan Law passed in 1996, SPTL may invest in the capital stock,
obligations, or other securities of one or more corporations, subject to rules
or orders prescribed by the Commissioner, if such investment would be lawful
for commercial banks. California chartered commercial banks may invest in
equity securities of one or more corporations upon receiving either general
authorization or specific authorization from the California Superintendent of
Banks. General authorization is available for the investment in the equity
securities of one corporation in an amount not exceeding 10% of the gross
capital of the bank, provided that such investments in all corporations do not
exceed 25% of the gross capital of the bank. Specific authorization is not
subject to such investment limits. Under federal law, SPTL is considered an
insured state bank, and as such, it may make any equity investment, including
an investment in the equity securities of an operating subsidiary, that is
permissible for a national bank. Operating subsidiaries include corporations,
limited liability companies or similar entities. Operating subsidiaries of
national banks may engage in activities that are part of, or incidental to the
business of banking, as determined by the Office of the Comptroller of the
Currency (the "OCC"). Recently revised regulations of the OCC define certain
activities that are currently permissible for operating subsidiaries of
national banks. In addition, SPTL's
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purchase of loan originations from an operating subsidiary may not be subject
to the limitations on "covered transactions" under federal banking law. See
"--Transactions with Affiliates."
Transactions With Affiliates
Under California law, a thrift and loan generally may not make any loan to,
or hold an obligation of, any of its directors or officers or any director or
officer of its holding company or affiliates, except in specified cases and
subject to regulation by the Commissioner. In addition, a thrift and loan may
not make any loan to, or hold an obligation of, any of its shareholders or any
shareholder of its holding company or affiliates, except that this prohibition
does not apply to persons who own less than 10% of the stock of a holding
company or an affiliate that is listed on a national securities exchange. As a
result of these requirements, SPTL may not make loans to ICII or other
affiliates or purchase a contract, loan or chose in action of ICII or other
affiliates. Subject to prior approval of the Commissioner, exemptions from
these restrictions are available for purchase of loans from affiliates which
are licensed mortgage brokers (such as ICII) or other certain types of
licensed lenders. However, these purchases would be subject to strict
limitations under federal law.
Federal law also limits transactions between SPTL and its affiliates.
Generally, such transactions must be on terms and under conditions, including
credit standards, that are substantially the same, or at least as favorable to
SPTL, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated companies. In addition, SPTL is prohibited from
engaging in "covered transactions" with an affiliate if the aggregate amount
of such transactions with such affiliate would exceed 10% of SPTL's capital
stock and surplus, or in the case of all affiliates, if the aggregate amount
of such transactions exceeds 20% of SPTL's capital stock and surplus. "Covered
transactions" include loans or extensions of credit to an affiliate, a
purchase of or investment in securities issued by an affiliate, a purchase of
assets from an affiliate (subject to certain exemptions), the acceptance of
securities issued by an affiliate as collateral security for a loan or
extension of credit to any person or company, or the issuance of a guarantee,
acceptance, or letter of credit on behalf of an affiliate. For certain
"covered transactions," collateral requirements in specified amounts will be
applicable. SPTL also is prohibited from purchasing low-quality assets from
its affiliates, except under limited circumstances. SPTL engages in many
transactions which involve its affiliates, including ICII and its other
subsidiaries. As such, many of the transactions between the Company and SPTL
are subject to federal and state affiliate transaction regulations.
Under the California Industrial Loan Law, it is unlawful for SPTL to offer
or sell any security in an issuer transaction unless the sale has been
qualified under applicable provisions of the California Corporate Securities
Act of 1968, as amended. The Commissioner, however, has authority to exempt
any such transaction which the Commissioner determines is not comprehended
within the purposes of the qualification requirements and which the
Commissioner finds not necessary or appropriate in the public interest or for
the protection of investors, investment certificate holders, and the
industrial loan company industry as a whole. The Commissioner also has
authority to restrict, limit, prohibit or otherwise condition the uses of
proceeds from the sale of securities, the extent to which a security may be
included within the definition of capital, or the extent to which the proceeds
from the sale of securities may be included in the investment certificate
ratio or used to increase outstanding investment certificates. SPTL reasonably
believes that it would qualify for an exemption from qualification and has no
reason to believe it would not have full use of the proceeds as intended as
well as full leverage authority as defined under the Industrial Loan Law.
Capital; Limitations on Borrowings
Under California law, a thrift and loan is subject to certain leverage
limitations that are not generally applicable to commercial banks or savings
and loan associations. In particular, a thrift and loan institution that has
been in operation in excess of 60 months may have outstanding at any time
deposits not to exceed 20 times paid-up and unimpaired capital and surplus as
restricted in its by-laws as not available for dividends, with the exact
limitation subject to order by the Commissioner. The Commissioner has issued
an order to SPTL authorizing the maximum 20 times leverage standard.
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Thrift and loan companies are not permitted to borrow, except by the
issuance of certificates of deposit, in an amount exceeding 300% of
outstanding capital stock, surplus and undivided profits, without the
Commissioner's prior consent. All sums borrowed in excess of 150% of
outstanding capital stock, surplus and undivided profits must be unsecured
borrowings or, if secured, approved in advance by the Commissioner, and be
included as certificates of deposit for purposes of computing the above
ratios; however, collateralized FHLB advances are excluded for this test of
secured borrowings and are not specifically limited by California law.
In 1989, the FDIC and the other federal regulatory agencies adopted final
risk-based capital adequacy standards applicable to financial institutions
like SPTL whose deposits are insured by the FDIC. These guidelines provide a
measure of capital adequacy and are intended to reflect the degree of risk
associated with both on and off balance sheet items, including residential
loans sold with recourse, legally binding loan commitments and standby letters
of credit. Under these regulations, financial institutions such as SPTL are
required to maintain capital to support activities that in the past did not
require capital. Because ICII, unlike SPTL, is not directly regulated by any
bank regulatory agency, it is not subject to any minimum capital requirements.
See "--Holding Company Regulations."
A financial institution's risk-based capital ratio is calculated by dividing
its qualifying capital by its risk-weighted assets. Financial institutions
generally are expected to meet a minimum ratio of qualifying total capital to
risk-weighted assets of 8%, of which at least 50% of qualifying total capital
must be in the form of core capital (Tier 1), which includes common stock,
noncumulative perpetual preferred stock, minority interests in equity capital
accounts of combined subsidiaries and allowed mortgage servicing rights less
all intangible assets other than allowed mortgage servicing rights and
purchased credit card relationships, subject to certain amount limitations.
Supplementary capital (Tier 2) consists of the allowance for loan losses up to
1.25% of risk-weighted assets, cumulative preferred stock, intermediate-term
preferred stock, hybrid capital instruments and term subordinated debt. The
maximum amount of Tier 2 capital that may be recognized for risk-based capital
purposes is limited to 100% of Tier 1 capital (after any deductions for
disallowed intangibles). The aggregate amount of term subordinated debt and
intermediate term preferred stock that may be treated as Tier 2 capital is
limited to 50% of Tier 1 capital. Certain other limitations and restrictions
apply as well. At March 31, 1997, the Tier 2 capital of SPTL consisted of its
allowance for loan losses and $35 million in term subordinated indebtedness.
The FDIC has adopted a 3% minimum leverage ratio that is intended to
supplement risk-based capital requirements and to ensure that all financial
institutions, even those that invest predominantly in low risk assets,
continue to maintain a minimum level of core capital. A financial
institution's minimum leverage ratio is determined by dividing its Tier 1
capital by its quarterly average total assets, less intangibles not includable
in Tier 1 capital. The FDIC rules provide that a minimum leverage ratio of 3%
is required for institutions that have been determined to be in the highest
category used by regulators to rate financial institutions. All other
organizations are required to maintain leverage ratios of at least 100 to 200
basis points above the 3% minimum.
At March 31, 1997, SPTL was in compliance with all of its capital
requirements.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires the federal banking regulators to take "prompt corrective action"
with respect to banks that do not meet minimum capital requirements. In
response to this requirement, the FDIC adopted final rules based upon FDICIA's
five capital tiers. The FDIC's rules provide that an institution is "well
capitalized" if its risk-based capital ratio is 10% or greater; its Tier 1
risk-based capital ratio is 6% or greater; its leverage ratio is 5% or
greater; and the institution is not subject to a capital directive of a
federal bank regulatory agency. A bank is "adequately capitalized" if its
risk-based capital ratio is 8% or greater; its Tier 1 risk-based capital ratio
is 4% or greater; and its leverage ratio is 4% or greater (3% or greater for
the highest rated institutions). An institution is considered
"undercapitalized" if its risk-based capital ratio is less than 8%; its Tier 1
risk-based capital ratio is less than 4%, or its leverage ratio is 4% or less
(less than 3% for the highest rated institutions). An institution is
"significantly undercapitalized" if its risk-based capital ratio is less than
6%; its Tier 1 risk-based capital ratio is less than 3%;
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<PAGE>
or its leverage ratio is less than 3%. A bank is deemed to be "critically
undercapitalized" if its ratio of tangible equity (Tier 1 capital) to total
assets is equal to or less than 2%. An institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it engages in unsafe or unsound banking practices. Under this
standard, SPTL is currently "well capitalized"; this classification, however,
is a regulatory capital classification used for internal regulatory purposes,
and is not necessarily indicative of SPTL's financial condition and
operations.
Undercapitalized institutions are required to submit a capital restoration
plan for improving capital. In order to be accepted, such plan must include a
financial guaranty from the institution's holding company that the institution
will return to capital compliance. If such a guarantee were deemed to be a
commitment to maintain capital under the Federal Bankruptcy Code, a claim for
a subsequent breach of the obligations under such guarantee in a bankruptcy
proceeding involving the holding company would be entitled to a priority over
third party general unsecured creditors of the holding company.
Undercapitalized institutions: are prohibited from making capital
distributions or paying management fees to controlling persons; may be subject
to growth limitations; acquisitions, branching and entering into new lines of
business are restricted, and transactions with affiliates or the appointment
of additional directors or senior executive officers are restricted. Finally,
the institution's regulatory agency has discretion to impose certain of the
restrictions generally applicable to significantly undercapitalized
institutions.
In the event an institution is deemed to be significantly undercapitalized,
it may be required to: sell stock; merge or be acquired; restrict transactions
with affiliates; restrict interest rates paid; divest a subsidiary; or dismiss
specified directors or officers. If the institution is a bank holding company,
it may be prohibited from making any capital distributions without prior
approval of the Federal Reserve Board and may be required to divest a
subsidiary. A critically undercapitalized institution is generally prohibited
from making payments on subordinated debt and may not, without the approval of
its principal bank supervisory agency, enter into a material transaction other
than in the ordinary course of business; engage in any covered transaction; or
pay excessive compensation or bonuses. Critically undercapitalized
institutions are subject to appointment of a receiver or conservator.
Effectively, the FDIC would have general enforcement powers over SPTL and the
Company in the event that SPTL is deemed undercapitalized.
SPTL's Capital Ratios. The following tables indicate SPTL's capital ratios
under (i) the California leverage limitation, (ii) the FDIC risk-based capital
requirements, and (iii) FDIC minimum leverage ratio, at each of March 31, 1997
and December 31, 1996.
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31, 1996
------------------------------------------------- -------------------------------------------------
MINIMUM WELL CAPITALIZED MINIMUM WELL CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT ACTUAL REQUIREMENTS REQUIREMENT
-------------- -------------- ----------------- -------------- -------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- --------- ------- -------- ----- -------- ----- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California Leverage
Limitation.......... $140,069 11.58% $ 60,490 5.00% $ -- -- % $144,798 13.50% $ 53,613 5.00% $ -- --
Risk-Based Capital... 176,987 12.13 116,759 8.00 145,949 10.00 145,018 10.87 106,715 8.00 133,393 10.00%
Risk-based Tier 1
Capital ............ 125,047 8.57 58,380 4.00 87,569 6.00 129,497 9.71 53,357 4.00 80,036 6.00
FDIC Leverage Ratio.. 125,047 8.61 58,065 4.00 72,581 5.00 129,497 9.35 55,397 4.00 69,247 5.00
</TABLE>
Limitations on Types of Deposits
Because of the limitations described in "--Holding Company Regulations"
below, SPTL currently offers only passbook accounts and certificates of
deposit and does not offer NOW accounts, checking accounts or similar demand
accounts.
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Insurance Premiums
The FDIC administers two separate deposit insurance funds, the Bank
Insurance Fund ("BIF"), which insures the deposits of institutions which were
insured by the FDIC prior to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), and the Savings Association Insurance Fund
("SAIF"), which insures the deposits of institutions which were insured by the
Federal Savings and Loan Insurance Corporation prior to the enactment of
FIRREA. SPTL's insurance premium for the first quarter of 1997 was
approximately $115,000.
As required by FDICIA, the FDIC has established a risk-based system for
setting deposit insurance assessments. Under the risk-based assessment system,
an institution's insurance assessments vary depending on the level of capital
the institution holds and the degree to which it is of supervisory concern to
the FDIC. Once an insurance fund has reached its designated reserve ratio of
1.25%, and as long as there are no outstanding borrowings by the FDIC from the
United States Treasury, the FDIC is not permitted to charge assessment
premiums that would increase the reserve ratio of the insurance fund above its
designated reserve ratio. The BIF reached its designated reserve ratio in
1995.
Recent Legislation
A new California state regulatory agency was created in 1996 to be known as
the Department of Financial Institutions ("DFI"). The DFI will become
effective July 1, 1997. All state chartered depository institutions will be
licensed and regulated after July 1, 1997 by the DFI, which includes banks,
savings associations, credit unions, and industrial loan companies. SPTL, an
industrial loan company, will be subject to the jurisdiction of the DFI as its
state regulator. Currently SPTL is regulated by the Commissioner. It is
anticipated that the same administrative and examination staffs will transfer
to the DFI from the Commissioner's office, thereby ensuring continuity of
regulatory personnel familiar with the administration of the Industrial Loan
Law; however, no assurance can be given that this will occur. Persons who are
unfamiliar with the Industrial Loan Law and the scope of operations of
industrial loan companies, such as SPTL, will be interpreting the Industrial
Loan Law in the office of general counsel and office of policy of the DFI. It
is expected that this will not have any material effect on SPTL.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Funds Act")
was enacted which, among other things, imposes on BIF-insured deposits a
special premium assessment on domestic deposits at one-fifth the premium rate
imposed on SAIF-insured deposits, which will be used to pay the interest on
Financial Corporation ("FICO") bonds issued by the federal government as part
of the savings association bailout provisions of the 1989 FIRREA legislation.
In the year 2000, however, the Funds Act requires BIF-insured institutions to
share in the payment of the FICO obligations on a pro-rata basis with all
savings institutions, with annual assessments expected to equal approximately
2.4 basis points until the year 2017, and to be completely phased out by 2019.
The Funds Act also prohibits the merger of the BIF and SAIF insurance funds
unless the savings institution charter has been eliminated on January 1, 1999.
The 1996 legislation that created the DFI also authorized the use of the
word "bank" by thrift and loan companies, such as SPTL, in their names. SPTL
has reserved the name "Southern Pacific Bank" and after July 1, 1997, may
change its name to that or another "bank" name. That legislation also granted
the DFI jurisdiction over the issuance of securities by a thrift and loan
company requiring application and permit unless otherwise exempt.
In addition, on December 6, 1996, the FDIC determined to continue the
current downward adjustment to the assessment rate schedule applicable to
deposits of BIF institutions for the semi-annual assessment period beginning
January 1, 1997. For such period, the BIF assessment rates will range from 0
to 27 basis points. In addition, in accordance with the Funds Act, the FDIC
eliminated the minimum assessment amount for BIF-insured institutions. SPTL
has been notified that its combined FDIC and FICO assessment rate for 1997
will be approximately 4.3 cents per $100 of deposits.
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Safety and Soundness Guidelines
In July 1995, certain federal bank regulatory agencies, including the FDIC,
adopted Interagency Guidelines establishing standards for safety and soundness
as required by the FDICIA. In accordance with these Guidelines, institutions
are required to establish policies and procedures regarding: (i) internal
controls and information; (ii) internal audit systems; (iii) loan
documentation; (iv) credit underwriting; (v) interest rate exposure; and
(vi) asset growth. In addition, under these Guidelines institutions must
maintain safeguards to prevent the payment of compensation and fees which are
excessive or could lead to a material loss for the institution. The federal
bank regulatory agencies recently amended the Interagency Guidelines to
include asset quality and earnings standards. The new guidelines require an
institution to identify problem assets and estimate inherent losses. The
earnings standards under the revised guidelines require an institution to
establish monitoring and reporting systems.
Holding Company Regulations
The Competitive Equality Banking Act of 1987 ("CEBA") subjected certain
previously unregulated companies to regulation as bank holding companies by
expanding the definition of the term "bank" in the BHCA. SPTL remained exempt
from the definition of "bank" under the BHCA, and therefore ICII was exempt
from regulation as a bank holding company. SPTL may cease to fall within those
exceptions if it engages in certain operational practices, including accepting
demand deposit accounts. SPTL currently has no plans to engage in any
operational practice that would cause it to fall outside of one or more of the
exceptions to the term "bank" as defined by CEBA. Pursuant to CEBA, ICII and
its affiliates are treated as if ICII were a bank holding company for the
limited purposes of applying certain restrictions on loans to insiders and
anti-tying provisions.
Limitations on Dividends
Under the California Industrial Loan Law, a thrift and loan may declare
dividends on its capital stock only if it has at least $750,000 of unimpaired
capital stock plus additional capital stock of $50,000 for each branch office.
In addition, no distribution of dividends is permitted unless: (i) such
distribution would not exceed a thrift and loan's retained earnings, (ii) any
payment would not result in a violation of the approved minimum capital to
thrift and loan certificate of deposit ratio and (iii) after giving effect to
the distribution, either (y) the sum of a thrift and loan's assets (net of
goodwill, capitalized research and development expenses and deferred charges)
would be not less than 125% of its liabilities (net of deferred taxes,
deferred income and other deferred credits), and (z) current assets would be
not less than current liabilities (except that if a thrift and loan's average
earnings before taxes for the last two fiscal years had been less than average
interest expense, current assets must be not less than 125% of current
liabilities).
Under California law, in order for capital (including surplus) of an
institution to be included in calculating the leverage limitation described
above, thrift institutions must amend their by-laws to restrict such capital
from the payment of dividends. The amount of restricted capital maintained by
a thrift also provides the basis for establishing the maximum amount that a
thrift may lend to one single borrower. As of March 31, 1997 and December 31,
1996, $80.5 million of SPTL's capital was so restricted.
The FDIC has advised insured institutions that the payment of cash dividends
in excess of current earnings from operations is inappropriate and may be
cause for supervisory action. As a result of this policy, thrift and loans may
find it difficult to pay dividends out of retained earnings from historical
periods prior to the most recent fiscal year or to take advantage of earnings
generated by extraordinary items. Under the Financial Institutions Supervisory
Act and FIRREA, federal regulators also have authority to prohibit financial
institutions from engaging in business practices which are considered to be
unsafe or unsound. It is possible, depending upon the financial condition of a
thrift and other factors, that such regulators could assert that the payment
of dividends in some circumstances might constitute unsafe or unsound
practices and prohibit payment of dividends even though technically
permissible.
Pursuant to FDICIA, SPTL is prohibited from paying dividends if the payment
of such dividends would cause the institution to become "undercapitalized."
These limitations on the payment of dividends may restrict
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the Company's ability to utilize cash from SPTL which may have been otherwise
available to the Company for working capital.
Limitations on Acquisitions of Voting Stock of the Company
Any person who wishes to acquire 10% or more of the capital stock or capital
of a California thrift and loan company or 10% or more of the voting capital
stock or other securities giving control over management of its parent company
must obtain the prior written approval of the Commissioner. Similarly, the
federal Change in Bank Control Act of 1978 requires any person or company that
wishes to obtain "control" of an insured depository institution to notify the
appropriate Federal banking agency, which would be the FDIC in the case of
SPTL, 60 days prior to the proposed acquisition. If the FDIC has not issued a
notice disapproving the proposed acquisition within that time period
(including a possible 90 day extension), the person may acquire such
institution. For purposes of the statute, "control" is defined as the power,
directly or indirectly, to direct the management or policies of an insured
depository institution or to vote 25% or more of any class of voting
securities of an insured depository institution.
RESTRICTION ON INVESTMENTS BY IMPERIAL BANK
At March 31, 1997, Imperial Bank owned 9,261,106 shares of Common Stock, or
24.1% of the Company. Imperial Bancorp ("Bancorp") is the owner of all of the
outstanding capital stock of Imperial Bank.
FDICIA restricts the ability of state chartered banks, such as Imperial
Bank, to hold equity securities and requires impermissible investments to be
disposed of before December 19, 1996. Imperial Bank acquired its interest in
the Company at its formation, which interest has been reduced by the Company's
sale of Common Stock to third parties, as well as through a sale of stock by
Imperial Bank subsequent to the initial public offering of the Company. The
9.4 million shares of the Company's Common Stock held by Imperial Bank may be
subject to divestiture under FDICIA. Imperial Bank has requested approval from
the FDIC to retain its investment in the Company and the FDIC has extended the
FDICIA-imposed deadline pending a decision on Imperial Bank's application. The
regional office of the FDIC has acknowledged the request and requested and
received additional information on the Company, and has recommended to its
Washington, D.C. headquarters that Imperial Bank be allowed to retain its
stock ownership in the Company subject to certain conditions. The Federal
Reserve Bank of San Francisco has requested that Bancorp make an application
under Section 4 of the Bank Holding Company Act for approval for Imperial Bank
to retain the Company's stock. Bancorp has deferred any application pending
the results of the FDIC application.
Because Imperial Bank owns less than 50% of the outstanding shares of the
Company and the Company is operated as a company independent of Imperial Bank
and Bancorp, the Company believes that, in the event of an insolvency,
bankruptcy or receivership proceeding involving Imperial Bank or Bancorp, a
court, exercising reasonable judgment after full consideration of all relevant
factors, would not order the substantive consolidation of the assets and
liabilities of the Company with either Imperial Bank or Bancorp.
Two directors of the Company also serve on the board of directors of
Imperial Bank or its parent, Imperial Bancorp. See "Management."
Imperial Financial Group
In February 1997, the board of directors of Bancorp approved a plan to spin
off a portion of its specialty lending and finance businesses, including
Imperial Bank's common stock interest in ICII, to Imperial Financial Group,
Inc. ("IFG"), a recently created subsidiary of Imperial Bank formed to hold
various business assets of Bancorp and its subsidiaries.
Two directors of the Company also serve on the board of directors of IFG.
EMPLOYEES
As of March 31, 1997, the Company had 647 employees, (47 at ICII, 227 at
SPTL, 82 at IBC, 90 at FMAC, three at ICAI and 201 at AMN). Management
believes that its relations with these employees are satisfactory. Neither
ICII nor any of its subsidiaries is a party to any collective bargaining
agreement.
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PROPERTIES
The Company's executive offices occupy 22,070 square feet of space in
Torrance, California at a current monthly rental of approximately $31,420.
The Company leases approximately 25,000 square feet of space in Santa Ana
Heights, California. The Company leases these facilities pursuant to a 10 year
lease, commencing September 1, 1992 and subleases the majority of these
premises to IMH at a monthly rental of approximately $33,936. See "Certain
Transactions-- Relationships with IMH."
The Company currently leases offices in San Diego, Walnut Creek, Newport
Beach, Woodland Hills, Sacramento, San Jose and Irvine, California, as well as
in Parsippany, New Jersey; Greenville, Delaware; Bellevue, Washington; Denver,
Colorado; Boca Raton, Florida; Allentown, Pennsylvania; and Lake Oswego and
Grants Pass, Oregon. SPTL operates in California through branches and loan
production offices and in other states through loan production offices and
representatives.
LEGAL PROCEEDINGS
The Company is a defendant in Fortune Mortgage Corporation et al. vs. ICII
et al., originally filed in Orange County Superior Court on March 5, 1997 and
recently ordered removed to arbitration. The complaint alleges breach of
contract, breach of implied covenant of good faith and fair dealing, negligent
misrepresentation, fraud, conspiracy to commit fraud, aiding and abetting
fraud, contractual indemnity and reimbursement, money had and received, and
unjust enrichment arising from the Company's sale of a group of loan
production offices to plaintiffs. The plaintiffs seek rescission, restitution
and general, special and/or consequential damages, and also exemplary and
punitive damages as relate to the claims regarding fraud.
In Agoura Willow Creek, Ltd. vs. SPTL, filed on February 27, 1997, in Los
Angeles County Superior Court the plaintiff seeks damages from SPTL for
alleged breach of written contract and breach of fiduciary duty arising out of
a loan commitment agreement.
The predecessor entity to FMAC, and an officer of such entity and of FMAC,
among others, are named as defendants in De Wald et al. vs. Knyal et al. filed
on November 15, 1996 in the Los Angeles Superior Court. The complaint seeks an
accounting, monetary and punitive damages for alleged breach of contract,
breach of fiduciary duty, breach of implied covenant of good faith and fair
dealing and fraud arising from an alleged business relationship. The Company
has not been named as a defendant in this lawsuit.
The Company, in Gibson vs. ICII, filed on October 5, 1994 in U.S. District
Court, Southern District Florida, is a defendant against complaints of
violation of the Federal Real Estate Settlement Procedures Act ("RESPA"). The
dispute arises out of a Truth in Lending Disclosure Statement received by the
plaintiff relating to a refinance of their residence in which charges were
allegedly mischaracterized or concealed. The Company was served with an
amended class action complaint on January 11, 1995 and a second amendment on
October 12, 1995. The trial court dismissed the case on February 20, 1997, and
plaintiff has filed an appeal.
A nearly identical RESPA class action complaint was filed in the U.S.
District Court for the District Massachusetts in Jereidini vs. ICII on
February 21, 1997.
All of the above referenced actions are being actively defended.
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MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
H. Wayne Snavely(1)(2)...... 56 Chairman of the Board, President and Chief
Executive Officer
Kevin E. Villani............ 49 Executive Vice President, Chief Financial
Officer and a Director
Irwin L. Gubman............. 55 General Counsel and Secretary
Paul B. Lasiter............. 31 Senior Vice President and Controller
Stephen J. Shugerman(1)..... 50 President of SPTL and a Director
Joseph R. Tomkinson(1)...... 49 Director
Robert S. Muehlenbeck....... 49 Director
G. Louis Graziadio, III(2).. 47 Director
Perry A. Lerner(2)(3)....... 54 Director
James Clayburn LaForce,
Jr.(2)(3).................. 67 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
H. WAYNE SNAVELY has been Chairman of the Board and Chief Executive Officer
of the Company since December 1991 and President since February 1996. From
1986 to February 1992, Mr. Snavely served as Executive Vice President of
Imperial Bancorp and Imperial Bank with direct management responsibility for
the following bank subsidiaries and divisions: Imperial Bank Mortgage, SPTL,
Imperial Trust Company, Wm. Mason & Company, Imperial Ventures, Inc. and The
Lewis Horwitz Organization. From 1983 through 1986, Mr. Snavely was employed
as Chief Financial Officer of Imperial Bancorp and Imperial Bank. Mr. Snavely
served as a director of Imperial Bank from 1975 to 1983 and currently serves
as a director. Mr. Snavely is Chairman of the Board of SPFC and IMH.
KEVIN E. VILLANI has been the Executive Vice President and Chief Financial
Officer of the Company since September 1995 and a Director since June 1997.
From 1993 to 1996, Mr. Villani was the Associate Professor of Clinical Finance
and Real Estate for the University of Southern California. From 1985 to 1990,
he was the Executive Vice President and Chief Financial Officer for Imperial
Corporation of America. From 1982 to 1985, he served in various senior
executive capacities at the Federal Home Loan Mortgage Corporation. From 1975
to 1982, he served as the Financial Economist, The Director for the Division
of Housing Finance Analysis and The Deputy Assistant Secretary for the Office
of Economic Affairs and Chief Economist for the Department of Housing and
Urban Development. From 1974 to 1975, he was an economist for the Federal
Reserve Bank of Cleveland. Mr. Villani has also served as a consultant to the
World Bank and USAID on banking, housing, finance, and privatization.
IRWIN L. GUBMAN has been the General Counsel and Secretary of ICII since
October 1996. From February 1992 to September 1996, Mr. Gubman was a partner
at Coudert Brothers serving in various capacities including syndicated
lending, structured finance, and regulatory matters. From December 1970 to
September 1991, Mr. Gubman served in various capacities at Bank of America,
most recently as Senior Vice President and Associate General Counsel. From
March 1968 to October 1970, Mr. Gubman was an Attorney Advisor for the U.S.
Arms Control and Disarmament Agency. From September 1967 to March 1968, Mr.
Gubman was a Legal Advisor to the Government of Liberia.
PAUL B. LASITER has been Senior Vice President and Controller of the Company
since November 1992. From June 1988 to November 1992, Mr. Lasiter was a
Supervising Senior Accountant for KPMG Peat Marwick, specializing in the
financial institutions industry. Mr. Lasiter is a Certified Public Accountant.
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STEPHEN J. SHUGERMAN has been President of SPTL since June 1987 and has been
a Director of the Company since December 1991. From June 1985 to May 1987, Mr.
Shugerman was President of ATI Thrift & Loan Association, a privately owned
thrift and loan association, and, from 1979 to 1985, he was Senior Vice
President of Imperial Thrift and Loan Association, a former subsidiary of
Imperial Bank. Mr. Shugerman has recently served as President of the
California Association of Thrift & Loan Companies. Mr. Shugerman is a director
of SPFC.
JOSEPH R. TOMKINSON has been a Director of the Company since December 1991.
Mr. Tomkinson has been the Vice Chairman of the Board and Chief Executive
Officer of IMH since August 1995. Mr. Tomkinson served as President of the
Company from January 1992 to February 1996 and from 1986 to January 1992, he
was President of Imperial Bank Mortgage, a subsidiary of Imperial Bank, one of
the companies combined to become ICII in 1992. From 1984 to 1986, he was
employed as Executive Vice President of Loan Production for American Mortgage
Network, a privately owned mortgage bank.
ROBERT S. MUEHLENBECK has been a Director of the Company since December
1991. Mr. Muehlenbeck is also an Executive Vice President of Imperial Bank.
Mr. Muehlenbeck was formerly the President of Seaborg, Incorporated and has
been involved in commercial and residential real estate development and
finance activities.
G. LOUIS GRAZIADIO, III has been a Director of the Company since February
1992. Mr. Graziadio has been Chairman of the Board and Chief Executive Officer
of Ginarra Holdings, Inc. (as well as predecessor and affiliated companies)
since 1979. Ginarra Holdings, Inc. is a privately held California corporation
engaged in a wide range of investment activities. Mr. Graziadio has been
actively involved, since 1972, in real estate development, construction and
home building. Mr. Graziadio is a Director of Imperial Bancorp and Imperial
Trust Company, an indirect subsidiary of Imperial Bancorp.
PERRY A. LERNER has been a Director of the Company since May 1992. He has
been a principal in the investment firm of Crown Capital Group, Inc. since
1996. Mr. Lerner was with the law firm of O'Melveny & Myers from 1982 through
1996, having been a partner with the firm from 1984 through 1996. Mr. Lerner
was an Attorney-Advisor of the International Tax Counsel of the United States
Treasury Department from 1973 to 1976.
JAMES CLAYBURN LAFORCE, JR. has been a Director of the Company since May
1992. From July 1978 to July 1993, Mr. LaForce was the Dean of The Anderson
School, University of California at Los Angeles. In addition, Mr. LaForce was
appointed in January 1991 to the position of Acting Dean of the Hong Kong
University of Science and Technology, Hong Kong.
Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed by and serve
at the discretion of the Board of Directors, subject to employment agreements,
where applicable. There are no family relationships between any directors or
officers of the Company. George L. Graziadio, Jr., the President, Chief
Executive Officer and the Chairman of the board of directors of Bancorp, is
the father of G. Louis Graziadio, III. The Graziadio family and related
entities are significant shareholders of Bancorp.
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EXECUTIVE COMPENSATION
The following table provides information concerning the cash and non-cash
compensation earned and received by the Company's Chief Executive Officer and
its most highly compensated executive officers (the "Named Executive
Officers") whose salary and bonus during the fiscal year ended December 31,
1996 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- ------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL OPTIONS
POSITION YEAR SALARY(1) BONUS(1) COMPENSATION GRANTED
------------------ ------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
H. Wayne Snavely......... 1996 $300,000 $700,000 $28,564(2) 400,000(3)
President and Chief
Executive Officer 1995 300,000 252,603 32,960(2) --
1994 256,398 125,621 23,782(2) --
Kevin E. Villani......... 1996 200,000 200,000 12,986(4) 84,000(3)
Chief Financial Officer 1995 59,103 25,000 2,295(4) 66,000
1994 -- -- -- --
Paul B. Lasiter.......... 1996 87,500 50,000 6,886(5) 20,000(3)
Senior Vice President 1995 67,500 30,000 5,459(5) --
and Controller 1994 60,000 5,000 4,998(5) 16,500
Stephen J. Shugerman..... 1996 200,000 400,000 20,963(6) 100,000(3)
President of SPTL 1995 200,000 166,027 16,372(6) --
1994 166,500 81,531 16,702(6) --
</TABLE>
- --------
(1) The Company is currently negotiating employment agreements with each of
Messrs. Snavely, Villani and Shugerman. The final terms of these
agreements are subject to agreement between the Company and said persons.
The proposed annual salary to be paid to Messrs. Snavely, Villani and
Shugerman pursuant to these agreements, and that which has been paid to
them since January 1997, is $450,000, $300,000 and $250,000, respectively.
The proposed annual bonus pursuant to these agreements is not to exceed
approximately $1.0 million, $400,000 and $500,000, respectively.
(2) In 1996, 1995 and 1994, consists of (i) a car allowance paid by the
Company of $18,000, $18,000 and $18,000, respectively, and (ii) aggregate
contributions paid by the Company of $10,564, $14,960 and $5,782
respectively, under employee benefit plans.
(3) See "--Stock Option Plans" for details regarding the terms of such
options.
(4) In 1996, 1995 and 1994, consists of (i) a car allowance paid by the
Company of $6,000, $1,773 and $0, respectively, and (ii) aggregate
contributions paid by the Company of $6,986, $522 and $0, respectively.
Under employee benefit plans.
(5) In 1996, 1995 and 1994, consists of $6,886, $5,459 and $4,998,
respectively, under employee benefit plans.
(6) In 1996, 1995 and 1994, consists of (i) a car allowance paid by the
Company of $10,800, $10,800 and $10,800, respectively, and (ii) aggregate
contributions paid by the Company of $10,163, $5,572 and $5,902,
respectively.
OPTION GRANTS AND EXERCISES
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
1996 PERCENTAGE EXERCISE OPTION TERM
OPTIONS OF TOTAL PRICE PER EXPIRATION -----------------------
NAME GRANTED GRANTS OPTION DATE 5% 10%
---- ------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Snavely........ 400,000 24.86% $13.6875 7/24/01 $1,512,642 $3,342,542
Kevin E. Villani........ 84,000 5.22% 10.5625 4/1/01 245,131 541,675
Paul B. Lasiter......... 20,000 1.24% 10.5625 4/1/01 58,364 128,970
Stephen J. Shugerman.... 100,000 6.21% 13.6875 7/24/01 378,160 835,636
</TABLE>
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF UNEXERCISED VALUE OF ALL
UNEXERCISED SENIOR UNEXERCISED
OPTIONS AT FY- MANAGEMENT IN-THE-MONEY
SHARES END UNDER THE OPTIONS AT OPTIONS AT
ACQUIRED OPTION PLAN FY-END FY-END
ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE(2) UNEXERCISABLE(3)
---- -------- --------- ---------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
H. Wayne Snavely........ 61,137 1,408,885 --/415,285 917,052/-- 18,210,475/3,838,983
Kevin E. Villani........ 13,200 183,500 --/136,800 --/-- --/1,557,299
Stephen J. Shugerman.... 300,000 4,305,651 61,137/115,285 158,524/-- 4,262,921/1,020,233
Paul B. Lasiter......... 14,190 170,463 3,300/37,160 --/-- 60,800/521,610
</TABLE>
- --------
(1) For a description of the terms of such options, see "--Stock Option
Plans--1992 Stock Option Plan."
(2) For a description of the terms of such options, see "--Senior Management
Stock Options."
(3) Based on a price per share of $21.00, which was the price of a share of
Common Stock as quoted on the Nasdaq National Market at the close of
business on December 31, 1996.
EMPLOYMENT AGREEMENTS
As of January 1, 1997, Mr. Snavely entered into a five-year employment
agreement at an annual base salary of $450,000, subject to adjustment, plus an
annual bonus based on attainment of performance objectives, including the
Company's return on equity, earnings per share and increase in the price of
the Company's common stock. Mr. Snavely's total cash compensation may not
exceed $1.5 million annually.
As of January 1, 1997, Mr. Villani entered into a five-year employment
agreement at an annual base salary of $300,000, subject to adjustment, plus an
annual bonus based on attainment of performance objectives identical to the
objectives established for Mr. Snavely. Mr. Villani's total cash compensation
may not exceed $700,000 annually.
As of January 1, 1997, Mr. Shugerman entered into a five-year employment
agreement at an annual base salary of $250,000, subject to adjustment, plus an
annual bonus based on attainment of performance objectives, including the
Company's earnings per share and certain qualitative objectives with respect
to the performance of SPTL. Mr. Shugerman's total cash compensation may not
exceed $750,000 annually.
Pursuant to the employment agreements with Messrs. Snavely, Villani and
Shugerman, they are each entitled to receive compensation following their
termination, as follows: (i) with cause: base salary shall be paid through the
date on which termination occurs, or (ii) without cause (or for "good reason"
as defined in the employment agreement), base salary shall be paid through the
date of termination together with the pro-rata portion of any cash bonus award
the employee would be entitled to receive at year end and a severance amount
equal to base salary reduced by the employee's projected primary social
security benefit. The severance amount shall be further reduced if the
executive becomes employed by another company or becomes an independent
contractor of another company and shall be eliminated entirely if such other
company is determined by the Board of Directors to compete with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Muehlenbeck,
Graziadio, Lerner and LaForce. Mr. Muehlenbeck is an Executive Vice President
of Imperial Bank. Mr. Graziado is a Director of Imperial Bancorp and Imperial
Trust Company.
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<PAGE>
SENIOR MANAGEMENT STOCK OPTIONS
Effective January 1992, members of senior management of the Company received
ten year options to purchase shares of the Company's common stock (the "Common
Stock"). Such options are not covered by the Company's option plans described
below. The exercise price of these options is $0.88 per share for one-half of
the options, with the other half exercisable at $1.40 per share. These options
are currently exercisable. H. Wayne Snavely, Joseph R. Tomkinson, and Stephen
J. Shugerman were granted 917,053, 917,053 and 458,526 of such options,
respectively.
In April 1996, Mr. Tomkinson sold 750,000 shares of Common Stock he acquired
under the option agreement described above. In November 1996, Mr. Shugerman
sold 300,000 shares of Common Stock he acquired under the option agreement
described above.
The Company recognizes compensation expense with respect to the senior
management stock options because they were granted at less than the estimated
market value of the Company's Common Stock. The total compensation expense was
$2.2 million, all of which was recognized as of December 31, 1996. See Note 22
of Notes to Consolidated Financial Statements.
STOCK OPTION PLANS
1992 STOCK OPTION PLAN
A total of 2,292,632 shares of the Company's Common Stock has been reserved
for issuance under the Company's 1992 Incentive Stock Option and Nonstatutory
Stock Option Plan (the "1992 Stock Option Plan"), which expires by its own
terms in 2002. A total of 1,550,673 options were outstanding at December 31,
1996.
The 1992 Stock Option Plan provides for the grant of "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs") to employees, officers, directors and consultants of the Company.
Incentive stock options may be granted only to employees. The 1992 Stock
Option Plan is administered by the Board of Directors or a committee appointed
by the Board, which determines the terms of options granted, including the
exercise price, the number of shares subject to the option, and the option's
exercisability.
The exercise price of all options granted under the 1992 Stock Option Plan
must be at least equal to the fair market value of such shares on the date of
grant. The maximum term of options granted under the 1992 Stock Option Plan is
10 years. With respect to any participant who owns stock representing more
than 10% of the voting rights of the Company's outstanding capital stock, the
exercise price of any option must be at least equal to 110% of the fair market
value on the date of grant.
1996 STOCK OPTION PLAN
The Company has adopted the 1996 Stock Option, Deferred Stock and Restricted
Stock Plan (the "1996 Stock Option Plan"), which provides for the grant of
ISOs that meet the requirements of Section 422 of the Code, NQSOs and awards
consisting of deferred stock, restricted stock, stock appreciation rights and
limited stock appreciation rights ("Awards"). The 1996 Stock Option Plan is
administered by a committee of directors appointed by the Board of Directors
(the "Committee"). ISOs may be granted to the officers and key employees of
the Company or any of its subsidiaries. The exercise price for any option
granted under the 1996 Stock Option Plan may not be less than 100% (110% in
the case of ISOs granted to an employee who is deemed to own in excess of 10%
of the outstanding Common Stock) of the fair market value of the shares of
Common Stock at the time the option is granted. The purpose of the 1996 Stock
Option Plan is to provide a means of performance-based compensation in order
to attract and retain qualified personnel and to provide an incentive to those
whose job performance affects the Company. The effective date of the 1996
Stock Option Plan was June 21, 1996. A total of 3,000,000 shares of the
Company's Common Stock has been reserved for issuance under the 1996 Stock
Option Plan and a total of 1,038,200 options were outstanding at December 31,
1996.
94
<PAGE>
If an option granted under the 1996 Stock Option Plan expires or terminates,
or an Award is forfeited, the shares subject to any unexercised portion of
such option or Award will again become available for the issuance of further
options or Awards under the 1996 Stock Option Plan.
Unless previously terminated by the Board of Directors, no options or Awards
may be granted under the 1996 Stock Option Plan after June 21, 2006.
Options granted under the 1996 Stock Option Plan will become exercisable
upon the terms of the grant made by the Committee. Awards will be subject to
the terms and restrictions of the Award made by the Committee. The Committee
has discretionary authority to select participants from among eligible persons
and to determine at the time an option or Award is granted and in the case of
options, whether it is intended to be an ISO or a NQSO.
Under current law, ISOs may not be granted to any individual who is not also
an officer or employee of the Company or any subsidiary.
Each option must terminate no more than 10 years from the date it is granted
(or five years in the case of ISOs granted to an employee who is deemed to own
in excess of 10% of the combined voting power of the Company's outstanding
Common Stock). Options may be granted on terms providing for exercise in whole
or in part at any time or times during their respective terms, or only in
specified percentages at stated time periods or intervals during the term of
the option, as determined by the Committee.
The exercise price of any option granted under the 1996 Stock Option Plan is
payable in full (i) in cash, (ii) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market value equal to
the aggregate exercise price of all shares to be purchased including, in the
case of the exercise of NQSOs, restricted stock subject to an Award under the
1996 Stock Option Plan, (iii) by cancellation of indebtedness owed by the
Company to the optionholder, or (iv) by any combination of the foregoing.
The Board of Directors may from time to time revise or amend the 1996 Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding options or Award without such participant's consent or may,
without shareholder approval, increase the number of shares subject to the
1996 Stock Option Plan or decrease the exercise price of a stock option to
less than 100% of fair market value on the date of grant (with the exception
of adjustments resulting from changes in capitalization), materially modify
the class of participants eligible to receive options or Awards under the 1996
Stock Option Plan, materially increase the benefits accruing to participants
under the 1996 Stock Option Plan or extend the maximum option term under the
1996 Stock Option Plan.
PROFIT SHARING AND 401(k) PLAN
On July 1, 1993, the Company terminated its participation in Imperial
Bancorp's 401(k) and profit sharing plans, establishing its own 401(k) plan.
On September 30, 1993, Imperial Bancorp transferred all plan assets to the
Company.
Under the Company's 401(k) plan, employees may elect to enroll on the 1st of
any month, provided that they have been employed for at least six months.
Employees may contribute up to 14% of their salaries. The Company will match
50% of the first 4% of employee contributions. The Company recorded 401(k)
matching expense of $0.1 million, $0.3 million and $0.2 million for the three
months ended March 31, 1997 and the years ended December 31, 1996 and 1995,
respectively.
An additional Company contribution may be made, at the discretion of the
Company. Should a discretionary contribution be made, the contribution would
first be allocated to those employees deferring salaries in excess of 4%. The
matching contribution would be 50% of any deferral in excess of 4% up to a
maximum deferral of 8%.
95
<PAGE>
Should discretionary contribution funds remain following the allocation
outlined above, any remaining Company discretionary contributions would be
allocated as a 50% match of employee contributions, on the first 4% of the
employee's deferrals. Discretionary contributions of $350,000 and $200,000
were charged to operations in 1996 and 1995.
Company matching contributions are made as of December 31st each year.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
The Company's and the Subsidiary Guarantors' Articles of Incorporation and
Bylaws provide for indemnification of the officers and directors of the
Company to the full extent permitted by law. The General Corporation Law of
the State of California and the State of Florida, as applicable, permit a
corporation to limit, under certain circumstances, a director's liability for
monetary damages in actions brought by or in the right of the corporation. The
Company's and the Subsidiary Guarantors' Articles of Incorporation also
provide for the elimination of the liability of directors for monetary damages
to the full extent permitted by law.
The Company has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Articles of
Incorporation and Bylaws. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines, and settlement amounts incurred in any action or
proceeding, including any action by or in the right of the Company, on account
of services as a director or officer of the Company, as a director or officer
of any subsidiary of the Company, or as a director or officer of any other
enterprise to which the person provides services at the request of the
Company. The Company believes that these provisions and agreements are
necessary to attract and retain qualified persons as directors and officers.
The Company has $10.0 million of directors' and officers' liability insurance.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the Company as to which indemnification is sought, nor
is the Company aware of any threatened litigation or proceeding that may
result in claims for indemnification, except as set forth in "Business--Legal
Proceedings."
96
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of May
31, 1997, by (i) each director of the Company, (ii) each executive officer
whose salary exceeded $100,000 for the year ended December 31, 1996, (iii)
each person who is known to the Company to own beneficially more than 5% of
the Common Stock, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
BENEFICIALLY % OF TOTAL
BENEFICIAL OWNER(1) OWNED OUTSTANDING(2)
------------------- ------------ --------------
<S> <C> <C>
Imperial Bank(3)............................. 9,261,106 23.0%
Wellington Management Co.(4)................. 3,009,182 7.5
Nicholas-Applegate Capital Management(4)..... 1,956,180 4.9
H. Wayne Snavely(5).......................... 1,357,901 3.4
Joseph R. Tomkinson(6)....................... 154,422 *
Stephen J. Shugerman(7)...................... 258,768 *
G. Louis Graziadio, III(8)................... 133,018 *
Robert S. Muehlenbeck(9)..................... 77,792 *
Perry A. Lerner(10).......................... 89,722 *
J. Clayburn LaForce(10)...................... 86,422 *
Paul Lasiter(11)............................. 26,176 *
Kevin E. Villani(12)......................... 16,800 *
All Directors and Officers as a Group (10
persons)(13)................................ 2,201,521 5.5
</TABLE>
- --------
* Less than 1%.
(1) Each of such persons may be reached through the Company at 23550
Hawthorne Boulevard, Building One, Suite 110, Torrance, California 90505,
telephone (310) 373-1704.
(2) Beneficial ownership is based on 40,288,738 shares of Common Stock as of
May 31, 1997.
(3) Imperial Bank, headquartered in Los Angeles, California, is a California
chartered bank whose deposits are insured by the FDIC. The address of
Imperial Bank is 9920 La Cienega Boulevard, Inglewood, California 90301.
In February 1997, the board of directors of Bancorp approved a plan to
spin off a portion of its specialty lending and finance business,
including Imperial Bank's common stock interest in ICII, to IFG, a
recently created subsidiary of Imperial Bank formed to hold various
business assets of Bancorp and its subsidiaries.
(4) Based upon a Schedule 13G filed with the Company reflecting beneficial
ownership as of March 31, 1997. The shares are owned by various
investment advisory clients of Wellington Management Company (or of
Wellington Trust Company, National Association, WMC's wholly-owned
subsidiary) and Nicholas-Applegate Capital Management, which are deemed
beneficial owners of the shares only by virtue of the direct or indirect
investment and/or voting discretion they possess pursuant to the
provisions of investment advisory agreements with such clients.
(5) Includes 1,012,237 shares subject to stock options exercisable within 60
days of May 31, 1997.
(6) Includes 153,474 shares subject to stock options exercisable within 60
days of May 31, 1997. Mr. Tomkinson resigned as an officer of the Company
in February 1996 but remains a Director.
(7) Includes 254,946 shares subject to stock options exercisable within 60
days of May 31, 1997.
(8) Includes 119,422 shares subject to stock options exercisable within 60
days of May 31, 1997.
(9) Includes 70,022 shares subject to stock options exercisable within 60
days of May 31, 1997.
(10) Includes 86,422 shares subject to stock options exercisable within 60
days of May 31, 1997.
(11) Includes 10,930 shares subject to stock options exercisable within 60
days of May 31, 1997.
(12) Includes 16,800 shares subject to stock options exercisable within 60
days of May 31, 1997.
(13) Includes 1,810,775 shares subject to stock options exercisable within 60
days of May 31, 1997.
97
<PAGE>
CERTAIN TRANSACTIONS
PRINCIPAL SHAREHOLDER; LIMITATIONS ON INVESTMENT; CONFLICTS OF INTEREST
At March 31, 1997, Imperial Bank owned 9,261,106 shares of Common Stock, or
24.1% of the Company. Bancorp is the owner of all of the outstanding capital
stock of Imperial Bank.
FDICIA restricts the ability of state chartered banks, such as Imperial
Bank, to hold equity securities and requires impermissible investments to be
disposed of before December 19, 1996. Imperial Bank acquired its interest in
the Company at its formation, which interest has been reduced by the Company's
sale of Common Stock to third parties, as well as through a sale of stock by
Imperial Bank subsequent to the initial public offering of the Company. The
9.4 million shares of the Company's Common Stock held by Imperial Bank may be
subject to divestiture under FDICIA. Imperial Bank has requested approval from
the FDIC to retain its investment in the Company and the FDIC has extended the
FDICIA-imposed deadline pending a decision on Imperial Bank's application. The
regional office of the FDIC has acknowledged the request and requested and
received additional information on the Company, and has recommended to its
Washington, D.C. headquarters that Imperial Bank be allowed to retain its
stock ownership in the Company subject to certain conditions. The Federal
Reserve Bank of San Francisco has requested that Bancorp make an application
under Section 4 of the Bank Holding Company Act for approval for Imperial Bank
to retain the Company's stock. Bancorp has deferred any application pending
the results of the FDIC application.
Because Imperial Bank owns less than 50% of the outstanding shares of the
Company and the Company is operated as a company independent of Imperial Bank
and Bancorp, the Company believes that, in the event of an insolvency,
bankruptcy or receivership proceeding involving Imperial Bank or Bancorp, a
court, exercising reasonable judgment after full consideration of all relevant
factors, would not order the substantive consolidation of the assets and
liabilities of the Company with either Imperial Bank or Bancorp.
In February 1997, the board of directors of Bancorp approved a plan to spin
off a portion of its specialty lending and finance business, including
Imperial Bank's common stock interest in ICII, to IFG, a recently created
subsidiary of Bancorp formed to hold various business assets of Bancorp.
Two directors of the Company also serve on the Board of Directors of
Imperial Bank, IFG or their parent, Imperial Bancorp. See "Management."
PAYMENT AND TERMINATION AGREEMENT
On January 1, 1992, Mr. Tomkinson entered into a five-year employment
agreement at an annual salary of $200,000, subject to adjustment for
inflation, plus an annual bonus to be paid out of a "bonus pool" in an amount
determined by the Board of Directors, but in no event to exceed his base
salary. Effective July 1, 1994, Mr. Tomkinson's employment agreement was
amended to reflect an annual salary of $300,000, plus a bonus based on 1.0% of
the Company's pre-tax profits in excess of $10.0 million and the attainment of
defined Company goals. Mr. Tomkinson's total compensation did not exceed
$750,000 annually. Mr. Tomkinson resigned as an officer of the Company in
February 1996.
In February 1996, the Company entered into a Payment and Termination
Agreement with Mr. Tomkinson. Under the terms of this agreement, Mr. Tomkinson
received, as settlement for termination of Mr. Tomkinson's employment with the
Company on November 20, 1995 (the "Termination Date"), the following: (i) the
amount by which (A) the aggregate of all compensation Mr. Tomkinson would have
been entitled to receive under his employment agreement with the Company from
the Termination Date through the original termination date of the employment
agreement on December 31, 1996, exceeds (B) the aggregate Mr. Tomkinson was
entitled to receive from IMH under his employment agreement with IMH during
such period, (ii) all accrued but unpaid compensation due Mr. Tomkinson under
his employment agreement with the Company through the Termination Date and
(iii) the full and immediate vesting of all stock options held by
Mr. Tomkinson covering shares of the capital stock of the Company. Mr.
Tomkinson received $28,650 under this agreement.
98
<PAGE>
BANK DEPOSITS
The Company had deposits (including escrow balances) with SPTL which were
approximately $48.4 million, $4.5 million and $36.0 million at March 31, 1997,
December 31, 1996 and 1995, respectively.
BORROWING ARRANGEMENTS
In October 1995, Imperial Bank extended ICII a $10.0 million revolving line
of credit bearing interest at the prime rate (8.50% at December 31, 1995). All
amounts outstanding under this line were repaid in May 1996.
Additional or modified arrangements and transactions may be entered into by
the Company, Imperial Bank, and their respective subsidiaries, after the date
hereof. Any such future arrangements and transactions will be determined
through negotiation between the Company and Imperial Bank, and it is possible
that conflicts of interest will be involved. The Audit Committee of the Board
of Directors of the Company, consisting of directors independent of both
management and Imperial Bank, must independently approve all transactions by
and between the Company and Imperial Bank.
RELATIONSHIPS WITH SPFC
THE CONTRIBUTION TRANSACTION
In October 1994, ICII incorporated SPFC as part of a strategic decision to
form a separate subsidiary through which to operate SPTL's residential lending
division. To further this strategy, in December 1994, ICII made a capital
contribution of $250,000 to SPFC in exchange for 100% of its outstanding
capital stock, and in April 1995, ICII caused SPTL to contribute to SPFC
certain customer list~s of SPTL's residential lending division relating to the
ongoing operations of such division. In addition, in April 1996 all employees
of SPTL's residential lending division became employees of SPFC. SPTL retained
all other assets and all liabilities related to the contributed operations
including all residual interests generated in connection with securitizations
effected by SPTL's residential lending division.
ARRANGEMENTS WITH ICII AND ITS AFFILIATES
The Company and SPFC have entered into agreements for the purpose of
defining their ongoing relationship. The agreements have been developed in the
context of a parent/subsidiary relationship and therefore are not the result
of arm's length negotiations between independent parties. It is the intention
of the Company and SPFC that such agreements and the transactions provided for
therein, taken as a whole, are fair to both parties, while continuing certain
mutually beneficial arrangements. However, there can be no assurance that each
of such agreements, or the transactions provided for therein, have been
effected on terms at least as favorable to the Company or to SPFC as could
have been obtained from unaffiliated parties.
Additional or modified arrangements and transactions may be entered into by
the Company, SPFC and their respective affiliates. Any such future
arrangements and transactions will be determined through negotiations between
the Company and SPFC, and it is possible that conflicts of interest will
develop. The unaffiliated directors of SPFC, consisting of directors
independent of the Company and SPFC, must independently approve all
transactions between the Company and SPFC.
The following is a summary of certain arrangements and transactions between
the Company and SPFC.
TAX AGREEMENT
The Company entered into an agreement (the "SPFC Tax Agreement") with SPFC
for the purposes of (i) providing for filing certain tax returns, (ii)
allocating certain tax liability and (iii) establishing procedures for certain
audits and contests of tax liabilities.
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<PAGE>
Under the SPFC Tax Agreement, ICII agreed to indemnify and hold SPFC
harmless from any tax liability attributable to periods ending on or before
June 1996 in excess of such taxes as SPFC has already paid or provided for.
For periods ending after June 1996, SPFC will pay its tax liability directly
to the appropriate taxing authorities. To the extent that (i) there are audit
adjustments that result in a tax detriment to SPFC or (ii) SPFC incurs losses
that are carried back to an earlier period and such adjustment described in
(i) or loss described in (ii) results in a tax benefit to ICII or its
affiliates, then ICII will pay to SPFC an amount equal to the tax benefit as
that benefit is realized. ICII also agreed to indemnify SPFC for any liability
arising out of the filing of federal consolidated returns by ICII or any
return filed with any state or local taxing authority. To the extent there are
audit adjustments that result in any tax detriment to ICII or any of its
affiliates with respect to any period ending on or before June 1996 and, as a
result thereof, SPFC for any taxable period after June 1996 realizes a tax
benefit, then SPFC shall pay to ICII the amount of such benefit at such time
or times as SPFC actually realizes such benefit.
ICII generally will control audits and administrative and judicial
proceedings with respect to periods ending on or before June 1996, although
ICII cannot compromise or settle any issue that increases SPFC's liability
without first obtaining the consent of SPFC. SPFC generally controls all other
audits and administrative and judicial proceedings.
SERVICES PROVIDED BY ICII
SPFC has been historically allocated expenses of various administrative
services provided to it by ICII. The costs of such services were not directly
attributable to a specific division or subsidiary and primarily included
general corporate overhead, such as accounting and cash management services,
human resources and other administrative functions. These expenses were
calculated as a pro rata share of certain administrative costs based on
relative number of employees and assets and liabilities of the division or
subsidiary, which management believed was a reasonable method of allocation.
The allocation of expenses for the three months ended March 31, 1997 and the
years ended December 31, 1996 and 1995 were approximately $34,000, $713,000
and $256,000, respectively.
SPFC intends to provide by itself many of the services previously provided
by ICII. ICII currently provides to SPFC mortgage loan production software and
hardware and data communications management, the managing of the 401(k) plan
in which SPFC participates, and insurance coverage, including health
insurance.
OTHER ARRANGEMENTS
From the point of commencement of operations until March 1994, SPTL served
as the servicer of SPFC's loans. From March 1994 through September 1995, SPFC
subcontracted all of its servicing obligations under mortgage loans originated
or acquired on a servicing released basis to ICII pursuant to a servicing
agreement containing fees and other terms that were comparable to industry
standards. In addition, ICII was the servicer of loans securitized by SPFC in
1994 and 1995 under the respective pooling and servicing agreements. Effective
May 1, 1996, ICII transferred the servicing for all of SPFC's loans it
serviced to Advanta Mortgage Corp. USA ("Advanta") or subcontracted with
Advanta to perform such servicing functions.
In February and March 1996, certain of ICII's residential mortgage
origination offices were transferred to SPFC.
In March 1996, SPFC entered into a $10.0 million revolving credit and term
loan agreement with SPTL. Advances under this agreement were collateralized by
the Company's interest-only and residual certificates (other than those
retained by SPTL pursuant to the Contribution Transaction) at an interest rate
of 2% above LIBOR. In April 1996, the loan was repaid and the agreement was
canceled.
During 1995, SPFC borrowed approximately $1.5 million from ICII, such sum
bearing interest at approximately 10.3% per annum. At June 18, 1996 the amount
owed to ICII was approximately $17.0 million. As of March 31, 1997, all
amounts owed to ICII had been repaid.
100
<PAGE>
SPFC has entered into a registration rights agreement with ICII, pursuant to
which SPFC has agreed to register for sale under the Securities Act in the
future all of ICII's remaining shares of SPFC's common stock, subject to
certain conditions.
Lehman Commercial Paper, Inc. ("LCPI") has agreed to make available
repurchase lines to SPFC in an amount equal to $200.0 million. LCPI has
provided SPFC with these funding capabilities for its mortgage banking
operations, where SPFC can close loans in its name. The loan collateral is
held by an independent third-party custodian and SPFC has the ability to
borrow against that collateral at a percentage of the original principal
balance. The rate charged is LIBOR plus 30 basis points. Until the first
quarter of 1997, this line was guaranteed by ICII. The line has an expiration
date of April 1, 1997. As of March 31, 1997, SPFC had an outstanding balance
of $52.4 million with respect to this facility. The guarantee expired on April
1, 1997. ICII does not intend to guarantee any other indebtedness of SPFC.
RELATIONSHIPS WITH IMH
THE CONTRIBUTION TRANSACTION
On November 20, 1995, the effective date of IMH's initial public stock
offering (the "Effective Date"), the Company contributed to ICIFC certain of
the operating assets and certain customer lists of the Company's mortgage
conduit operations including all of ICII's mortgage conduit operations'
commitments to purchase mortgage loans subject to rate locks from
correspondents (having a principal balance of $44.3 million at November 20,
1995), in exchange for shares representing 100% of the common stock and 100%
of the outstanding non-voting preferred stock of ICIFC. Simultaneously, on the
Effective Date, in exchange for 500,000 shares of IMH common stock, the
Company (i) contributed to IMH all of the outstanding non-voting preferred
stock of ICIFC, which represents 99% of the economic interest in ICIFC, (ii)
caused SPTL to contribute to IMH certain of the operating assets and certain
customer lists of SPTL's warehouse lending division and (iii) executed a non-
compete agreement (the "Non-Compete Agreement") and a right of first refusal
agreement (the "Right of First Refusal Agreement"), each having a term of two
years from the Effective Date. Of the 500,000 shares issued pursuant to the
contribution, 450,000 shares were issued to ICII and 50,000 shares were issued
to SPTL. All of the outstanding shares of common stock of ICIFC were retained
by ICII. Lastly, IMH contributed all of the aforementioned operating assets of
SPTL's warehouse lending operations contributed to it by SPTL to IWLG in
exchange for shares representing 100% of the common stock of IWLG thereby
forming it as a wholly owned subsidiary. At November 20, 1995, the net
tangible book value of the assets to be contributed pursuant to the
contribution was $525,000. The Company and SPTL retained all other assets and
liabilities related to the contributed operations which at November 20, 1995
consisted mostly of $11.7 million of PMSRs, $22.4 million of finance
receivables and $26.6 million in advances made by the Company and SPTL to fund
mortgage conduit loan acquisitions and to fund finance receivables,
respectively.
Pursuant to the Non-Compete Agreement, the Company, except as set forth
below, and any 25% entity may not compete with IMH's Warehouse Lending
Operations and may not establish a network of third party correspondent loan
originators or another end-investor in non-conforming mortgage loans. The
Company has also agreed that (i) in addition to any other remedy that may be
available to IMH, it will sell all of the outstanding shares of common stock
of ICIFC to be retained by the Company pursuant to the contribution to any
third party reasonably acceptable to IMH in the event that ICII or a 25%
entity establishes a network of third party correspondent loan originators
during the term of the Non-Compete Agreement and (ii) any sale by ICIFC of
shares of its capital stock or sale or transfer by the Company of any shares
of the common stock of ICIFC which the Company owns may only be made to a
party reasonably acceptable to IMH. Pursuant to the Non-Compete Agreement,
SPTL may continue to act as an end-investor in non-conforming mortgage loans
and SPFC may continue its business, which is primarily to act as a wholesale
originator and bulk purchaser of non-conforming mortgage loans. Pursuant to
the Right of First Refusal Agreement, the Company will grant ICIFC a right of
first refusal to purchase all non-conforming mortgage loans that ICII or any
25% entity originates or acquires and subsequently offers for sale and ICIFC
will grant the Company, or any 25% entity designated by the Company, a right
of first refusal to purchase all conforming mortgage loans that ICIFC acquires
and subsequently offers for sale.
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OTHER ARRANGEMENTS AND TRANSACTIONS WITH IMH
The Company and IMH have entered into agreements for the purpose of defining
their ongoing relationships. These agreements have been developed in the
context of a parent/subsidiary relationship and therefore are not the result
of arm's-length negotiations between independent parties. It is the intention
of the Company and IMH that such agreements and the transactions provided for
therein, taken as a whole, are fair to both parties, while continuing certain
mutually beneficial arrangements.
IMH has entered into a sublease with the Company to lease a portion of its
facilities as IMH's executive offices and administrative facilities at an
aggregate monthly rental of approximately $33,936. The sublease expires in
1999.
The following is a summary of certain arrangements and transactions between
and the Company and IMH.
Tax Agreement
IMH has entered into an agreement (the "IMH Tax Agreement") effective as of
the Effective Date with the Company for the purposes of (i) providing for
filing certain tax returns, (ii) allocating certain tax liability and (iii)
establishing procedures for certain audits and contests of tax liability.
Under the IMH Tax Agreement, the Company has agreed to indemnify and hold
IMH harmless from any tax liability attributable to periods ending on or
before November 20, 1995 in excess of such taxes as IMH has already paid or
provided for. For periods ending after the November 20, 1995, IMH will pay its
tax liability directly to the appropriate taxing authorities. To the extent
(i) there are audit adjustments that result in a tax detriment to IMH or (ii)
IMH incurs losses that are carried back to an earlier year and any such
adjustment described in (i) or loss described in (ii) results in a tax benefit
to ICII or its affiliates, then the Company will pay to IMH an amount equal to
the tax benefit as that benefit is realized. ICII will also agree to indemnify
IMH for any liability associated with the contribution of the preferred stock
of ICIFC and certain operational assets of SPTL's warehouse lending division
or any liability arising out of the filing of a federal consolidated return by
the Company or any return filed with any state or local taxing authority. To
the extent there are audit adjustments that result in any tax detriment to the
Company or any of its affiliates with respect to any period ending on or
before November 20, 1995, and, as a result thereof, IMH for any taxable period
after the Effective Date realizes a tax benefit, then IMH shall pay to the
Company the amount of such benefit at such time or times as IMH actually
realizes such benefit.
ICII generally controls audits and administrative and judicial proceedings
with respect to periods ending on or before the November 20, 1995, although
ICII cannot compromise or settle any issue that increases IMH's liability
without first obtaining the consent of IMH. IMH generally controls all other
audits and administrative and judicial proceedings.
Services Agreement
Prior to March 31, 1997, ICIFC was allocated expenses of various
administrative services provided by ICII. IWLG was also allocated expenses
prior to the contribution transaction referenced above. The costs of such
services were not directly attributable to a specific division or subsidiary
and primarily included general corporate overhead, such as data processing,
accounting and cash management services, human resources and other
administrative functions. These expenses were calculated as a pro rata share
of certain administrative costs based on relative assets and liabilities of
the division or subsidiary, which management believed was a reasonable method
of allocation. In connection with IMH's initial public offering in November
1995, IMH and ICII entered into a services agreement (the "IMH Services
Agreement") under which ICII provided similar general corporate overhead
services to IMH and its affiliates, including ICIFC and IWLG. The Company
charged fees for each of the services which it provides under the IMH Services
Agreement based upon usage. The IMH Services Agreement expired on December 31,
1996. The allocation of expenses to ICIFC and IWLG and amounts paid to ICII
under the IMH Services Agreement for the three months ended March 31, 1997 and
for the years ended December 31, 1996, and 1995 aggregated $0, $518,000, and
$269,000, respectively.
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OTHER TRANSACTIONS
General
ICAI, a wholly-owned subsidiary of the Company, oversees the day-to-day
operations of IMH, subject to the supervision of IMH's Board of Directors,
pursuant to a management agreement (the "Management Agreement") effective as
of November 20, 1995, for an initial term that expired on January 31, 1997.
ICAI and IMH have concluded a five-year extension to the Management Agreement
whereby amounts payable thereunder would be subordinated to a specified rate
of return payable to IMH stockholders.
ICAI is entitled to receive a per annum base management fee payable monthly
in arrears of an amount equal to 75% of (i) 3/8 of 1% of gross mortgage assets
of IMH composed of other than agency certificates, conforming mortgage loans
or mortgage-backed securities secured by or representing interests in
conforming mortgage loans, plus (ii) 1/8 of 1% of the remainder of gross
mortgage assets of IMH plus (iii) 1/5 of 1% of the average daily asset balance
of the outstanding amounts under IWLG's warehouse lending facilities. The term
"gross mortgage assets" means for any month the weighted average book value of
IMH's Mortgage Assets (as defined in the Management Agreement), before
reserves for depreciation or bad debts or other similar noncash reserves,
computed at the end of such month. During the three months ended March 31,
1997 and the years ended December 31, 1996 and 1995, ICAI earned $929,000,
$2.0 million and $37,888 in management fees, respectively.
ICAI is entitled to receive as incentive compensation for each fiscal
quarter, an amount equal to 75% of 25% of the net income of IMH, before
deduction of such incentive compensation, in excess of the amount that would
produce an annualized Return on Equity (as defined in the Management
Agreement) equal to the ten-year United States Treasury rate plus 2%. Return
on Equity is calculated for any quarter by dividing IMH's net income for the
quarter by its average net worth for the quarter. For such calculations, the
"net income" of IMH means the income of IMH determined in accordance with GAAP
before ICAI's incentive compensation, the deduction for dividends paid and any
net operating loss deductions arising from losses in prior periods.
A deduction for all of IMH's interest expenses for borrowed money is also
taken in calculating net income. "Average net worth" for any period means the
arithmetic average of the sum of the gross proceeds from any offering of its
equity securities by IMH, before deducting any underwriting discounts and
commissions and other expenses and costs relating to such offering, plus IMH's
retained earnings (without taking into account any losses incurred in prior
periods) computed by taking the daily average of such values during such
period. The definition Return on Equity is only for purposes of calculating
the incentive compensation payable, and is not related to the actual
distributions received by IMH's stockholders. The incentive payment to ICAI is
calculated quarterly in arrears before any income distributions are made to
stockholders for the corresponding period. During the three months ended March
31, 1997 and the years ended December 31, 1996 and 1995, ICAI earned $649,000,
$1.3 million and $0, respectively, for ICAI's incentive payment. The remaining
25% of the base management fee and of the incentive compensation fee are
payable to participants in IMH's executive bonus pool as determined by the
chief executive officer of IMH.
Pursuant to the Management Agreement, IMH also pays all operating expenses
except those specifically required to be borne by ICAI under the Management
Agreement. The operating expenses generally required to be borne by ICAI
include the compensation and other employment costs of ICAI's officers in
their capacities as such and the cost of office space and out-of-pocket costs,
equipment and other personnel required for oversight of IMH's operations. The
expenses that are paid by IMH include issuance and transaction costs incident
to the acquisition, disposition and financing of investments, regular legal
and auditing fees and expenses of IMH, the fees and expenses of IMH's
directors, premiums for directors' and officers' liability insurance, premiums
for fidelity and errors and omissions insurance, servicing and subservicing
expenses, the costs of printing and mailing proxies and reports to
stockholders, and the fees and expenses of IMH's custodian and transfer agent,
if any. In addition, ICAI provides various administrative services to IMH such
as human resource and management information services. ICAI has subcontracted
with ICII and certain of its affiliates to provide certain of such
administrative services required under the Management Agreement.
Reimbursements of expenses incurred by ICAI which are the responsibility of
IMH are made monthly. During the three months ended March 31, 1997 and the
years ended December 31, 1996 and 1995, there were no monies paid to ICAI as
reimbursement of expenses.
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Purchase of Residual Interests
Effective December 31, 1996, ICII sold $46.9 million of residual interests
to ICIFC. In connection therewith, ICII lent ICIFC 100% of the purchase price.
This loan bore interest at a rate of 12% per annum, and was secured by the
residual interests. On March 31, 1997, ICIFC renegotiated the loan, paying it
down by $9.5 million and setting a term of ten years.
Bulk Mortgage Loan Purchases
In December 1995, ICIFC entered into a number of agreements with the Company
and SPTL to purchase bulk mortgage loan packages. All mortgage loan purchase
agreements were entered into under the following terms.
On December 5, 1995 and December 13, 1995, ICIFC purchased from the Company
bulk mortgage loan packages of 30-year fully amortized six-month adjustable
LIBOR and one-year adjustable United States Treasury Bill rate loans and 30-
and 15-year fixed rate second trust deed mortgages with servicing rights on
all mortgage loans released to ICIFC. The principal balances of the mortgages
at the time of purchase was $106.7 million and $66.2 million, respectively,
with a premium paid of $2.1 million and $1.6 million, respectively.
On December 29, 1995, ICIFC purchased from SPTL two bulk mortgage loan
packages of 30-year fully amortized six-month adjustable LIBOR and one-year
adjustable United States Treasury Bill rate loans. The principal balances of
the loans in the servicing released and servicing retained bulk package at the
time of purchase was $300.0 million and $28.5 million with premiums paid of
$3.4 million and $142,395, respectively.
Purchase of Mortgage-Backed Securities
On December 29, 1995, IMH purchased, from SPTL, DLJ Mortgage Acceptance
Corp. Pass-Through Certificates Series 1995-4, Class B-1 and Class B-2 issued
August 29, 1995. These certificates consist primarily of a pool of certain
conventional, 11th District Cost of Funds adjustable rate, one-to-four family,
first lien mortgage loans, with terms to maturity of not more than 30 years.
The mortgage loans underlying the certificates were originated or acquired by
ICII. All of the mortgage loans are serviced by ICII in its capacity as master
servicer. IMH purchased Class B-1 certificates having an initial certificate
principal balance of $4.8 million and the Class B-2 certificates having an
initial certificate principal balance of $2.2 million for a price of 78.54 or
$4.8 million and for a price of 70.01 or $2.3 million, respectively, equating
to a discount of $1.0 million and $0.7 million, respectively. The Class B-1
certificates are single "B" rated mortgage securities and the Class B-2 are
double "BB" rated mortgage securities. There was no gain or loss recorded by
either party as a result of this transaction.
Purchase of Subordinated Lease Receivables
On December 29, 1995, IMH purchased a subordinated interest in a lease
receivable securitization from IBC. The lease receivables underlying the
security were originated by IBC. IMH purchased the subordinated lease
receivable based on the present value of estimated cash flows using a discount
rate of 12% which resulted in a purchase price of $8.4 million. As a result of
the purchase, IBC recorded a gain of $1.6 million. The purchase price was
based upon a market discount rate as confirmed by an independent third party.
In March 1996, IBC repurchased the subordinated interest from IMH, and as of
March 31, 1997, holds the subordinated interest as an investment vehicle.
Transfer of ICIFC Stock
To conclude the deconsolidation of ICIFC, in the first quarter of 1997 ICII,
as sole common shareholder, contributed the common shares of ICIFC to four
individuals in approximately equal number of shares, with an approximate value
of $25,000 each. ICII no longer has any equity interest in ICIFC.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
In connection with the sale of the Old Par Securities, the Company, the
Trust and the Subsidiary Guarantors (collectively, the "Registrants") entered
into a Registration Rights Agreement with the Initial Purchaser pursuant to
which the Registrants agreed to file a registration statement under the
Securities Act with respect to the New Par Securities and, upon the
effectiveness of such registration statement, offer to the holders of the Old
Par Securities the opportunity to exchange their Old Par Securities for a like
liquidation amount of New Par Securities, which will be issued without a
restrictive legend and, except as set forth below, may be reoffered and resold
by the holder without registration under the Securities Act. Upon the
completion of the Exchange Offer, each of the Registrants' obligations with
respect to the registration of the Old Par Securities and the New Par
Securities will terminate, except as provided below. A copy of the
Registration Rights Agreement delivered in connection therewith has been filed
as an exhibit to the Registration Statement of which this Prospectus is a
part. Following the completion of the Exchange Offer, holders of Old Par
Securities not tendered will not have any further registration rights, except
as provided below, and the Old Par Securities will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Par Securities could be adversely affected upon completion of the
Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third-parties, the Registrants believe that New Par
Securities issued pursuant to the Exchange Offer in exchange for Old Par
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than any such holder that is an "affiliate" of the
Registrants within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder represents to the Registrants that
(i) such New Par Securities are acquired in the ordinary course of business of
such holder, (ii) such holder is not engaging in and does not intend to engage
in a distribution of such New Par Securities and (iii) such holder has no
arrangement or understanding with any person to participate in the
distribution of such New Par Securities. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Par Securities cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Each broker-dealer that receives New Par Securities for its own
account in exchange for Old Par Securities, where such Old Par Securities were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales
of such New Par Securities. See "Plan of Distribution."
In the event that any holder of Old Par Securities would not receive freely
tradeable New Par Securities in the Exchange Offer or is not eligible to
participate in the Exchange Offer, such holder can elect, by so indicating on
the Letter of Transmittal and providing certain additional necessary
information, to have such holder's Old Par Securities registered in a "shelf"
registration statement on an appropriate form pursuant to Rule 415 under the
Securities Act.
In the event that the Registrants are obligated to file a "shelf"
registration statement, they will be required to keep such "shelf"
registration statement effective for a period of three years or such shorter
period that will terminate when all of the Old Par Securities covered by such
registration statement have been sold pursuant thereto. Other than as set
forth in this paragraph, no holder will have the right to require the
Registrants to register such holder's Par Securities under the Securities Act.
See "Procedures for Tendering Old Securities."
Pursuant to the Registration Rights Agreement, the Registrants (or, if the
Debentures have been distributed to holders of the Par Securities in
liquidation of the Trust, the Company only) agreed to file with the
Commission, on or prior to 30 days after the Closing Date, the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the New Par Securities, the New Guarantee and the New Debentures.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Registrants will offer to the holders of Old Par Securities who are able to
make certain representations the opportunity to exchange their Transfer
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Restricted Old Par Securities for New Par Securities pursuant to the Exchange
Offer. If (i) the Registrants are not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy,
(ii) the Company has received an opinion of independent tax counsel
experienced in such matters to the effect that, as a result of the
consummation of the Exchange Offer, there is more than an insubstantial risk
that (x) the Trust would be subject to United States federal income tax with
respect to income received or accrued on the Debentures or New Debentures, (y)
interest payable by the Company on such Debentures or New Debentures would not
be deductible by the Company, in whole or in part, for United States federal
income tax purposes, or (z) the Trust would be subject to more than a de
minimis amount of other taxes, duties or other governmental charges or
(iii) any holder of Old Par Securities notifies the Company and the Trust on
or before the 20th Business Day following the consummation of the Exchange
Offer that (A) it is prohibited by law or Commission policy from participating
in the Exchange Offer, (B) it may not resell the New Par Securities acquired
by it in the Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) it is a broker-dealer and
owns Old Par Securities acquired directly from the Trust or an affiliate of
the Trust or in the Remarketing, the Registrants will file with the Commission
a Shelf Registration Statement to cover resales of the Securities by the
holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. The Company
and the Trust will use their respective best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Par Security, Guarantee or Debenture until (i) the date on which
such Par Security, Guarantee or Debenture has been exchanged by a person other
than a broker-dealer for a New Par Security, New Guarantee or New Debenture in
the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of an Old Par Security for a New Par Security , the date on
which such New Par Security is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on
which such Par Security, Guarantee or Debenture has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such Par Security,
Guarantee or Debenture is distributed to the public pursuant to Rule 144 under
the Securities Act.
The Registration Rights Agreement provides that (i) the Registrants will
file an Exchange Offer Registration Statement with the Commission on or prior
to 30 days after the Closing Date (unless not required to do so pursuant to
clause (x) or (y) of the fourth sentence of the preceding paragraph), (ii) the
Registrants will use their respective best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to 90
days after the Closing Date, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Registrants will
commence the Exchange Offer and use their best efforts to issue on or prior to
30 Business Days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, New Par Securities, New
Guarantees and New Debentures in exchange for all Old Par Securities, Old
Guarantees and Old Debentures tendered prior thereto in the Exchange Offer and
(iv) if obligated to file the Shelf Registration Statement, the Registrants
will use their best efforts to file the Shelf Registration Statement with the
Commission on or prior to 60 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 30 days after such obligation arises. If (w) the Registrants fail to
file any of the Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (x) any of such
Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), (y) the Registrants fail to consummate the Exchange Offer within 30
Business Days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement or (z) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (w) through (z) above a
"Registration Default"), then the Company will pay additional interest
("Additional Interest") on the Debentures (including in respect of amount
occurring during any Extension Period) and corresponding Additional
Distributions (the "Additional Distributions") will become payable on the
Transfer Restricted
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Securities, with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $.05 per week
per $1,000 liquidation or principal amount of Transfer Restricted Securities
held by such holder. The amount of the Additional Interest (and corresponding
Additional Distributions) will increase by an additional $.05 per week per
$1,000 liquidation or principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Additional Interest (and corresponding
Additional Distributions) of $.50 per week per $1,000 liquidation or principal
amount of Transfer Restricted Securities. All accrued Additional Interest (and
corresponding Additional Distributions) will be paid by the Company on each
Distribution payment date to The Depositary Trust Company ("DTC") by wire
transfer of immediately available funds or by federal funds check and to
holders of definitive securities by wire transfer to the accounts specified by
them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Additional Interest (and corresponding Additional Distributions)
will cease.
Transfer Restricted Securities which have not been exchanged for New Par
Securities, New Debentures and New Guarantees pursuant to the Exchange Offer
are mandatorily redeemable by the Company on the Remarketing Settlement Date,
as described under "Description of Securities--Redemption--Transfer Restricted
Security Redemption."
Holders of Old Par Securities will be required to make certain
representations to the Company, the Trust and the Subsidiary Guarantors (as
described in the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Securities included in
the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Trust will accept for exchange Old Par Securities which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 P.M.,
New York City time, on , 1997; provided, however, that if the Trust, in its
sole discretion, has extended the period of time during which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended. As of the date of this Prospectus,
$70,000,000 aggregate liquidation amount of the Old Par Securities is
outstanding. This Prospectus, together with the Letter of Transmittal, is
first being sent on or about , 1997, to all holders of Old Par Securities
known to the Trust. The Trust's obligation to accept Old Par Securities for
exchange pursuant to the Exchange Offer is subject to certain customary
conditions as set forth under "--Certain Conditions to the Exchange Offer"
below.
The Trust expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Par Securities, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Par Securities previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Trust. Any Old Par Securities not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Old Par Securities tendered in the Exchange Offer must be in denominations
of principal amount of $1,000 or any integral multiple thereof. The Trust
expressly reserves the right to amend or terminate the Exchange Offer, and not
to accept for exchange any Old Par Securities not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Certain Conditions to the Exchange
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Offer." The Trust will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Old Par
Securities as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD SECURITIES
Only a registered holder of Old Par Securities may tender such Old Par
Securities in the Exchange Offer. The tender to the Trust of Old Par
Securities by a holder thereof as set forth below and the acceptance thereof
by the Trust will constitute a binding agreement between the tendering holder
and the Trust upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a holder who wishes to tender Old Par Securities for exchange pursuant
to the Exchange Offer must transmit a properly completed and duly executed
Letter of Transmittal, including all other documents required by such Letter
of Transmittal, to Chase Trust Company of California (the "Exchange Agent") at
one of the addresses set forth below under "Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Par
Securities must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation") of such Old Par Securities, if such procedure is
available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD PAR SECURITIES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD PAR SECURITIES SHOULD
BE SENT TO THE TRUST. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Par Securities are registered in the name of
a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender should contact the registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Par Securities, either make appropriate arrangements to
register ownership of the Old Par Securities in such beneficial owner's name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal Rights"), as the case may be, must be guaranteed (see
"--Guaranteed Delivery Procedures") unless the Old Par Securities surrendered
for exchange pursuant thereto are tendered (i) by a registered holder of the
Old Par Securities who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guaranties must be by a
financial institution (including most banks, savings and loan associations and
brokerage houses) that is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Program or the Stock
Exchanges Medallion Program (collectively, "Eligible Institutions"). If Old
Par Securities are registered in the name of a person other than a signer of
the Letter of Transmittal, the Old Par Securities surrendered for exchange
must be endorsed by or be accompanied by a written instrument or instruments
of transfer or exchange, in satisfactory form as determined by the Trust in
its sole discretion, duly executed by the registered holder exactly as the
name or names of the registered holder or holders appear on the Old Par
Securities with the signature thereon guarantied by an Eligible Institution.
If the Letter of Transmittal or any Old Par Securities or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
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representative capacity, such person should so indicate when signing, and,
unless waived by the Trust, proper evidence satisfactory to the Trust of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Par Securities tendered for exchange will be
determined by the Trust in its sole discretion, which determination shall be
final and binding. The Trust reserves the absolute right to reject any and all
tenders of any particular Old Par Securities not properly tendered or not to
accept any particular Old Par Securities which acceptance might, in the
judgment of the Trust or its counsel, be unlawful. The Trust also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Par Securities either before or after
the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Old Par Securities in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Par Securities either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the
Trust shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Par Securities for exchange
must be cured within such reasonable period of time as the Trust shall
determine. None of the Trust, the Exchange Agent or any other person shall be
under any duty to give notification of any defect or irregularity with respect
to any tender of Old Par Securities for exchange, nor shall any of them incur
any liability for failure to give such notification.
By tendering, each holder will represent to the Trust that, among other
things, the New Par Securities acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
New Par Securities, whether or not such person is the holder, and that neither
the holder nor such other person has any arrangement or understanding with any
person to participate in the distribution of the New Par Securities. If any
holder or any such other person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Trust, the Company or the Subsidiary Guarantors
or is engaged in or intends to engage in, or has an arrangement or
understanding with any person to participate in, a distribution of such New
Par Securities to be acquired pursuant to the Exchange Offer, such holder or
any such other person (i) may not rely on the applicable interpretation of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Par Securities for
its own account in exchange for Old Par Securities, where such Old Par
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Par Securities. See
"Plan of Distribution." The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD PAR SECURITIES FOR EXCHANGE; DELIVERY OF NEW PAR SECURITIES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Trust will accept, promptly after the Expiration Date, all Old Par
Securities properly tendered and will issue the New Par Securities promptly
after acceptance of the Old Par Securities. See "--Certain Conditions to the
Exchange Offer" below. For purposes of the Exchange Offer, the Trust will be
deemed to have accepted properly tendered Old Par Securities for exchange
when, as and if the Trust has given oral or written notice thereof to the
Exchange Agent.
For each Old Par Security accepted for exchange, the holder of such Old Par
Security will receive as set forth below under "Description of the
Securities--Book-Entry, Delivery and Form" a New Par Security having a
principal amount equal to that of the surrendered Old Par Security.
Accordingly, registered holders of New Par Securities on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Par Securities or, if no interest has
been paid, from , 1997. Old Par Securities accepted for exchange will
cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders whose Old Par Securities are accepted for exchange
will not receive any payment in respect of accrued interest on such Old Par
Securities otherwise payable on any interest payment date the record date for
which occurs on or after consummation of the Exchange Offer.
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In all cases, issuance of New Par Securities for Old Par Securities that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Par
Securities or a timely Book-Entry Confirmation of such Old Par Securities into
the Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Par Securities are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if Old Par
Securities are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged Old Par Securities will
be returned without expense to the tendering holder thereof (or, in the case
of Old Par Securities tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Old Par Securities will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Par Securities at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Par Securities by
causing the Book-Entry Transfer Facility to transfer such Old Par Securities
into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Par Securities may be effected through book-
entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal
or a facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Par Securities desires to tender such Old
Par Securities and the Old Par Securities are not immediately available, or
time will not permit such holder's Old Par Securities or other required
documents to reach the Exchange Agent before the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) on or prior to 5:00 P.M., New York City time, on the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Trust (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Old Par
Securities and the amount of Old Par Securities tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Par
Securities, in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent, and
(iii) the certificates for all physically tendered Old Par Securities, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution within three NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery
WITHDRAWAL RIGHTS
Tenders of Old Par Securities may be withdrawn at any time prior to 5:00
P.M., New York City time, on the Expiration Date. For a withdrawal to be
effective, a written notice of withdrawal must be received by the Exchange
Agent at one of the addresses set forth below under "--Exchange Agent." Any
such notice of withdrawal must specify the name of the person having tendered
the Old Par Securities to be withdrawn, identify
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the Old Par Securities to be withdrawn (including the principal amount of such
Old Par Securities), and (where certificates for Old Par Securities have been
transmitted) specify the name in which such Old Par Securities are registered,
if different from that of the withdrawing holder. If certificates for Old Par
Securities have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution in which case such
guarantee will not be required. If Old Par Securities have been tendered
pursuant to the procedure for book-entry transfer described above, any notice
of withdrawal must specify the name and number of the account at the Book-
Entry Transfer Facility to be credited with the withdrawn Old Par Securities
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Trust, whose determination will be final and binding
on all parties. Any Old Par Securities so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Par Securities which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost
to such holder (or, in the case of Old Par Securities tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Old Par
Securities will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Par Securities) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Par Securities may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Par Securities"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Trust shall
not be required to accept for exchange, or to issue New Par Securities in
exchange for, any Old Par Securities and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such New Par Securities for
exchange, any of the following events shall occur:
If (i) the Registrants are not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy,
(ii) the Company has received an opinion of independent tax counsel
experienced in such matters to the effect that, as a result of the
consummation of the Exchange Offer, there is more than an insubstantial risk
that (x) the Trust would be subject to United States federal income tax with
respect to income received or accrued on the Debentures or New Debentures, (y)
interest payable by the Company on such Debentures or New Debentures would not
be deductible by the Company, in whole or in part, for United States federal
income tax purposes, or (z) the Trust would be subject to more than a de
minimis amount of other taxes, duties or other governmental charges or (iii)
any holder of Transfer Restricted Securities notifies the Company and the
Trust on or before the 20th Business Day following the consummation of the
Exchange Offer that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (B) it may not resell the New Par
Securities, the New Guarantees and the New Debentures acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) it is a broker-dealer and
owns Old Par Securities acquired directly from the Trust or an affiliate of
the Trust or in the Remarketing, the Registrants will file with the Commission
a Shelf Registration Statement to cover resales of the Par Securities by the
holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement.
The foregoing conditions are for the sole benefit of the Registrants and may
be asserted by the Registrants in whole or in part at any time and from time
to time in their sole discretion. The failure by the Registrants at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Trust will not accept for exchange any Old Par Securities
tendered, and no New Par Securities will be issued in exchange for any such
Old Par Securities, if at such time any stop order is threatened
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by the Commission or in effect with respect to the Registration Statement of
which this Prospectus is a part or the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Par Securities being tendered for exchange.
EXCHANGE AGENT
Chase Trust Company of California has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at the address set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests or Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Chase Trust Company, Exchange Agent
By Hand/Overnight Courier/By Mail:
c/o The Chase Manhattan Bank
Attn: Mr. Carlos Estevez
55 Water Street
Second Floor, Room #234
New York, New York 10041
By Facsimile: (212) 638-7380
Confirm by Telephone (212) 638-0828
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
The Exchange Agent also acts as Property Trustee and Indenture Trustee.
FEES AND EXPENSES
The Trust will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$200,000.
TRANSFER TAXES
Holders who tender their Old Par Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that
holders who instruct the Trust to register New Par Securities in the name of,
or request that Old Par Securities not tendered or not accepted in the
Exchange Offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax
thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD PAR SECURITIES
Holders of Old Par Securities who do not exchange their Old Par Securities
for New Par Securities pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Par Securities as set
forth in the legend thereon as a consequence of the issuance of the Old Par
Securities pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Par Securities may not be offered or
sold, unless registered under the
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Securities Act and applicable state securities laws. None of the Trust, the
Company nor the Subsidiary Guarantors (collectively, the "Registrants")
currently anticipate that it will register Old Par Securities under the
Securities Act. See "Description of the Securities--Exchange Offer;
Registration Rights." Based on interpretations by the Staff of the Division of
Corporation Finance of the Commission, as set forth in no-action letters
issued to third parties, the Registrants believe that New Par Securities
issued pursuant to this Exchange Offer in exchange for Old Par Securities may
be offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without further compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that such New Par Securities are acquired in the ordinary course of
such holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Par Securities.
However, any holder of Old Par Securities who is an "affiliate" of the
Registrants (within the meaning of Rule 405 under the Securities Act) or who
intends to participate in the Exchange Offer for the purpose of distributing
New Par Securities, or any broker-dealer who purchased Old Par Securities from
the Trust to resell them pursuant to Rule 144A under the Securities Act ("Rule
144A") or any other available exemption under the Securities Act, (a) will not
be able to rely on the interpretations of the Staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Par Securities in the Exchange Offer and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Par Securities unless such sale is made
pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Par Securities acquired for its own
account as a result of market-making or other trading activities and exchanges
such Old Par Securities for New Par Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Par Securities.
Each holder of Old Par Securities who wishes to exchange Old Par Securities
for New Par Securities in the Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the Registrants, (ii) any New Par
Securities to be received by it are being acquired in the ordinary course of
its business, (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Par Securities, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Par Securities. In
addition, the Registrants may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to the
Registrants (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act")) on behalf of whom such holder holds
the Par Securities to be exchanged in the Exchange Offer. Each broker-dealer
that receives New Par Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Old Par Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Par Securities.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the Staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Registrants believe that
broker-dealers who acquired Old Par Securities for their own accounts, as a
result of market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery requirements with
respect to the New Par Securities received upon exchange of such Old Par
Securities with this Prospectus, as it may be amended or supplemented from
time to time. Subject to certain exceptions, the Registrants have agreed that
this Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of such
New Par Securities for a period ending 180 days after the Registration
Statement of which this Prospectus constitutes a part is declared effective.
Any Participating Broker-Dealer who is an "affiliate" of the Registrants
(within the meaning of Rule 405 under the Securities Act) may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
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Any Old Par Securities not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Declaration
(except for those rights relating to the Exchange Offer which terminate upon
consummation of the Exchange Offer). Following consummation of the Exchange
Offer, the holders of Old Par Securities will continue to be subject to all of
the existing restrictions upon transfer thereof and none of the Registrants
will have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act of
the Old Par Securities held by them. Any Old Par Securities which have not
been exchanged for New Par Securities pursuant to the Exchange Offer will be
mandatorily redeemed by the Company on the Remarketing Settlement Date, as
described under "Description of the Securities--Redemption--Transfer
Restricted Security Redemption." To the extent that Old Par Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Par Securities could be adversely affected. See "Risk Factors--
Consequences of a Failure to Exchange Old Par Securities." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the
New Par Securities may not be offered or sold unless they have been registered
or qualified for sale in such jurisdictions or an exemption from registration
or qualification is available and is complied with. The Registrants have
agreed, pursuant to the Registration Rights Agreement, subject to certain
limitations specified therein, to register or qualify the New Par Securities
for offer or sale under the securities laws of such jurisdiction as any holder
reasonably requests in writing. Unless a holder so requests, the Registrants
do not currently intend to register or qualify the sale of the New Par
Securities in any such jurisdictions.
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THE TRUST
The Trust is a statutory business trust formed under the Delaware Business
Trust Act, as amended (the "Trust Act"), pursuant to (i) a declaration of
trust (as so amended and restated, the "Declaration") dated as of May 28,
1997, executed by the Company, as sponsor, and the trustees of the Trust and
(ii) a certificate of trust, dated as of May 28, 1997, filed with the
Secretary of State of the State of Delaware. The Company acquired Common
Securities in an aggregate liquidation amount equal to at least 3% of the
total capital of the Trust, at the same time as the Par Securities were sold.
The Trust used all the proceeds derived from the issuance of the Trust
Securities to purchase the Debentures and, accordingly, the assets of the
Trust consist solely of the Debentures. The Trust exists for the exclusive
purpose of (i) issuing and selling the Trust Securities representing undivided
beneficial ownership interests in the assets of the Trust, (ii) investing the
gross proceeds from such sales in the Debentures and (iii) engaging in only
those other activities necessary or incidental thereto.
Pursuant to the Declaration, there are five trustees (the "Trustees") for
the Trust. Three of the Trustees (the "Regular Trustees") are individuals who
are employees or officers of or who are affiliated with the Company. The
fourth trustee is a financial institution that is unaffiliated with the
Company (the "Property Trustee"). The fifth trustee is an entity that
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, Chase Trust Company of California, a state
banking corporation, will act as Property Trustee, and its affiliate, Chase
Manhattan Bank, a Delaware corporation, will act as Delaware Trustee until, in
each case, removed or replaced by the Company as holder of the Common
Securities. Chase Trust Company of California will also act as trustee under
the Guarantee (the "Guarantee Trustee").
The Property Trustee holds title to the Debentures for the benefit of the
holders of the Trust Securities and, as the holder of the Debentures, the
Property Trustee has the power to exercise all rights, powers and privileges
of a holder of Debentures under the Indenture (as defined herein). In
addition, the Property Trustee maintains exclusive control of a segregated
non-interest bearing bank account (the "Property Account") to hold all
payments made in respect of the Debentures for the benefit of the holders of
the Trust Securities. The Guarantee Trustee holds the Guarantee for the
benefit of the holders of the Par Securities. The Company, as the holder of
all the Common Securities, has the right to appoint, remove or replace any of
the Trustees and to increase or decrease the number of Trustees, provided that
the number of Trustees will be at least three; provided further that at least
one Trustee will be a Delaware Trustee, at least one Trustee will be the
Property Trustee and at least one Trustee will be a Regular Trustee. The
Company will pay all fees and expenses related to the organization and
operations of the Trust (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States or any other domestic taxing authority upon the Trust)
and will be responsible for all debts and obligations of the Trust (other than
with respect to the Par Securities).
For so long as the Par Securities remain outstanding, the Company has
covenanted (i) to maintain directly or indirectly 100% ownership of the Common
Securities, (ii) to cause the Trust to remain a statutory business trust and
not to voluntarily dissolve, wind-up, liquidate or be terminated, except as
permitted by the Declaration, (iii) to use its commercially reasonable efforts
to ensure that the Trust will not be an "investment company" for purposes of
the 1940 Act (as defined herein) and (iv) to take no action that would be
reasonably likely to cause the Trust to be classified as an association or a
publicly traded partnership taxable as a corporation for United States federal
income tax purposes.
The rights of the holders of the Par Securities, including economic rights,
rights to information and voting rights, are set forth in the Declaration and
the Trust Indenture Act. See "Description of Securities." The Declaration and
the Guarantee also incorporate by reference the terms of the Trust Indenture
Act.
The location of the principal executive office of the Trust is c/o the
Company, 23550 Hawthorne Boulevard, Building One, Suite 110, Torrance,
California, 90505, and its telephone number is (310) 373-1704.
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DESCRIPTION OF SECURITIES
The Par Securities represent undivided beneficial ownership interests in the
assets of the Trust and the holders thereof are entitled to a preference in
certain circumstances with respect to Distributions and amounts payable on
redemption or liquidation over the Common Securities, as well as other
benefits as described in the Declaration. This summary of certain provisions
of the Par Securities and the Declaration does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all the
provisions of the Declaration, including the definitions therein of certain
terms, and the Trust Indenture Act. Wherever particular defined terms of the
Declaration (as supplemented or amended from time to time) are referred to
herein, the definitions of such defined terms are incorporated herein by
reference. For purposes of this summary, the term "Company" refers only to
ICII and not to any of its Subsidiaries.
GENERAL
The Par Securities rank on a parity, and payments will be made thereon pro
rata, with the Common Securities except as described under "--Subordination of
Common Securities." Legal title to the Debentures is held by the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
Guarantee executed by the Company for the benefit of the holders of the Par
Securities is a guarantee with respect to the Par Securities but does not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of the Par Securities when the Trust does not have sufficient
funds available to make such payments. See "Description of Guarantee." The
Company's obligations under the Guarantee, taken together with its obligations
under the Debentures and the Indenture, including its obligation to pay all
costs, expenses and liabilities of the Trust (other than with respect to the
Par Securities), constitute a full and unconditional guarantee of all of the
Trust's obligations under the Par Securities.
Holders of the Par Securities have no preemptive or similar rights.
DISTRIBUTIONS
From the date of original issuance to but excluding the Remarketing
Settlement Date, distributions will accumulate at the Initial Distribution
Rate of the stated liquidation amount of $1,000 per Par Security. From the
Remarketing Settlement Date to but excluding the date of redemption of the Par
Securities, holders of Par Securities will be entitled to receive
Distributions at the Adjusted Distribution Rate that results from the
Remarketing consummated on the Remarketing Settlement Date. The Adjusted
Distribution Rate will not exceed the Maximum Adjusted Distribution Rate. See
"--Remarketing--Remarketing Procedures."
As used herein:
(i) "Scheduled Remarketing Date" means the third Business Day prior to any
Scheduled Remarketing Settlement Date;
(ii) "Scheduled Remarketing Settlement Date" means June 14, 2002, or such
other date determined pursuant to this definition, unless a Trust
Enforcement Event has occurred and is continuing on the 25th Business Day
prior to such Scheduled Remarketing Settlement Date, in which case the
Scheduled Remarketing Settlement Date will be the 30th Business Day after
the date of cure or waiver of such Trust Enforcement Event; provided that
if (x) purchases and sales of Par Securities pursuant to a Remarketing are
not consummated on any Scheduled Remarketing Settlement Date for any reason
(including the Company's failure to make the deposit required in the event
of a Special Mandatory Redemption) other than the occurrence and
continuance of any other Trust Enforcement Event or if (y) the Company
fails to redeem Debentures in connection with a Tax Opinion Redemption
after cancelling the Remarketing, the next Scheduled Remarketing Settlement
Date will be the 30th Business Day after such Scheduled Remarketing
Settlement Date;
(iii) "Remarketing Settlement Date" means the Scheduled Remarketing
Settlement Date on which purchases and sales of Par Securities pursuant to
a Remarketing are consummated;
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(iv) "Maximum Adjusted Distribution Rate" means the rate per annum,
determined on the Scheduled Remarketing Date by the Remarketing Agent in
its discretion, equal to the greater of (a) the 30-year Treasury Rate plus
600 basis points and (b) a nationally-recognized high-yield index rate for
similarly-rated issues, plus 100 basis points; and
(v) "30-year Treasury Rate" means the rate per annum equal to the semi-
annual equivalent yield to maturity of the U.S. Treasury security used, in
accordance with customary financial practice, as the benchmark pricing bond
in pricing new issues of corporate debt securities of 30-year maturities on
the Scheduled Remarketing Date.
Distributions are payable semi-annually in arrears on June 15th (June 14 in
2002) and December 15th of each year, commencing December 15, 1997, and on the
Scheduled Remarketing Settlement Date. In the event that any date on which
Distributions are payable on the Par Securities is not a Business Day, then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional
Distributions or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment will
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable
(each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). A "Business Day" means any day other than a
Saturday or a Sunday, or a day on which banking institutions in The City of
New York are authorized or required by law or executive order to remain closed
or a day on which the principal corporate trust office of the Property Trustee
or the Indenture Trustee (as defined herein) is closed for business. The
amount of Distributions payable for any period will be computed (i) for any
full 180-day semi-annual distribution period, on the basis of a 360-day year
of twelve 30-day months and (ii) for any period shorter than a full 180-day
semi-annual distribution period for which distributions are computed, on the
basis of a 30-day month and for periods less than a month, the actual number
of days elapsed per 30-day-month.
Distributions on the Par Securities (other than distributions on a
redemption date) will be payable to the holders thereof as they appear on the
register of the Trust as of the close of business on the relevant record
dates, which, as long as the Par Securities are represented by one or more
global certificates ("Global Certificates"), will be the close of business on
the June 1 or December 1 next preceding the Distribution Date. Distributions
payable on any Par Securities that are not punctually paid on any Distribution
Date will cease to be payable to the person in whose name such Par Securities
are registered on the relevant record date, and such defaulted Distribution
will instead be payable to the person in whose name such Par Securities are
registered on the special record date or other specified date determined in
accordance with the Declaration.
At all times, the Applicable Distribution Rate, the distribution payment
dates and other payment dates for the Par Securities will correspond to the
interest rate, interest payment dates and other payment dates on the
Debentures, which will be the sole assets of the Trust.
Distributions on the Par Securities must be paid on the dates payable to the
extent that the Trust has funds available for the payment of such
Distributions. The revenue of the Trust available for distribution to holders
of its Par Securities will be limited to payments under the Debentures in
which the Trust has invested the proceeds from the issuance and sale of the
Trust Securities. See "Description of Debentures." If the Company does not
make interest payments on the Debentures, the Property Trustee will not have
funds available to pay Distributions on the Par Securities.
Following the Remarketing Settlement Date, the Company will have the right
under the Indenture to defer the payment of interest on the Debentures at any
time or from time to time for a period not exceeding 10 consecutive semi-
annual periods (each, an "Extension Period"), provided that no Extension
Period may extend
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beyond the Stated Maturity of the Debentures. Accordingly, there could be
multiple Extension Periods of varying terms throughout the term of the
Debentures. As a consequence of any such extension, semi-annual Distributions
on the Par Securities will be deferred by the Trust during any such Extension
Period. Distributions to which holders of the Par Securities are entitled will
accumulate and compound semi-annually at the Adjusted Distribution Rate from
the relevant payment date for such Distributions. The term Distributions as
used herein includes any such compounded amounts unless the context otherwise
requires. During any such Extension Period, the Company may not, and may not
permit any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank on a parity with or junior to the
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks on a parity with or junior in interest to the Debentures
(other than (a) dividends or distributions in common stock of the Company, (b)
payments under the Guarantee, (c) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of
stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto, and (d) purchases of common stock related to
the issuance of common stock or rights under any of the Company's benefit
plans). Prior to the termination of any such Extension Period, the Company may
further extend the Extension Period, provided that no Extension Period may
exceed 10 consecutive semi-annual periods or extend beyond the Stated Maturity
of the Debentures. 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 foregoing requirements.
See "Description of the Debentures--Option to Extend Interest Payment Period"
and "Certain United States Federal Income Tax Consequences--Interest Income
and Original Issue Discount." The Company has no current intention of
exercising its right, following the Remarketing Settlement Date, to defer
payments of interest by extending the interest payment period of the
Debentures.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Debentures
held by the Trust, whether at Stated Maturity or upon earlier redemption as
provided in the Indenture, the proceeds from such repayment or redemption will
be applied by the Property Trustee to redeem the Trust Securities. See
"Description of Debentures--Redemption" for a description of the Company's
options to redeem the Debentures. If less than all of the Debentures held by
the Trust are to be repaid or redeemed on a redemption date, then the proceeds
from such repayment or redemption will be allocated pro rata to the redemption
of the Trust Securities. In addition, if the Remarketing Agent is unable to
remarket all of the Par Securities tendered or deemed tendered for purchase in
the Remarketing, the Company will be required to redeem the Debentures as
described under "--Remarketing--Special Mandatory Redemption."
Special Event Redemption or Distribution of Debentures; Shortening of Stated
Maturity
If, at any time, either a Tax Event or an Investment Company Event (each, a
"Special Event") shall occur and be continuing, the Regular Trustees may,
within 90 days following the occurrence of such Special Event, elect to
dissolve the Trust upon not less than 30 nor more than 60 days' notice and,
after satisfaction of liabilities to creditors, if any, cause the Debentures
to be distributed to the holders of the Trust Securities in liquidation of the
Trust. If an Investment Company Event shall occur and be continuing, the
Company also has the option, after the Remarketing Settlement Date, to redeem
the Debentures, in whole but not in part (and thereby cause a mandatory
redemption of the Securities), at any time within 90 days following the
occurrence of such an Investment Company Event at a redemption price equal to
100% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of redemption. In addition, if a Tax Event shall occur
and be continuing and in the opinion of independent tax counsel to the Trust
experienced in such matters, there would in all cases, after effecting the
termination of the Trust and the distribution of the Debentures to the holders
of the Trust Securities in exchange therefor upon liquidation of the Trust, be
more than an insubstantial risk that the Tax Event would continue to exist,
then the Company will have the right (a) to shorten the Stated Maturity of the
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Debentures to a date not earlier than June 14, 2012 (a "Maturity Advancement")
such that, in the opinion of such independent tax counsel, after advancing the
Stated Maturity of the Debentures, interest paid on the Debentures will be
deductible by the Company for United States federal income tax purposes or (b)
after the Scheduled Remarketing Date, to redeem the Debentures, in whole but
not in part (and thereby cause a mandatory redemption of the Par Securities),
at any time within 90 days following the occurrence of a Tax Event at a
redemption price equal to 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest to the date of redemption. Under current United
States federal income tax law and interpretations thereof and assuming that,
as expected, the Trust is treated as a grantor trust, a distribution of the
Debentures should not be a taxable event to holders of the Par Securities.
Should there be a change in law, a change in legal interpretation, certain Tax
Events or other circumstances, however, the distribution could be a taxable
event to holders of the Par Securities. See "Certain United States Federal
Income Tax Consequences--Distribution of Debentures or Cash upon Liquidation
of the Trust."
If the Company does not elect any of the options described above, the Par
Securities will remain outstanding until the repayment of the Debentures,
whether at maturity or redemption, and in the event a Tax Event has occurred
and is continuing, the Company will be obligated to pay any additional taxes,
duties, assessments and other governmental charges (other than withholding
taxes) to which the Trust has become subject as a result of a Tax Event. See
"Description of Debentures."
A "Tax Event" means the receipt by the Company of an opinion of independent
tax counsel to the Company, experienced in such matters, to the effect that,
as a result of any amendment to, change in or announced proposed 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 adopted or
which proposed change, pronouncement or decision is announced on or after the
date of original issuance of the Par Securities, 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
Company on such 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. "Investment
Company Event" means the receipt by the Trust of an opinion of counsel,
rendered by a law firm having a recognized national securities practice, to
the effect that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law"), the Trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the Securities.
Tax Opinion Redemption
If the Company receives a Tax Opinion (as defined herein) at least 35
business days prior to the Election Date, the Remarketing may be cancelled at
the option of the Company, in which case the Debentures (and, thus, the
Securities) would be redeemed by the Company on the Scheduled Remarketing
Settlement Date, in whole but not in part, at a redemption price equal to 100%
of the principal amount of such Debentures plus accrued and unpaid interest
thereon to such Scheduled Remarketing Settlement Date.
As used herein, "Tax Opinion" means an opinion of an independent tax counsel
to the Company experienced in such matters to the effect that, as a result of
(a) any amendment to, or change (including any announced proposed change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or (b) any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations, or which amendment or change is effective or such
proposed change, pronouncement or decision is announced on or after the date
of original issuance of the Par
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Securities, that it is more likely than not that (i) the Trust will be,
following the Remarketing Settlement Date, subject to United States federal
income tax with respect to interest accrued or received on the Debentures,
(ii) the Trust will be, following the Remarketing Settlement Date, subject to
more than a de minimis amount of taxes, duties or other governmental charges,
or (iii) interest payable to the Trust on the Debentures, following the
Remarketing Settlement Date, will not be deductible, in whole or in part, by
the Company for United States federal income tax purposes.
Transfer Restricted Security Redemption
Upon consummation of the Exchange Offer, the Company will be required, on
the Remarketing Settlement Date, to redeem, in whole (but not in part),
certain Debentures (the ownership of which is represented by the Par
Securities) which were not exchanged pursuant to the Exchange Offer (a
"Transfer Restricted Security Redemption"). As part of a Transfer Restricted
Security Redemption, on the Schedule Remarketing Settlement Date such Old Par
Securities will be exchanged with the Trust for Debentures having an aggregate
principal amount equal to the aggregate liquidation of such Old Par Securities
and such Debentures shall immediately be redeemed by the Company at a
redemption price equal to 100% of the principal amount thereof plus accrued
and unpaid interest (including Additional Interest), if any, to the date of
redemption.
REDEMPTION PROCEDURES
Set forth below are procedures applicable to a redemption of Par Securities
other than a Special Mandatory Redemption of all of the Par Securities.
Procedures applicable to a Special Mandatory Redemption are set forth under
"--Remarketing--Special Mandatory Redemption."
Par Securities redeemed on each redemption date will be redeemed at the
redemption price in respect of the Debentures plus an amount equal to accrued
and unpaid Distributions thereon through the date of redemption (the
"Redemption Price") with the applicable proceeds from the contemporaneous
redemption or payment of the Debentures. Redemptions of the Par Securities
will be made and the Redemption Price will be payable on each redemption date
only to the extent that the Trust has sufficient funds available for the
payment of such Redemption Price. See also "--Subordination of Common
Securities."
Notice of any redemption (other than a Special Mandatory Redemption) will be
mailed at least 30 days but not more than 60 days before the redemption date
to each holder of Par Securities to be redeemed at its registered address. If
the Trust gives a notice of redemption in respect of the Par Securities or if
the Par Securities are to be redeemed following a Special Mandatory Redemption
of all of the Debentures, then, by 12:00 noon, New York City time, on the
redemption date (including the Remarketing Settlement Date), to the extent
funds are available, the Property Trustee will deposit irrevocably with DTC
funds sufficient to pay the applicable Redemption Price for all securities
held in DTC and will give DTC irrevocable instructions and authority to pay
the Redemption Price to the holders of the Par Securities. See "Book-Entry
Issuance." If any Par Securities are not represented by one or more Global
Certificates, the Trust, to the extent funds are available, will irrevocably
deposit with the Paying Agent (as defined herein) for such Par Securities
funds sufficient to pay the applicable Redemption Price and will give the
paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
the Par Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the redemption date for any Par Security called for redemption will
be payable to the holders of such Par Security on the relevant record dates
for the related Distribution Dates. If notice of redemption shall have been
given and funds deposited as required, then immediately prior to the close of
business on the date of such deposit, all rights of the holders of such Par
Securities so called for redemption will cease, except the right of the
holders of such Par Securities to receive the Redemption Price, but without
interest on such Redemption Price, and such Par Securities will cease to be
outstanding. In the event that any date fixed for redemption of Par Securities
is not a Business Day, then payment of the Redemption Price payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable.
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In the event that payment of the Redemption Price in respect of Par
Securities called for redemption 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," Distributions on such Par
Securities will continue to accumulate at the then Applicable Distribution
Rate in effect at the beginning of the related interest period, or increased,
to the extent permitted by applicable law, if the Remarketing has not occurred
on a Scheduled Remarketing Date, from the redemption date originally
established by the Trust for the Par Securities to the date such Redemption
Price is actually paid, in which case the actual payment date will be the date
fixed for redemption for purposes of calculating the Redemption Price. See "--
Distributions."
The Trust may not redeem fewer than all of the outstanding Par Securities
unless all accrued and unpaid distributions have been paid on all Par
Securities for all semi-annual distribution periods terminating on or prior to
the date of redemption. If fewer than all of the Trust Securities issued by
the Trust are to be redeemed on a redemption date, then the aggregate amount
of such Trust Securities to be redeemed will be allocated pro rata among the
Par Securities and the Common Securities. If Par Securities are represented by
one or more Global Certificates, they will be redeemed as described below
under "Book-Entry Issuance." The particular Par Securities to be redeemed will
be selected on a pro rata basis not more than 60 days prior to the redemption
date by the Property Trustee from the outstanding Par Securities not
previously called for redemption, by such method as the Property Trustee shall
deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or integral multiples of $1,000 in
excess thereof) of the liquidation preference of Par Securities of
denominations larger than $1,000. The Property Trustee will promptly notify
the Trust registrar in writing of the Par Securities selected for redemption
and, in the case of any Par Security selected for partial redemption, the
liquidation amount thereof to be redeemed. For all purposes of the
Declaration, unless the context otherwise requires, all provisions relating to
the redemption of Par Securities shall relate, in the case of any Par Security
redeemed or to be redeemed only in part, to the portion of the aggregate
liquidation amount of Par Securities which has been or is to be redeemed.
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 Par Securities by tender, in the open
market or by private agreement.
Change of Control
The Declaration provides that upon the occurrence of a Change of Control on
or prior to the Remarketing Settlement Date, each holder of Par Securities
will have the right to require the Trust to cause all or any part (equal to
$1,000 liquidation amount or any integral multiple thereof) of the Par
Securities to be exchanged for an equivalent principal amount of Debentures.
Promptly thereafter, such Debentures will be repurchased by the Company
pursuant to the Indenture, as described below (the "Change of Control Offer"),
at an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase (the
"Change of Control Payment").
Within 10 days following any Change of Control, the Company will notify the
Trust of such Change of Control and the Trust will mail a notice to each
holder describing the transaction or transactions that constitute the Change
of Control and offering to exchange the Par Securities for the Debentures
pursuant to the procedures required by the Declaration and described in such
notice. The Trust and the Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the exchange of the Par Securities and the repurchase of the
Debentures as a result of a Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date"), the Trust
will accept all Par Securities tendered in response to the Change of Control
Offer and the Company will repurchase all Debentures exchanged for such
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Par Securities. Payment for the Debentures exchanged for any Par Securities so
accepted will be made in the same manner as interest payments are made.
On the Change of Control Purchase Date, the Trust will, to the extent
lawful, (a) accept for exchange all Par Securities or portions thereof
properly tendered pursuant to the Change of Control Offer, (b) deliver or
cause to be delivered to the Property Trustee the Par Securities so accepted
together with a certificate of the Regular Trustees stating the aggregate
liquidation amount of Par Securities or portions thereof being exchanged by
the Trust and (c) the Trust will then exchange, for such Par Securities,
Debentures having an equivalent aggregate principal amount. The Company will
promptly deposit with the Indenture Trustee an amount equal to the Change of
Control Payment in respect of all Par Securities or portions thereof so
exchanged. The Indenture Trustee will promptly mail to each holder of Par
Securities so exchanged the Change of Control Payment for such Par Securities,
and the Trust will promptly authenticate and mail (or cause to be transferred
by book entry) to each holder a new Par Security equal in liquidation amount
to any unexchanged portion of the Par Securities surrendered, if any; provided
that each such new Par Securities will be in a liquidation amount of $1,000 or
an integral multiple thereof. The Trust and the Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
Asset Sales
The Declaration provides that if the Trust owns all of the Debentures and if
the aggregate amount of Excess Proceeds under the covenant entitled
"Description of Debentures--Certain Covenants of the Company--Asset Sales"
exceeds $5.0 million, the Trust will be required to make an offer to all
holders of Par Securities (an "Asset Sale Offer") to exchange, for such Par
Securities the maximum principal amount of Debentures that may be exchanged
under such covenant out of the Excess Proceeds, which Debentures shall then be
repurchased by the Company at a price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase, in
accordance with the procedures set forth in the Declaration and the Indenture.
An Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), the Trust will accept for exchange up to the
liquidation amount of Par Securities required to be exchanged pursuant to this
covenant (the "Asset Sale Offer Amount") or, if less than the Asset Sale Offer
Amount has been tendered, all Par Securities tendered in response to the Asset
Sale Offer.
On or before the Asset Sale Purchase Date, the Trust will, to the extent
lawful, accept for exchange, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Par Securities or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount
has been tendered, all Par Securities tendered, and the Regular Trustees will
deliver to the Property Trustee a certificate stating that such Par Securities
or portions thereof were accepted for exchange by the Trust in accordance with
the terms of this covenant. Promptly following such exchange, the Company will
(but in any case not later than five days after the Asset Sale Purchase Date)
mail or deliver to each tendering holder an amount equal to the purchase price
of the Debentures exchanged with such holder by the Trust, and the Trust will
promptly issue a new Par Security, and the Trust will authenticate and mail or
deliver such new Par Security to such holder, in a liquidation amount equal to
any unexchanged portion of the Par Security surrendered. Any Par Security not
so accepted will be promptly mailed or delivered by the Trust to the holder
thereof. The Trust and the Company will publicly announce the results of the
Asset Sale Offer on the Asset Sale Purchase Date.
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REMARKETING
Remarketing Procedures
Set forth below is a summary of the procedures to be followed in connection
with the Remarketing of the Par Securities (or, if the Debentures have been
distributed to holders of the Par Securities in liquidation of the Trust, the
Debentures):
If the Company receives a Tax Opinion at least 35 Business Days prior to the
Election Date, the Company has the option to cancel the Remarketing by giving,
to the Property Trustee, DTC and the Remarketing Agent written notice of such
cancellation. In such event, all of the Debentures (and, thus, the Par
Securities) are subject to a Tax Opinion Redemption by the Company on the
Scheduled Remarketing Date. See "--Redemption--Tax Opinion Redemption."
If the Company does not receive such a Tax Opinion or if the Company does
not elect to cancel the Remarketing after receiving such a Tax Opinion, not
less than 20 nor more than 35 Business Days prior to the Election Date, the
Trust is required to give a Notice of Remarketing of the Securities to DTC.
Such notice will describe the Remarketing and will be accompanied by (i) an
offering memorandum relating to the Par Securities and to the Remarketing and
(ii) a Notice of Election to be completed and delivered by the holders of Par
Securities. In addition, if the Company is required to redeem Debentures (and,
thus, Par Securities) in connection with a Transfer Restricted Security
Redemption, holders of such Par Securities will receive notice of such
redemption at or prior to the time when the Notice of Remarketing of the Par
Securities is given to DTC. Such holders may not tender their Par Securities
for repurchase in the Remarketing.
Not later than 4:00 P.M., New York City time, on the Election Date, each
holder of Par Securities may give, through the facilities of DTC, a notice to
the Property Trustee of its election ("Notice of Election") (i) to retain and
not to have all or any portion of the Par Securities owned by it remarketed in
the Remarketing to be conducted on the Scheduled Remarketing Date or (ii) to
tender all or any portion of such Par Securities for purchase in the
Remarketing (such portion, in either case, is required to be in the
liquidation amount of $1,000 or any integral multiple thereof). Any Notice of
Election given to the Property Trustee will be irrevocable and may not be
conditioned upon the level at which the Adjusted Distribution Rate is
established in the Remarketing. Promptly after 4:30 P.M., New York City time,
on the Election Date, the Property Trustee, based on the Notices of Election
received by it through DTC prior to such time, will notify the Trust, the
Company and the Remarketing Agent of the number of Par Securities to be
retained by holders of Par Securities and the number of Par Securities
tendered for purchase in the Remarketing.
If any holder of Par Securities gives a Notice of Election to tender Par
Securities as described in clause (ii) in the prior paragraph, the Par
Securities so subject to such Notice of Election will be deemed tendered for
purchase in the Remarketing, notwithstanding any failure by such holder to
deliver or properly deliver such Par Securities to the Remarketing Agent for
purchase.
IF ANY HOLDER OF PAR SECURITIES FAILS TIMELY TO DELIVER A NOTICE OF
ELECTION, AS DESCRIBED ABOVE, SUCH PAR SECURITIES WILL BE DEEMED TENDERED FOR
PURCHASE IN THE REMARKETING, NOTWITHSTANDING SUCH FAILURE OR THE FAILURE BY
SUCH HOLDER TO DELIVER OR PROPERLY DELIVER SUCH PAR SECURITIES TO THE
REMARKETING AGENT FOR PURCHASE.
The right of each holder of Par Securities to have Par Securities tendered
for purchase shall be limited to the extent that (i) the Remarketing Agent
conducts a remarketing pursuant to the terms of the Remarketing Agreement (as
defined herein), (ii) Par Securities tendered have not been called for
redemption, (iii) the Remarketing Agent is able to find purchasers for the
tendered Par Securities at an Adjusted Distribution Rate that does not exceed
the Maximum Distribution Rate and (iv) such purchaser or purchasers deliver
the purchase price therefor to the Remarketing Agent.
If a holder of Par Securities has indicated by timely delivery of a Notice
of Election that it wishes to tender securities held by it for purchase in the
Remarketing and such holder desires to purchase Par Securities in the
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Remarketing at or above a specified rate, such holder should separately notify
the Remarketing Agent in accordance with the procedures specified in the
Notice of Remarketing and indicate the specified rate per annum at or above
which such holder will purchase Par Securities. In such case, the Remarketing
Agent will give priority to a holder's purchase of a number of Securities
equal to the number of Par Securities tendered by such holder in the
Remarketing, provided that the Adjusted Distribution Rate is not less than the
specified rate.
If holders of Par Securities submit Notices of Election to retain all of the
Par Securities then outstanding, the Adjusted Distribution Rate will be the
rate determined by the Remarketing Agent in its sole discretion, as the rate
that would have been established had a Remarketing been held on the Scheduled
Remarketing Date.
On the Scheduled Remarketing Date, the Remarketing Agent will use
commercially reasonable efforts to remarket, at a price equal to 100% of the
liquidation amount thereof, Par Securities tendered or deemed tendered for
purchase. Prior to 4:00 P.M., New York City time, on the Scheduled Remarketing
Date, the Remarketing Agent will determine the Adjusted Distribution Rate,
which will be the rate per annum (rounded to the nearest one-thousandth
(0.001) of one percent per annum) which the Remarketing Agent determines, in
its sole judgment, to be the lowest rate per annum, if any, not exceeding the
Maximum Adjusted Distribution Rate, that will enable it to remarket all Par
Securities tendered or deemed tendered for remarketing at a price of $1,000
per Security. Notwithstanding the foregoing, if the Remarketing Agent is able
to remarket some, but is unable to remarket all, of the Par Securities
tendered or deemed tendered for purchase in the Remarketing, the Adjusted
Distribution Rate will be the highest rate, not exceeding the Maximum Adjusted
Distribution Rate, required to remarket the Par Securities sold in the
Remarketing.
If the Remarketing Agent is unable to remarket by 4:00 P.M., New York City
time, on the Scheduled Remarketing Date, all Par Securities tendered or deemed
tendered for purchase at a price of $1,000 per Security, each holder that
tendered Par Securities for sale shall sell a number of Par Securities on a
pro rata basis, to the extent practicable, or by lot, as determined by the
Remarketing Agent in its sole discretion, based on the number of orders to
purchase Par Securities in the Remarketing. If the allocation procedures
described in the preceding sentence would result in the sale of a fraction of
a Par Security, the Remarketing Agent will, in its sole discretion, round up
or down the number of Par Securities sold by each holder in the Remarketing so
that each Security sold in the Remarketing will be a whole Security and the
total number of Par Securities sold equals the total number of Par Securities
purchased in the Remarketing.
By approximately 4:30 P.M., New York City time, on the Scheduled Remarketing
Date, the Remarketing Agent will advise, by telephone (i) DTC, the Property
Trustee, the Indenture Trustee, the Trust and the Company of the Adjusted
Distribution Rate determined in the Remarketing and the number of Par
Securities sold in the Remarketing, (ii) each purchaser (or the DTC
Participant thereof) of the Adjusted Distribution Rate determined in the
Remarketing and the number of Par Securities such purchaser is to purchase and
(iii) each purchaser to give instructions to its DTC Participant to pay the
purchase price on the Scheduled Remarketing Settlement Date in same day funds
against delivery of the Par Securities purchased through the facilities of
DTC.
All Par Securities tendered or deemed tendered in the Remarketing will be
automatically delivered to the account of the Remarketing Agent through the
facilities of DTC against payment of the purchase price therefor on the
Scheduled Remarketing Settlement Date. The Remarketing Agent will make payment
to the DTC Participant of each tendering holder of Par Securities in the
Remarketing through the facilities of DTC by the close of business on the
Scheduled Remarketing Settlement Date.
In accordance with DTC's normal procedures, on the Remarketing Settlement
Date, the transactions described above with respect to each Par Security
tendered for purchase and sold in the Remarketing will be executed through DTC
and the accounts of the DTC Participants will be debited and credited and such
Par Securities delivered by book entry as necessary to effect purchases and
sales of such Par Securities. DTC is expected to make payment in accordance
with its normal procedures.
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If any holder selling Par Securities in the Remarketing fails to deliver
such Par Securities, the DTC Participant of such selling holder and of any
other person that was to have purchased Par Securities in the Remarketing may
deliver to any such other person a number of Par Securities that is less than
the number of Par Securities that otherwise was to be purchased by such
person. In such event, the number of Par Securities to be so delivered will be
determined by such DTC Participant and delivery of such lesser number of Par
Securities will constitute good delivery.
The Remarketing Agent is not obligated to purchase any Par Securities that
would otherwise remain unsold in the Remarketing. Neither the Trust, any
Trustee, the Company nor the Remarketing Agent shall be obligated in any case
to provide funds to make payment upon tender of Par Securities for
Remarketing.
Special Mandatory Redemption
If, by 4:00 P.M., New York City time, on any Scheduled Remarketing Date, the
Remarketing Agent is unable to remarket, at a price of $1,000 per Par
Security, all of the Par Securities tendered or deemed tendered for purchase
in the Remarketing on such Scheduled Remarketing Date, then (i) such unsold
Par Securities shall be exchanged on the related Scheduled Remarketing
Settlement Date with the Trust for Debentures having an aggregate principal
amount equal to the aggregate liquidation amount of such unsold Par Securities
and such Debentures shall be immediately redeemed, unless (ii) as a result of
such redemption, less than $25.0 million principal amount of Debentures would
remain outstanding. In such latter event, the Company is required to redeem on
such Scheduled Remarketing Settlement Date all of the Debentures (thereby
causing the Trust to redeem all of the outstanding Par Securities) and the
Remarketing will be cancelled. In either case of (i) or (ii) above, the
redemption price of the Debentures shall be 100% of the principal amount of
the outstanding Debentures so redeemed. Because the Remarketing Settlement
Date will also be a Distribution Date, Distributions to be paid on such
Distribution Date for the Par Securities will be paid to the person in whose
name the Par Securities are registered on the corresponding record date.
AS A RESULT OF THE SPECIAL MANDATORY REDEMPTION, ALL PAR SECURITIES TENDERED
OR DEEMED TENDERED FOR PURCHASE IN THE REMARKETING WILL BE PURCHASED IN THE
REMARKETING, OR MANDATORILY REDEEMED, ON THE REMARKETING SETTLEMENT DATE.
If the Company is required to redeem the Debentures on the Scheduled
Remarketing Settlement Date as part of a Special Mandatory Redemption, by
12:00 Noon, New York City time, on the Business Day prior to the Scheduled
Remarketing Settlement Date, the Company is required to deposit irrevocably
with the Indenture Trustee funds sufficient to pay the redemption price with
respect to the Debentures to be redeemed.
Remarketing Agent
The Company and the Trust have entered into a Remarketing Agreement (the
"Remarketing Agreement") with the Remarketing Agent which provides, among
other things, that Lehman Brothers Inc. will act as exclusive Remarketing
Agent and will use commercially reasonable efforts to remarket Par Securities
tendered or deemed tendered for purchase in the Remarketing at a price of
$1,000 per Par Security and determine the Adjusted Distribution Rate. Under
certain circumstances, some portion of the Par Securities tendered in the
Remarketing may be purchased by the Remarketing Agent. See "--Remarketing
Procedures."
The Remarketing Agreement provides that the Remarketing Agent shall incur no
liability to the Company or to any holder of Par Securities in its individual
capacity or as Remarketing Agent for any action or failure to act in
connection with a Remarketing or otherwise, except as a result of gross
negligence or willful misconduct on its part.
The Company has agreed to indemnify the Remarketing Agent against certain
liabilities, including liabilities under the Securities Act, arising out of or
in connection with its duties under the Remarketing Agreement.
The Remarketing Agreement also provides that any Remarketing Agent may
resign and be discharged from its duties and obligations thereunder; provided,
however, that no such resignation will become effective until the
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Company has appointed at least one nationally recognized broker-dealer as
successor Remarketing Agent and such successor Remarketing Agent has entered
into a remarketing agreement with the Company on terms no less favorable than
those set forth in the Remarketing Agreement. In such case, the Company will
use its best efforts to appoint a successor Remarketing Agent and enter into
such a remarketing agreement with such person as soon as reasonably
practicable.
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 such Trust Securities; provided, however, that if on any
Distribution Date or redemption date an Indenture Event of Default shall have
occurred and be continuing, no payment of any Distribution on, or Redemption
Price of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such Common Securities, shall
be made unless payment in full in cash of all accumulated and unpaid
Distributions on all of the outstanding Par Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all of the
outstanding Par Securities then called for redemption, shall have been made or
provided for, and all funds available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions on, or Redemption
Price of the Par Securities then due and payable.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Declaration, the Trust shall automatically dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of the Company; (ii) the distribution of the Debentures to the
holders of the Trust Securities; (iii) the redemption of all of the Par
Securities in connection with the maturity or redemption of all of the
Debentures and (iv) the entry by a court of competent jurisdiction of an order
for the dissolution of the Trust.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, the Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Trust Securities their pro rata interest in the Debentures,
unless such distribution is determined by the Property Trustee not to be
practical, in which event such holders will be entitled to receive out of the
assets of the Trust available for distribution to holders, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law, an
amount equal to, in the case of holders of Par Securities, the aggregate of
the liquidation amount plus accrued and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on the Par
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Par Securities, except that if an Indenture
Event of Default has occurred and is continuing, the Par Securities shall have
a priority over the Common Securities.
After the liquidation date is fixed for any distribution of Debentures to
holders of the Par Securities (i) the Par Securities will no longer be deemed
to be outstanding, (ii) DTC or its nominee, as a record holder of Par
Securities, will receive a registered Global Certificate or Certificates
representing the Debentures to be delivered upon such distribution and (iii)
any certificates representing Par Securities not held by DTC or its nominee
will be deemed to represent Debentures having a principal amount equal to the
liquidation amount of such Par Securities, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on such
Par Securities until such certificates are presented for cancellation
whereupon the Company will issue to such holder, and the Indenture Trustee
will authenticate, a certificate representing such Debentures.
TRUST ENFORCEMENT EVENTS
An Indenture Event of Default that has occurred and is continuing
constitutes a "Trust Enforcement Event" under the Declaration with respect to
the Trust Securities, provided that pursuant to the Declaration, the holder
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of the Common Securities will be deemed to have waived any Trust Enforcement
Event with respect to the Common Securities until all Trust Enforcement Events
with respect to the Par Securities have been cured, waived or otherwise
eliminated. Until such Trust Enforcement Event with respect to the Par
Securities has been so cured, waived or otherwise eliminated, the Property
Trustee will be deemed to be acting solely on behalf of the holders of the Par
Securities and only the holders of the Par Securities will have the right to
direct the Property Trustee with respect to certain matters under the
Declaration, and therefore the Indenture.
Upon the occurrence of a Trust Enforcement Event, the Indenture Trustee (as
defined herein) or the Property Trustee as the holder of the Debentures will
have the right under the Indenture to declare the principal of and interest on
the Debentures to be immediately due and payable. Each of the Company and the
Trust is required to file annually with the Property Trustee an officers'
certificate as to its compliance with all conditions and covenants under the
Declaration.
If the Property Trustee fails to enforce its rights with respect to the
Debentures, any holder of Par Securities may institute a legal proceeding
directly against the Company to enforce the Property Trustee's rights under
such Debentures without first instituting any legal proceeding against the
Property Trustee or any other person or entity. In addition, if a Trust
Enforcement Event has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest, principal or other
required payments on the Debentures on the date such interest, principal or
other payment is otherwise payable, then a holder of Par Securities may, on or
after the respective due dates specified in the Debentures, institute a
proceeding directly against the Company under the Indenture for enforcement of
payment on Debentures having a principal amount equal to the aggregate
liquidation amount of the Par Securities held by such holder (a "Direct
Action"). In connection with such Direct Action, the rights of the Company
will be subrogated to the rights of such holder of Par Securities to the
extent of any payment made by the Company to such holder of Par Securities.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "Description of Guarantee Amendments and
Assignment" and as otherwise required by law and the Declaration, the holders
of the Securities will have no voting rights.
So long as any Debentures are held by the Property Trustee, the holders of a
majority in liquidation amount of the Par 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 under the Declaration, including the
right to direct the Property Trustee, as holder of the Debentures, to (i)
exercise the remedies available to it under the Indenture as a holder of the
Debentures, (ii) consent to any amendment or modification of the Indenture or
the Debentures where such consent shall be required or (iii) waive any past
default and its consequences that is waivable under the Indenture; provided,
however, that if an Indenture Event of Default has occurred and is continuing,
then the holders of 25% of the aggregate liquidation amount of the Par
Securities may direct the Property Trustee to declare the principal of and
interest on the Debentures due and payable; provided, further, that where a
consent or action under the Indenture would require the consent or act of the
holders of more than a majority of the aggregate principal amount of
Debentures affected thereby, only the holders of the percentage of the
aggregate stated liquidation amount of the Par Securities which is at least
equal to the percentage required under the Indenture may direct the Property
Trustee to give such consent to take such action. The Property Trustee shall
notify each holder of the Par Securities of any notice of any Indenture Event
of Default which it receives from the Company with respect to the Debentures.
Except with respect to directing the time, method, and place of conducting a
proceeding for a remedy, the Property Trustee shall be under no obligation to
take any of the actions described in clauses (i) and (ii) above unless the
Property Trustee has obtained an opinion of independent tax counsel to the
effect that the Trust will not fail to be classified as a grantor trust for
United States federal income tax purposes, as a result of such action, and
each holder will be treated as owning an undivided beneficial ownership
interest in the Debentures.
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The Declaration may be amended from time to time by the Company and a
majority of the Regular Trustees (and in certain circumstances the Property
Trustee and the Delaware Trustee), without the consent of the holders of the
Par Securities, (i) to cure any ambiguity, correct or supplement any
provisions in the Declaration that may be defective or inconsistent with any
other provision, or to make any other provisions with respect to matters
or questions arising under the Declaration that shall not be inconsistent with
the other provisions of the Declaration, or (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 Trust Securities are
outstanding or to ensure that the Trust will not be required to register as an
"investment company" under the 1940 Act, provided, however, that such action
shall not adversely affect in any material respect the interests of any holder
of Trust Securities, and any amendments of the Declaration shall become
effective when notice thereof is given to the holders of Trust Securities. The
Declaration may be amended by the Company and a majority of the Regular
Trustees with (i) the consent of holders representing not less than a majority
in liquidation amount of the outstanding Trust Securities and (ii) receipt by
the Regular Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Regular Trustees in
accordance with such amendment will not affect the Trust's status for United
States federal income tax purposes as a grantor trust or the Trust's exemption
from status as an "investment company" under the 1940 Act, provided, further
that without the consent of each holder of Trust Securities affected thereby,
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.
Any required approval or direction of holders of Par Securities may be given
at a meeting of holders of Par Securities convened for such purpose or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which holders of 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 Par Securities in the manner set forth in
the Declaration.
No vote or consent of the holders of Par Securities will be required for the
Trust to redeem and cancel its Par Securities in accordance with the
Declaration.
Notwithstanding that holders of Par Securities are entitled to vote or
consent under any of the circumstances described above, any of the Par
Securities that are owned by the Company, the Trustees or any affiliate of the
Company or any Trustees, shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
EXPENSES AND TAXES
In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Par Securities) and all
costs and expenses of the Trust (including costs and expenses relating to the
organization of the Trust, the fees and expenses of the Trustees and the costs
and expenses relating to the operation of the Trust) and to pay any and all
taxes and all costs and expenses with respect thereto (other than United
States withholding taxes) to which the Trust might become subject. The
foregoing obligations of the Company under the Indenture are for the benefit
of, and shall be enforceable by, any person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice thereof. Any such Creditor may enforce such
obligations of the Company directly against the Company, and the Company has
irrevocably waived any right or remedy to require that any such Creditor take
any action against the Trust or any other person before proceeding against the
Company. The Company has also agreed in the Indenture to execute such
additional agreements as may be necessary or desirable to give full effect to
the foregoing.
REGISTRAR AND TRANSFER AGENT
The Property Trustee acts as registrar and transfer agent for the Par
Securities.
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Registration of transfers or exchanges of Par 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 may charge a sum sufficient to cover
any such payment. The Trust will not be required (i) to issue, register or
cause to be registered the transfer or exchange of any Par Securities during a
period beginning at the opening of business 15 days before the day of the
mailing of the relevant notice of redemption and ending at the close of
business on the day of such mailing or (ii) to register or cause to be
registered the transfer or exchange of any Par Securities so selected for
redemption, except in the case of any Par Securities being redeemed in part,
any portion thereof not to be redeemed.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of a
Trust Enforcement Event, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after such Trust Enforcement
Event (which has not been cured or waived), 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 Declaration at
the request of any holder of Par Securities unless it is offered reasonable
security and indemnity against the costs, expenses and liabilities that might
be incurred thereby. If no Trust Enforcement Event has occurred and is
continuing and the Property Trustee is required to decide between alternative
causes of action, construe ambiguous provisions in the Declaration or is
unsure of the application of any provision of the Declaration, and the matter
is not one on which holders of Par Securities are entitled under the
Declaration to vote, then the Property Trustee may, but shall be under no duty
to, 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 Par Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
PAYMENT AND PAYING AGENCY
Payments in respect of the Global Certificates shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Par Securities are not represented by one or more Global
Certificates, such payments shall be made by check mailed to the address of
the holder entitled thereto as such address shall appear on the register in
respect of the registrar. 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 Regular Trustees and the Company. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Property Trustee and the Company. In the event that the
Property Trustee shall no longer be the Paying Agent, the Regular Trustees
shall appoint a successor (which shall be a bank or trust company acceptable
to the Regular Trustees and the Company) to act as Paying Agent.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person (as defined in
the Declaration), except as described below. The Trust may, at the request of
the Company, with the consent of the Regular Trustees and without the consent
of the holders of the Par Securities, the Delaware Trustee or the Property
Trustee merge with or into, consolidate, amalgamate, be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State; provided that (i) such
successor entity (if not the Trust) either (a) expressly assumes all of the
obligations of the Trust with respect to the Par Securities or (b) substitutes
for the Securities other securities having substantially the same terms as the
Par Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Par Securities rank in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
if the Trust is not the successor entity, the Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Debentures, (iii) the Par Securities or
any Successor Securities are listed, or any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
with any other organization on which the Par Securities are
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then listed or quoted; (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Par Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Par
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose 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 Par Securities (including any Successor Securities) in any
material respect and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, (1) neither the Trust nor such
successor entity will be required to register as an investment company under
the Investment Company Act and (2) the Trust or the successor entity will
continue to be classified as a grantor trust for United States federal income
tax purposes, (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 (ix) such successor entity
expressly assumes all of the obligations of the Trust with respect to the
Trustees. Notwithstanding the foregoing, the Trust shall not, except with the
consent of holders of 100% in aggregate liquidation amount of the Par
Securities, consolidate, amalgamate, merge with or into, be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Trust or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes and each holder of the Par
Securities not to be treated as owning an undivided interest in the
Debentures.
MERGER OR CONSOLIDATION OF TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Regular Trustee that is not a natural person may be merged or converted or
with which such Trustee may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which such Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Trustee, shall be the successor of such Trustee under
the Declaration, provided such corporation shall be otherwise qualified and
eligible.
MISCELLANEOUS
The Regular 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 other than a grantor trust for United States federal
income tax purposes and so that the Debentures will be treated as indebtedness
of the Company for United States federal income tax purposes. In this
connection, the Company and the Regular Trustees are authorized to take any
action, not inconsistent with applicable law, the Certificate of Trust or the
Declaration, that the Company and the Regular 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 Par Securities.
The Trust may not borrow money, issue debt, reinvest proceeds derived from
investments, mortgage or pledge any of its assets. In addition the Trust may
not undertake any activity that would cause the Trust not to be classified as
a grantor trust for United States federal income tax purposes.
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DESCRIPTION OF DEBENTURES
The Debentures were issued under an Indenture (the "Indenture"), between the
Company and Chase Trust Company of California, as trustee (the "Indenture
Trustee"). This summary of certain terms and provisions of the Debentures and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture. For purposes of this
summary, the term "Company" refers only to ICII and not to any of its
subsidiaries.
GENERAL
Concurrently with the issuance of the Par Securities, the Trust invested the
proceeds thereof and the consideration paid by the Company for the Common
Securities in the Debentures issued by the Company. The Debentures are in the
principal amount equal to the aggregate liquidation amount of the Par
Securities plus the Company's concurrent investment in the Common Securities.
The Debentures accrue interest at the Applicable Interest Rate of the
principal amount thereof, payable semi-annually in arrears on June 15th (June
14 in 2002) and December 15th of each year, commencing December 15, 1997, and
on the Scheduled Remarketing Settlement Date (each, an "Interest Payment
Date"). From the date of original issuance of the Par Securities (the "Closing
Date") to but excluding the Remarketing Settlement Date, the "Applicable
Interest Rate" will be 10 1/4% per annum (the "Initial Interest Rate"). From
the Remarketing Settlement Date to but excluding the date of redemption of the
Debentures, the Applicable Interest Rate will equal the Adjusted Distribution
Rate that results from the Remarketing consummated on the Remarketing
Settlement Date.
Interest on the Debentures is payable to the person in whose name the
Debentures are registered, at the close of business on the June 1 or December
1 next preceding the relevant Interest Payment Date. It is anticipated that,
until the liquidation, if any, of the Trust, each 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 (i) for any full 180-day semi-annual interest payment period, on the
basis of a 360-day year consisting of twelve 30-day months and (ii) for any
period shorter than a full 180-day semi-annual interest payment, a 30-day
month and for periods of less than a month, the actual number of days elapsed
per 30-day month. In the event that any date on which interest is payable on
the 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 additional interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such payment
was originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the Applicable Interest Rate in effect at the
beginning of such period, compounded semi-annually. The term "interest" as
used herein shall include interest payments, Additional Interest and interest
on interest payments not paid on the applicable Interest Payment Date.
The Debentures will mature on June 15, 2032, or earlier, in certain
circumstances, upon the occurrence and continuation of a Tax Event. See
"Description of Securities--Special Event Redemption or Distribution of
Debentures; Shortening of Stated Maturity."
Until the Remarketing Settlement Date, the Debentures will be
unconditionally guaranteed on a senior unsecured basis by each of the
Subsidiary Guarantors, which consist of all of the Company's Restricted
Subsidiaries other than the Trust, SPTL and the Special Purpose Subsidiaries.
The Subsidiary Guarantees will be released on the Remarketing Settlement Date.
Until the Remarketing Settlement Date, the Debentures will be general
unsecured obligations of the Company ranking on a parity with all Indebtedness
of the Company, if any, that is not subordinated to the Debentures and senior
to any Indebtedness of the Company that is subordinated to the Debentures.
Until the Remarketing Settlement Date, when the Subsidiary Guarantees will be
released, the Subsidiary Guarantees will rank on a parity with all
Indebtedness of the Subsidiary Guarantors, if any, that is not subordinated to
the
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Subsidiary Guarantees and senior to any Indebtedness of the Subsidiary
Guarantors that is subordinated to the Subsidiary Guarantees. After the
Remarketing Settlement Date, the Debentures will be subordinated and junior in
right of payment to all Senior Debt of the Company. After the Remarketing
Settlement Date, the Indenture does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, whether under the Indenture or
any existing or other indenture that the Company may enter into in the future
or otherwise. See "--Ranking."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Following the Remarketing Settlement Date, so long as no Indenture Event of
Default has occurred and is continuing, the Company has the right under the
Indenture to defer the payment of interest and Additional Interest, if any, at
any time or from time to time for a period not exceeding 10 consecutive semi-
annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the Debentures. At
the end of such Extension Period, the Company must pay all interest and
Additional Interest, if any, then accrued and unpaid (together with interest
thereon at the Applicable Interest Rate in effect at the beginning of such
period, compounded semi-annually, to the extent permitted by applicable law).
During an Extension Period, interest and Additional Interest, if any, will
continue to accrue and holders of Debentures (or holders of Par Securities
while the Par Securities are outstanding) will be required to accrue interest
income (as OID) for United States federal income tax purposes. See "Certain
United States Federal Income Tax Consequences--Interest Income and Original
Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank on a parity with or junior in
interest to the Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu or junior in interest to the
Debentures (other than (a) dividends or distributions in common stock of the
Company, (b) payments under the Guarantee, (c) any declaration of a dividend
in connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans). Prior to the termination of any such Extension
Period, the Company may further extend the Extension Period, provided that no
Extension Period may exceed 10 consecutive semi-annual periods or extend
beyond the Stated Maturity of the Debentures. 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 or Additional Interest shall be due and
payable during an Extension Period, except at the end thereof. The Company
must give the Property Trustee, the Regular Trustees and the Indenture Trustee
notice of its election of such Extension Period not less than one Business Day
prior to such record date. The Property Trustee shall give notice of the
Company's election to begin a new Extension Period to the holders of the
Securities.
REDEMPTION
Optional Redemption. The Debentures are redeemable at the option of the
Company, in whole or in part, at any time or from time to time through and
including June 15, 2001 at a redemption price (the "Initial Optional
Redemption Price") equal to the greater of (i) 100% of the principal amount of
such Debentures and (ii) as determined by a Quotation Agent (as defined
herein), the sum of the present values of the principal amount of such
Debentures as if redeemed on June 14, 2002, together with scheduled
prepayments of interest from the prepayment date to but excluding June 14,
2002, discounted to the prepayment date on a semi-annual basis (assuming a
360-day year consisting of 30-day months) at the Adjusted Treasury Rate, plus,
in each case, accrued and unpaid interest and Additional Interest, if any, to
the date of redemption.
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In addition, if certain circumstances are met, the Debentures are redeemable
at any time after the Remarketing Settlement Date in whole (but not in part),
within 90 days of the occurrence and continuation of a Special Event, at a
redemption price equal to 100% of the principal amount of such Debentures,
plus, in each case, accrued and unpaid interest and Additional Interest, if
any, thereon to the date of redemption. See "Description of Securities--
Redemption--Special Event Redemption or Distribution of Debentures; Shortening
of Stated Maturity."
On and after June 15, 2012, the Debentures are redeemable prior to maturity
at the option of the Company, in whole or in part, at any time at the
redemption prices described in the next sentence, plus accrued and unpaid
interest and Additional Interest, if any, to the date of redemption. The
redemption price (expressed as a percentage of principal amount) shall be
equal to 100% plus the product of (x) the Adjusted Distribution Rate and (y)
the applicable Factor (as defined below) if redeemed during the twelve-month
period beginning on June 15th of the years indicated below, the applicable
"Factor" shall equal:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2012.......................................................... 50%
2013.......................................................... 45%
2014.......................................................... 40%
2015.......................................................... 35%
2016.......................................................... 30%
2017.......................................................... 25%
2018.......................................................... 20%
2019.......................................................... 15%
2020.......................................................... 10%
2021.......................................................... 5%
</TABLE>
On and after June 15, 2022, the redemption price will be 100% of the
principal amount of the Debentures to be redeemed, plus accrued and unpaid
interest and Additional Interest, if any, to the date of redemption.
If the Debentures are redeemed, the Trust must redeem the Trust Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of Debentures so redeemed. See "Description of Securities--Redemption."
Notice of any redemption (other than a redemption of Debentures in
connection with a Special Mandatory) will be mailed at least 30 days but not
more than 60 days before the redemption date to each holder of Debentures to
be redeemed at its registered address. Unless the Company defaults in payment
of the redemption price, on and after the redemption date interest ceases to
accrue on such Debentures or portions thereof called for redemption.
As used herein, "Adjusted Treasury Rate" means, with respect to any
prepayment date, the Treasury Rate plus 0.50%.
"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 and which
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities", for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields for
the two published maturities most closely corresponding to the Remaining Life
shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury
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Price for such prepayment date. The Treasury Rate shall be calculated on the
third business day preceding the prepayment date.
"Comparable Treasury Issue" means with respect to any prepayment date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life 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 last day of
the Remaining Life, the two most closely corresponding United States Treasury
securities 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 using such securities.
"Quotation Agent" means Lehman Brothers Inc. and their respective
successors; provided, however, that if the foregoing shall cease to be a
primary United States Government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
"Comparable Treasury Price" means (A) the average of five Reference Treasury
Dealer Quotations for such prepayment date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (B) if
the Indenture 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
Indenture 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 Indenture Trustee by such Reference Treasury Dealer at 5:00
p.m. New York City time, on the third business day preceding such prepayment
date.
Special Mandatory Redemption
If the Remarketing Agent is unable to remarket all of the Par Securities
tendered or deemed tendered for purchase in the Remarketing, the Company will
be required to redeem Debentures as described under "Description of
Securities--Remarketing--Special Mandatory Redemption."
Tax Opinion Redemption
If the Company receives a Tax Opinion at least 35 business days prior to the
Election Date, the Company has the option to cancel the Remarketing by giving,
to the Property Trustee, DTC and the Remarketing Agent written notice of such
cancellation. In such event, all of the Debentures (and, thus, the Par
Securities) are subject to a Tax Opinion Redemption by the Company on the
Scheduled Remarketing Date.
Transfer Restricted Security Redemption
In addition, upon consummation of the Exchange Offer, the Company will be
required , on the Remarketing Settlement Date, to redeem, in whole (but not in
part), all of the Debentures (and, thus, the Par Securities) which were not
exchanged pursuant to the Exchange Offer pursuant to a Transfer Restricted
Security Redemption. As part of a Transfer Restricted Security Redemption, on
the Scheduled Remarketing Settlement Date such Old Par Securities will be
exchanged with the Trust for Debentures having an aggregate principal amount
equal to the aggregate liquidation amount of such Old Par Securities and such
Debentures shall immediately be redeemed by the Company at a redemption price
equal to 100% of the principal amount thereof plus accrued and unpaid interest
(including Additional Interest), if any, to the date of redemption.
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REMARKETING
If the holders of Par Securities receive Debentures upon the liquidation or
dissolution of the Trust, the Debentures will be subject to the remarketing
procedures that would have been applicable to the Securities. See "Description
of the Securities--Remarketing."
RANKING
Until the Remarketing Settlement Date, the Debentures will be general
unsecured obligations of the Company ranking on a parity with all Indebtedness
of the Company, if any, that is not subordinated to the Debentures or
Guarantee and senior to any Indebtedness of the Company that is subordinated
to the Debentures or Guarantee. Until the Remarketing Settlement Date, when
the Subsidiary Guarantees will be released, the Subsidiary Guarantees will
rank on a parity with all Indebtedness of the Subsidiary Guarantors, if any,
that is not subordinated to the Subsidiary Guarantees and senior to any
Indebtedness of the Subsidiary Guarantors that is subordinated to the
Subsidiary Guarantees. Until the Remarketing Settlement Date, the Debentures
will be effectively subordinated to all Indebtedness and other liabilities of
SPTL and any Special Purpose Subsidiaries, and the Debentures, and the
Subsidiary Guarantees will be effectively subordinated to secured Indebtedness
of the Company and the Subsidiary Guarantors. As of March 31, 1997, on a pro
forma basis after giving effect to the Offering and the application of
proceeds thereof, the Debentures and Guarantee would have been effectively
subordinated to approximately $1.3 billion of deposits and other borrowings at
SPTL and the Debentures, the Guarantee and the Subsidiary Guarantees would
have been effectively subordinated to approximately $304.9 million of secured
Indebtedness of the Subsidiary Guarantors.
After the Remarketing Settlement Date, the Debentures will be subordinated
and junior in right payment to all Senior Debt of the Company. Upon any
distribution to creditors of the Company in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt) before the holders of Debentures will be entitled to
receive any payment with respect to the Debentures, and until all Obligations
with respect to Senior Debt are paid in full, any distribution to which the
holders of Debentures would be entitled shall be made to the holders of Senior
Debt (except that holders of Debentures may receive Permitted Junior
Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Debentures (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice
of such default (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt. Payments on the Debentures may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Debentures that have come due have been
paid in full in cash. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or be made, the basis for a subsequent Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Debentures is accelerated because of an Event of
Default.
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In addition to the subordination provision described above, the Debentures
will be effectively subordinated to secured Indebtedness of the Company and
will be effectively subordinated to all Indebtedness and other liabilities of
all of the Subsidiaries of the Company. As of March 31, 1997, on a pro forma
basis after giving effect to the Offering and the application of proceeds
thereof, the Debentures would have been subordinated to approximately $220.2
million of Senior Debt of the Company and would have been effectively
subordinated to approximately $1.6 billion of Indebtedness of the Company's
Subsidiaries (including approximately $1.3 billion of deposits and other
borrowings at SPTL and approximately $304.9 million of secured Indebtedness of
the Company's subsidiaries but not including the Trust's guarantee of
$200.0 million of the 9 7/8% Senior Notes). See "Risk Factors--Ranking of
Obligations under the Debentures, the Guarantee and the Subsidiary
Guarantees."
INDENTURE EVENTS OF DEFAULT
The Indenture provides that, on or prior to the Remarketing Settlement Date,
any one or more of the following described events with respect to the
Debentures that has occurred and is continuing constitutes an "Indenture Event
of Default" with respect to the Debentures: (i) default for 30 days in the
payment when due of interest on the Debentures; (ii) default in payment when
due of the principal of or premium, if any, on the Debentures; (iii) failure
by the Company to comply with the provisions described under the captions
"Certain Covenants of the Company--Change of Control," "--Asset Sales," "--
Restricted Payments" or "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; (iv) failure by the Company for 60 days after notice to
comply with any of its other agreements in the Indenture or the Debentures;
(v) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating
in excess of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by the Indenture or if, at
the time thereof, any Subsidiary Guarantee of a Subsidiary Guarantor that is a
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect, or any Subsidiary Guarantor, or any Person acting on behalf of any
such Subsidiary Guarantor, shall deny or disaffirm, in writing, its obligation
under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries. After the
Remarketing Settlement Date, only the events described in subparagraphs (i),
(ii), (iv) and (vii) will constitute "Indenture Events of Default."
If an Indenture Event of Default occurs and is continuing, the Indenture
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Debentures may declare all the Debentures to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company or any Subsidiary, all outstanding Debentures will become due and
payable without further action or notice. Holders of the Debentures may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount of
the then outstanding Debentures may direct the Indenture Trustee in its
exercise of any trust or power. The Indenture Trustee may withhold from
holders of the Debentures notice of any continuing Indenture Default or Event
of Default (except a Default or Indenture Event of Default relating to the
payment of principal or interest) if it determines that withholding notice is
in their interest.
In the case of any Indenture Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Debentures
pursuant to the
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optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Debentures. If an Event of Default occurs prior
to June 14, 2012 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption after the Remarketing Settlement Date of the
Debentures prior to June 14, 2012, then the initial optional redemption
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the
Debentures.
The holders of a majority in aggregate principal amount of the Debentures
then outstanding by notice to the Indenture Trustee may on behalf of the
holders of all of the Debentures waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default
or Indenture Event of Default in the payment of interest or Additional
Interest on, the principal of the Debentures.
The Company is required to deliver to the Indenture Trustee annually a
statement regarding compliance with the Indenture, and the Company is required
upon becoming aware of any Default or Indenture Event of Default, to deliver
to the Indenture Trustee a statement specifying such Default or Indenture
Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator, organizer, member, manager or
shareholder of the Company, as such, shall have any liability for any
obligations of the Company under the Debentures, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Debentures by accepting a Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Debenture. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the Commission that such waiver is against public policy.
SUBSIDIARY GUARANTEES
On or prior to the Scheduled Remarketing Settlement Date, the Company's
obligations under the Indenture and the Debentures will be jointly and
severally guaranteed through the Subsidiary Guarantees by each of the
Subsidiary Guarantors, which consist of all Restricted Subsidiaries other than
SPTL and the Special Purpose Subsidiaries. Each Subsidiary Guarantor will
unconditionally guarantee, jointly and severally, the full and prompt
performance of the Company's obligations under the Indenture and the
Debentures, including payment of principal and interest on the Debentures. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will
be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to the contributions
obligations under the Indenture, result in the obligations of such Subsidiary
Guarantor under the Subsidiary Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation
or merger (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee; (ii) immediately
after giving effect to such transaction, no Indenture Default or Indenture
Event of Default exists; and (iii) such Subsidiary Guarantor, or any Person
formed by or surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to such transaction)
equal to or greater than the Consolidated Net Worth of such Subsidiary
Guarantor immediately preceding the transaction.
The Indenture provides that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the assets of any Subsidiary
Guarantor to a third party or any Unrestricted Subsidiary, by way of merger,
consolidation or otherwise, or a
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sale or other disposition of all of the capital stock of any Subsidiary
Guarantor, in either case, in a transaction or manner that does not violate
any of the covenants in the Indenture, then such Subsidiary Guarantor (in the
event of such a designation or a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Subsidiary Guarantor) will be released from and relieved of any obligations
under its Subsidiary Guarantee; provided that any Net Proceeds of such sale or
other disposition are applied in accordance with the covenant described under
the caption "--Certain Covenants of the Company--Asset Sales," and provided
further, however, that any such termination shall occur only to the extent
that all obligations of such Subsidiary Guarantor under all of its guarantees
of, and under all of its pledges of assets or other security interests that
secure, any other Indebtedness of the Company or its Restricted Subsidiaries
shall also terminate upon such release, sale or disposition.
CERTAIN COVENANTS OF THE COMPANY
Fees and Expenses
The Company has covenanted in the Indenture that if and so long as the Trust
is the holder of all Debentures, the Company, as borrower, will pay to the
Trust all fees and expenses related to the Trust and the offering of the Par
Securities and will pay, directly or indirectly, all ongoing costs, expenses
and liabilities of the Trust (including any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States or any domestic taxing authority upon the Trust but
excluding obligations under the Securities).
Change of Control
The Indenture provides that upon the occurrence of a Change of Control on or
prior to the Remarketing Settlement Date, each holder of Debentures will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Debentures pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest and Additional Interest, if any, thereon to the date of
purchase (the "Change of Control Payment"). If at the time of the Change of
Control the Trust is the owner of all of the Debentures, the Trust shall make
the Change of Control Offer for the Par Securities as set forth in
"Description of Securities--Redemption Procedures--Change of Control," and the
Company will repurchase the Debentures exchanged by the Trust for the Par
Securities as set forth in the Declaration. Accordingly, the description of
the Change of Control Offer set forth in this section only applies to a Change
of Control Offer when the Trust is not the owner of all of the Debentures.
Within 10 days following any Change of Control, the Company will mail a
notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Debentures
pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Debentures as a result of a Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date"), the Company
will purchase all Debentures tendered in response to the Change of Control
Offer. Payment for any Debentures so purchased will be made in the same manner
as interest payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and
unpaid interest will be paid to the Person in whose name a Debenture is
registered at the close of business on such record date, and no additional
interest or Additional Interest, if any, will be payable to holders who tender
Debentures pursuant to the Change of Control Offer.
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On the Change of Control Payment Date, the Company will, to the extent
lawful, (a) accept for payment all Debentures or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Debentures or portions thereof so tendered and (c) deliver or cause to be
delivered to the Trustee the Debentures so accepted together with an officers'
certificate stating the aggregate principal amount of Debentures or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each holder of Debentures so tendered the Change of Control Payment for such
Debentures, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each holder a new Debenture equal in
principal amount to any unpurchased portion of the Debentures surrendered, if
any; provided that each such new Debenture will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of Debentures to require
that the Company repurchase or redeem the Debentures in the event of a
takeover, recapitalization or other restructuring.
Asset Sales
The Indenture provides that, on or prior to the Remarketing Settlement Date,
the Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale in excess of $1.0 million unless (i) the Company
(or the Restricted Subsidiary, as the case may be) receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors, except for sales of Securitization
Related Assets, which require no such resolution) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash or Cash Equivalents; provided that the amount of (x)
any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet, excluding contingent liabilities and trade
payables), of the Company or any such Restricted Subsidiary that are assumed
by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
promptly, but in no event more than 30 days after receipt, converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the Restricted Subsidiary may apply such Net Proceeds, (a) to
permanently reduce Senior Indebtedness (other than the Debentures or the 9
7/8% Senior Notes or the Subsidiary Guarantees thereof) of the Company or of
the Subsidiary Guarantors, or (b) to an Investment (excluding guarantees of
Indebtedness or other obligations), the making of a capital expenditure or the
acquisition of other tangible assets, in each case in or with respect to a
Related Business. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an offer to all holders of Debentures and, at
the Company's election, the 9 7/8% Senior Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Debentures (and, if applicable, the 9
7/8% Senior Notes) that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Additional Interest, if any, thereon to
the date of purchase, in accordance with the procedures set forth in the
Indenture and in the indenture governing the 9 7/8% Senior Notes. If at the
time of the Asset Sale Offer the Trust is the owner of all of the Debentures,
the Trust shall make the Asset Sale Offer for the Par Securities as set forth
in "Description of the Securities--Asset Sales," and the Company will
repurchase the Debentures exchanged by the Trust for the Securities as set
forth in the Declaration. Accordingly, the description of the Asset Sale Offer
set forth in this section only applies to an Asset Sale Offer when the Trust
is not the owner of all the Debentures.
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To the extent that the aggregate amount of Debentures (and, if applicable,
the 9 7/8% Senior Notes) tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
An Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), the Company will purchase the principal
amount of Debentures (and, if applicable, the 9 7/8% Senior Notes) required to
be purchased pursuant to this covenant (the "Asset Sale Offer Amount") or, if
less than the Asset Sale Offer Amount has been tendered, all Debentures (and,
if applicable, the 9 7/8% Senior Notes) tendered in response to the Asset Sale
Offer. Payment for any Debentures (and, if applicable, the 9 7/8% Senior
Notes) so purchased will be made in the same manner as interest payments are
made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid
interest and Additional Interest, if any, will be paid to the Person in whose
name a Debenture is registered at the close of business on such record date,
and no additional interest will be payable to holders who tender Debentures
pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Company will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Debentures (and, if applicable, the 9 7/8% Senior
Notes) or portions thereof tendered (and, if applicable, the 9 7/8% Senior
Notes) pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer
Amount has been tendered, all Debentures (and, if applicable, the 9 7/8%
Senior Notes) tendered, and will deliver to the Trustee an officers'
certificate stating that such Debentures (and, if applicable, the 9 7/8%
Senior Notes) or portions thereof were accepted for payment by the Company in
accordance with the terms of this covenant. The Company, the Depository or the
Paying Agent, as the case may be, will promptly (but in any case not later
than five days after the Asset Sale Purchase Date) mail or deliver to each
tendering holder an amount equal to the purchase price of the Debentures (and,
if applicable, the 9 7/8% Senior Notes) tendered by such holder and accepted
by the Company for purchase. The Company will promptly issue a new Debenture,
and the Trustee, upon written request from the Company will authenticate and
mail or deliver such new Debenture to such holder, in a principal amount equal
to any unpurchased portion of the Debenture surrendered. Any Debenture not so
accepted will be promptly mailed or delivered by the Company to the holder
thereof. The Company will publicly announce the results of the Asset Sale
Offer on the Asset Sale Purchase Date.
Restricted Payments
The Indenture provides that, on or prior to the Remarketing Settlement Date,
the Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Restricted Subsidiary
that is a Subsidiary Guarantor or to SPTL); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other Affiliate of
the Company (other than any such Equity Interests owned by the Company or any
Restricted Subsidiary of the Company that is a Subsidiary Guarantor or by
SPTL); (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Debentures (other than Debentures), except a payment of
interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
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(a) no Indenture Default or Indenture Event of Default shall have
occurred and be continuing or would occur as a consequence thereof;
(b) at the time of and immediately after giving effect to such Restricted
Payment, the Company would be able to incur at least $1.00 of additional
Indebtedness pursuant to the test described in the first sentence of the
covenant described in "Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
Issue Date (excluding Restricted Payments permitted by clauses (x) and (y)
of the next succeeding paragraph), is less than the sum of (i) 25% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue or
sale since the Issue Date of Equity Interests (other than Disqualified
Stock) of the Company or of debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), (iii) to the extent that any Restricted Investment
that was made after the Issue Date is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment, (iv) 25% of
any dividends received by the Company or a Wholly Owned Restricted
Subsidiary that is a Subsidiary Guarantor or by SPTL after the Issue Date
from an Unrestricted Subsidiary of the Company, plus (v) $15.0 million.
The foregoing provisions will not prohibit (v) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (w) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than
to a Subsidiary of the Company) of other Equity Interests of the Company
(other than any Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (x) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (y) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Subsidiary of the
Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement or other management agreement or plan; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $500,000 in any twelve-month period plus the
aggregate cash proceeds received by the Company during such twelve-month
period from any reissuance of Equity Interests by the Company to members of
management of the Company and its Subsidiaries; and (z) the repurchase,
redemption or other retirement for value of any Equity Interests of any
Restricted Subsidiary in a Strategic Investor Repurchase Transaction; and no
Indenture Default or Indenture Event of Default shall have occurred and be
continuing immediately after such transaction.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments
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will be deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation,
(y) the fair market value of such Investments at the time of such designation
and (z) the original fair market value of such Investments at the time they
were made. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an officers' certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that, on or prior to the Remarketing Settlement Date,
the Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create, incur, assume, guaranty or otherwise become directly or
indirectly liable with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) and that the Company will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company or any Subsidiary Guarantor may incur Indebtedness
(including Acquired Debt) or any Subsidiary Guarantor may issue preferred
stock or SPTL may incur Permitted SPTL Preferred Stock if, on the date of such
incurrence and after giving effect thereto, the Company's Consolidated
Leverage Ratio does not exceed 2.0 to 1.0.
The foregoing provisions will not apply to:
(i) Indebtedness of the Company existing on the Issue Date;
(ii) the incurrence by the Company of Indebtedness represented by the
Debentures or by the Subsidiary Guarantors of Indebtedness represented by
the Subsidiary Guarantees;
(iii) the incurrence of Permitted Warehouse Indebtedness by the Company
or any of its Restricted Subsidiaries, and any Guarantee by the Company of
such Indebtedness incurred by a Restricted Subsidiary, provided, however,
that to the extent any such Indebtedness of the Company or a Subsidiary
Guarantor ceases to constitute Permitted Warehouse Indebtedness, such
Indebtedness shall be deemed to be incurred at such time by the Company or
such Subsidiary Guarantor, as the case may be;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred or that was
outstanding at the Issue Date;
(v) the incurrence by the Company or a Restricted Subsidiary of Hedging
Obligations directly related to (A) Indebtedness of the Company or a
Restricted Subsidiary incurred in conformity with the provisions of the
Indenture, (B) Receivables held by the Company or its Restricted
Subsidiaries pending sale in a Qualified Securitization Transaction, (C)
Receivables of the Company or its Restricted Subsidiaries that have been
sold pursuant to a Warehouse Facility, (D) Receivables that the Company or
the Restricted Subsidiary reasonably expects to purchase or commit to
purchase, finance or accept as collateral, or (E) Securitization Related
Assets and other assets owned or financed by the Company or its Restricted
Subsidiaries in the ordinary course of business; provided, however, that,
in the case of each of the foregoing clauses (A) through (E), such Hedging
Obligations are eligible to receive hedge accounting treatment in
accordance with GAAP as applied by the Company and its Restricted
Subsidiaries on the Issue Date; and
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(vi) Indebtedness of the Subsidiary Guarantors or of SPTL to the Company
or Permitted SPTL Preferred Stock issued to the Company to the extent that
such Indebtedness or such Permitted SPTL Preferred Stock constitutes a
Permitted Investment of the Company of the type permitted under the
definition of Permitted Investments;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
other than a Special Purpose Subsidiary of intercompany Indebtedness owing
to the Company or any of its Restricted Subsidiaries other than a Special
Purpose Subsidiary; provided, however, that (i) any subsequent issuance or
transfer of any Capital Stock which results in any such Indebtedness being
held by a Person other than a Restricted Subsidiary and (ii) any sale or
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary (other than a Special Purpose
Subsidiary) shall be deemed, in each case, to constitute the incurrence of
such Indebtedness by the Company or such Subsidiary, as the case may be;
(viii) the incurrence by a Special Purpose Subsidiary of Non-Recourse
Debt in a Qualified Securitization Transaction and the incurrence by the
Company's Unrestricted Subsidiaries of Non-Recourse Debt; provided,
however, that if any such Indebtedness ceases to be Non-Recourse Debt of
the Special Purpose Subsidiary or other Unrestricted Subsidiary, such event
shall be deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(ix) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness in an aggregate principal amount which, together with the
principal amount of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of Incurrence (other than Indebtedness
permitted by clauses (ii) through (vii) above, or the first paragraph of
this covenant), does not exceed $10.0 million.
Liens
The Indenture provides that, on or prior to the Remarketing Settlement Date,
Company will not, and will not permit any of its Restricted Subsidiaries to,
create, incur or otherwise cause or suffer to exist or become effective any
Lien for the benefit of any Indebtedness ranking pari passu with or junior to
the Debentures, other than Permitted Liens, upon any property or assets of the
Company or any Restricted Subsidiary of the Company or any shares of stock or
debt of any Restricted Subsidiary of the Company which owns property or
assets, now owned or hereafter acquired, unless (i) if such lien secures
Indebtedness which is pari passu with the Debentures, then the Debentures are
secured on an equal and ratable basis or (ii) if such lien secures
Indebtedness which is junior to the Debentures, any such lien shall be junior
to a lien granted to the holders of the Debentures. The Indenture will provide
that the Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that, on or prior to the Remarketing Settlement Date,
the Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the Issue Date, (b) the Warehouse Facilities as
in effect as of the Issue Date, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, additions,
replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
additions, replacements or refinancings are no more restrictive with respect
to such dividend and other payment restrictions than those contained in the
Warehouse Facilities as in effect on the Issue Date, (c) Indebtedness or other
contractual requirements of a Special Purpose Subsidiary in connection
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with a Qualified Securitization Transaction; provided that such restrictions
apply only to such Special Purpose Subsidiary, (d) the Indenture and the
Debentures, (e) applicable law, (f) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired; provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (g) by reason of customary nonassignment provisions
in leases entered into in the ordinary course of business and consistent with
past practices, (h) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described
in clause (iii) above on the property so acquired, or (i) Permitted
Refinancing Indebtedness; provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
Transactions with Affiliates
The Indenture provides that, on or prior to the Remarketing Settlement Date,
the Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction
is on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person and
(ii) the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $2.0 million, a resolution of the Board of
Directors set forth in an officers' certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, in addition to such officers' certificate, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an investment banking firm of national standing which is not
an Affiliate of the Company; provided, however, that such fairness opinion
shall not be required with respect to a Qualified Securitization Transaction
or other transaction that is made in the ordinary course of business of the
Company or such Restricted Subsidiary, as the case may be, and is consistent
with the past business practice of the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, the following shall not be deemed Affiliate
Transactions: (i) any employment agreement entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted
Subsidiary, (ii) any issuance of securities, or other payments, compensation,
benefits, awards or grants in cash, securities or otherwise pursuant to, or
the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary, (iii) the grant of stock options or similar rights to employees
and directors of the Company pursuant to plans approved by the Board of
Directors in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (iv) loans or advances
to employees in the ordinary course of business in accordance with the past
practices of the Company or its Restricted Subsidiaries, but in any event not
to exceed $500,000 in aggregate principal amount outstanding at any one time,
(v) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its Restricted
Subsidiaries, (vi) transactions between or among the Company and/or its
Restricted Subsidiaries, (vii) Restricted Payments and Permitted Investments
(other than Strategic Investor Repurchase Transactions) that are permitted by
the provisions of the Indenture described above under the caption "--
Restricted Payments," and (viii) transactions between a Special Purpose
Subsidiary and any Person in which the Special Purpose Subsidiary has an
Investment.
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Business Activities
The Indenture provides that, on or prior to the Remarketing Settlement Date,
Company will not, and will not permit any Restricted Subsidiary to, engage in
any line of business that is not a Related Business (except as a result of
Investments in other businesses made or acquired in connection with the
activities or conduct of the Related Businesses in the ordinary course of
business by the Company and its Restricted Subsidiaries, including Investments
obtained as a result of the foreclosure of Liens securing amounts lent by the
Company or any of its Restricted Subsidiaries).
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Debentures are outstanding, the
Company will furnish to the holders of Debentures (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K even if the Company were not required to
file such forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K even if the Company were not required to file
such reports. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Subsidiary Guarantors have agreed that, for so
long as any Debentures remain outstanding, they will furnish to the holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Additional Subsidiary Guarantees
The Indenture provides that, on or prior to the Remarketing Settlement Date,
the Company will not, and will not permit any of the Subsidiary Guarantors to,
make any Investment in any Subsidiary that is not a Subsidiary Guarantor
unless either (i) such Investment is permitted by the covenant entitled
"Restricted Payments," or (ii) such Subsidiary executes a Subsidiary Guarantee
and delivers an opinion of counsel in accordance with the provisions of the
Indenture.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Debentures and the Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Indenture Default or Indenture
Event of Default exists; and (iv) except in the case of a merger of the
Company with or into a Wholly Owned Restricted Subsidiary of the Company, the
Company or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) will
have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had
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occurred at the beginning of the applicable four-quarter period, be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the test
described in the first sentence of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Debentures may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the Debentures then outstanding
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Debentures), and any
existing default or compliance with any provision of the Indenture or the
Debentures may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Debentures (including consents
obtained in connection with a tender offer or exchange offer for Debentures).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Debentures held by a non-consenting holder): (i) reduce
the principal amount of Debentures whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Debenture or alter the provisions with respect to the
redemption of the Debentures; provided that the covenants entitled "Asset
Sales" and "Change of Control" are not redemption provisions; (iii) reduce the
rate of or change the time for payment of interest on any Debenture; (iv)
waive an Indenture Default or Indenture Event of Default in the payment of
principal of or premium, if any, or interest the Debentures (except a
rescission of acceleration of the Debentures by the holders of at least a
majority in aggregate principal amount of the Debentures and a waiver of the
payment default that resulted from such acceleration); (v) make any Debenture
payable in money other than that stated in the Debentures; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Debentures to receive payments of principal of or
premium, if any, or interest on, the Debentures; (vii) waive a redemption
payment with respect to any Debenture; or (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Debentures, the Company and the Trustee may amend or supplement the Indenture
or the Debentures to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures, to provide for the assumption of the Company's obligations to
holders of Debentures in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the holders of
Debentures or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act. For purposes of the foregoing, any amendment or
supplement which extends period of time during which the Debentures may not be
redeemed at the option of the Company shall not be deemed to adversely affect
the legal rights under the Indenture of any holders.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Debentures ("Legal
Defeasance") except for (i) the rights of holders of outstanding Debentures to
receive payments in respect of the principal of, premium, if any, and interest
and Additional Interest, if any, on such Debentures when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect
to the Debentures concerning issuing temporary Debentures, registration of
Debentures, mutilated, destroyed, lost or stolen Debentures and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute an Indenture Default or Indenture Event of
Default with respect to the Debentures. In the event Covenant Defeasance
occurs, certain
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events (not including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under "Events of Default" will no longer
constitute an Indenture Event of Default with respect to the Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Debentures, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest and
Additional Interest, if any, on the outstanding Debentures on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Debentures are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the Issue Date, there has been a change
in the applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the holders of
the outstanding Debentures will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders of the outstanding Debentures will
not recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Indenture Default
or Indenture Event of Default shall have occurred and be continuing on the
date of such deposit (other than an Indenture Default or Indenture Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Debentures over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
DISTRIBUTIONS OF DEBENTURES; BOOK-ENTRY ISSUANCE
Under certain circumstances involving the termination of the Trust,
Debentures may be distributed to the holders of the Securities in liquidation
of the Trust after satisfaction of liabilities to creditors of the Trust as
provided by applicable law. If distributed to holders of Securities in
liquidation, the Debentures will initially be issued in the form of Global
Certificates and, if distributed after the Remarketing Settlement Date,
certificated securities not represented by Global Certificates. DTC, or any
successor depositary, will act as depositary for such Global Certificates. It
is anticipated that the depositary arrangements for such Global Certificates
would be substantially identical to those in effect for the Securities. For a
description of Global Certificates and certificated securities not represented
by Global Certificates, see "Book-Entry Issuance."
There can be no assurance as to the market price of any Debentures that may
be distributed to the holders of Securities.
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PAYMENT AND PAYING AGENTS
The Company initially will act as Paying Agent with respect to the
Debentures except that, if the Debentures are distributed to the holders of
the Securities in liquidation of such holders' interests in the Trust, the
Indenture Trustee will act as the Paying Agent. The Company at any time may
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve a change in the office through which any Paying Agent acts,
except that the Company will be required to maintain a Paying Agent at the
place of payment.
Any moneys deposited with the Indenture 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 or Additional Interest, if any, on any Debentures 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 Debentures shall thereafter look,
as a general unsecured creditor, only to the Company for payment thereof.
GOVERNING LAW
The Indenture and the Debentures are governed by and construed in accordance
with the laws of the State of New York.
CONCERNING THE INDENTURE TRUSTEE
The Indenture contains certain limitations on the rights of the Indenture
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Indenture Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days or apply
to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Indenture
Trustee, subject to certain exceptions. The Indenture provides that in case an
Indenture Event of Default shall occur (which shall not be cured), the
Indenture Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Indenture Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any holder
of Debentures, unless such holder shall have offered to the Indenture Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, control
(including, with correlative meanings, the terms controlling, controlled by
and under common control with), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a
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Person shall be deemed to be control. Notwithstanding the foregoing, no Person
(other than the Company or any Restricted Subsidiary of the Company) in whom a
Special Purpose Subsidiary makes an Investment in connection with a Qualified
Securitization Transaction shall be deemed to be an Affiliate of the Company
or any of its Restricted Subsidiaries solely by reason of such Investment.
"Asset Sale" means (a) any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (other than as permitted under "--Certain
Covenants of the Company--Merger, Consolidation or Sale of Assets" or "--
Subsidiary Guaranties") (each referred to for the purposes of this definition
as a "disposition"), of (i) any shares of Capital Stock of a Restricted
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary, as the case may be), (ii) all or substantially all the assets of
any division or line of business of the Company or any Restricted Subsidiary,
(iii) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary,
as the case may be, including any sale of the stock of a Restricted
Subsidiary, or (iv) any Securitization Related Asset, or (b) any issuance of
Capital Stock (other than non-convertible preferred stock that is not
Disqualified Stock) by any of the Company's Restricted Subsidiaries, except
any such issuance to the Company or any Wholly Owned Restricted Subsidiary
that is a Subsidiary Guarantor. Notwithstanding the foregoing, an "Asset Sale"
does not include (a) a disposition by a Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary or by the Company to a Wholly Owned Restricted
Subsidiary, (b) a disposition that constitutes a Restricted Payment permitted
by the covenant described under "--Certain Covenants--Restricted Payments"),
(c) sales of Receivables in Qualified Securitization Transactions for the fair
market value thereof, including cash in an amount at least equal to 75% of the
book value thereof as determined in accordance with GAAP, (d) transfers of
Receivables by a Special Purpose Subsidiary to third parties in a Qualified
Securitization Transaction and (e) any trade or exchange by the Company or any
Restricted Subsidiary of any assets for similar assets of a Related Business
owned or held by another Person; provided that (1) the fair market value of
the assets traded or exchanged by the Company or such Restricted Subsidiary
(including any cash or Cash Equivalents to be delivered by the Company or such
Restricted Subsidiary) is reasonably equivalent to the fair market value of
the asset or assets (together with any cash or Cash Equivalents) to be
received by the Company or such Restricted Subsidiary and (2) such exchange is
approved by a majority of the directors of the Company who are not employees
of the Company or its Restricted Subsidiaries.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capitalized Excess Servicing Fees Receivables" mean, with respect to the
sale of Receivables in a Qualified Securitization Transaction, the present
value of the excess of the weighted average coupon on the Receivables sold
over the sum of (i) the coupon in the pass-through certificates, (ii) a base
servicing fee paid to the loan or lease servicer and (iii) expected losses to
be incurred on the portfolio of Receivables sold, considering prepayment
assumptions.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means: (i) United States dollars; (ii) Government
Securities (except that for purpose of this definition, Government Securities
must have a remaining Weighted Average Life to Maturity of not more than one
year from the date of investment therein); (iii) commercial paper or other
short-term corporate obligation that has received a rating of at least A-1 or
AA from Standard & Poor's Corporation ("S&P"), P-1 or Aa2 from Moody's
Investor Services, Inc. ("Moody's"), F-1 or AA from Fitch Investor Service,
Inc. ("Fitch"),
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or D-1 or AA from Duff & Phelps Credit Rating Co., ("Duff"); (iv) time
deposits, certificates of deposit, bank acceptances or bank notes issued by
any bank having capital surplus and undivided profits aggregating at least
$500 million (or the foreign currency equivalent thereof) and at least a high
A rating (or the equivalent) from any two of the following: S&P, Moody's,
Thomson Bankwatch, Inc. or IBCA, Inc.; (v) money market preferred stocks
which, at the date of acquisition and at all times thereafter, are accorded
ratings of at least mid AA by any two of the following: S&P, Moody's, Fitch or
Duff; (vi) tax-exempt obligations that are accorded ratings at the time of
investment therein of at least mid AA (or equivalent short-term ratings) by
any two of the following; S&P, Moody's, Fitch or Duff; (vii) master repurchase
agreements with foreign or domestic banks having capital and surplus of not
less than $500 million (or the foreign equivalent thereof) or primary dealers
so long as (a) such bank or dealer has a rating of at least mid AA from any
two of the following: S&P, Moody's, Fitch or Duff; (b) such agreements are
collateralized with obligations of the United States government or its
agencies at a ratio of 102%, or with other collateral rated at least mid AA
from any two of the following: S&P, Moody's, Fitch or Duff, at a rate of 103%
and, in either case marked to market weekly and (c) such securities shall be
held by a third-party agent; (viii) guaranteed investment contracts and/or
agreements of a bank, insurance company or other institution whose unsecured,
uninsured and unguaranteed obligations (or claims-paying ability) are, at the
time of investment therein, rated AAA by any two of the following: S&P,
Moody's, Fitch or Duff; (ix) money market funds, the portfolio of which is
limited to investments described in clauses (i) through (viii); (x) with
respect to Non-Domestic Persons, instruments that are comparable to those
described in clauses (i), (ii), (iv) and (vii) in the country in which such
Non-Domestic Person is organized or has its principal business operations; and
(xii) up to $1.0 million in the aggregate of other financial assets held by
Restricted Subsidiaries. In no event
shall any of the Cash Equivalents described in clauses (iii) through (viii),
(x) and (xi) above have a final maturity more than one year from the date of
investment therein.
"Change of Control" means the occurrence of one or more of the following
events: (i) a person or entity or group (as that term is used in Section
13(d)(3) of the Exchange Act) of persons or entities shall have become the
beneficial owner of a majority of the securities of the Company ordinarily
having the right to vote in the election of directors; (ii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any directors
who are members of such Board of Directors of the Company on the date hereof
and any new directors whose election by such Board of Directors of the Company
or whose nomination for election by the shareholders of the Company was
approved by a vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
(iii) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, the assets of
the Company and its Restricted Subsidiaries, taken as a whole, to any person
or entity or group (as so defined) of persons, or entities (other than to any
Wholly Owned Restricted Subsidiary of the Company); (iv) the merger or
consolidation of the Company with or into another corporation or the merger of
another corporation into the Company with the effect that immediately after
such transaction any person or entity or group (as so defined) of persons or
entities shall have become the beneficial owner of securities of the surviving
corporation of such merger or consolidation representing a majority of the
combined voting power of the outstanding securities of the surviving
corporation ordinarily having the right to vote in the election of directors;
or (v) the adoption of a plan relating to the liquidation or dissolution of
the Company.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of all consolidated Indebtedness of the
Company and its Restricted Subsidiaries, excluding Warehouse Indebtedness and
Guarantees thereof permitted to be incurred pursuant to clause (iii) of the
covenant described under "--Incurrence of Indebtedness and Issuance of
Preferred Stock" to (ii) the Consolidated Net Worth of the Company.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted
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Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary
thereof that is a Subsidiary Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of
a change in accounting principles shall be excluded, and (v) the Net Income of
any Unrestricted Subsidiary shall be excluded, whether or not distributed to
the Company or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the Issue Date in
the book value of any asset owned by such Person or a consolidated Restricted
Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Restricted Subsidiaries and in Persons that are not Restricted
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Designated Senior Debt" means any Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the Stated Maturity of the Debentures.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an underwritten primary public offering of Equity
Interests (other than Disqualified Stock) of the Company pursuant to an
effective registration statement under the Securities Act.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other then Indebtedness under the Warehouse Facilities) in
existence on the Issue Date, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, in either case in the ordinary course of business and not for
speculative or investment purposes.
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"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable,
(ii) all Capital Lease Obligations of such Person, (iii) all obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade account payable and
expense accruals arising in the ordinary course of business), (iv) all
obligations of such Person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit), (v) the amount
of all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock other than Permitted SPTL Preferred
Stock (but excluding any accrued dividends), (vi) all Warehouse Indebtedness,
(vii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise, including by means of any Guaranty, (viii)
all obligations of the type referred to in clauses (i) through (vii) of other
Persons secured by any Lien on any property or asset of such Person (whether
or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured and (ix) to the extent not
otherwise included in this definition, Hedging Obligations of such Person.
Except in the case of Warehouse Indebtedness (the amount of which shall be
determined in accordance with the definition thereof) the amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. Notwithstanding the
foregoing, the term "Indebtedness" does not include deposit liabilities of any
Restricted Subsidiary, the deposits of which are insured by the Federal
Deposit Insurance Corporation or any successor agency or Indebtedness of any
Restricted Subsidiary to the Federal Home Loan Bank of San Francisco or any
successor thereto incurred in the ordinary course of business and secured by
qualifying mortgage loans or mortgage-backed securities.
"Indenture Default" means any event that is or with the passage of time or
the giving of notice or both would be an Indenture Event of Default.
"Investments" means, with respect to any Person, all investment by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interest or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities
by the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary
of the Company, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value (as
determined as set forth in the last paragraph under the covenant entitled "--
Restricted Payment") of the Equity Interests of such Restricted Subsidiary not
sold or disposed of; provided, however, that this requirement shall not apply
if (i) the class of Equity Interests of the Restricted Subsidiary owned by the
Company is registered under Section 12 of the Exchange Act and is listed on a
national securities exchange or quoted on a national quotations system and
(ii) if the Company has entered into an agreement with the Restricted
Subsidiary that provides the Company with the right to demand (subject to
customary restrictions) registration of all of is Equity Interests under the
Securities Act.
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"Issue Date" means the date on which the Debenture are originally issued.
"Lien" means, with respect to any Person, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind on the assets of such Person
(including (i) any conditional sale or other title retention agreement or
lease in the nature thereof, and (ii) any claim (whether direct or indirect
through subordination or other structural encumbrance against any
Securitization Related Asset sold or otherwise transferred by such Person to a
buyer, unless such Person is not liable for any losses thereon).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and after any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise); and (ii) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness (other than the Debentures being offered
hereby) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other labilities payable under
the documentation governing any Indebtedness.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary (i) in a Subsidiary Guarantor or in SPTL or a Person that will,
upon the making of such Investment, become a Subsidiary Guarantor, provided,
however, that the primary business of such Subsidiary Guarantor is a Related
Business; and provided further, that any Investment by the Company in SPTL
must be in the form of Permitted SPTL Preferred Stock or in a security senior
to such stock; (ii) in another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys
all or substantially all its assets to, the Company or a Subsidiary Guarantor,
provided, however, that such Person's primary business is a Related Business,
(iii) comprised of Cash Equivalents, (iv) comprised of Receivables owing to
the Company or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms, (v) comprised of payroll, travel and similar advances
to cover matters that are expected at the time of such advances ultimately to
be treated as expenses for accounting purposes and that are made in the
ordinary course of business, (vi) comprised of stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted
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Subsidiary or in satisfaction of judgments, (vii) in any Person to the extent
such Investment represents the noncash portion of the consideration received
for an Asset Sale as permitted pursuant to the covenant described under "--
Certain Covenants of the Company--Asset Sales," (viii) comprised of
Receivables of the Company or any of its Wholly Owned Restricted Subsidiaries,
or (ix) comprised of Securitization Related Assets arising in a Qualified
Securitization Transaction.
"Permitted Liens" means, with respect to any Person: (a) pledges or deposits
by such Person under worker's compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the payment
of rent, in each case Incurred in the ordinary course of business; (b) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceedings or other Liens arising out of judgments or awards against such
Person with respect to which such Person shall then be proceeding with an
appeal or other proceedings for review; (c) Liens for property taxes not yet
subject to penalties for non-payment or which are being contested in good
faith and by appropriate proceedings; (d) Liens in favor of issuers of surety
bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred
in connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use
in the operation of the business of such Person; (f) Liens securing
Indebtedness Incurred to finance the construction, purchase or lease of, or
repairs, improvements or additions to, property of such Person (but excluding
Capital Stock of another Person); provided, however, that the Lien may not
extend to any other property owned by such Person or any of its Subsidiaries
at the time the Lien is Incurred, and the Indebtedness secured by the Lien may
not be Incurred more than 180 days after the latest of the acquisition,
completion of construction, repair, improvement, addition or commencement of
full operation of the property subject to the Lien; (g) Liens on Receivables
owned by the Company or a Restricted Subsidiary, as the case may be, to secure
Indebtedness permitted under the provisions described in clause (ii) under "--
Certain Covenants of the Company--Incurrence of Indebtedness and Issuance of
Preferred Stock" and Liens to secure Indebtedness under mortgage loan
repurchase agreements or repurchase facilities permitted under the provisions
described in clause (iii) under "Certain Covenants of the Company--Incurrence
of Indebtedness and Issuance of Preferred Stock"; (h) Liens on Securitization
Related Assets (or on the Capital Stock of any Subsidiary of such Person
substantially all the assets of which are Securitization Related Assets);
provided, however, that, (x) any such Liens may only encumber Securitization
Related Assets, in an amount not to exceed 75% of the excess, if any, of (i)
the total amount of Securitization Related Assets, determined on a
consolidated basis in accordance with GAAP, as of the creation of such Lien
over (ii) an amount equal to 150% of all unsecured Senior Indebtedness of the
Company and its Restricted Subsidiaries as of the time of creation of such
Lien; and (y) the balance of Securitization Related Assets, not permitted to
be encumbered by the foregoing proviso (x) shall remain unencumbered by any
Lien; (i) Liens on Receivables and other assets of a Special Purpose
Subsidiary incurred in connection with a Qualified Securitization Transaction;
(j) Liens existing on the Issue Date; (k) Liens on property or shares of
Capital Stock of another Person at the time such other Person becomes a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such Lien
may not extend to any other property owned by such Person or any of its
Subsidiaries; (l) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including, any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of such acquisition; provided
further, however, that the Liens may not extend to any other property owned by
such Person or any of its Subsidiaries; (m) Liens securing
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Indebtedness or other obligations of a Subsidiary of such Person owing to such
Person or a Restricted Subsidiary of such Person; (n) Liens (other than on any
Securitization Related Assets) securing Hedging Obligations; (o) Liens on cash
or other assets (other than Securitization Related Assets) securing Warehouse
Indebtedness of the Company or its Restricted Subsidiaries; (p) Liens to
secure any Permitted Refinancing Indebtedness as a whole, or in part, with any
Indebtedness permitted under the Indenture to be Incurred and secured by any
Lien referred to in the foregoing clauses (f), (j), (k) and (1); provided,
however, that (x) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements to or on such
property) (y) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding, principal
amount or, if greater, committed amount of the Indebtedness described under
clauses (f), (j), (k) or (1), as the case may be, at the time the original
Lien became a Permitted Lien and (B) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement; (q) Liens securing deposit liabilities of
any Restricted Subsidiary, the deposits of which are insured by the Federal
Deposit Insurance Corporation or any successor agency or Indebtedness of any
Restricted Subsidiary to the Federal Home Loan Bank of San Francisco or any
successor thereto incurred in the ordinary course of business and secured by
qualifying mortgage loans or mortgage-backed securities; and (r) Liens on
assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries. Notwithstanding the foregoing, "Permitted Liens"
will not include any Lien described in clauses (f), (j) or (k) above to the
extent such Lien applies to any Additional Assets acquired directly or
indirectly from Net Proceeds pursuant to the covenant described under "--
Certain Covenants of the Company--Sale of Assets."
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Debentures, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Debentures
on terms at least as favorable to the Holders of Debentures as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary who is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (v) such Indebtedness may not include a Guaranty of Indebtedness
of a Person that is not a Subsidiary of the Company.
"Permitted SPTL Preferred Stock" means nonvoting (except as provided in the
second proviso below), noncumulative, perpetual preferred stock of SPTL, which
would qualify as Tier 1 capital or the equivalent thereof on an unrestricted
basis for purposes of the capital requirements contained in 12 C.F.R. Part
325, Subpart A, or any successor provision; provided that the total
liquidation preference of such preferred stock outstanding at any time shall
not exceed 20% of the Consolidated Net Worth of SPTL (after giving effect to
the issuance of such preferred stock); and provided further, that the holders
of such stock may be granted the right to elect directors constituting less
than a majority of the board of directors of SPTL if dividends on such have
not been paid for six dividend periods, whether consecutive or not, and until
such time as SPTL has paid or declared and set apart for payment dividends for
four consecutive dividend periods.
"Permitted Warehouse Indebtedness" means Warehouse Indebtedness in
connection with a Warehouse Facility; provided, however, that (i) the assets
as to which such Warehouse Indebtedness relates are or, prior to any funding
under the related Warehouse Facility with respect to such assets, were
eligible to be recorded as held for sale on the consolidated balance sheet of
the Company in accordance with GAAP, (ii) such Warehouse
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Indebtedness will be deemed to be Permitted Warehouse Indebtedness (a) in the
case of a Purchase Facility, only to the extent the holder of such Warehouse
Indebtedness has no contractual recourse to the Company and its Restricted
Subsidiaries to satisfy claims in respect of such Permitted Warehouse
Indebtedness in excess of the realizable value of the Receivables financed
thereby, and (b) in the case of any other Warehouse Facility, only to the
extent of the lesser of (A) the amount advanced by the lender with respect to
the Receivables financed under such Warehouse Facility, and (B) the principal
amount of such Receivables and (iii) any such Indebtedness has not been
outstanding in excess of 364 days.
"Purchase Facility" means any Warehouse Facility in the form of a purchase
and sale facility pursuant to which the Company or a Restricted Subsidiary of
the Company sells Receivables to a financial institution and retains a right
of first refusal upon the subsequent resale of such Receivables by such
financial institution.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which (i) the Company or any of its Restricted
Subsidiaries (other than a Special Purpose Subsidiary) sells, convey or
otherwise transfers to a Special Purpose Subsidiary or (ii) the Company, any
of its Restricted Subsidiaries or a Special Purpose Subsidiary sells, conveys
or otherwise transfers to a special purpose owner trust or other Person
Receivables (together with any assets related to such Receivables, including,
without limitation, all collateral securing such Receivables, all contracts
and all guarantees or other obligations in respect of such Receivables,
proceeds of such Receivables and other assets which are customarily
transferred in connection with asset securitization transactions involving
Receivables) of the Company or any of its Restricted Subsidiaries in
transactions constituting "true sales" under the Bankruptcy Laws and as
"sales" under GAAP, as evidenced by an Opinion of Counsel to such effect.
"Receivables" means consumer, mortgage and commercial loans, equipment or
other lease receivables and receivables purchased or originated by the Company
or any Restricted Subsidiary in the ordinary course of business; provided,
however, that for purposes of determining the amount of a Receivable at any
time, such amount shall be determined in accordance with GAAP, consistently
applied, as of the most recent practicable date.
"Related Business" means any consumer or commercial finance business or any
financial advisory or financial service business.
"Residual Certificates" means, with respect to the sale of Receivables in a
Qualified Securitization Transaction, any certificates representing
Receivables not sold or transferred in such transaction or otherwise retained
by or returned to the Person transferring such Receivables.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Retained Interest" means, with respect to the sale of Receivables in a
Qualified Securitization Transaction, the interest and rights retained by the
Person in the Receivables transferred or sold in a Qualified Securitization
Transaction, including any rights to receive cash flow attributable to such
Receivables.
"Securitization Related Assets" means, with respect to a Qualified
Securitization Transaction: (i) the Capitalized Excess Servicing Fees
Receivable retained by the Person who transfers or sells Receivables in such a
transaction, (ii) the Retained Interest held by such Person in the Receivables
sold or transferred in such transaction and (iii) Residual Certificates
retained by such Person in such transaction.
"Senior Debt" means all Indebtedness permitted to be incurred by the Company
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Debentures and all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (i) any
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liability for federal, state, local or other taxes owed or owing by the
Company, (ii) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates, (iii) any trade payables or (iv) any Indebtedness that is
incurred in violation of the Indenture.
"Senior Indebtedness" means all Indebtedness of the Company or the
Subsidiary Guarantors that is not by its terms, subordinated in right of
payment to the Debentures or the Subsidiary Guarantees, respectively.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Special Purpose Subsidiary" means a Wholly Owned Restricted Subsidiary of
the Company (a) that is designated (as set forth below) as a "Special Purpose
Subsidiary" by the Board of Directors of the Company, (b) that does not engage
in, and whose charter prohibits it from engaging in, any activities other than
Qualified Securitization Transactions, (c) no portion of the Indebtedness or
any other Obligations (contingent or otherwise) of which (i) is guaranteed by
the Company or any other Restricted Subsidiary of the Company, (ii) is
recourse to or obligates the Company or any other Restricted Subsidiary of the
Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Securitization Transaction or (iii) subjects any
property or asset of the Company or any other Restricted Subsidiary of the
Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Securitization Transaction, (d) with which neither
the Company nor any other Restricted Subsidiary of the Company has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to the Company or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company and
(e) with which neither the Company nor any other Restricted Subsidiary of the
Company has any obligation to maintain or preserve such Restricted
Subsidiary's financial condition or cause such Restricted Subsidiary to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing with
the Trustee a certified copy of the resolution of the Board of Directors of
the Company giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"SPFC" means Southern Pacific Funding Corporation, a California corporation
and a partially owned Subsidiary of the Company.
"SPTL" means Southern Pacific Thrift & Loan Association, a California
corporation and a Subsidiary of the Company.
"Stated Maturity" means, with respect to any installment of principal or
interest on any series of Indebtedness, the date on which such payment of
principal or interest was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such principal or interest prior to the
date originally scheduled for the payment thereof.
"Strategic Investor Repurchase Transaction" means the repurchase, redemption
or other retirement for value of any Equity Interests of any Restricted
Subsidiary (a) from a strategic partner or investor owning such Equity
Interests that, except for such Investment, would not be an Affiliate of the
Company or its Restricted Subsidiaries and (b) in a transaction whose terms
comply with the provisions set forth in "--Affiliate Transactions."
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner
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of which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof); provided, that SPFC and ICIFC shall not
be considered Subsidiaries of the Company unless the Company owns more than
50% of the total voting power of shares of Capital Stock on or after March 31,
1997.
"Subsidiary Guarantors" means each of (i) the Restricted Subsidiaries other
than SPTL and the Special Purpose Subsidiaries and (ii) any other subsidiary
that executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) is not party to
any agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (b) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (c) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (d) has
at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "--Certain Covenants of the Company--
Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "--Certain Covenants of the Company--
Incurrence of Indebtedness and Issuance of Preferred Stock," the Company shall
be in default of such covenant). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only
be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "--Certain Covenants of the Company--Incurrence of
Indebtedness and Issuance of Preferred Stock," (ii) such Subsidiary becomes a
Subsidiary Guarantor, and (iii) no Indenture Default or Indenture Event of
Default would be in existence following such designation.
"Warehouse Facility" means any funding arrangement, including a Purchase
Facility, with a financial institution or other lender or purchaser, to the
extent (and only to the extent) funding thereunder is used exclusively to
finance or refinance the purchase or origination of Receivables by the Company
or a Restricted Subsidiary of the Company for the purpose of (i) pooling such
Receivables prior to securitization or (ii) sale, in each case in the ordinary
course of business.
"Warehouse Indebtedness" means the greater of (x) the consideration received
by the Company or its Restricted Subsidiaries under a Warehouse Facility and
(y) in the case of a Purchase Facility, the book value of the Receivables
financed under such Warehouse Facility until such time as such Receivables are
(i) securitized, (ii) repurchased by the Company or its Restricted
Subsidiaries or (iii) sold by the counterparty under the Warehouse Facility to
a Person who is not an Affiliate of the Company.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
product obtained by multiplying (a) the amount of each then
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remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii) the
then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person and one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF GUARANTEE
The Guarantee was executed and delivered by the Company concurrently with
the issuance by the Trust of the Par Securities for the benefit of the holders
from time to time of such Securities. Chase Trust Company of California acts
as Guarantee Trustee under the Guarantee. This summary of certain provisions
of the Guarantee does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Guarantee, including the definitions therein of certain terms. The Guarantee
Trustee holds the Guarantee for the benefit of the holders of the Securities.
GENERAL
The Company has irrevocably and unconditionally agreed to pay in full, to
the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Securities, as and when due, regardless of any defense, right
of set-off or counterclaim that the Trust may have or assert. The following
payments or distributions with respect to the Par 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 Par Securities, to the extent that the Trust has
sufficient funds available therefor at the time, (ii) the Redemption Price
with respect to any Par Securities called for redemption, to the extent that
the Trust has sufficient funds available therefor at such time, or (iii) upon
a voluntary or involuntary dissolution, winding up or liquidation of the Trust
(unless the Debentures are distributed to holders of the Par Securities), the
lesser of (a) the aggregate liquidation amount of the Par Securities and all
accrued and unpaid Distributions thereon to the date of payment and (b) the
amount of assets of the Trust remaining available for distribution to holders
of Par Securities. 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 applicable Par Securities or by causing the Trust to pay such
amounts to such holders.
The Guarantee will apply only to the extent that the Trust has sufficient
funds available to make such payments.
If the Company does not make interest payments on the Debentures held by the
Trust, the Trust will not be able to pay Distributions on the Par Securities
and will not have funds legally available therefor. Until the Remarketing
Settlement Date, the Guarantee will rank on a parity with all senior unsecured
obligations of the Company and, thereafter, the Guarantee will rank
subordinate and junior in right of payment to all Indebtedness of the Company.
See "--Status of the Guarantee." The Guarantee does not limit the incurrence
or issuance of other secured or unsecured debt of the Company, whether under
the Indenture or any existing or other indenture that the Company may enter
into in the future or otherwise.
The Company has, through the Guarantee, the Debentures and the Indenture,
taken together, fully and unconditionally guaranteed all of the Trust's
obligations under the Par 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 and unconditional guarantee
of the Trust's obligations under the Securities. See "Relationship Among the
Par Securities, the Debentures and the Guarantee."
STATUS OF THE GUARANTEE
Until the Remarketing Settlement Date, the Guarantee will be a general
unsecured obligation of the Company ranking on a parity with all Indebtedness
of the Company, if any, that is not subordinated to the Guarantee and senior
to any Indebtedness of the Company that is subordinated to the Guarantee.
After the Remarketing Settlement Date, the Guarantee will be subordinated and
junior in right of payment to all Senior Debt of the Company. The Guarantee
does not place a limitation on the amount of additional Indebtedness that may
be incurred by the Company.
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The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee is held by the Guarantee Trustee for the benefit of the holders of
the Par Securities. The Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by the Trust or upon
distribution of the Debentures to the holders of the Par Securities in
exchange for all of the Par Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Par Securities (in which case no consent of such
holders will be required), the Guarantee may not be amended without the prior
approval of the holders of not less than a majority of the aggregate
liquidation amount of the outstanding Par Securities. The manner of obtaining
any such approval will be as set forth under "Description of Securities--
Voting Rights; Amendment of the Declaration." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Par Securities then outstanding.
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. The
holders of not less than a majority in aggregate liquidation amount of the Par
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, then any holder of
the Par Securities may institute a legal proceeding directly against the
Company to enforce the Guarantee Trustee's 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, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee (that has not been cured or waived) that
is actually known to a responsible officer of the Guarantee Trustee, must
exercise the same degree of care and skill as a prudent person would exercise
or use under the circumstances in the conduct of his or her own affairs.
Subject to this provision, the Guarantee Trustee is under no obligation to
exercise any of the powers vested in it by the Guarantee at the request of any
holder of any Par Security unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of all of the Par Securities, upon full
payment of the amounts payable upon liquidation of the Trust or upon
distribution of Debentures to the holders of the Par Securities in exchange
for all of the Par 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 Par
Securities must restore payment of any sums paid under the Par Securities or
the Guarantee.
GOVERNING LAW
The Guarantee is governed by and construed and interpreted in accordance
with the laws of the State of New York.
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RELATIONSHIP AMONG THE PAR SECURITIES,
THE DEBENTURES AND THE GUARANTEE
Payments of Distributions and other amounts due on the Par Securities (to
the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantee." If and to the extent that the
Company does not make payments under the Debentures, the Trust will not pay
Distributions or other amounts due on the Par Securities. The Guarantee does
not cover payment of Distributions when the Trust does not have sufficient
funds to pay such Distributions. In such event, a holder of Par Securities may
institute a legal proceeding directly against the Company to enforce payment
of such Distributions to such holder after the respective due dates. Taken
together, the Company's obligations under the Debentures, the Indenture and
the Guarantee provide, in the aggregate, a full and unconditional guarantee of
payments of distributions and other amounts due on the Par 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 and
unconditional guarantee of the Trust's obligations under the Par Securities.
Following the Remarketing Settlement Date, the obligations of the Company
under the Guarantee and the Debentures will be subordinate and junior in right
of payment to all Senior Debt of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest, principal and other payments are made when
due on the Debentures, such payments will be sufficient to cover Distributions
and other payments due on the Par Securities, primarily because (i) the
aggregate principal amount of the Debentures will be equal to the sum of the
aggregate stated liquidation amount of the Trust Securities; (ii) the interest
rate and interest and other payment dates on the Debentures will match the
Distribution rate and Distribution and other payment dates for the related Par
Securities; (iii) the Company will pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations under the Par
Securities; and (iv) the Declaration further provides that the Trust will not
engage in any activity that is not consistent with the limited purposes of the
Trust.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a related payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PAR SECURITIES
A holder of Par 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 Guarantee Trustee, the Trust or any
other person or entity.
Following the Remarketing Settlement Date, a default or event of default
under any Senior Debt of the Company will not constitute a default or
Indenture Event of Default. In addition, in the event of payment defaults
under, or acceleration of, Senior Debt of the Company, the subordination
provisions of the Indenture provide that no payments may be made in respect of
the Debentures until such Senior Debt has been paid in full or any payment
default thereunder has been cured or waived. Failure to make required payments
on the Debentures would constitute an Indenture Event of Default under the
Indenture.
LIMITED PURPOSE OF TRUST
The Par Securities evidence a beneficial ownership interest in the Trust,
and the Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in Debentures. A principal difference between
the rights of a holder of Par Securities and a holder of Debentures is that a
holder of Debentures is entitled to receive from the Company the principal
amount of and interest accrued on Debentures held, while a holder of Par
Securities is entitled to receive Distributions from the Trust (or from the
Company under the Guarantee) if and to the extent the Trust has funds
available for the payment of such Distributions.
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RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Trust involving the liquidation of the Debentures, the holders of the Par
Securities will be entitled to receive, out of assets held by the Trust, the
liquidation distribution in cash. See "Description of Securities--Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation
or bankruptcy of the Company on or prior to the Remarketing Settlement Date,
the Property Trustee, as holder of the Debentures, would be a senior unsecured
creditor of the Company, on a parity in right of payment to all other senior
unsecured indebtedness of the Company. Upon any voluntary or involuntary
liquidation or bankruptcy of the Company which commences following the
Remarketing Settlement Date, the Property Trustee, as holder of the
Debentures, would be a subordinated creditor of the Company, subordinated in
right of payment to all Indebtedness, but entitled to receive payment in full
of principal and interest before any stockholders of the Company receive
payments or distributions. Because the Company is the guarantor under the
Guarantee and has agreed to pay for all costs, expenses and liabilities of the
Trust (other than the Trust's obligations to the holders of the Par
Securities), the positions of a holder of Par Securities and a holder of the
Debentures relative to other creditors and to shareholders of the Company in
the event of liquidation or bankruptcy of the Company would be substantially
the same.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett (a partnership which includes
professional corporations), special United States federal income tax counsel
to the Company and the Trust ("Tax Counsel"), the following summary accurately
describes the material United States federal income tax consequences that may
be relevant to the purchase, ownership and disposition of the Par Securities.
Unless otherwise stated, this summary deals only with Par Securities held as
capital assets by United States Persons (defined below) who purchase the Par
Securities upon original issuance at their original issue price. As used
herein, a "United States Person" means (i) a person that is a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
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 subject
to United States federal income taxation regardless of its source, or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of such trust and one or more United
States fiduciaries have the authority to control all the substantial decisions
of such trust. The tax treatment of a holder may vary depending on such
holder's particular situation. This summary does not address all the tax
consequences that may be relevant to a particular holder or to holders who may
be subject to special tax treatment, such as banks, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, or tax-exempt investors. In addition, this summary
does not include any description of any alternative minimum tax consequences
or the tax laws of any state, local or foreign government that may be
applicable to a holder of Par Securities. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. The authorities on which this summary
is based are subject to various interpretations and the opinions of Tax
Counsel are not binding on the Internal Revenue Service ("IRS") or the courts,
either of which could take a contrary position. Moreover, no rulings have been
or will be sought by the Company from the IRS with respect to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed herein or that a court would not sustain such
a challenge. Nevertheless, Tax Counsel has advised that it is of the view
that, if challenged, the opinions expressed herein would be sustained by a
court with jurisdiction in a properly presented case.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PAR
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. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE PAR
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF
SECURITIES--REDEMPTION--SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF
DEBENTURES; SHORTENING OF STATED MATURITY."
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Par Securities, Tax Counsel is of the
opinion that under current law and assuming full compliance with the terms of
the Declaration, the Trust will not be taxable as a corporation. Accordingly,
for United States federal income tax purposes, each beneficial owner (each a
"holder") of Par Securities generally will be required to include in gross
income its allocable share of the income earned on or with respect to the
Debentures.
CLASSIFICATION OF THE DEBENTURES
The Company, the Trust and the holders of the Par Securities (by the
acceptance of a beneficial interest in a Par Security) will agree to treat the
Debentures as indebtedness for all United States tax purposes. Accordingly,
the Company intends to take the position that the Debentures will be
classified as indebtedness for United States federal income tax purposes. The
following discussion assumes that the Debentures will be classified as
indebtedness for such purposes.
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EXCHANGE OF PAR SECURITIES
The Exchange should not constitute a taxable event for United States federal
income tax purposes. Consequently, no gain or loss should be recognized by a
holder upon receipt of a New Par Security, the holding period of the New Par
Security should include the holding period of the Old Par Security and the
adjusted tax basis of the New Par Security should be the same as the adjusted
tax basis of the Old Par Security immediately before the Exchange.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Because the Company has the right to defer the payment of stated interest on
the Debentures, the stated interest on the Debentures will be considered to be
original issue discount ("OID") (within the meaning of Section 1273(a) of the
Code). Consequently, holders must include such stated interest in gross income
on a daily economic accrual basis (using the constant-yield-to-maturity method
of accrual described in Section 1272 of the Code), regardless of their regular
method of tax accounting and in advance of receipt of the cash attributable to
such income. The application of these OID accrual rules may accelerate the
timing of a holder's recognition of such income in certain situations. Actual
payments of stated interest on the Debentures, however, will not be separately
reported as taxable income. Any amount of OID included in a holder's gross
income with respect to a Par Security will increase such holder's adjusted tax
basis in such Security, and the amount of Distributions received by a holder
in respect of such OID will reduce such holder's adjusted tax basis in such
Par Security.
Corporate holders of Par Securities will not be entitled to a dividends-
received deduction with respect to any income recognized by such holders with
respect to the Par Securities.
DISTRIBUTION OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
As described under the caption "Description of Debentures--Distribution of
Debentures; Book-Entry Issuance," Debentures may be distributed to holders in
exchange for the Par Securities and in liquidation of the Trust. Under current
law, such a distribution would be non-taxable, and will result in the holder
receiving directly its pro rata share of the Debentures previously held
indirectly through the Trust, with a holding period and aggregate tax basis
equal to the holding period and aggregate tax basis such holder had in its Par
Securities before such distributions. If, however, the liquidation of the
Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Debentures, the
distribution of the Debentures to holders would be a taxable event to the
Trust and to each holder and a holder would recognize gain or loss as if the
holder had exchanged its Par Securities for the Debentures it received upon
liquidation of the Trust.
A holder would accrue interest in respect of the Debentures received from
the Trust in the manner described above under "--Interest Income and Original
Issue Discount."
Under certain circumstances described herein (see "Description of
Securities--Redemption--Special Event Redemption or Distribution of
Debentures; Shortening of Stated Maturity"), the Debentures may be redeemed
for cash, with the proceeds of such redemption distributed to holders in
redemption of their Par Securities. Under current law, such a redemption would
constitute a taxable disposition of the redeemed Par Securities for United
States federal income tax purposes, and a holder would recognize gain or loss
as if it sold such redeemed Par Securities for cash. See "--Sales of
Securities."
SALES OF PAR SECURITIES
A holder that sells Par Securities (pursuant to the Remarketing or
otherwise) will recognize gain or loss equal to the difference between the
amount realized by the holder on the sale or redemption of the Par Securities
(except to the extent that such amount realized is characterized as a payment
in respect of accrued but unpaid interest on such holder's allocable share of
the Debentures which such holder has not previously included in gross income)
and the holder's adjusted tax basis in the Securities sold or redeemed. Such
gain or loss generally
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will be a capital gain or loss and generally will be a long-term capital gain
or loss if the Par Securities have been held for more than one year. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
A holder will be required to add any accrued and unpaid OID to its adjusted
tax basis for its Par Securities. To the extent the selling price of such
holder's Par Securities is less than the adjusted tax basis (which will
include any accrued and unpaid OID), a holder will recognize a capital loss.
PROPOSED TAX LEGISLATION
Both the United States Senate and the House of Representatives have approved
proposals regarding certain changes to United States federal income tax law.
While President Clinton previously proposed legislation that would have denied
an issuer an interest deduction, for United States federal income tax
purposes, on instruments such as the Debentures, the proposed provisions
approved by both the United States Senate and the House of Representatives do
not include any such provision. There can be no assurance, however, that
future legislative proposals or final legislation will not adversely affect
the ability of the Company to deduct interest on the Debentures or otherwise
affect the tax treatment of the transactions described herein. Moreover, such
legislation could give rise to a Tax Event which would permit the Company to
distribute the Debentures to the holders of the Par Securities, shorten the
maturity of the Debentures or cause a redemption of the Par Securities as
described more fully under "Description of Securities--Redemption--Special
Event Redemption or Distribution of Debentures; Shortening of Stated
Maturity."
NON-UNITED STATES HOLDERS
Prospective purchasers of Par Securities that are Non-United States Holders
should consult their tax advisors with respect to the tax consequences, United
States federal and otherwise, of the purchase, ownership and disposition of
Par Securities. A "Non-United States Holder" includes any person that is not a
United States Person.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Par Securities held of record by holders (other than
corporations and other exempt holders) will be reported annually to such
holders and to the IRS. The Regular Trustees currently intend to deliver such
reports to holders of record prior to January 31 following each calendar year.
It is anticipated that persons who hold Par Securities as nominees for
beneficial holders will report the required tax information to beneficial
holders on Form 1099.
"Backup withholding" at a rate of 31% will apply to payments of interest to
non-exempt United States holders unless the holder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from disposition of Par Securities to or through a
United States office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a holder of the Par Securities under the backup
withholding rules will generally be allowed as a refund or a credit against
such holder's United States federal income tax liability, provided the
required information is furnished to the IRS.
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ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975
of the Code ("Plans"), may purchase Securities, subject to the investing
fiduciary's determination that the investment in Securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by the
Plan.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "DOL Regulation") concerning the definition of what
constitutes the assets of a Plan. The DOL Regulation provides that as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a plan makes an
"equity" investment will be deemed for purposes of ERISA to be assets of the
investing plan unless certain exceptions apply.
There can be no assurance that any of the exceptions set forth in the DOL
regulation will apply to the purchase of Securities offered hereby and, as a
result, an investing Plan's assets could be considered to include an undivided
interest in the Debentures held by the Trust. In the event that assets of the
Trust are considered assets of an investing Plan, the Company, the Trustees
and other persons, in providing services with respect to the Debentures, may
be considered fiduciaries to such Plan and subject to the fiduciary
responsibility provisions of Title I of ERISA (including the prohibited
transaction provisions thereof). In addition, the prohibited transaction
provisions of Section 4975 of the Code could apply with respect to
transactions engaged in by any "disqualified person," as defined below,
involving such assets unless a statutory or administrative exemption applies.
Even if they are not fiduciaries, the Company and/or any of its affiliates
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 certain Plans. The acquisition and ownership of Securities by a
Plan (or by an individual retirement arrangement or other plan described in
Section 4975(e)(1) of the Code) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Securities
are acquired pursuant to and in accordance with an applicable exemption. As a
result, Plans with respect to which the Company or any of its affiliates is a
party in interest or a disqualified person should not acquire Securities
unless such Securities are acquired pursuant to and in accordance with an
applicable prohibited transaction exemption. Any purchaser or holder of the
Securities or any interest therein will be deemed to have represented by its
purchase and holding thereof that either (i) the purchaser and holder is not a
Plan or any entity whose underlying assets include "plan assets" by reason of
any Plan's investment in the entity and is not purchasing such securities on
behalf of or with "plan assets" of any Plan or (ii) the purchase and holding
of the Securities is covered by an applicable prohibited transaction
exemption.
Notwithstanding the foregoing, it is possible that the New Securities may
qualify as "publicly offered securities" under the DOL Regulation if, in
addition to an effective registration statement filed in connection with the
Exchange Offer, they are also "widely held" and "freely transferable" at the
time of the Exchange Offer. Under the DOL Regulation, a class of securities is
"widely held" only if it is a class of securities owned by 100 or more
investors independent of the issuer and each other. Although it is possible
that at the time of the Exchange Offer the New Securities will be "widely
held", no assurances can be given that will be true. If the New Securities are
"publicly offered securities" at the time of the Exchange Offer, the assets of
the Trust would not be assets of the Investing Plans as of such time. If the
New Securities did not qualify
as "publicly offered securities", the foregoing discussion about plan assets
in the preceding paragraphs would also be available to the New Securities.
Any Plans or other entities whose assets include Plan assets subject to
ERISA or Section 4975 of the Code proposing to acquire Securities or New
Securities should consult with their own counsel.
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PLAN OF DISTRIBUTION
The Company will not receive any proceeds from any sale of New Par
Securities by broker-dealers. New Par Securities received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Par Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such New Par
Securities. Any broker-dealer that resells New Par Securities that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Par
Securities may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Par Securities and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. Each broker-dealer that
receives New Par Securities for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Par Securities. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Par Securities received in exchange for Old Par Securities
where such Old Par Securities were acquired as a result of market-making
activities or other trading activities. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. The Company has agreed that, for a period
of one year from the date hereof, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
For a period of one year from the date hereof, the Company will promptly
send additional copies of this Prospectus and any amendment or Supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed, pursuant to the Registration
Rights Agreement, to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for all the holders of the Notes as a
single class) other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Securities
will be passed upon for the Trust by Richards, Layton & Finger, P.A., special
Delaware counsel to the Company and the Trust. The validity of the Debentures
and the Guarantee will be passed upon for the Company and the Trust by
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, Beverly Hills,
California. Certain United States federal income taxation matters also will be
passed upon for the Company and the Trust by Simpson Thacher & Bartlett, (a
partnership which includes professional corporations), New York, New York.
Freshman, Marantz, Orlanski, Cooper & Klein and Simpson Thacher & Bartlett
will rely on the opinion of Richards, Layton & Finger, P.A. as to matters of
Delaware Law.
EXPERTS
The consolidated financial statements of Imperial Credit Industries, Inc.
and subsidiaries as of December 31, 1996 and 1995, and for each of the years
in the three-year period ended December 31, 1996, have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP contains an explanatory paragraph regarding the adoption of Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" in 1995.
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The financial statements of Franchise Mortgage Company LLC as of December
31, 1996 and 1995, and for the year ended December 31, 1996 and for the period
from June 30, 1995 (inception) through December 31, 1995, have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
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IMPERIAL CREDIT INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Changes in Shareholders' Equity............... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Condensed Consolidated Financial Statements:
Consolidated Balance Sheets.............................................. F-46
Consolidated Statements of Income........................................ F-47
Consolidated Statements of Cash Flows.................................... F-48
Notes to Consolidated Financial Statements............................... F-49
</TABLE>
All supplemental schedules are omitted as inapplicable or because the
required information is included in the consolidated financial statements or
notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Imperial Credit Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Imperial
Credit Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. 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 Imperial
Credit Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights," for the year ended December 31,
1995.
KPMG Peat Marwick LLP
Los Angeles, California
January 29, 1997
F-2
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
ASSETS
------
<S> <C> <C>
Cash..................................................... $ 74,247 $ 39,166
Interest bearing deposits................................ 3,369 267,776
Investment in Federal Home Loan Bank stock............... 17,152 22,750
Trading securities, at market............................ 25,180 --
Securities available for sale, at market................. 59,116 5,963
Loans held for sale ..................................... 940,096 1,341,810
Loans held for investment, net........................... 1,068,599 668,771
Purchased and originated servicing rights................ 14,887 18,428
Capitalized excess servicing fees receivable............. 23,142 33,181
Retained interest in loan and lease securitizations...... 49,548 14,251
Interest-only and residual certificates.................. 87,017 10,840
Accrued interest on loans................................ 13,847 10,164
Premises and equipment, net.............................. 12,442 11,369
Other real estate owned, net............................. 12,214 7,179
Goodwill................................................. 38,491 20,346
Other assets............................................. 31,292 38,641
---------- ----------
Total assets......................................... $2,470,639 $2,510,635
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Deposits................................................. $1,069,184 $1,092,989
Borrowings from Imperial Bank............................ -- 5,000
Borrowings from Federal Home Loan Bank................... 140,500 190,000
Other borrowings......................................... 694,352 875,815
Bonds.................................................... -- 111,995
Senior notes............................................. 88,209 80,472
Convertible subordinate debentures....................... 75,000 --
Accrued interest payable................................. 14,034 14,494
Income taxes payable..................................... 55,327 12,962
Minority interest in consolidated subsidiaries........... 54,936 1,452
Other liabilities........................................ 39,589 31,354
---------- ----------
Total liabilities.................................... 2,231,131 2,416,533
---------- ----------
Commitments and contingencies (note 27)
Shareholders' equity:
Preferred stock, 8,000,000 shares authorized; none
issued or outstanding................................. -- --
Common stock, no par value. Authorized 80,000,000
shares; 38,291,112 and 14,578,481 shares issued and
outstanding at December 31, 1996 and 1995,
respectively.......................................... 145,521 51,981
Retained earnings...................................... 88,977 38,910
Unrealized gain on securities available for sale, net.. 5,010 3,211
---------- ----------
Total shareholders' equity........................... 239,508 94,102
---------- ----------
Total liabilities and shareholders' equity........... $2,470,639 $2,510,635
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
REVENUE:
Gain on sale of loans............................. $ 88,156 $ 39,557 $ 8,628
-------- -------- -------
Interest on loans................................. 188,242 120,244 79,173
Interest on investments........................... 10,807 6,630 3,610
Interest on other finance activities.............. 8,422 2,608 --
-------- -------- -------
Total interest income........................... 207,471 129,482 82,783
Interest expense.................................. 135,036 95,728 61,674
-------- -------- -------
Net interest income............................. 72,435 33,754 21,109
Provision for loan and lease losses............... 9,773 5,450 5,150
-------- -------- -------
Net interest income after provision for loan and
lease losses..................................... 62,662 28,304 15,959
-------- -------- -------
Loan servicing income............................. 1,680 12,718 16,332
Gain on sale of servicing rights.................. 7,591 3,578 30,837
Gain on sale of SPFC stock........................ 51,243 -- --
Gain on sale of stock by subsidiary............... 31,447 -- --
Management fees................................... 3,347 38 --
Other income...................................... 10,807 1,114 1,048
-------- -------- -------
Total other income.............................. 106,115 17,448 48,217
-------- -------- -------
Total revenue..................................... 256,933 85,309 72,804
-------- -------- -------
EXPENSES:
Personnel expense................................. 48,355 34,053 33,477
Amortization of PMSRs and OMSRs................... 1,121 3,986 3,176
Occupancy expense................................. 4,653 3,904 3,399
Data processing expense........................... 2,163 1,461 1,323
Net expenses of other real estate owned........... 7,014 1,913 969
Professional services............................. 9,559 2,769 1,528
FDIC insurance premiums........................... 327 1,137 2,170
Telephone and other communications................ 2,917 2,509 2,820
Restructuring provision--exit from former mortgage
banking operations............................... 3,800 -- --
General and administrative expense................ 19,140 9,448 12,652
-------- -------- -------
Total expenses.................................. 99,049 61,180 61,514
-------- -------- -------
Income before income taxes........................ 157,884 24,129 11,290
Income taxes...................................... 69,874 10,144 4,685
Minority interest in income (loss) of consolidated
subsidiaries..................................... 12,026 (208) --
-------- -------- -------
Income before extraordinary item.................. 75,984 14,193 6,605
Extraordinary item--repurchase of 9 3/4% Senior
Notes due 2004, net of income taxes.............. -- -- 919
-------- -------- -------
Net income...................................... $ 75,984 $ 14,193 $ 7,524
======== ======== =======
INCOME PER SHARE:
Primary:
Income before extraordinary item................ $ 1.96 $ 0.41 $ 0.19
Extraordinary item--repurchase of 9 3/4% Senior
Notes due 2004................................. -- -- 0.03
-------- -------- -------
Net Income...................................... $ 1.96 $ 0.41 $ 0.22
======== ======== =======
Fully Diluted:
Income before extraordinary item................ $ 1.95 $ 0.40 $ 0.19
Extraordinary item--repurchase of 9 3/4% Senior
Notes due 2004................................. -- -- 0.03
-------- -------- -------
Net Income...................................... $ 1.95 $ 0.40 $ 0.22
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
NUMBER OF SECURITIES TOTAL
SHARES COMMON RETAINED AVAILABLE SHAREHOLDERS'
OUTSTANDING STOCK EARNINGS FOR SALE, NET EQUITY
----------- -------- -------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 9,607 $ 51,060 $ 17,193 $ -- $ 68,253
Exercise of stock
options................ 14 96 -- -- 96
Net income, 1994........ -- -- 7,524 -- 7,524
------ -------- -------- ------ --------
Balance, December 31,
1994................... 9,621 51,156 24,717 -- 75,873
Exercise of stock
options................ 147 825 -- -- 825
3-for-2 stock split..... 4,810 -- -- -- --
Unrealized gain on
securities available
for sale, net.......... -- -- -- 3,211 3,211
Net income, 1995........ -- -- 14,193 -- 14,193
------ -------- -------- ------ --------
Balance, December 31,
1995................... 14,578 51,981 38,910 3,211 94,102
Exercise of stock
options................ 868 1,671 -- -- 1,671
1-for-10 stock dividend. 1,460 25,917 (25,917) -- --
2-for-1 stock split..... 18,952 -- -- -- --
Issuance of common
stock.................. 2,440 59,228 -- -- 59,228
Unrealized gain on
securities available
for sale, net.......... -- -- -- 1,799 1,799
Tax benefit from
exercise of stock
options................ -- 6,851 -- -- 6,851
Retirement of stock..... (7) (127) -- -- (127)
Net income, 1996........ -- -- 75,984 -- 75,984
------ -------- -------- ------ --------
Balance, December 31,
1996................... 38,291 $145,521 $ 88,977 $5,010 $239,508
====== ======== ======== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 75,984 $ 14,193 $ 7,524
Adjustments to reconcile net income to
net cash (used in)provided by operating
activities:
Provision for loan and lease losses..... 9,773 5,450 5,150
(Recovery) provision for operational
losses................................. -- (1,819) 2,000
Restructuring Provision................. 3,800 -- --
Depreciation............................ 3,483 2,657 1,846
Amortization............................ 2,996 3,725 2,921
Accretion of discount................... (8,350) (2,608) --
Gain on sale of servicing rights........ (7,591) (3,578) (30,837)
Gain on sale of loans................... (88,156) (39,557) (8,628)
Gains on sale of SPFC stock............. (64,625) -- --
Loss on sale of OREO.................... 2,843 -- --
Writedowns of capitalized excess
servicing.............................. 4,675 -- --
Writedowns of fixed assets.............. 886 -- --
Stock option compensation expense....... -- 653 436
Writedowns on other real estate owned... 3,252 2,085 369
Provision for deferred income taxes..... 22,104 2,120 2,678
Gain on repurchase of senior notes...... -- -- (1,538)
Net change in loans held for sale....... 266,373 (579,730) 982,827
Net change in accrued interest on loans. (3,683) (4,247) (1,342)
Net change in retained interest in loan
and lease securitizations.............. (21,481) (14,012) (239)
Net change in interest only and residual
certificates........................... (75,896) (10,840) --
Net change in capitalized excess
servicing.............................. 33,234 (37,500) (3,790)
Net change in other assets.............. 15,550 (4,222) (11,924)
Net change in other liabilities......... 24,236 (1,436) 14,126
--------- ---------- -----------
Net cash provided by (used in) operating
activities............................... 199,407 (668,666) 961,579
--------- ---------- -----------
Cash flows from investing activities:
Net change in interest bearing deposits. 264,407 (257,176) 79,400
Purchase of servicing rights............ -- (8,128) (14,764)
Proceeds from sale of servicing rights.. 10,011 12,815 26,899
Proceeds from sale of other real estate
owned.................................. 1,202 7,072 1,174
Purchase of trading securities.......... (25,180) -- --
Net change in securities available for
sale................................... (56,901) -- --
Net change in loans held for investment. (224,792) 61,656 (882,390)
Purchases of premises and equipment..... (5,442) (1,367) (6,140)
Sales (purchases) of Federal Home Loan
Bank stock............................. 5,598 (3,933) (817)
Cash utilized for acquisitions.......... (20,020) (175,015) --
--------- ---------- -----------
Net cash used in investing activities..... (51,117) (364,076) (796,638)
--------- ---------- -----------
Cash flows from financing activities:
Net change in deposits.................. (23,805) 158,368 (66,847)
Net change in borrowings from Imperial
Bank................................... (5,000) 5,000 (20,000)
Advances from Federal Home Loan Bank.... 434,000 347,000 988,000
Repayments of advances from Federal Home
Loan Bank.............................. (483,500) (452,000) (1,013,000)
Proceeds from issuance of convertible
subordinated debentures................ 72,162 -- --
Net change in other borrowings.......... (181,463) 875,815 (147,611)
Issuance of bonds....................... -- 111,995 --
Repayment of bonds...................... (111,995) -- --
Proceeds from offering of 9 3/4% Senior
Notes due 2004 ........................ -- -- 88,593
Repurchase of 9 3/4% Senior Notes due
2004................................... -- -- (6,545)
Proceeds from resale of 9 3/4% Senior
Notes due 2004......................... 7,384 -- --
Proceeds from sale of SPFC stock........ 64,625 -- --
Proceeds from issuance of common stock.. 59,228 -- --
Net change in minority interest......... 53,484 -- --
Proceeds from exercise of stock options. 1,671 826 96
--------- ---------- -----------
Net cash (used in) provided by financing
activities (113,209) 1,047,004 (177,314)
Net change in cash........................ 35,081 14,262 (12,373)
Cash at beginning of year................. 39,166 24,904 37,277
--------- ---------- -----------
Cash at end of year....................... $ 74,247 $ 39,166 $ 24,904
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
Imperial Credit Industries, Inc., incorporated in 1986 in the State of
California, is 24.5% owned by Imperial Bank. In 1991 Imperial Bank
recapitalized the Company to conduct a full service mortgage banking
operation.
The consolidated financial statements include Imperial Credit Industries,
Inc. ("ICII"), its wholly-owned subsidiaries and majority-owned subsidiaries
(collectively the "Company"). The wholly-owned subsidiaries include Southern
Pacific Thrift and Loan Association ("SPTL"), Imperial Business Credit, Inc.
("IBC") and Imperial Credit Advisors, Inc. ("ICAI"). The majority-owned
consolidated subsidiaries include Southern Pacific Funding Corporation
("SPFC"), Franchise Mortgage Acceptance Company, LLC ("FMAC"), and ICI Funding
Corporation ("ICIFC"). SPFC is owned 51.2% by the Company and 48.8% by public
investors. FMAC is owned two-thirds by the Company and one-third by the
President of FMAC. The Company owns 100% of the voting common stock of ICIFC
which entitles it to a 1% economic interest. Imperial Credit Mortgage
Holdings, Inc. ("IMH"), an unconsolidated affiliated company, owns all of the
ICIFC non-voting preferred stock which entitles it to a 99% economic interest.
All material intercompany balances and transactions have been eliminated.
STRATEGIC DIVESTITURES
In 1995, the Company began to diversify away from the conforming residential
mortgage lending business, the Company's traditional focus, and into other
select lending businesses. The Company expanded several existing businesses
and commenced several new businesses, including non-conforming residential
mortgage banking, commercial mortgage banking, business lending and consumer
lending. The Company's loans and leases by sector consist primarily of the
following: non-conforming residential mortgage banking; commercial mortgage
banking--franchise loans and income producing loans; business lending--
equipment leasing and asset-based lending; consumer loans--sub-prime auto
loans and Title I home improvement loans. The Company solicits loans and
leases from brokers on a wholesale and portfolio basis and directly from
borrowers. The majority of the Company's loans and leases, other than those
held by SPTL for investment, are sold in secondary markets through
securitizations and whole loan sales.
During the fourth quarter of 1995, the Company sold its mortgage conduit
operations and SPTL's warehouse lending operations to IMH, a newly formed
Maryland corporation that subsequently engaged in an initial public offering
of its common stock. In exchange for these assets, the Company received
approximately 11.8% of the common stock of IMH. At December 31, 1996, the
Company owned approximately 5.0% of the common stock of IMH. This investment
is included in securities available for sale on the consolidated balance
sheet. Additionally, ICAI entered into a management agreement with IMH
pursuant to which it advises upon the day-to-day operations of IMH and for
which it is paid a management fee.
During the first quarter of 1996 the Company sold substantially all of its
conforming residential mortgage loan servicing rights and the majority of its
wholesale mortgage origination offices related to its conforming residential
mortgage lending business. The Company's wholesale offices in Florida,
Colorado, Washington and Oregon have been converted to SPFC offices.
Additionally, the Company has transferred all servicing rights related to its
residential non-conforming mortgage banking business to independent
subservicers. The Company intends to continue servicing all loans and leases
originated by its equipment leasing and franchise mortgage lending businesses
as well as all loans held for investment at SPTL.
STRATEGIC FOCUSES AND ACQUISITIONS
The Company, through SPFC, has refocused its residential mortgage operations
on the origination, purchase and sale of non-conforming residential mortgage
loans secured primarily by one-to-four family residences. The
F-7
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
majority of SPFC's loans are made to owners of single family residences who
use a portion of the loan proceeds for such purposes as debt consolidation or
financing of home improvements and educational expenditures.
In May 1995, the Company substantially expanded its existing equipment
leasing business, through the acquisition of First Concord Acceptance
Corporation ("FCAC"). IBC conducts its business equipment leasing operations
from its headquarters in Rancho Bernardo, California.
In June 1995, the Company established FMAC which acquired the Franchise
Mortgage Acceptance Company division of Greenwich Financial Capital Products,
Inc. Through FMAC, the Company originates, securitizes and services franchise
mortgage loans, primarily to nationally recognized restaurant franchisees.
FMAC's headquarters and operations center are located in Greenwich,
Connecticut.
In September 1995, the Company acquired CoastFed Business Credit Corporation
("CBCC") from Coast Federal Bank, Federal Savings Bank. CBCC, now a division
of SPTL operating under the name Coast Business Credit Corporation ("CBC"),
provides asset-based lending to middle market companies located mainly in
California. CBC's predecessor corporation began operations in 1955 under the
management of its current chief executive officer and is headquartered in Los
Angeles, California.
In October 1996, IBC acquired substantially all of the assets of Avco
Leasing Services, Inc. and all of the assets of Avco Financial Services of
Southern California, Inc. related to its business of originating and servicing
business equipment leases and agreed to assume certain related liabilities in
connection therewith from Avco Financial Services, Inc. (the "Avco
Acquisition"). The net purchase price for AVCO's net assets was approximately
$94.8 million.
2. BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the dates of the
balance sheets and revenues and expenses for the periods presented.
Significant balance sheet items which could be materially effected by such
estimates include: loans held for investment, which is presented net of the
allowance for loan and lease losses and the valuation of the Company's
securitization related assets. Actual results could differ significantly from
management's estimates.
Prior years' consolidated financial statements have been reclassified to
conform to the 1996 presentation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Securities
The Company classifies investments as held-to-maturity, trading securities,
and/or available-for-sale securities. Held-to-maturity investments are
reported at amortized cost, trading securities are reported at fair value,
with unrealized gains and losses included in operations, and available-for-
sale securities are reported at fair value with unrealized gains and losses,
net of related income taxes, included as a separate component of shareholders'
equity.
Investment securities held-to-maturity are those securities that management
has the positive intent and ability to hold to maturity.
Trading securities include mortgage-backed securities resulting from certain
mortgage banking related activities.
F-8
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment securities available-for-sale are those securities which are not
held in the trading portfolio and are not held in the held-to-maturity
portfolio.
Realized gains and losses on securities available-for-sale are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
Loans Held for Sale
Loans held for sale are carried at the lower of aggregate cost or market.
Loans which are ineligible for sale, generally those 90 days past due, are
transferred to loans held for investment at the lower of cost or market on the
day of transfer.
Loans Held for Investment
Loans held for investment are stated at the principal amount outstanding.
Interest income is recorded on the accrual basis in accordance with the terms
of the loans, except that accruals are discontinued when the payment of
principal or interest is 90 or more days past due. Future collections of
interest are included in interest income or applied to the loan balance based
on an assessment of the likelihood that the loan will be repaid. Additionally,
unearned income on installment contracts and leases is recognized in interest
income over the life of the related loans using the interest method.
On an ongoing basis, management monitors the loan portfolio and evaluates
the adequacy of the allowance for loan and lease losses. In determining the
adequacy of the allowance for loan and lease losses, management considers such
factors as historical loan loss experience, underlying collateral values,
known problem loans, evaluations made by bank regulatory authorities,
assessment of economic conditions and other appropriate data to identify the
risks in the loan portfolio. Loans deemed by management to be uncollectible
are charged to the allowance for loan and lease losses. Recoveries on loans
previously charged off are credited to the allowance. Provisions for loan
losses are charged to expense and credited to the allowance in amounts deemed
appropriate by management based upon its evaluation of the known and inherent
risks in the loan portfolio.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it will be unable to collect all amounts
due according to the contractual terms of the loan agreement. The value of
impaired loans is established by discounting the expected future cash flows at
the loan's effective interest rate, or by the current observable market price
or the fair value of its collateral. Many factors are considered in the
determination of impairment. The measurement of collateral dependent impaired
loans is based on the fair value of the loan's collateral. Non-collateral
dependent loans are valued based on a present value calculation of expected
future cash flows, discounted at the loan's effective rate.
Cash receipts on impaired loans not performing according to contractual
terms are generally used to reduce the carrying value of the loan, unless the
Company believes it will recover the remaining principal balance of the loan.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Adjustments to impairment losses due
to changes in the fair value of collateral of impaired loans are included in
the provision for loan losses. Upon disposition of an impaired loan, loss of
principal, if any, is recorded through a charge-off to the allowance for loan
losses.
In originating or acquiring loans, the Company evaluates the borrower's
credit worthiness and debt ratios, the property appraisal and the loan-to-
value ratio. The maximum amount of credit risk related to the Company's
investment in loans is represented by the outstanding principal balance of the
loans plus accrued interest.
F-9
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchased and Originated Servicing Rights
The Company adopted Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" ("SFAS 122") starting in 1995. SFAS 122 requires
that a mortgage banking enterprise recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are
acquired. The adoption of SFAS 122 resulted in an increase in the Company's
revenues and net income of $6.2 million, and $3.6 million, respectively, in
1995.
Purchased servicing represents the cost of acquiring the right to service
mortgage loans. Originated servicing rights are recorded when mortgage loans
are originated and subsequently sold or securitized with the servicing rights
retained. The total cost of the mortgage loans is allocated to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based
on their relative fair values. The cost relating to purchased and originated
servicing is capitalized and amortized in proportion to, and over the period
of, estimated future net servicing income.
The Company assesses the impairment of the purchased and originated
servicing portfolio based on the fair value of those rights on a stratum-by-
stratum basis with any impairment recognized through a valuation allowance for
each impaired stratum. For the purpose of measuring impairment, the Company
has stratified the capitalized mortgage servicing rights using the following
risk characteristics: loan program type and interest rate tranche in 100 basis
point increments.
In order to determine the fair value of the servicing rights, the Company
uses market prices under comparable servicing sales contracts, when available,
or alternatively, it uses a valuation model that calculates the present value
of future cash flows. Assumptions used in the valuation model include market
discount rates and anticipated prepayment speeds. The prepayment speeds are
determined from market sources for fixed rate mortgages with similar coupons
and prepayment rates for comparable variable rate loans. In addition, the
Company uses market comparables for estimates of the cost of servicing per
loan, an inflation rate, ancillary income per loan and default rates. Amounts
capitalized are recorded at cost, net of accumulated amortization and
valuation allowance.
Capitalized Excess Servicing Fees Receivable
The Company has created capitalized excess servicing fees receivable as a
result of the sale of loans, and to a lesser extent leases, into various trust
vehicles. These various trust vehicles are majority owned by an independent
third party who has made a substantial capital investment and has substantial
risks and rewards of ownership of the assets of the trust; therefore, these
trust vehicles are not consolidated with the Company. Capitalized excess
servicing fees receivable on the sale of loans and leases are determined by
computing the present value of the excess of the weighted average coupon on
the loans and leases sold over the sum of: (1) the coupon in the pass through
certificates, (2) a base servicing fee paid to the loan or lease servicer, (3)
expected losses to be incurred on the portfolio of loans or leases sold and
considering (4) prepayment assumptions. Prepayment assumptions are based on
recent evaluations of the actual prepayments of the Company's servicing
portfolio or on market prepayment rates on new portfolios and consideration of
the current interest rate environment and its potential impact on prepayment
rates.
The cash flows expected to be received by the Company, not considering the
expected losses, are discounted at an interest rate that the Company believes
an unaffiliated third-party purchaser would require as a rate of return on
such a financial instrument. Expected losses are discounted using a rate
equivalent to the risk-free rate for securities with a duration similar to
that estimated for the underlying loans and leases sold. The excess servicing
cash flows are available to the Company to the extent that there is no
impairment of the credit enhancements established at the time the loans and
leases are sold. Such credit enhancements are classified as retained interest
F-10
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in loan and lease securitizations on the consolidated balance sheets and
represent the amount of overcollateralization of the certificates. Capitalized
excess servicing fees receivable are amortized using the interest method.
To the extent that actual future performance results are different from the
excess cash flows the Company estimated, the Company's capitalized excess
servicing fees receivable will be adjusted quarterly with corresponding
adjustments made to income in that period. The carrying value of the Company's
capitalized excess servicing fees receivable was subject to a relative fair
value allocation and is presented net of an allowance for credit losses.
Retained Interest in Loan and Lease Securitizations
Loan and lease securitizations have specific credit enhancement requirements
in the form of overcollateralization which must be met before the Company
receives cash flows due. As the securitized assets generate excess servicing
fees, they are initially used to pay down the balance of the pass-through
certificates until such time as the ratio of securitized assets to pass-
through certificates reaches the overcollateralization requirement specified
in each securitization. This overcollateralization amount is carried on the
balance sheet as retained interest in loan and lease securitizations. After
the overcollateralization requirement and the other requirements specified in
the pooling and servicing agreement have been met, the Company begins to
receive the excess servicing fees and a portion of the retained interest on a
monthly basis.
Interest-only and Residual Certificates
Assets reflected in the accompanying balance sheet as interest-only and
residual certificates in real estate mortgage investment conduits are recorded
as a result of SPFC's securitization of loans through various trust vehicles.
SPFC is subject to certain recourse provisions in connection with its
securitizations which are measured using a risk free rate. SPFC estimates
future cash flows from these interest-only and residual certificates and
values them utilizing assumptions that it believes are consistent with those
that would be utilized by an unaffiliated third party purchaser and records
them as trading securities at fair value in accordance with SFAS No. 115,
"Accounting for Certain Debt and Equity Securities." Unrealized gains and
losses are included in other income in the accompanying consolidated financial
statements. To SPFC's knowledge, there is no active market for the sale of
these interest-only and residual certificates.
The fair value of interest-only and residual certificates is determined by
computing the present value of the excess of the weighted average coupon on
the loans sold over the sum of: (1) the coupon on the senior interests, (2) a
base servicing fee paid to the loan servicer, (3) expected losses to be
incurred on the portfolio of loans sold over the lives of the loans, and (4)
fees payable to the trustee and monoline insurer. Prepayment assumptions used
in the present value computation are based on recent evaluations of the actual
prepayments of SPFC's servicing portfolio or on market prepayment rates on new
portfolios, taking into consideration the current interest rate environment
and its expected impact on prepayment rates. The cash flows expected to be
received by SPFC, not considering the expected losses, are discounted at an
interest rate that SPFC believes an unaffiliated third-party purchaser would
require as a rate of return on such a financial instrument. Expected losses
are discounted using a rate equivalent to the risk-free rate for securities
with a duration similar to that estimated for the underlying loans sold and a
discounted recourse liability is recorded. The undiscounted recourse liability
relating to interest-only and residual certificates as of December 31, 1996
and 1995 was $11.2 million and $3.9 million, respectively. The overall effect
of discounting the cash flows expected to be received by SPFC using an
interest rate that SPFC believes an unaffiliated third party purchaser would
require, and a rate equivalent to a risk-free rate for expected credit losses
is a discount rate of approximately 15%. To the extent that actual future
excess cash flows are different from estimated excess cash flows, the fair
value of SPFC's interest-only and residual certificates will be adjusted
quarterly with corresponding adjustments made to earnings in that period.
F-11
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In certain of its securitizations, SPFC provided an initial
overcollateralization on the securities sold and in all its securitizations
SPFC builds overcollateralization as cash flows projected as described above
are used by the trustee to reduce the outstanding balance of the securities
sold by SPFC. The amount of overcollateralization is recorded by SPFC as part
of its interest-only and residual certificates.
Sales of Servicing Rights
The Company recognizes gain or loss on the sale of servicing rights when the
sales contract has been executed and the risks and rewards of ownership are
determined to have passed to the purchasing party.
Sales of Loans
The Company divides gains or losses on sales of loans into two categories:
cash gains and securitization gains. Cash gain or loss is the difference
between the Company's carrying value net of commitment fees paid for a
mortgage loan and the proceeds from the sale of a loan. If the mortgage loans
are sold with servicing released to the purchaser of the loans, the value of
the servicing will be reflected in the cash gain on the sale of such loans. If
the loans are sold with servicing retained by the Company, the Company will
recognize the value of the originated mortgage servicing rights. Present value
computations utilize estimated interest rates, prepayment, default, and loss
assumptions that management believes market participants would use for similar
instruments.
The Company recognizes gain or loss on the sale of loans when the sales
transaction settles and the risks and rewards of ownership are determined to
have passed to the purchasing party.
Loan Origination Income
Origination fees received on loans held for sale, net of direct costs
related to the origination of the loans, are deferred until the time of sale
and are included in the computation of the gain or loss on the sale of the
related loans. Commitment fee income is deferred until each loan is funded and
sold, and recorded as a part of the gain on sale of the loan in the same
percentage as such loan is to the total commitment. Any remaining deferred
commitment fee income is recognized at expiration of the commitment. When
exercise of such commitment is deemed remote, the fee is recognized over the
remaining commitment period.
Origination fees on loans held for investment, net of direct costs related
to the origination of the loans, are deferred and amortized over the
contractual lives of the related loans using the interest method.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation or
amortization. Depreciation on premises and equipment is recorded using the
straight-line method over the estimated useful lives of individual assets (3
to 7 years). Leasehold improvements are amortized over the terms of their
related leases or the estimated useful lives of improvements, whichever is
shorter.
Interest Bearing Deposits
Interest bearing deposits consist of time certificates, investment in
federal funds and money market accounts. Amounts are carried at cost.
F-12
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Real Estate Owned
Foreclosed real estate is transferred from the loan portfolio at fair value
and classified as other real estate owned ("OREO"). The excess carrying value,
if any, of the loan over the estimated fair value of the collateral less
estimated selling costs is charged to the allowance for loan losses. Any
subsequent impairments in value are recognized through a valuation allowance.
Subsequent increases in fair value are credited to income and reduce the
valuation allowance.
Subsequent increases in the fair value of an asset are only recognized to
the extent that decreases in fair value were recorded through the valuation
allowance. Gains and losses from sales of OREO, provisions for losses on OREO,
and net operating expenses of OREO are recorded in operations and included in
the caption "net expenses of other real estate owned" in the accompanying
consolidated statements of income.
Income Taxes
The Company files a combined California franchise tax return and a
consolidated Federal income tax return with all of its subsidiaries except
SPFC, ICIFC, and FMAC. The Company accounts for income taxes using the asset
and liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those 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.
Goodwill
Goodwill is amortized on a straight-line basis over its estimated useful
life of 15 years. Goodwill is reviewed for possible impairment when events or
changed circumstances may affect the underlying basis of the asset. At
December 31, 1996, Goodwill is presented net of accumulated amortization of
$2.2 million.
Stock Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). SFAS 123
applies to all transactions in which the Company acquires goods or services by
issuing equity instruments or by incurring liabilities where the payment
amounts are based on the Company's common stock price. A new method of
accounting for stock based compensation arrangements with employees is
established by SFAS 123. The new method is based on the fair value method
rather than the intrinsic value method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
SFAS 123 does not require companies to adopt the new fair value method for
stock issuances to employees and directors. Issuance of stock to non-
employees, however, must be measured at fair value. Entities are allowed to
either continue to use the APB 25 method or adopt the fair value method set
forth in SFAS 123. Companies that do not adopt the new fair value method in
SFAS 123 for purposes of preparing their consolidated financial statements are
required to include pro-forma disclosures in the notes to the consolidated
financial statements. The pro-forma disclosures should include the impact of
the fair value method on net income and income per share as if SFAS 123 had
been adopted. During 1996, the Company adopted the proforma disclosure
requirements set forth in SFAS 123 for purposes of preparing its consolidated
financial statements.
F-13
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Per Share
Primary and fully diluted income per common share are computed based on the
weighted average number of shares outstanding during the year plus common
stock equivalents deemed to be dilutive. The number of shares used in the
computations are given retroactive effect for stock dividends and splits for
all periods presented.
Sale of Stock in Subsidiary
The issuance of common stock by SPFC, a subsidiary of the Company, to the
public in 1996 was recorded in the Company's consolidated statement of income
as a "Gain on sale of stock by subsidiary" of $31.4 million at the time the
stock was sold. The gain represents the difference between the benefit
received by the Company relating to the price paid for the stock in the
offering in excess of book value, offset by the Company's ownership dilution.
The Company has adopted the provisions of Staff Accounting Bulletin Topic 5H
for the accounting of SPFC stock.
The sale of a portion of the Company's shares of stock in SPFC in 1996 is
recorded as "Gain on sale of SPFC stock" of $51.2 million in the accompanying
consolidated statement of income. The gain represents the actual proceeds from
the sale of stock reduced by the Company's recorded investment in those shares
and expenses related to the sale.
After the sales of SPFC's common stock by the Company, its ownership
percentage in SPFC was approximately 51.2% of the issued and outstanding
shares of SPFC's common stock, excluding shares issuable upon exercise of
options granted or to be granted pursuant to SPFC's stock option plans and
shares issuable upon conversion of the $75.0 million of convertible
subordinated notes due 2006 issued in November 1996.
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 125"), which establishes accounting for transfers and
servicing of financial assets and extinguishment of liabilities. This
statement specifies when financial assets and liabilities are to be removed
from an entity's financial statements, the accounting for servicing assets and
liabilities and the accounting for assets that can be contractually prepaid in
such a way that the holder would not recover substantially all of its recorded
investment.
Under SFAS 125, an entity recognizes only assets it controls and liabilities
it has incurred, discontinues recognition of assets only when control has been
surrendered, and discontinues recognition of liabilities only when they have
been extinguished. SFAS 125 requires that the selling entity continue to carry
retained interests, including servicing assets, relating to assets it no
longer recognizes. Such retained interests are based on the relative fair
values of the retained interests of the subject assets at the date of
transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
SFAS 125 requires an entity to recognize its obligation to service financial
assets that are retained in a transfer of assets in the form of a servicing
asset or liability. The servicing asset or liability is to be amortized in
proportion to, and over the period of, net servicing income or loss. Servicing
assets and liabilities are to be assessed for impairment based on their fair
value.
SFAS 125 modifies the accounting for interest-only strips or retained
interests in securitizations, such as capitalized servicing fees receivable,
that can be contractually prepaid or otherwise settled in such a way that the
F-14
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
holder would not recover substantially all of its recorded investment. In this
case, it requires that they be classified as available for sale or as trading
securities. Interest-only strips and retained interests are to be recorded at
market value.
Under the provisions of SFAS 125, management has determined that mortgage
backed securities retained by the Company as a result of securitization
transactions will be classified as trading securities. All other retained
securities will be classified as available for sale or trading as determined
at the time of securitization.
Changes in market value are included in operations, if classified as trading
securities, or in shareholders' equity as unrealized gains or losses, net of
the related tax effect, if classified as available for sale. SFAS 125 was
effective for the Company on January 1, 1997. Management has determined that
the implementation of SFAS 125 will not have a material impact on the
Company's financial condition or results of operations.
4. ACQUISITIONS
AVCO Leasing Services
The Avco Acquisition was recorded using the purchase method of accounting.
Under this method of accounting the purchase price was allocated to the
respective assets acquired with a fair value of $94.8 million and no
liabilities assumed at the date of the purchase transaction. The excess of the
purchase price over the fair value of the net assets acquired has been
recorded as goodwill of approximately $12.5 million.
Coast Business Credit
On September 30, 1995, the Company completed the acquisition of CBCC for a
purchase price of $150 million. The acquisition was recorded using the
purchase method of accounting. Under this method of accounting the purchase
price was allocated to the respective assets acquired with a fair value of
$139 million and liabilities assumed with a fair value of $5 million at the
date of the purchase transaction. The excess of the purchase price over the
fair value of the net assets acquired has been recorded as goodwill of
approximately $16 million.
The unaudited consolidated information below indicates on a proforma basis
the Company's results of operations as if CBCC had been acquired by the
Company as of January 1, 1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Total revenue............................................... $93,317 $83,321
Net income.................................................. 17,183 11,480
Fully diluted net income per share.......................... $ 0.49 $ 0.34
</TABLE>
FMAC
On June 30, 1995, the Company completed the acquisition of certain net
assets of FMAC for a net purchase price of $7.6 million which included $3.8
million in contingent consideration for loans in the pipeline at the time of
acquisition and additional fundings up to a maximum principal amount of such
loans equal to $250,000,000.
F-15
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition was recorded using the purchase method of accounting. Under
this method of accounting the purchase price was allocated to the respective
assets acquired with a fair value of $3.8 million at the date of the purchase
transaction. The excess of the purchase price over the fair value of the net
assets acquired has been recorded as goodwill of approximately $4 million.
First Concord Acceptance Corp.
On May 31, 1995, the Company completed the acquisition of net assets of FCAC
for a purchase price of approximately $21 million. The acquisition was
recorded using the purchase method of accounting. Under this method of
accounting the purchase price was allocated to the respective assets acquired
with a fair value of $41 million and liabilities assumed with a fair value of
$20 million at the date of the purchase transaction.
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information supplements the statement of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the period for:
Interest....................................... $134,251 $ 93,223 $ 51,844
Income taxes................................... 24,134 8,283 4,016
Significant non-cash activities:
Loans transferred from held for investment to
held for sale................................. -- 505,037 --
Loans transferred to OREO...................... 14,203 12,302 3,431
Loans transferred from held for sale to held
for investment................................ 197,141 83,398 787,902
Loans to facilitate the sale of OREO........... 1,871 1,315 2,357
Retained interest in loan and lease
securitizations............................... 6,908 14,002 239
Unrealized gain on securities available for
sale.......................................... 3,112 5,443 --
</TABLE>
6. INVESTMENT IN FHLB STOCK
As a member of the FHLB system, the Company's wholly owned subsidiary, SPTL,
is required to maintain an investment in the capital stock of the FHLB in an
amount at least equal to the greater of 1% of residential mortgage assets, or
5% of outstanding borrowings (advances), or 0.3% of total assets. FHLB stock
and loans are pledged to secure FHLB advances.
7. SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of asset backed securities and equity
securities of $50.0 million and $9.1 million, respectively, at December 31,
1996.
Securities available for sale consist of equity securities of $6.0 million
at December 31, 1995. There were unrealized gains of $5.4 million as of
December 31, 1995.
8. TRADING SECURITIES
Trading securities consist of mortgage backed securities of $25.2 million at
December 31, 1996. There were no unrealized gains or losses as of December 31,
1996.
There were no securities held for trading at December 31, 1995.
F-16
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LOANS HELD FOR SALE
Loans held for sale consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single family 1-4..................................... $562,002 $1,083,038
Multi-family.......................................... 186,391 171,199
-------- ----------
748,393 1,254,237
Leases.................................................. 8,547 17,787
Commercial loans........................................ 183,156 69,786
-------- ----------
$940,096 $1,341,810
======== ==========
</TABLE>
10. LOANS HELD FOR INVESTMENT, NET
Loans held for investment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single family 1-4.................................... $ 375,476 $228,721
Multi-family......................................... 2,527 7,028
Commercial........................................... 11,011 133,189
---------- --------
389,014 368,938
Leases................................................. 99,717 7,297
Installment loans...................................... 34,248 1,900
Franchise loans........................................ 115,910 46,766
Asset based loans...................................... 288,528 154,252
Commercial loans....................................... 173,932 110,104
---------- --------
1,101,349 689,257
Unearned income........................................ (6,336) (5,217)
Deferred loan fees..................................... (6,415) (1,540)
---------- --------
1,088,598 682,500
Allowance for loan and lease losses.................. (19,999) (13,729)
---------- --------
$1,068,599 $668,771
========== ========
</TABLE>
The Company's loans held for investment are primarily comprised of first and
second lien mortgages secured by residential and income producing real property
in California, leases secured by equipment, asset based loans to middle market
companies mainly in California, and loans to experienced franchisees of
nationally recognized restaurant concepts. As a result, the loan portfolio has
a high concentration in the same geographic region. Although the Company has a
diversified portfolio, a substantial portion of its debtor's ability to honor
their contracts is dependent upon the economy of California.
F-17
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the allowance for loan and lease losses was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year........................ $13,729 $ 7,054 $ 3,255
Provision for loan and lease losses............... 9,773 5,450 5,150
Business acquisitions and bulk loan purchases..... 4,500 4,320 --
Loans charged off................................. (8,326) (3,106) (1,436)
Recoveries on loans previously charged off........ 323 11 85
------- ------- -------
Net charge-offs................................... (8,003) (3,095) (1,351)
------- ------- -------
Balance, end of period............................ $19,999 $13,729 $ 7,054
======= ======= =======
</TABLE>
As of December 31, 1996 and 1995 and 1994, non-accrual loans totaled $50.1
million, $31.0 million, and $13.1 million, respectively. Interest income
foregone on nonaccrual loans was $1.1 million and $492,000 for the years ended
December 31, 1996 and 1995, respectively. Interest foregone on loans for the
year ended December 31, 1994 was not material.
At December 31, 1996 and 1995, impaired loans recognized in accordance with
SFAS No. 114 and the related specific allowance for loan and lease losses were
as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
SPECIFIC SPECIFIC
ALLOWANCE ALLOWANCE
RECORDED FOR CARRYING RECORDED FOR CARRYING
INVESTMENT LOSSES VALUE INVESTMENT LOSSES VALUE
---------- --------- -------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $38,297 $3,671 $34,626 $30,988 $5,616 $25,372
Restructured loans 800 4 796 870 3 867
------- ------ ------- ------- ------ -------
Total impaired loans $39,097 $3,675 $35,422 $31,858 $5,619 $26,239
======= ====== ======= ======= ====== =======
</TABLE>
Impaired loans averaged $33.3 million and $21.1 million during 1996 and
1995, respectively. During 1996, total interest income recognized on impaired
loans was $2.0 million. There were no impaired loans without a related
allowance for losses at December 31, 1996 and 1995. For 1995, total interest
income recognized on impaired loans was not material.
11. RESTRUCTURING
Restructuring charges of $3.8 million were recognized during the year ended
December 31, 1996. The charge represents those costs incurred in connection
with the Company's exit from the conforming mortgage banking business. During
the first quarter of 1996, the Company committed itself to, and began the
execution of, an exit plan that specifically identified the necessary actions
to be taken to complete the exit from the origination, sale and servicing of
conforming residential mortgage loans. During 1996, the Company sold the
majority of its wholesale mortgage origination offices and disposed of fixed
assets related to its former conforming residential mortgage lending business.
The Company believes that significant changes to the exit plan are not likely,
and that the exit plan should be completed in the second quarter of 1997.
F-18
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the allowance for restructuring charges during 1996 was as
follows:
<TABLE>
<CAPTION>
ALLOWANCE CHARGES REMAINING
PROVIDED INCURRED BALANCE
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Disposition of Wholesale Mortgage Origination
Offices ..................................... $2,500 $2,354 $146
Disposal of Fixed Assets...................... 1,000 886 114
Other......................................... 300 -- 300
------ ------ ----
Total....................................... $3,800 $3,240 $560
====== ====== ====
</TABLE>
12. CAPITALIZED EXCESS SERVICING FEES RECEIVABLE
Changes in capitalized excess servicing fees receivable were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning Balance............................... $ 33,181 $ 4,319 $ 529
Present value of excess servicing fees on loans
sold........................................... 19,448 40,353 4,261
Amortization.................................... (24,812) (11,491) (471)
Writedowns...................................... (4,675) -- --
-------- -------- ------
Ending balance.................................. $ 23,142 $ 33,181 $4,319
======== ======== ======
</TABLE>
Capitalized excess servicing fees receivable include an allowance for credit
losses of $4.5 million and $6.7 million at December 31, 1996 and 1995,
respectively.
13. PURCHASED AND ORIGINATED SERVICING RIGHTS
Changes in purchased and originated servicing rights were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning Balance................................ $ 18,428 $16,746 $ 9,966
Additions........................................ 10,970 7,340 8,781
Increase as a result of the FMAC acquisition..... -- 3,805 --
Bulk purchase of servicing....................... -- 757 5,983
Sales of servicing rights........................ (13,390) (6,234) (4,808)
Amortization--accelerated........................ -- (1,176) (313)
Amortization--scheduled.......................... (1,121) (2,810) (2,863)
-------- ------- -------
Ending balance................................... $ 14,887 $18,428 $16,746
======== ======= =======
</TABLE>
The servicing portfolio associated with purchased and originated servicing
rights at December 31, 1996 and 1995 was $1.0 billion and $2.6 billion,
respectively.
F-19
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. PREMISES AND EQUIPMENT, NET
Premises and equipment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Premises and equipment..................................... $19,606 $17,295
Leasehold improvements..................................... 1,394 706
------- -------
21,000 18,001
Less accumulated depreciation and amortization............. (8,558) (6,632)
------- -------
$12,442 $11,369
======= =======
</TABLE>
15. DEPOSITS
Deposits of $100,000 and over totaled approximately $220.8 million, $286.8
million, and $382.3 million at December 31, 1996, 1995, and 1994,
respectively. Interest expense associated with certificates of deposit of
$100,000 and over was approximately $13.6 million, $15.4 million, and $16.8
million for the years ended December 31, 1996, 1995, and 1994, respectively.
16. BORROWINGS FROM IMPERIAL BANK
In November 1995, the Company renewed a $10 million line of credit with
Imperial Bank. At December 31, 1996 and 1995, $0 million and $5 million,
respectively, was outstanding, which accrues interest at the prime lending
rate. This line expired and was not renewed during 1996.
17. BORROWINGS FROM FEDERAL HOME LOAN BANK
SPTL is approved as a member of the Federal Home Loan Bank ("FHLB") to
borrow up to a maximum of 35% of the assets of SPTL. These borrowings must be
fully collateralized by qualifying mortgage loans and may be in the form of
overnight funds or term borrowings at SPTL's option. At December 31, 1996, all
of the outstanding borrowings from the Federal Home Loan Bank were scheduled
to mature within one year. The FHLB advances are secured by the investment in
stock of the FHLB and certain real estate loans with a carrying value of
$228.5 million and $275.0 million at December 31, 1996 and 1995. At December
31, 1996 and 1995 FHLB borrowings are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at year end...................................... $140,500 $190,000
Maximum outstanding at any month end..................... 338,000 435,000
Average balance during the year.......................... 188,765 292,000
Weighted average rate during the year.................... 6.10% 6.26%
Weighted average rate at year end........................ 6.30% 6.10%
</TABLE>
18. OTHER BORROWINGS
Other borrowings primarily consist of revolving warehouse lines of credit to
fund the Company and its subsidiaries lending activities. At December 31,
1996, approximately $700 million of loans were pledged as collateral for other
borrowings. These lines of credit are short term and management believes these
lines will be renewed in the normal course of business. Certain covenants
exist in regards to these lines of credit with which the Company was in
compliance at December 31, 1996.
F-20
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ICII and its subsidiaries have various revolving warehouse lines of credit
available at December 31, 1996, as follows:
<TABLE>
<CAPTION>
INTEREST
RATE COMMITMENT OUTSTANDING
-------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
PaineWebber (ICII)........................ 6.81% $ 200,000 $ 5,686
Banco Santander (FMAC).................... 7.63 50,000 16,229
First Boston (FMAC)....................... 7.31 200,000 48,773
Greenwich Capital Markets (FMAC).......... 7.36 unspecified 35,158
Lehman Brothers (SPFC).................... -- 200,000 --
Imperial Warehouse Lending Group (ICIFC).. 8.25 600,000 337,380
Core States (IBC)......................... 7.61 10,000 1,111
Conti (IBC)............................... 7.50 100,000 87,657
Morgan Stanley Mortgage Capital (SPFC).... 6.16 150,000 152,681
Imperial Warehouse Lending Group (ICII)... 8.00 20,000 5,077
Warehouse Lending Corporation of America
(ICII)................................... 7.94 20,000 4,600
------------ --------
7.55 $ 1,550,000 $694,352
============ ========
</TABLE>
ICII and its subsidiaries had various revolving warehouse lines of credit
available at December 31, 1995, as follows:
<TABLE>
<CAPTION>
INTEREST
RATE COMMITMENT OUTSTANDING
-------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
DLJ (ICII).................................. 6.38% $ 400,000 $173,056
DLJ (SPFC).................................. 6.74 50,000 41,182
PaineWebber (ICII).......................... 6.40 200,000 30,402
Banco Santander (FMAC)...................... 7.94 25,000 22,668
Lehman Brothers (SPFC)...................... 5.48 200,000 54,949
Imperial Warehouse Lending Group (ICIFC).... 8.50 600,000 550,290
Warehouse Lending Corporation of America
(ICII)..................................... 8.19 20,000 3,268
---------- --------
7.72 $1,495,000 $875,815
========== ========
</TABLE>
19. BONDS
In December 1995, the Company, through a special purpose entity (SPE) issued
pass through certificates (the Bonds) secured by $101 million of franchise
mortgage loans to various investors. The debentures consist of three separate
classes, Class A, Class B and Class C, with principal balances at December 31,
1995 of approximately $92.6 million, $4.2 million and $4.2 million,
respectively. The Class C bonds are subordinate to Class B and both Class B
and C are subordinate to Class A. The Bonds have a weighted average loan rate
of 9.63%, a pass through rate of 8.59%, and stated maturity of 13 years. The
premium associated with the Bonds of $11 million is being amortized as an
adjustment to interest expense over the anticipated life of the Bonds. Due to
the Company's retained interest in the SPE and the disproportionate payments
on the pass through certificates, the Company accounted for this transaction
as a financing. In March 1996, the Company sold its interest in the SPE and
deconsolidated the SPE from the Company's consolidated balance sheet and
income statement. As a result of the sale, the Company recognized a $3.6
million gain on sale of loans.
F-21
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SENIOR NOTES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior notes............................................... $90,000 $81,500
Unamortized discount....................................... (1,791) (1,028)
------- -------
Net balance, senior notes.................................. $88,209 $80,472
======= =======
</TABLE>
In January 1994, the Company issued $90.0 million of senior notes with a
stated interest rate of 9 3/4% which mature on January 15, 2004 (the "9 3/4%
Senior Notes"). In October 1994, the Company repurchased $8.5 million of the
senior notes, recognizing a pre-tax gain of $1.5 million, and recording an
extraordinary gain, net of taxes of $919,286. In March 1996, the Company sold
the $8.5 million of the 9 3/4% Senior Notes repurchased in 1994. At December
31, 1996 and 1995, $90.0 million and $81.5 million of the Senior Notes were
outstanding, respectively. The 9 3/4% Senior Notes may be redeemed after
January 15, 1999 at the option of the Company until maturity at a declining
premium, plus accrued interest. The 9 3/4% Senior Notes are unsecured and rank
pari passu with all other senior unsecured indebtedness of the Company, but
are effectively subordinated to the liabilities of Southern Pacific Thrift and
Loan Association, the Company's wholly-owned subsidiary.
The Trust Indenture (the Indenture) for the 9 3/4% Senior Notes includes
provisions which limit the ability of the Company to incur additional
indebtedness or issue certain stock of the Company, to make certain
investments, engage in certain transactions with affiliates, create
restrictions on the ability of subsidiaries to pay dividends or certain other
distributions, create liens and encumbrances, or allow its subsidiaries to
issue certain classes of stock. As of December 31, 1996, the Company was in
compliance with the debt covenants related to the 9 3/4% Senior Notes. Total
interest expense on the 9 3/4% Senior Notes for the years ended December 31,
1996 and 1995 was $8,602,344 and $8,380,115 respectively.
During December 1996, the Company announced that it commenced a cash tender
offer and consent solicitation for all $90 million principal amount of its 9
3/4% Senior Notes at $1,040 per note. Subsequent to December 31, 1996, the
Company successfully completed a $200.0 million offering of 9 7/8% senior
notes offering due 2007, (the "9 7/8% Senior Notes"). A portion of the
proceeds from the offering were used to repurchase $69.8 million of the
outstanding 9 3/4% Senior Notes. The remaining proceeds will be used to make
capital contributions to subsidiaries, strategic acquisitions, investments,
and for general corporate purposes. The effective interest rate on the
tendered notes was approximately 10.8% after the amortization of original
issue discount and deferred bond issue costs. The effective interest rate on
the new notes is approximately 10.4% after the amortization of deferred bond
issue costs. The Company engaged in the tender offer and new issuance in order
to obtain a more favorable debt covenant package, and to raise new capital to
support its growing businesses.
F-22
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures at December 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
SPFC convertible subordinated debentures, interest at 6.75%,
due semi-annually, principal due October 15, 2006........... $75,000
</TABLE>
The convertible subordinated debentures are convertible into 3,151,125
shares of common stock of the Company's subsidiary, SPFC, at a conversion
price of $23.80 per share, at any time prior to maturity. Interest on the
convertible subordinated debentures is payable semi-annually. Debt issuance
costs of $2.8 million associated with the convertible subordinated debentures
are being amortized over ten years using the effective interest method.
Total interest expense on the convertible subordinated debentures for the
year ended December 31, 1996 was $887,093.
22. PREFERRED AND COMMON STOCK
The Company has authorized 8,000,000 shares of Preferred Stock. The Board
has the authority to issue the preferred stock in one or more series, and to
fix the designations, rights, preferences, privileges, qualifications and
restrictions, including dividend rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences and sinking fund
terms, any or all of which may be greater than the rights of the Common Stock.
During 1996, the Company issued an additional 2.4 million shares to the
public generating net proceeds of $59.2 million, which is net of expenses of
$891,000.
On October 22, 1996, the Company effected a 2-for-1 stock split to
shareholders of record as of October 15, 1996.
On February 26, 1996, the Company paid a stock dividend to shareholders of
record as of February 12, 1996. One new share of Common Stock was issued for
each, 10 shares currently held by shareholders.
On October 24, 1995, the Company effected a 3-for-2 stock split to
shareholders of record as of October 10, 1995.
Per Share Information:
The weighted average number of shares including common stock equivalents was
38,699,954 in 1996, 34,458,268 in 1995, and 33,581,134 in 1994 for primary
income per share, and 38,974,834 in 1996, 35,121,662 in 1995, and 33,582,030
in 1994 for fully diluted income per share.
F-23
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. INCOME TAXES
The Company's income taxes for the years ended December 31, 1996, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $31,138 $ 7,803 $1,483
State.............................................. 12,210 2,452 524
------- ------- ------
Total current.................................... 43,348 10,255 2,007
------- ------- ------
Deferred:
Federal............................................ 16,009 1,846 2,079
State.............................................. 6,095 274 599
------- ------- ------
Total deferred................................... 22,104 2,120 2,678
------- ------- ------
Taxes credited (charged) to shareholders' equity..... 4,422 (2,231) --
------- ------- ------
Taxes on income before extraordinary item............ 69,874 10,144 4,685
Current taxes--extraordinary item.................... -- -- 619
------- ------- ------
Income taxes......................................... $69,874 $10,144 $5,304
======= ======= ======
</TABLE>
The Company's current income taxes payable totaled approximately $25.7
million and $5.5 million at December 31, 1996 and 1995, respectively.
Deferred income taxes arise from differences in the timing of recognition of
income and expense for tax and financial reporting purposes. The following
table shows the primary components of the Company's net deferred tax liability
at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax receivables:
Allowance for loan losses.............................. $ 4,365 $ 5,295
Unrealized gain on loans and securities................ 1,671 3,871
State taxes............................................ 5,677 --
Executive stock options................................ 548 738
Other.................................................. 1,309 299
-------- --------
Total................................................ 13,570 10,203
-------- --------
Valuation allowance.................................... -- --
-------- --------
Deferred tax receivable, net of valuation allowance.... 13,570 10,203
-------- --------
Deferred tax liabilities:
Investment in majority owned subsidiaries.............. (12,934) --
Purchased and originated servicing rights.............. (5,222) (5,809)
Gain on sale of servicing.............................. (8,934) (1,027)
Excess servicing gains................................. (6,162) (5,069)
Leases................................................. (3,930) (2,509)
Deferred loan fees..................................... (510) (1,902)
Depreciation........................................... (468) --
Debt Securities........................................ (3,473) --
Other.................................................. (1,522) (1,368)
-------- --------
Total................................................ (43,155) (17,684)
-------- --------
Net deferred tax liability............................... $(29,585) $ (7,481)
======== ========
</TABLE>
F-24
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management considers the scheduled reversal
of deferred tax liabilities and available tax carrybacks and future taxable
income, in making this assessment. Based upon the schedule of reversals,
future taxable income and available tax carrybacks, management believes it is
more likely than not the Company will realize the benefits of the deferred tax
assets.
A reconciliation of the statutory Federal corporate income tax rate of 35%
to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate..................... 35.0% 35.0% 35.0%
Increase (reduction) in rate resulting from:
State income taxes, net of Federal benefit............... 7.5 7.3 7.2
Other, net............................................... 1.8 (0.3) (0.7)
---- ---- ----
Effective income tax rate.................................. 44.3% 42.0% 41.5%
==== ==== ====
</TABLE>
24. EMPLOYEE BENEFIT PLANS
Profit Sharing and 401(k) Plan
Under the Company's 401(k) plan, employees may elect to enroll on the first
of any month, provided that they have been employed for at least six months.
Employees may contribute up to 14% of their salaries. The Company will match
50% of the first 4% of employee contributions. The Company recorded 401(k)
matching expense of $305,000, $208,991, and $218,984 for the years ended
December 31, 1996, 1995 and 1994, respectively.
An additional Company contribution may be made at the discretion of the
Company. Should a discretionary contribution be made, the contribution would
first be allocated to those employees deferring salaries in excess of 4%. The
matching contribution would be 50% of any deferral in excess of 4% up to a
maximum deferral of 8%.
Should discretionary contribution funds remain following the allocation
outlined above, any remaining Company matching funds would be allocated as a
50% match of employee contributions, on the first 4% of the employee's
deferrals. Discretionary contributions of $350,000, $200,000, and $200,000
were charged to operations in each of the years ending December 31, 1996 and
1995, and 1994.
Company matching contributions are made as of December 31st each year.
1992 STOCK OPTION PLAN
A total of 2,292,632 shares of the Company's Common Stock has been reserved
for issuance under the Company's 1992 Incentive Stock Option and Nonstatutory
Stock Option Plan (the "1992 Stock Option Plan"), which expires by its own
terms in 2002. A total of 1,550,673 options were outstanding at December 31,
1996.
The 1992 Stock Option Plan provides for the grant of "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs") to employees, officers, directors and consultants of the Company.
Incentive stock options may be granted only to employees. The 1992 Stock
Option Plan is administered by the Board of Directors or a
F-25
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
committee appointed by the Board, which determines the terms of options
granted, including the exercise price, the number of shares subject to the
option, and the option's exercisability.
The exercise price of all options granted under the 1992 Stock Option Plan
must be at least equal to the fair market value of such shares on the date of
grant. The maximum term of options granted under the 1992 Stock Option Plan is
10 years. With respect to any participant who owns stock representing more
than 10% of the voting rights of the Company's outstanding capital stock, the
exercise price of any option must be at least equal to 110% of the fair market
value on the date of grant.
1996 STOCK OPTION PLAN
The Company has adopted the 1996 Stock Option, Deferred Stock and Restricted
Stock Plan (the "1996 Stock Option Plan"), which provides for the grant of
ISOs that meet the requirements of Section 422 of the Code, NQSOs and awards
consisting of deferred stock, restricted stock, stock appreciation rights and
limited stock appreciation rights ("Awards"). The 1996 Stock Option Plan is
administered by a committee of directors appointed by the Board of Directors
(the "Committee"). ISOs may be granted to the officers and key employees of
the Company or any of its subsidiaries. The exercise price for any option
granted under the 1996 Stock Option Plan may not be less than 100% (110% in
the case of ISOs granted to an employee who is deemed to own in excess of 10%
of the outstanding Common Stock) of the fair market value of the shares of
Common Stock at the time the option is granted. The purpose of the 1996 Stock
Option Plan is to provide a means of performance-based compensation in order
to attract and retain qualified personnel and to provide an incentive to those
whose job performance affects the Company. The effective date of the 1996
Stock Option Plan was June 21, 1996.
A total of 3,000,000 shares of the Company's Common Stock has been reserved
for issuance under the 1996 Stock Option Plan and a total of 1,038,200 options
were outstanding at December 31, 1996.
If an option granted under the 1996 Stock Option Plan expires or terminates,
or an Award is forfeited, the shares subject to any unexercised portion of
such option or Award will again become available for the issuance of further
options or Awards under the 1996 Stock Option Plan.
Unless previously terminated by the Board of Directors, no options or Awards
may be granted under the 1996 Stock Option Plan after June 21, 2006.
Options granted under the 1996 Stock Option Plan will become exercisable
upon the terms of the grant made by the Committee. Awards will be subject to
the terms and restrictions of the Award made by the Committee. The Committee
has discretionary authority to select participants from among eligible persons
and to determine at the time an option or Award is granted and in the case of
options, whether it is intended to be an ISO or a NQSO.
Under current law, ISOs may not be granted to any individual who is not also
an officer or employee of the Company or any subsidiary.
Each option must terminate no more than 10 years from the date it is granted
(or five years in the case of ISOs granted to an employee who is deemed to own
in excess of 10% of the combined voting power of the Company's outstanding
Common Stock). Options may be granted on terms providing for exercise in whole
or in part at any time or times during their respective terms, or only in
specified percentages at stated time periods or intervals during the term of
the option, as determined by the Committee.
The exercise price of any option granted under the 1996 Stock Option Plan is
payable in full (i) in cash, (ii) by surrender of shares of the Company's
Common Stock already owned by the option holder having a market
F-26
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value equal to the aggregate exercise price of all shares to be purchased
including, in the case of the exercise of NQSOs, restricted stock subject to
an Award under the 1996 Stock Option Plan, (iii) by cancellation of
indebtedness owed by the Company to the optionholder, or (iv) by any
combination of the foregoing.
The Board of Directors may from time to time revise or amend the 1996 Stock
Option Plan, and may suspend or discontinue it at any time. However, no such
revision or amendment may impair the rights of any participant under any
outstanding options or Award without such participant's consent or may,
without shareholder approval, increase the number of shares subject to the
1996 Stock Option Plan or decrease the exercise price of a stock option to
less than 100% of fair market value on the date of grant (with the exception
of adjustments resulting from changes in capitalization), materially modify
the class of participants eligible to receive options or Awards under the 1996
Stock Option Plan, materially increase the benefits accruing to participants
under the 1996 Stock Option Plan or extend the maximum option term under the
1996 Stock Option Plan.
A summary of changes in outstanding stock options follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995 1994
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Options outstanding, beginning of year.................. 1,637 1,758 1,233
Options granted......................................... 1,609 394 835
Options exercised....................................... (295) (323) (46)
Options canceled........................................ (362) (192) (264)
----- ----- -----
Options outstanding, end of year........................ 2,589 1,637 1,758
===== ===== =====
</TABLE>
There were 2,013,250 options available for future grants at December 31,
1996.
Information as to stock option activity and prices of shares is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF PRICE RANGE AVERAGE
SHARES PER SHARE OPTION PRICE
--------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Shares under option at:
December 31, 1996...................... 2,589 $2.09-$10.56 $8.58
December 31, 1995...................... 1,637 $2.09-$ 8.56 $2.94
December 31, 1994...................... 1,758 $2.09-$ 3.33 $2.45
Options exercised during the year:
December 31, 1996...................... 295 $2.09-$ 6.10 $2.61
December 31, 1995...................... 323 $2.09-$ 3.33 $2.55
December 31, 1994...................... 46 $2.09 $2.09
Options exercisable at:
December 31, 1996...................... 551 $2.09-$ 7.56 $2.47
December 31, 1995...................... 467 $2.09-$ 3.33 $2.24
December 31, 1994...................... 379 $2.09-$ 3.03 $2.24
</TABLE>
The stock option information presented in the above tables reflects the 2-
for-1 stock split and 1-for-10 stock dividend in 1996, 3-for-2 stock split
paid in 1995, the 1-for-10 stock dividend paid in 1993, and the 1-for-19 stock
dividend paid in 1992.
F-27
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective January 1, 1996, The Company adopted the disclosure requirements
of SFAS 123, and continued to measure its employee stock-based compensation
arrangements under the provisions of APB 25. Accordingly, no compensation
expense has been recognized for the stock option plan. Had compensation
expense for the Company's stock option plan been determined based on the fair
value at the grant date for awards in 1996 and 1995 consistent with the
provisions of SFAS 123, the Company's net income and income per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1995
------- -------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net income:
As reported.................................................. $75,984 $14,193
Pro forma.................................................... 74,733 14,089
Primary income per share:
As reported.................................................. $ 1.96 $ 0.41
Pro forma.................................................... 1.93 0.41
Fully diluted income per share:
As reported.................................................. $ 1.95 $ 0.40
Pro forma.................................................... 1.90 0.40
</TABLE>
The weighted average fair value at date of grant of options granted during
1996 and 1995 was $6.22 and $3.09 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1996 1995
----- -----
<S> <C> <C>
Expected life (years)............................................. 3.40 3.43
Interest rate..................................................... 5.48% 5.14%
Volatility........................................................ 57.51 60.80
Dividend yield.................................................... 0.00% 0.00%
</TABLE>
25. EXECUTIVE COMPENSATION
Employment Agreements
On July 1, 1994, the Company entered into three year employment contracts
with three senior officers which provide for, in the aggregate, minimum annual
compensation in the aggregate of $800,000, subject to adjustment for
inflation, plus an annual bonus of up to 3.5% of the Company's pre tax profits
in excess of $10 million. The total compensation of the three senior officers
is limited in the aggregate to $2,350,000 annually. These amendments canceled
all previous employment agreements. Under these employment agreements, the
officers are entitled to receive bonuses approved by the Company's Board of
Directors based on performance and the attainment of defined Company goals.
Stock Options
On January 1, 1992, options were granted to three senior officers of the
Company to purchase a total of 2,292,628 shares, adjusted for stock dividends
and splits, of the Company's Common Stock. The exercise price of these options
is $0.89 per share of common stock for one-half of the options, with the other
half exercisable at $1.40 per share. These options became exercisable in
September 1995 (vesting was accelerated from January 1, 1997), they expire on
December 1, 2001 and are not covered by the Company's stock option plan.
F-28
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Compensation expense relating to these options has been recorded in the
Company's consolidated financial statements over a four year period ending
December 31, 1995 for an amount representing the difference between the
exercise price of the options and the market price of the Company's stock at
the grant date. The aggregate amount of compensation expense recognized on
these stock options since their grant date is $2,178,000.
The amount of compensation expense recorded for the years ended December 31,
1996, 1995, and 1994 related to the stock options was $0, $871,200, and
$435,600, respectively.
26. INTEREST RATE SWAPS
The Company may enter into interest rate cap, floor, and swap transactions
to manage its exposure to fluctuations in interest rates and market movements
in securities values. These instruments involve, to varying degrees, elements
of credit and interest rate risk. The contract or notional amounts do not
represent exposure to credit loss. Risk originates from the inability of
counterparties to meet the terms of the contracts and from market movements in
securities values and interest rates. The Company controls the credit risk of
its interest rate cap, floor and swap agreements through credit approvals,
limits and monitoring procedures.
As a part of the SPTL securitization of $277.0 million of multi-family and
commercial mortgage loans, the Company delivered subordinate bonds of
approximately $22 million into a total rate of return swap with JP Morgan. The
provisions for the swap entitle the Company to receive the total return on the
subordinate bonds delivered in exchange for a floating payment of Libor plus a
spread of 1.95%. The termination date of the swap, September 30, 1997, could
be accelerated in the event the securities delivered into the swap decline in
value more than $3.0 million over a three month period. In the event of the
early termination of the swap, the Company would be required to pay a fee
representing 1.95% of the calculated value of the underlying securities over
the period from the accelerated termination date to September 30, 1997. The
remaining deposit associated with the swap was $3.7 million at December 31,
1996. The swap is an off balance sheet instrument.
27. COMMITMENTS AND CONTINGENCIES
Loan Servicing
As of December 31, 1996 and 1995 the Company was servicing loans for others,
directly and through sub-servicing arrangements, totaling approximately $2.1
billion and $4.6 billion, respectively.
Related fiduciary funds held in trust for investors in non-interest bearing
accounts totaled $1.3 million and $36.1 million at December 31, 1996 and 1995,
respectively. These funds are segregated in special bank accounts and are held
as deposits at SPTL.
Sales of Loans and Servicing Rights
In the ordinary course of business, the Company is exposed to liability
under representations and warranties made to purchasers and insurers of
mortgage loans and the purchasers of servicing rights. Under certain
circumstances, the Company is required to repurchase mortgage loans if there
has been a breach of representations or warranties.
During the year ended December 31, 1996, the Company retained servicing
rights on $35.1 million of mortgage loans sold through traditional secondary
market channels and $1.3 billion on loans and leases sold through
securitizations. Additionally, the Company released servicing rights to the
purchasers on $627.0 million of mortgage loans sold. During the year ended
December 31, 1995, the Company retained servicing rights on $794.9 million of
mortgage loans sold, and released servicing rights to the purchasers on $1.1
billion of mortgage loans sold. During the year ended December 31, 1994, the
Company retained servicing rights on $3.7 billion of mortgage loans sold and
released servicing rights to the purchasers on $721.4 million.
F-29
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan Commitments
As of December 31, 1996 and 1995, the Company had unfunded open loan
commitments (excluding ICIFC) amounting to $642.8 million and $93.7 million,
respectively, to fund mortgage loan applications in process subject to credit
approval. There is no exposure to credit loss in this type of commitment until
the loans are funded. Interest rate risk is mitigated by the use of forward
contracts to sell loans to investors.
ICIFC establishes mortgage loan purchase commitments (master commitments)
with sellers that, subject to certain conditions, entitle the seller to sell
and obligate ICIFC to purchase a specified dollar amount of non-conforming
mortgage loans over a period generally ranging from six months to one year.
The terms of each master commitment specify whether a seller may sell loans to
ICIFC on a mandatory, best efforts or optional basis, or a combination
thereof. Master commitments generally do not obligate ICIFC to purchase loans
at a specific price, but rather provide the seller with a future outlet for
the sale of its originated loans based on ICIFC's quoted prices at the time of
purchase.
As of December 31, 1996 and December 31, 1995, ICIFC had outstanding short
term master commitments with 68 and 18 sellers to purchase mortgage loans in
the aggregate principal amount of $826.5 million and $241.0 million over
periods ranging from six months to one year, of which $304.9 million and $35.7
million, respectively, had been purchased or committed to be purchased
pursuant to rate locks. These rate-locks were made pursuant to master
commitments, bulk rate-locks and other negotiated rate-locks. There is no
exposure to credit loss in this type of commitment until the loans are funded,
and interest rate risk associated with the short-term commitments is mitigated
by the use of forward contracts to sell loans to investors.
Forward Contracts
The Company sold mortgage-backed securities through forward delivery
contracts with major dealers in such securities, primarily through its former
mortgage banking operations. At December 31, 1996 and 1995, the Company had
$143.0 million and $279.2 million, respectively, in outstanding commitments to
sell mortgage loans through mortgage-backed securities. Included in the
outstanding commitments to sell mortgage loans through mortgage backed
securities are commitments relating to ICIFC of $141.0 million and $86.7
million for December 31, 1996 and 1995, respectively. These commitments allow
the Company to enter into mandatory commitments when the Company notifies the
investor of its intent to exercise a portion of the forward delivery
contracts.
The Company was obligated under mandatory commitments to deliver loans to
such investors at December 31, 1996 and 1995 in the amounts of $0 and $97.0
million, respectively.
The credit risk of forward contracts relates to the counterparties' ability
to perform under the contract. The Company evaluates counterparties based on
their ability to perform prior to entering into any agreements.
The Company regularly securitizes and sells fixed and variable-rate mortgage
loans. To offset the effects of interest rate fluctuations on the value of its
fixed-rate loans held for sale, the Company in certain cases will hedge its
interest rate risk related to loans held for sale by selling U.S. Treasury
securities short or in the forward market.
As of December 31, 1996, the Company had open positions of $183.7 million
related to the sales of United States Treasury securities in the forward
market. At December 31, 1996, the Company's unrealized loss on open positions
was $1.7 million.
F-30
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options
The Company may purchase put options or write covered call options to hedge
against adverse movements in the value of the loans held for sale portfolio.
The Company will realize a gain or loss upon the expiration or closing of
the option transaction. When an option is exercised, the proceeds on sales for
a written call option, the purchase cost for a written put option, or the cost
of the security for a purchased put or call option is adjusted by the amount
of premium received or paid.
The risk in writing a call option is that the Company gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in buying an option is that the Company pays a
premium whether or not the option is exercised.
The Company had $70.0 million and $20.0 million notional amount of written
call option contracts outstanding at December 31, 1996 and 1995, respectively.
The Company received $366,000 and $82,600 in premiums related to the options
outstanding at December 31, 1996 and 1995, respectively. There were no option
contracts exercised during the year.
Lease Commitments
Minimum rental commitments under all noncancelable operating leases at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997............................................................. $ 3,868
1998............................................................. 3,109
1999............................................................. 2,186
2000............................................................. 1,736
2001............................................................. 1,515
Thereafter....................................................... 443
-------
Total.......................................................... $12,857
=======
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 was $4.2
million, $3.6 million, and $3.1 million, respectively.
Legal Proceedings
The predecessor entity to FMAC, and an officer of such entity and of FMAC,
among others, are named as defendants in De Wald et al. vs. Knyal et al. filed
on November 15, 1996 in the Los Angeles Superior Court. The complaint seeks an
accounting, monetary and punitive damages for alleged breach of contract,
breach of fiduciary duty, breach of implied covenant of good faith and fair
dealing and fraud arising from an alleged business relationship. The Company
has not been named as a defendant in this lawsuit.
On September 6, 1996, a former employee filed suit against the Company in
Sanders vs. ICII, filed in the U.S. District Court for the Middle District of
Florida, alleging sexual harassment and sexual discrimination. The complaint
seeks compensatory damages, non-economic damages and punitive damages as a
result of the alleged misconduct. Discovery has only recently commenced, but
the Company believes the claims to be invalid.
The Company is a defendant in Fortune Mortgage Corporation et al. vs. ICII
et al., filed in Orange County Superior Court on March 5, 1997. The complaint
alleges breach of contract, breach of implied covenant of good
F-31
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
faith and fair dealing, negligent misrepresentation, fraud, conspiracy to
commit fraud, aiding and abetting fraud, contractual indemnity and
reimbursement, money had and received, and unjust enrichment arising from the
Company's sale of a group of loan production offices to plaintiffs. The
plaintiffs seek rescission, restitution and general, specific and/or
consequential damages, and also exemplary and punitive damages as relate to
the claims regarding fraud.
In Agoura Willow Creek, Ltd. vs. SPTL, filed on February 27, 1997, the
plaintiff seeks damages from SPTL for alleged breach of written contract and
breach of fiduciary duty arsing out of a loan commitment agreement.
All of the above referenced actions are being actively defended.
The Company is involved in additional litigation arising in the normal
course of business. Management believes based in part upon the advice of legal
counsel, none of these proceedings will have a material effect on the
Company's financial condition or results of operations.
28. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement 107, "Disclosures about Fair Values of Financial
Instruments," (SFAS 107) requires disclosures of fair value information about
financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. Such instruments include
securities, loans receivable, time deposits and various off-balance sheet
items. Because no market exists for a portion of the Company's loans held for
investment and securitization related assets, fair value estimates are based
on judgments regarding credit risk, investor expectation of future economic
conditions, normal cost of administration and other risk characteristics,
including interest rate and prepayment risk. These estimates are subjective in
nature and involve uncertainties and matters of judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
In addition, the fair value estimates presented do not include the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and interest bearing deposits: The carrying values reported in the
consolidated balance sheet approximate fair values due to the short-term
nature of the assets.
Investment Securities: The carrying value reported on the consolidated
balance sheet is the fair value, based on quoted market prices.
Investment in Federal Home Loan Bank stock: The carrying value reported in
the consolidated balance sheet approximates fair value.
Capitalized excess servicing fees receivable: The carrying value reported in
the consolidated balance sheet approximates fair value. The fair value was
estimated by discounting future cash flows using rates that an unaffiliated
third-party purchaser would require on instruments with similar terms and
remaining maturities.
Purchased and originated servicing rights: The carrying value reported in
the consolidated balance sheet approximates fair value.
F-32
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Retained interest in loan and lease securitizations: The carrying value
reported in the consolidated balance sheet approximates fair value. The fair
value was estimated by discounting future cash flows using rates that an
unaffiliated third-party purchaser would require on instruments with similar
terms and remaining maturities.
Interest-only and residual certificates: Fair value is determined using
estimated discounted future cash flows taking into consideration anticipated
prepayment rates and loss experience.
Loans held for sale: Fair value of the Company's portfolio of loans held for
sale is based on forward delivery contract prices or quoted market prices.
Loans held for investment: The fair value of the loan portfolio is generally
estimated by discounting expected future cash flows at an estimated market
rate of interest. A market rate of interest is estimated based on the AAA
Corporate Bond Rate, adjusted for credit risk and the Company's cost to
administer such loans.
Expected future cash flows are estimated using maturity dates for performing
loans, with cash flows on non-performing loans estimated on an individual
basis. For non-performing and potential problem loans secured by real
property, estimated fair value has been determined on an individual basis,
considering the value of the collateral as determined by a current third party
appraisal and estimated foreclosure, holding and selling costs. For consumer
loans, market rates of interest are based on current market rates charged for
these loans.
Deposits: Fair values disclosed are estimated by discounting the expected
cash flows at current market rates over expected maturities.
Borrowings from Imperial Bank: The carrying value reported in the
consolidated balance sheet approximates fair value, due to the short-term
nature of the borrowing.
Borrowings from Federal Home Loan Bank: The carrying value reported in the
consolidated balance sheet approximates fair value, due to the relatively
short term maturities, and the variable interest rates on the borrowings.
Other borrowings: The carrying value reported in the consolidated balance
sheet approximates fair value, due to the variable interest rates on the
borrowings.
Bonds: The carrying value reported in the consolidated balance sheet
approximates fair value.
Senior Notes: Fair values of the Company's Senior Notes are based on quoted
market prices of the notes.
Convertible subordinated debentures: Fair values of SPFC's convertible
subordinated debentures are based on quoted market prices of the notes.
Off-balance sheet instruments: Fair values of the Company's mandatory
forward commitments and mortgage loan applications in process are based on
quoted market prices of the related loans. The fair value of the options
approximate the unamortized premium. Fair values of loan commitments to extend
credit are based on fees currently charged to enter into similar agreements.
Fair values of the Company's interest rate swaps are based on quoted market
prices.
F-33
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash............................ $ 74,247 $ 74,247 $ 39,166 $ 39,166
Interest bearing deposits....... 3,369 3,369 267,776 267,776
Investment in Federal Home Loan
Bank stock..................... 17,152 17,152 22,750 22,750
Investment securities........... 91,204 91,204 5,963 5,963
Loans held for sale............. 940,096 954,299 1,341,810 1,345,509
Loans held for investment, net.. 1,068,599 1,081,053 668,771 672,025
Purchased and originated
servicing rights............... 14,887 14,887 18,428 18,428
Capitalized excess servicing
fees receivable................ 23,142 23,142 33,181 33,181
Retained interest in loan and
lease securitizations.......... 42,640 42,640 14,251 14,251
Interest only and residual
certificates................... 87,017 87,017 10,840 10,840
LIABILITIES:
Deposits........................ $1,069,184 $1,069,624 $1,092,989 $1,095,287
Borrowings from Imperial Bank... -- -- 5,000 5,000
Borrowings from Federal Home
Loan Bank...................... 140,500 140,500 190,000 190,000
Other borrowings................ 694,352 694,352 875,815 875,815
Bonds........................... -- -- 111,995 111,995
Senior notes.................... 88,209 93,150 80,472 76,610
Convertible subordinated
debentures..................... 75,000 75,000 -- --
OFF BALANCE SHEET ITEMS:
Mortgage loan applications in
process........................ $ -- $ -- $ -- $ 1,708
Mandatory forward commitments... -- -- -- (930)
Options......................... 366 366 83 83
Loan commitments................ -- 866 -- 3,641
Interest rate swap.............. -- 1,166 -- --
Forward treasury contracts...... (1,700) (1,700) -- --
</TABLE>
F-34
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
29. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Gain on sale of loans.............. $21,711 $19,166 $28,640 $18,639
Net interest income................ 12,737 13,405 22,163 24,130
Gain (loss) on sale of servicing... 8,065 (257) -- (217)
Other revenues..................... 3,212 65,843 2,987 26,482
Provision for loan losses.......... 1,500 2,025 2,617 3,631
Other expenses..................... 27,168 20,652 24,924 26,305
Net income......................... 8,616 43,041 9,433 14,894
Income per share:
Primary.......................... $ 0.24 $ 1.11 $ 0.23 $ 0.38
Fully diluted.................... $ 0.24 $ 1.11 $ 0.23 $ 0.37
Year ended December 31, 1995
Gain on sale of loans.............. $ 6,229 $ 8,794 $14,929 $ 9,605
Net interest income................ 4,834 6,000 7,947 14,973
Gain on sale of servicing.......... 2,426 496 -- 656
Other revenues..................... 3,081 2,350 2,283 6,156
Provision for loan losses.......... 900 1,700 1,350 1,500
Other expenses..................... 12,283 12,808 16,384 19,705
Net income......................... 1,958 1,832 4,311 6,092
Income per share:
Primary.......................... $ 0.06 $ 0.06 $ 0.12 $ 0.17
Fully diluted.................... $ 0.06 $ 0.05 $ 0.12 $ 0.17
</TABLE>
30. SELECTED FINANCIAL INFORMATION OF SUBSIDIARIES
The following represents summarized financial information with respect to the
operations of SPTL, a significant wholly-owned subsidiary of ICII.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total assets................................... $1,384,008 $1,432,554 $1,367,130
Deposits....................................... 1,072,266 1,093,250 946,860
Borrowings from Federal Home Loan Bank......... 140,500 190,000 295,000
Equity......................................... 144,798 126,599 108,845
Interest income................................ 131,184 103,112 81,751
Interest expense............................... 73,141 70,819 52,961
Operating income............................... 15,149 17,790 10,215
Operating expense.............................. 21,846 13,942 15,597
Provision for loan losses...................... 8,938 5,450 5,150
Income before taxes............................ 42,408 30,691 18,259
Net income..................................... 24,399 17,753 10,534
</TABLE>
F-35
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following represents summarized consolidating financial information as of
and for the year ended December 31, 1996 and 1995 with respect to the
operations of ICII and its wholly owned and majority owned subsidiaries. On
January 17, 1997, the Company sold $200 million of 9 7/8% Senior Notes. The 9
7/8% Senior Notes are guaranteed by two of the Company's wholly-owned
subsidiaries IBC and ICAI (the "Other Guarantor Subsidiaries"), and the
Company's 66 2/3% owned subsidiary, FMAC.
CONSOLIDATING BALANCE SHEET
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 5,213 $ -- $ 7,973 $ 64,926 $ (3,865) $ 74,247
Interest bearing
deposits............... -- 2,594 163 -- 612 3,369
Investments in Federal
Home Loan Bank stock... -- -- -- 17,152 -- 17,152
Investment and trading
securities............. 8,802 39,349 887 35,824 (566) 84,296
Loans held for sale..... 4,839 98,915 8,547 853,023 (25,228) 940,096
Loans held for
investment, net........ 34,505 -- 86,214 948,567 (687) 1,068,599
Purchased and originated
servicing rights....... -- -- 637 14,250 -- 14,887
Capitalized excess
servicing fees
receivable............. -- -- -- 23,142 -- 23,142
Retained interest in
loan and lease
securitizations........ -- 6,908 19,646 22,994 -- 49,548
Interest-only and
residual certificates.. -- -- -- 87,017 -- 87,017
Accrued interest on
loans.................. 1,425 560 -- 11,862 -- 13,847
Premises and equipment,
net.................... 4,922 1,162 404 5,954 -- 12,442
Other real estate owned,
net.................... 3,508 -- -- 8,706 -- 12,214
Investment in
subsidiaries........... 269,651 -- -- -- (269,651) --
Goodwill................ -- 4,332 14,115 20,044 -- 38,491
Other assets............ 96,746 (11,372) (15,385) (36,855) (1,842) 31,292
-------- -------- -------- ---------- --------- ----------
Total assets........... $429,611 $142,448 $123,201 $2,076,606 $(301,227) $2,470,639
======== ======== ======== ========== ========= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C>
Deposits................ $ -- $ -- $ -- $1,072,266 $ (3,082) $1,069,184
Borrowings from Federal
Home Loan Bank......... -- -- -- 140,500 -- 140,500
Other borrowings........ 15,363 125,240 88,768 480,103 (15,122) 694,352
Senior notes............ 88,209 -- -- -- -- 88,209
Convertible subordinated
debentures............. -- -- -- 75,000 -- 75,000
Minority interest in
consolidated
subsidiaries........... 45,149 -- -- -- 9,787 54,936
Other liabilities....... 41,382 2,751 9,222 68,854 (13,259) 108,950
-------- -------- -------- ---------- --------- ----------
Total liabilities....... 190,103 127,991 97,990 1,836,723 (21,676) 2,231,131
-------- -------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock......... -- -- -- 9,143 (9,143) --
Common stock............ 145,521 5,792 21,501 134,590 (161,883) 145,521
Retained earnings....... 88,977 8,665 3,525 96,150 (108,340) 88,977
Unrealized gain on
securities available
for sale............... 5,010 -- 185 -- (185) 5,010
-------- -------- -------- ---------- --------- ----------
Total shareholders'
equity................. 239,508 14,457 25,211 239,883 (279,551) 239,508
-------- -------- -------- ---------- --------- ----------
Total liabilities and
shareholders' equity... $429,611 $142,448 $123,201 $2,076,606 $(301,227) $2,470,639
======== ======== ======== ========== ========= ==========
</TABLE>
F-36
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Gain on sale of loans... $ (937) $18,671 $ 2,617 $ 67,419 $ 386 $ 88,156
------- ------- ------- -------- -------- --------
Interest income......... 14,877 16,130 3,811 177,833 (5,180) 207,471
Interest expense........ 16,696 14,489 1,901 112,692 (10,742) 135,036
------- ------- ------- -------- -------- --------
Net interest income..... (1,819) 1,641 1,910 65,141 5,562 72,435
Provision for loan
losses................. -- -- -- 9,625 148 9,773
------- ------- ------- -------- -------- --------
Net interest income
after provision for
loan loss............ (1,819) 1,641 1,910 55,516 5,414 62,662
------- ------- ------- -------- -------- --------
Loan servicing income... (3,706) 1,191 3,095 10,253 (9,153) 1,680
Gain (loss) on sale of
servicing rights....... 6,249 -- -- -- 1,342 7,591
Gain on sale of SPFC
stock.................. 82,690 -- -- -- -- 82,690
Dividends received from
subsidiaries........... 6,200 -- -- -- (6,200) --
Other income............ 741 63 3,214 6,099 4,037 14,154
------- ------- ------- -------- -------- --------
Total other income.... 92,174 1,254 6,309 16,352 (9,974) 106,115
------- ------- ------- -------- -------- --------
Total revenues........ 89,418 21,566 10,836 139,287 (4,174) 256,933
------- ------- ------- -------- -------- --------
EXPENSES:
Personnel expense....... 8,757 8,270 2,997 28,567 (236) 48,355
Amortization of PMSRs
and OMSRs.............. 402 -- 106 613 -- 1,121
Occupancy expense....... 1,994 310 229 2,042 78 4,653
Data processing expense. 1,094 49 62 958 -- 2,163
Net expenses of other
real estate owned...... 4,969 -- -- 765 1,280 7,014
General, administrative
and other expense...... 13,652 3,613 3,583 14,264 631 35,743
------- ------- ------- -------- -------- --------
Total expenses........ 30,868 12,242 6,977 47,209 1,753 99,049
------- ------- ------- -------- -------- --------
Income before income
taxes, minority
interest, deferred
inter-company gains and
extraordinary item..... 58,550 9,324 3,859 92,078 (5,927) 157,884
Income taxes............ 28,830 -- 1,606 39,135 303 69,874
------- ------- ------- -------- -------- --------
Income before minority
interest, deferred
inter-company expense
and extraordinary item. 29,720 9,324 2,253 52,943 (6,230) 88,010
Minority interest in of
consolidated
subsidiaries........... 12,026 -- -- -- -- 12,026
------- ------- ------- -------- -------- --------
Income before deferred
inter-company expense.. 17,694 9,324 2,253 52,943 (6,230) 75,984
Deferred inter-company
expense, net of income
taxes.................. (1,383) -- -- -- 1,383 --
Income before equity in
undistributed income of
subsidiaries........... 19,077 9,324 2,253 52,943 (7,613) 75,984
Equity in undistributed
income of subsidiaries. 56,907 -- -- -- (56,907) --
------- ------- ------- -------- -------- --------
Net income.............. $75,984 $ 9,324 $ 2,253 $ 52,943 $(64,520) $ 75,984
======= ======= ======= ======== ======== ========
</TABLE>
F-37
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEET
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 8,593 $ 526 $(1,937) $ 32,981 $ (997) $ 39,166
Interest bearing
deposits............... -- -- -- 267,776 -- 267,776
Investments in Federal
Home Loan Bank stock... -- -- -- 22,750 -- 22,750
Securities available for
sale, at market........ 5,963 -- -- -- -- 5,963
Loans held for sale..... 180,232 181,254 -- 1,129,576 (149,252) 1,341,810
Loans held for
investment, net........ 29,195 -- -- 541,390 98,186 668,771
Purchased and originated
servicing rights....... 13,718 -- 743 3,967 -- 18,428
Capitalized excess
servicing fees
receivable............. 7,259 -- -- 26,129 (207) 33,181
Retained interest in
loan and lease
securitizations........ 1,420 -- 220 10,377 2,234 14,251
Interest-only and
residual certificates.. -- -- -- 22,469 (11,629) 10,840
Accrued interest on
loans.................. 449 1,108 19 10,067 (1,479) 10,164
Premises and equipment,
net.................... 8,574 235 16 2,544 -- 11,369
Other real estate owned,
net.................... 2,419 -- -- 4,760 -- 7,179
Investment in
subsidiaries........... 135,316 -- -- -- (135,316) --
Goodwill................ -- 4,226 -- 16,024 96 20,346
Other assets............ 19,991 1,699 4,756 11,591 604 38,641
-------- -------- ------- ---------- --------- ----------
Total assets........... $413,129 $189,048 $ 3,817 $2,102,401 $(197,760) $2,510,635
======== ======== ======= ========== ========= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C>
Deposits................ $ -- $ -- $ (450) $1,093,250 $ 189 $1,092,989
Borrowings from Imperial
Bank................... 5,000 -- -- -- -- 5,000
Borrowings from Federal
Home Loan Bank......... -- -- -- 190,000 -- 190,000
Other borrowings........ 206,726 69,637 -- 655,504 (56,052) 875,815
Bonds................... -- 111,995 -- -- -- 111,995
Senior notes............ 80,472 -- -- -- -- 80,472
Minority interest in
consolidated
subsidiaries........... 1,452 -- -- -- -- 1,452
Other liabilities....... 25,377 3,643 1,996 23,285 4,509 58,810
-------- -------- ------- ---------- --------- ----------
Total liabilities.... 319,027 185,275 1,546 1,962,039 (51,354) 2,416,533
-------- -------- ------- ---------- --------- ----------
Shareholders' equity:
Preferred stock......... -- -- -- 1,015 (1,015) --
Common stock............ 51,981 4,432 1,000 81,251 (86,683) 51,981
Retained earnings
(accumulated deficit).. 38,910 (659) 1,271 58,096 (58,708) 38,910
Unrealized gain on
securities available
for sale............... 3,211 -- -- -- -- 3,211
-------- -------- ------- ---------- --------- ----------
Total shareholders'
equity................. 94,102 3,773 2,271 140,362 (146,406) 94,102
-------- -------- ------- ---------- --------- ----------
Total liabilities and
shareholders' equity... $413,129 $189,048 $ 3,817 $2,102,401 $(197,760) $2,510,635
======== ======== ======= ========== ========= ==========
</TABLE>
F-38
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Gain on sale of loans... $ 12,999 $ -- $1,803 $ 36,051 $(11,296) $ 39,557
-------- ------ ------ -------- -------- --------
Interest income......... 15,677 1,929 76 108,666 3,134 129,482
Interest expense........ 20,900 1,690 17 76,018 (2,897) 95,728
-------- ------ ------ -------- -------- --------
Net interest income..... (5,223) 239 59 32,648 6,031 33,754
Provision for loan
losses................. -- -- -- 5,450 -- 5,450
-------- ------ ------ -------- -------- --------
Net interest income
after provision for
loan loss............ (5,223) 239 59 27,198 6,031 28,304
-------- ------ ------ -------- -------- --------
Loan servicing income... 14,007 318 27 6,352 (7,986) 12,718
Gain on sale of
servicing rights....... 4,889 31 -- 370 (1,712) 3,578
Other income............ (885) -- 2,465 2,676 (3,104) 1,152
-------- ------ ------ -------- -------- --------
Total other income.... 18,011 349 2,492 9,398 (12,802) 17,448
-------- ------ ------ -------- -------- --------
Total revenues........ 25,787 588 4,354 72,647 (18,067) 85,309
-------- ------ ------ -------- -------- --------
EXPENSES:
Personnel expense....... 20,281 356 1,606 12,433 (623) 34,053
Amortization of PMSRs
and OMSRs.............. 3,986 -- -- 2,892 (2,892) 3,986
Occupancy expense....... 2,874 94 54 971 (89) 3,904
Data processing expense. 1,191 -- 1 358 (89) 1,461
Net expense of other
real estate owned...... 191 -- -- 1,706 16 1,913
General, administrative
and other expense...... 9,938 797 493 8,480 (3,845) 15,863
-------- ------ ------ -------- -------- --------
Total expenses........ 38,461 1,247 2,154 26,840 (7,522) 61,180
-------- ------ ------ -------- -------- --------
Income before income
taxes, minority
interest, deferred
inter-company gains and
extraordinary item..... (12,674) (659) 2,200 45,807 (10,545) 24,129
Income taxes............ (5,443) -- 929 19,212 (4,554) 10,144
-------- ------ ------ -------- -------- --------
(Loss) income before
minority interest,
deferred inter-company
gains and extraordinary
item................... (7,231) (659) 1,271 26,595 (5,991) 13,985
Minority interest in
loss of consolidated
subsidiaries........... (208) -- -- -- -- (208)
-------- ------ ------ -------- -------- --------
(Loss) income before
deferred inter-company
gains.................. (7,023) (659) 1,271 26,595 (5,991) 14,193
Deferred inter-company
gains, net of income
taxes.................. 1,710 -- -- -- (1,710) --
(Loss) income before
equity in undistributed
income of subsidiaries. (8,733) (659) 1,271 26,595 (4,281) 14,193
Equity in undistributed
income of subsidiaries. 22,926 -- -- -- (22,926) --
-------- ------ ------ -------- -------- --------
Net income (loss)....... $ 14,193 $ (659) $1,271 $ 26,595 $(27,207) $ 14,193
======== ====== ====== ======== ======== ========
</TABLE>
F-39
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
31. SPTL REGULATORY MATTERS
In August 1989, the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989, ("FIRREA") was enacted. This legislation was adopted in order to
reform the regulation and supervision of financial institutions. Additionally
legislation was adopted in 1991 with the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). FDICIA provided for increased funding for
Federal Deposit Insurance Commission ("FDIC") deposit insurance and for
expanded regulation of financial institutions. Specifically, FDICIA requires
the federal regulations to take prompt corrective action with respect to
depository institutions which do not meet the minimum capital requirements.
FDICIA established five capital ratio categories: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
A depository institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position if it receives
an unsatisfactory examination rating and may be reclassified to a lower
category by action based on other supervisory criteria. For an institution to
be well capitalized it must have a total risk-based capital ratio of at least
10%, a Tier 1 risk-based capital ratio of at least 6%, and a leverage ratio of
at least 5% and not be subject to any specific capital order or directive. At
December 31, 1996, SPTL was categorized as well capitalized.
Restrictions on Availability of Funds from SPTL
Under the California industrial loan law, a thrift and loan may declare
dividends on its capital stock only if it has at least $750,000 of unimpaired
capital stock plus additional capital stock of $50,000 for each branch office
maintained. In addition, no distribution of dividends is permitted unless: (i)
such distribution would not exceed a thrift and loan's retained earnings, (ii)
any payment would not result in a violation of the approved minimum capital to
thrift and loan certificate of deposit ratio and (iii) after giving effect to
the distribution, either (y) the sum of a thrift and loan's assets (net of
goodwill, capitalized research and development expenses and deferred charges)
would be not less than 125% of its liabilities (net of deferred taxes,
deferred income and other deferred credits), or (z) current assets would be
not less than current liabilities (except that if a thrift and loan's average
earnings before taxes for the last two fiscal years had been less than average
interest expense, current assets must be not less than 125% of current
liabilities). Subject to the above limitations, and according to SPTL's by-
laws, at December 31, 1996, all of SPTL's capital and surplus in excess of
$80.5 million is available for the payment of dividends.
Additionally, SPTL generally may not make any loan to, or hold an obligation
of, any of its directors or officers or any director or officer of its holding
company or affiliates, except in specified cases and subject to regulation by
the California Commissioner of Corporations. In addition, SPTL may not make
any loan to, or hold an obligation of, any of its shareholders or any
shareholder of its holding company or affiliates, except that this prohibition
does not apply to persons who own less than 10% of the stock of a holding
company or an affiliate that is listed on a national securities exchange.
Recent Development
The California Department of Corporations and the Federal Deposit Insurance
Commission ("FDIC") recently completed a joint examination of SPTL. As a
result of such examination, SPTL entered into a joint memorandum of
understanding with the FDIC and the California Department of Corporations. The
memorandum of understanding requires certain measures to be taken in the areas
of: (i) hiring and retention of management, (ii) adoption of systems to
monitor and control risk, (iii) correction of certain violations of law, (iv)
credit review and (v) enhancement of other operational policies. SPTL does not
believe that the memorandum of understanding will have a material adverse
effect on the Company.
F-40
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the event that SPTL fails to comply with the memorandum of understanding,
SPTL and its affiliates, officers and directors could be subject to various
enforcement actions, including cease and desist orders, criminal and civil
penalties, removal from office, termination of deposit insurance or the
revocation of SPTL's charter. Any such enforcement action could have a
material adverse effect on the Company. Management believes SPTL has complied
fully with the terms of the memorandum of understanding at December 31, 1996.
SPTL is subject to various regulatory capital requirements administered by
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 SPTL's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, SPTL must meet specific capital
guidelines that involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. SPTL's 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 SPTL to maintain minimum amounts and ratios, set forth in the table
below, of total and Tier I capital to risk-weighted assets and Tier I capital
to average assets. Management believes, as of December 31, 1996, that SPTL
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized SPTL as well capitalized under the regulatory framework for prompt
and corrective action. To be categorized as well capitalized SPTL must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The following table presents SPTL's actual capital ratios and the
corresponding minimum and well capitalized capital ratio requirements under
the (i) California Leverage limitation, (ii) FDIC Risk-based Capital and Tier
1 Capital regulations, and (iii) the FDIC Leverage ratio regulation as of
December 31, 1996.
<TABLE>
<CAPTION>
WELL
MINIMUM CAPITALIZED
ACTUAL REQUIREMENT REQUIREMENT
-------------- -------------- --------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
California Leverage Limitation... $144,798 13.50% $ 53,613 5.00% $ -- --
Risk-based Capital............... 145,018 10.87% 106,715 8.00% 133,393 10.00%
Risk-based Tier 1 Capital........ 129,497 9.71% 53,357 4.00% 80,036 6.00%
FDIC Leverage Ratio.............. 129,497 9.35% 55,397 4.00% 69,247 5.00%
</TABLE>
F-41
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
32. IMPERIAL CREDIT INDUSTRIES, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Cash......................................................... $ 5,213 $ 8,593
Securities available for sale................................ 8,802 5,963
Loans held for sale.......................................... 4,839 180,232
Loans held for investment, net............................... 34,505 29,195
Premises and equipment, net.................................. 4,922 8,574
Other real estate owned, net................................. 3,508 2,419
Capitalized excess servicing fees receivable................. -- 7,259
Retained interest in loan and lease securitizations.......... -- 1,420
Investment in subsidiaries................................... 269,651 135,316
Purchased and originated servicing rights.................... -- 13,718
Accrued interest on loans.................................... 1,425 449
Other assets................................................. 96,746 19,991
-------- --------
Total assets............................................. $429,611 $413,129
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Borrowings from Imperial Bank................................ $ -- $ 5,000
Other borrowings............................................. 15,363 206,726
Senior notes................................................. 88,209 80,472
Minority interest in consolidated subsidiaries............... 45,149 1,452
Accrued interest payable..................................... 4,022 3,642
Income taxes payable......................................... 28,301 7,755
Other liabilities............................................ 9,059 13,980
-------- --------
Total liabilities............................................ 190,103 319,027
-------- --------
Shareholders' equity:
Preferred stock, 8,000,000 shares authorized; none issued
or outstanding............................................ -- --
Common stock, no par value, authorized 40,000,000 shares;
38,291,112 and 14,578,481 shares issued and outstanding at
December 31, 1996 and 1995, respectively.................. 145,521 51,981
Retained earnings.......................................... 88,977 38,910
Unrealized gain on securities available for sale, net...... 5,010 3,211
-------- --------
Total shareholders' equity............................... 239,508 94,102
-------- --------
Total liabilities and shareholders' equity............... $429,611 $413,129
======== ========
</TABLE>
F-42
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
(Loss) gain on sale of loans...................... $ (937) $12,999 $ (397)
------- ------- -------
Interest income................................... 14,877 15,677 1,626
Interest expense.................................. 16,696 20,900 9,319
------- ------- -------
Net interest expense............................ (1,819) (5,223) (7,693)
------- ------- -------
Loan servicing (expense) income................... (3,706) 14,007 13,155
Gain on sale of servicing rights.................. 6,249 4,889 30,028
Gains on sale of SPFC stock....................... 82,690 -- --
Dividends received from subsidiaries.............. 6,200 -- --
Other income (loss)............................... 741 (885) 708
------- ------- -------
Total other income.............................. 92,174 18,011 43,891
------- ------- -------
Total revenue..................................... 89,418 25,787 35,801
------- ------- -------
Expenses:
Personnel expense................................. 8,757 20,281 26,519
Occupancy expense................................. 1,994 2,874 2,884
Other expense..................................... 20,117 15,306 13,367
------- ------- -------
Total expenses.................................. 30,868 38,461 42,770
------- ------- -------
Income (loss) before income taxes, minority
interest, deferred inter-company gains and
extraordinary item............................... 58,550 (12,674) (6,969)
Income taxes...................................... 28,830 (5,443) (3,039)
------- ------- -------
Income (loss) before minority interest, deferred
inter-company gains and extraordinary item....... 29,720 (7,231) (3,930)
Minority interest in income (loss) of consolidated
subsidiaries..................................... 12,026 (208) --
Deferred inter-company (expense) income, net of
income taxes..................................... (1,383) 1,710 --
------- ------- -------
Income (loss) before extraordinary item........... 19,077 (8,733) (3,930)
Extraordinary item--repurchase of Senior Notes.... -- -- 919
------- ------- -------
Income (loss) before equity in undistributed
income of subsidiaries........................... 19,077 (8,733) (3,011)
Equity in undistributed income of subsidiaries.... 56,907 22,926 10,535
------- ------- -------
Net income...................................... $75,984 $14,193 $ 7,524
======= ======= =======
</TABLE>
F-43
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 50,521 $(273,961) $ 114,537
--------- --------- ---------
Cash flows from investing activities:
Proceeds from bulk sale of servicing
rights.................................... 31,799 12,815 26,899
Purchase of servicing rights............... -- (8,128) (14,478)
Proceeds from sale of other real estate
owned..................................... 2,953 -- --
Net change in loans held for investment.... (5,310) 51,784 (131)
Investment in subsidiaries................. -- -- (25,000)
Purchase of premises and equipment......... 809 (182) (4,949)
--------- --------- ---------
Net cash provided by (used in) investing
activities 30,251 56,289 (17,659)
--------- --------- ---------
Cash flows from financing activities:
Net change in borrowings from Imperial
Bank...................................... (5,000) 5,000 (20,000)
Proceeds from issuance of 9 3/4% Senior
Notes..................................... -- -- 88,593
Cash used to repurchase 9 3/4% Senior
Notes..................................... -- -- (6,545)
Proceeds from resale of 9 3/4% Senior
Notes..................................... 7,615 -- --
Proceeds from issuance of common stock..... 59,228 -- --
Proceeds from exercise of stock options.... 1,671 826 96
Net change in other borrowings............. (191,363) 206,725 (147,611)
Net change in minority interest............ 43,697 1,452 --
--------- --------- ---------
Net cash (used in) provided by financing
activities (84,152) 214,003 (85,467)
--------- --------- ---------
Net change in cash........................... (3,380) (3,669) 11,410
Cash at beginning of year.................... 8,593 12,262 852
--------- --------- ---------
Cash at end of year.......................... $ 5,213 $ 8,593 $ 12,262
========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information supplements the condensed statements of cash flows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995 1994
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the period for:
Interest............................................. $ 16,315 $20,898 $5,679
Significant non-cash activities:
Loans transferred to OREO............................ $ 8,479 $ 2,419 --
Loans transferred from held for sale to held for
investment.......................................... 197,141 83,398 --
Servicing rights transferred from subsidiary......... -- 3,774 --
Unrealized gain on securities available for sale,
net................................................. 3,112 5,443 --
Contribution of fixed assets to ICIFC................ -- 525 --
</TABLE>
Sale of Residual Interests
Effective December 31, 1996, ICII sold $46.9 million of residual interests to
ICIFC. In connection therewith, ICII lent ICIFC 100% of the purchase price.
This loan bears interest at a rate of 12% per annum, and is secured by the
residual interests.
F-44
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
33. SUBSEQUENT EVENTS
In the first quarter of 1997, the Company sold 370,000 shares of its common
stock investment in SPFC. This sale resulted in a reduction of the company's
ownership in SPFC to 49.4%. As such, beginning with the first quarter of 1997,
the Company will no longer consolidate SPFC in its consolidated financial
statements. The Company will report its investment in SPFC under the equity
method.
In the first quarter of 1997, the Company disposed of its investment in the
common stock of ICIFC. As a result of the disposition, beginning with the
first quarter of 1997, the Company will no longer consolidate ICIFC in its
consolidated financial statements.
F-45
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Cash.................................................. $ 29,093 $ 74,247
Interest bearing deposits............................. 88,670 3,369
Investment in Federal Home Loan Bank stock............ 6,530 17,152
Trading securities, at market......................... 23,734 25,180
Securities available for sale, at market.............. 24,180 59,116
Loans held for sale................................... 700,110 940,096
Loans held for investment, net........................ 1,013,359 1,068,599
Purchased and originated servicing rights............. 6,079 14,887
Capitalized excess servicing fees receivable.......... -- 23,142
Retained interest in loan and lease securitizations... 33,000 49,548
Interest-only and residual certificates............... -- 87,017
Accrued interest on loans............................. 13,090 13,847
Premises and equipment, net........................... 9,501 12,442
Other real estate owned, net.......................... 14,393 12,214
Goodwill.............................................. 47,903 38,491
Investment in Southern Pacific Funding Corporation.... 48,263 --
Other assets.......................................... 38,336 31,292
---------- ----------
Total assets........................................ $2,096,241 $2,470,639
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits.............................................. $1,161,357 $1,069,184
Borrowings from Federal Home Loan Bank................ 79,500 140,500
Other borrowings...................................... 304,902 694,352
Senior Notes.......................................... 219,782 88,209
Convertible subordinated debentures................... -- 75,000
Accrued interest payable.............................. 14,391 14,034
Accrued income taxes payable.......................... 34,351 55,327
Minority interest in consolidated subsidiaries........ 3,654 54,936
Other liabilities..................................... 30,663 39,589
---------- ----------
Total liabilities................................... 1,848,600 2,231,131
---------- ----------
Shareholders' equity:
Preferred stock, 8,000,000 shares authorized; none
issued or outstanding................................ -- --
Common stock, no par value. Authorized 80,000,000
shares; 38,476,418 and 38,291,112 shares issued and
outstanding at March 31, 1997 and December 31, 1996,
respectively......................................... 146,767 145,521
Retained earnings..................................... 96,014 88,977
---------- ----------
Unrealized gain on securities available for sale, net. 4,860 5,010
---------- ----------
Total shareholders' equity............................ 247,641 239,508
---------- ----------
Total liabilities and shareholders' equity............ $2,096,241 $2,470,639
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue:
Gain on sale of loans and leases........................ $ 8,666 $ 21,711
Interest on loans....................................... 42,930 45,194
Interest on investments................................. 5,625 2,185
Interest on other finance activities.................... 657 2,141
--------- ---------
Total interest income................................. 49,212 49,520
Interest expense........................................ 28,404 36,783
--------- ---------
Net interest income..................................... 20,808 12,737
Provision for loan and lease losses..................... 2,870 1,500
--------- ---------
Net interest income after provision for loan and lease
losses................................................. 17,938 11,237
--------- ---------
Loan servicing income................................... 1,280 2,010
Gain on sale of servicing rights........................ -- 8,065
Gain on sale of SPFC stock.............................. 4,306 --
Loss on sale of investment.............................. (403) --
Equity in net income of Southern Pacific Funding Corpo-
ration................................................. 6,253 --
Other income............................................ 2,255 1,202
--------- ---------
Total other income.................................... 13,691 11,277
--------- ---------
Total revenue....................................... 40,295 44,225
--------- ---------
Expenses:
Personnel expense....................................... 10,671 12,435
Amortization of PMSR's and OMSR's....................... 19 718
Occupancy expense....................................... 907 1,320
Data processing expense................................. 427 355
Net expenses of other real estate owned................. 757 2,768
Professional services................................... 2,588 1,146
FDIC insurance premiums................................. -- 45
Telephone and other communications...................... 429 907
Restructuring provision--Exit from mortgage banking op-
erations............................................... -- 3,800
General and administrative expense...................... 5,336 3,674
--------- ---------
Total expenses........................................ 21,134 27,168
--------- ---------
Income before income taxes, minority interest and ex-
traordinary item....................................... 19,161 17,057
Income taxes............................................ 7,976 6,901
Minority interest in income of consolidated subsidiar-
ies.................................................... 153 1,540
--------- ---------
Income before extraordinary item........................ 11,032 8,616
--------- ---------
Extraordinary item--Loss on early extinguishment of
debt, net of income taxes.............................. (3,995) --
--------- ---------
Net income............................................ $ 7,037 $ 8,616
========= =========
Primary and fully diluted income per share:
Income before extraordinary item........................ $ 0.27 $ 0.24
Extraordinary item--Loss on early extinguishment of
debt, net of income taxes.............................. (0.10) --
--------- ---------
Net income per common share........................... $ 0.17 $ 0.24
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 7,037 $ 8,616
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for loan and lease losses............ 2,870 1,500
Depreciation................................... 1,110 540
Amortization................................... 620 170
Accretion of discount.......................... (647) (2,141)
Gain on sale of Southern Pacific Funding Corpo-
ration stock.................................. (6,151) --
Gain on sale of servicing rights............... -- (8,065)
Gain on sale of loans and leases............... (8,666) (21,711)
Equity in net earnings of Southern Pacific
Funding Corp.................................. (6,253) --
Loss on sale of OREO........................... 956 978
Writedowns of other real estate owned.......... 543 --
Net change in loans held for sale.............. 247,461 304,479
Net change in accrued interest on loans........ 757 (242)
Net change in retained interest in loan and
lease securitizations......................... 16,548 6,177
Net change in interest only and residual cer-
tificates..................................... 87,017 --
Net change in capitalized excess servicing..... 23,142 4,859
Net change in purchased and originated servic-
ing rights.................................... 8,789 (7,451)
Net change in other assets..................... 1,632 (12,822)
Net change in other liabilities................ (19,241) 9,490
--------- ---------
Net cash provided by operating activities: 357,524 284,377
--------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits........ (85,301) 132,600
Purchase of servicing rights................... -- (2,744)
Proceeds from sale of servicing rights......... -- 4,573
Proceeds from sale of other real estate owned.. 1,761 1,798
Net change in trading securities............... 1,446 --
Sale of securities available for sale.......... 36,130 141,197
Net change in loans held for investment........ 48,122 19,568
Purchases of premises and equipment............ (2,039) (1,221)
Net change in investment in Southern Pacific
Funding Corporation........................... (42,010) --
Sales of Federal Home Loan Bank stock.......... 10,622 --
Cash utilized for acquisitions................. (14,699) --
--------- ---------
Net (used in) cash provided by investing activi-
ties: (45,968) 295,771
--------- ---------
Cash flows from financing activities:
Net change in deposits......................... 92,173 (69,083)
Advances from Federal Home Loan Bank........... 30,000 120,000
Repayments of advances from Federal Home Loan
Bank.......................................... (91,000) (115,000)
Net change in convertible subordinated deben-
tures......................................... (75,000) --
Net change in other borrowings................. (389,450) (425,783)
Proceeds form offering of Senior Notes due
2007.......................................... 194,500 --
Repayment of Senior Notes due 2004............. (73,241) --
Sale of bonds.................................. -- (111,995)
Net change in minority interest................ (51,282) 9,667
Proceeds from sale of SPFC stock............... 6,151 --
Proceeds from resale of Senior Notes........... -- 7,615
Proceeds from exercise of stock options........ 439 211
--------- ---------
Net cash used in financing activities: (356,710) (584,368)
--------- ---------
Net change in cash.............................. (45,154) (4,220)
Cash at beginning of year....................... 74,247 39,166
--------- ---------
Cash at end of period........................... $ 29,093 $ 34,946
========= =========
Supplemental disclosure of cash flow informa-
tion:
Income taxes paid during the period............ $ 2,160 $ 1,506
Interest paid during the period................ 15,522 39,207
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Imperial Credit Industries, Inc. (the "Company" or "ICII"), incorporated in
1986 in the State of California, is 24.5% owned by Imperial Bank. In 1991
Imperial Bank recapitalized the Company to conduct a full service mortgage
banking operation. Since then, the Company has transformed itself from a full
service mortgage banking operation to a diversified commercial and consumer
finance holding company.
The consolidated financial statements include ICII, its wholly owned
subsidiaries and a majority owned consolidated subsidiary (collectively the
"Company"). The wholly-owned subsidiaries include Southern Pacific Thrift and
Loan Association ("SPTL"), Imperial Business Credit, Inc. ("IBC"), Imperial
Credit Advisors, Inc. ("ICAI") and Auto Marketing Network, Inc. ("AMN"). The
majority-owned consolidated subsidiary is Franchise Mortgage Acceptance
Company, LLC ("FMAC"). FMAC is owned two-thirds by the Company and one-third
by the President of FMAC. The Company also has a 49.4% ownership percentage in
Southern Pacific Funding Corporation ("SPFC") (NYSE: SFC). The Company
accounts for this investment using the equity method of accounting. All
material intercompany balances and transactions have been eliminated.
2. DECONSOLIDATION OF SOUTHERN PACIFIC FUNDING CORPORATION AND ICI FUNDING
CORPORATION
During the first quarter of 1997, the Company sold 370,000 shares of the
common stock of Southern Pacific Funding Corporation ("SPFC") reducing its
ownership of SPFC from 51.2% at December 31, 1996 to 49.4% at March 31, 1997.
Therefore, the results of SPFC operations are now accounted for in the
Company's financial statements under the equity method of accounting. The
equity investment in SPFC is carried at cost adjusted for equity in
undistributed earnings.
During the first quarter of 1997, ICII disposed of its common stock interest
in ICI Funding Corporation (ICIFC), a subsidiary engaged in mortgage conduit
operations for Imperial Credit Mortgage Holdings ("ICMH"). At December 31,
1996, ICII owned 100% of the common stock of ICIFC which represented a 1%
economic interest since ICMH (NYSE: IMH) a former subsidiary and now a
separate publicly held mortgage real estate investment trust, owned all of the
nonvoting preferred stock of ICIFC, which gave ICMH a 99% economic interest in
ICIFC. The Company's disposal of its remaining economic interest in ICIFC
concludes its exit from the mortgage banking business.
3. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and with the
instructions to Form 10-Q and Rule 10-01 of 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 (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. The accompanying consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses
for the periods presented. Actual results could differ significantly from
those estimates. Prior year's consolidated financial statements have been
reclassified to conform to the 1997 presentation.
F-49
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. NET INCOME PER SHARE INFORMATION
Net income per common share is computed based on the weighted average number
of shares outstanding during the periods presented plus common stock
equivalents deemed to be dilutive. Common stock equivalents deemed to be
dilutive were calculated based on the average price per share during the
periods presented for primary net income per share and based on the ending
stock price per share, if greater than the average stock price per share, for
fully diluted net income per share for the periods presented. The number of
shares used in the computations give retroactive effect to stock dividends and
stock splits for all periods presented, including the Company's most recent 2-
for-1 stock split on October 23, 1996.
The weighted average number of shares including common stock equivalents for
the three months ended March 31, 1997 and 1996 was 40,884,908 and 35,360,806
for fully diluted income per share, respectively. The weighted average number
of shares including common stock equivalents for the three months ended March
31, 1997 and 1996 was 40,884,820 and 35,271,044 for primary income per share,
respectively.
5. ACCOUNTING PRONOUNCEMENT
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 125"), which establishes accounting for transfers and
servicing of financial assets and extinguishment of liabilities. This
statement specifies when financial assets and liabilities are to be removed
from an entity's financial statements, the accounting for servicing assets and
liabilities and the accounting for assets that can be contractually prepaid in
such a way that the holder would not recover substantially all of its recorded
investment.
Under SFAS 125, an entity recognizes only assets it controls and liabilities
it has incurred, discontinues recognition of assets only when control has been
surrendered, and discontinues recognition of liabilities only when they have
been extinguished. SFAS 125 requires that the selling entity continue to carry
retained interests, including servicing assets, relating to assets it no
longer recognizes. Such retained interests are based on the relative fair
values of the retained interests of the subject assets at the date of
transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
SFAS 125 requires an entity to recognize its obligation to service financial
assets that are retained in a transfer of assets in the form of a servicing
asset or liability. The servicing asset or liability is to be amortized in
proportion to, and over the period of, net servicing income or loss. Servicing
assets and liabilities are to be assessed for impairment based on their fair
value.
SFAS 125 modifies the accounting for interest-only strips or retained
interests in securitizations, such as capitalized servicing fees receivable,
that can be contractually prepaid or otherwise settled in such a way that the
holder would not recover substantially all of its recorded investment. In this
case, it requires that they be classified as available for sale or as trading
securities. Interest-only strips and retained interests are recorded at market
value.
Under the provisions of SFAS 125, management has determined that mortgage
backed securities retained by the Company as a result of securitization
transactions will be classified as trading securities. All other retained
securities will be classified as available for sale or trading as determined
at the time of securitization.
Changes in market value are included in operations, if classified as trading
securities, or in shareholders' equity as unrealized gains or losses, net of
the related tax effect, if classified as available for sale. SFAS 125 was
effective for the Company on January 1, 1997. The implementation of SFAS 125
did not have a material impact on the Company's financial condition or results
of operations.
F-50
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. LOANS HELD FOR SALE
Loans held for sale consisted of the following at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1997 1996
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Loans secured by real estate:
Single family 1-4........................... $ 5,607 $452,533
Multi-family................................ 248,300 186,391
Commercial.................................. 122,554 109,469
-------- --------
376,461 748,393
Leases........................................ 19,082 8,547
Auto.......................................... 77,326 --
Commercial loans.............................. 227,241 183,156
-------- --------
$700,110 $940,096
======== ========
</TABLE>
7. CONSOLIDATING BALANCE SHEET AND INCOME STATEMENTS
The following represents summarized consolidating financial information as
of March 31, 1997 and December 31, 1996, and for the three months ended March
31, 1997 and 1996, with respect to the financial position and operations of
the Company and its wholly-owned and majority-owned subsidiaries. On January
17, 1997, the Company sold $200 million of 9 7/8% senior notes due 2007. The
senior notes are guaranteed by three of the Company's wholly-owned
subsidiaries, IBC, ICAI, and AMN (the "Other Guarantor Subsidiaries"), and the
Company's 66 2/3% owned subsidiary, FMAC. Each of the guarantees is full and
unconditional and joint and several. The separate financial statements and
other related disclosures of the wholly-owned subsidiary guarantors are not
presented as management has determined that such information is not material
to investors. FMAC has filed a Form 10-Q with the Commission as of and for the
quarter ended March 31, 1997. None of the subsidiary guarantors are restricted
from making distributions to the Company.
F-51
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------ ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 54,671 $ -- $ 7,219 $ 16,261 $ (49,058) $ 29,093
Interest bearing
deposits............... 5,128 2,630 200 80,712 -- 88,670
Investments in Federal
Home Loan Bank stock... -- -- -- 6,530 -- 6,530
Investment and trading
securities............. 8,568 2,684 863 36,364 (565) 47,914
Loans held for sale..... 5,607 249,220 19,082 448,180 (21,979) 700,110
Loans held for
investment, net........ 115,148 -- 199 944,601 (46,589) 1,013,359
Purchased and originated
servicing rights....... -- -- 618 5,461 -- 6,079
Capitalized excess
servicing fees
receivable............. -- -- -- -- -- --
Retained interest in
loan and lease
Securitizations........ -- 6,601 26,399 -- -- 33,000
Interest-only and
residual certificates.. -- -- -- -- -- --
Investment in
subsidiaries........... 223,999 -- -- -- (175,736) 48,263
Goodwill................ -- 4,251 13,931 29,721 -- 47,903
Other assets............ 73,954 8,356 (15,217) 29,283 (21,056) 75,320
-------- -------- -------- ---------- --------- ----------
Total assets........ $487,075 $273,742 $ 53,294 $1,597,113 $(314,983) $2,096,241
======== ======== ======== ========== ========= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C>
Deposits................ $ -- $ -- $ -- $1,209,801 $ (48,444) $1,161,357
Borrowings from Federal
Home Loan Bank......... -- -- -- 79,500 -- 79,500
Other borrowings........ -- 259,665 9,738 117,287 (81,788) 304,902
Senior notes............ 219,782 -- -- -- -- 219,782
Convertible subordinated
debentures............. -- -- -- -- -- --
Minority interest in
consolidated
subsidiaries........... 2,856 -- -- -- 798 3,654
Other liabilities....... 24,739 2,411 14,695 49,388 (11,828) 79,405
-------- -------- -------- ---------- --------- ----------
Total liabilities....... 247,377 262,076 24,433 1,455,976 (141,262) 1,848,600
-------- -------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock......... -- -- -- -- -- --
Common stock............ 146,767 5,792 21,501 81,202 (108,495) 146,767
Retained earnings....... 88,243 5,874 7,188 59,935 (65,226) 96,014
Unrealized gain on
securities available
for sale............... 4,688 -- 172 -- -- 4,860
-------- -------- -------- ---------- --------- ----------
Total shareholders'
equity............. 239,698 11,666 28,861 141,137 (173,721) 247,641
-------- -------- -------- ---------- --------- ----------
Total liabilities
and shareholders'
equity............. $487,075 $273,742 $ 53,294 $1,597,113 $(314,983) $2,096,241
======== ======== ======== ========== ========= ==========
</TABLE>
F-52
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
GUARANTOR NON-GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------- ------------ ------------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 5,213 $ -- $ 7,973 $ 64,926 $ (3,865) $ 74,247
Interest bearing
deposits............... -- 2,594 163 -- 612 3,369
Investments in Federal
Home Loan Bank stock... -- -- -- 17,152 -- 17,152
Investment and trading
securities............. 8,802 39,349 887 35,824 (566) 84,296
Loans held for sale..... 4,839 98,915 8,547 853,023 (25,228) 940,096
Loans held for
investment, net........ 34,505 -- 86,214 948,567 (687) 1,068,599
Purchased and originated
servicing rights....... -- -- 637 14,250 -- 14,887
Capitalized excess
servicing fees
receivable............. -- -- -- 23,142 -- 23,142
Retained interest in
loan and lease
Securitizations........ -- 6,908 19,646 22,994 -- 49,548
Interest-only and
residual certificates.. -- -- -- 87,017 -- 87,017
Investment in
subsidiaries........... 269,651 -- -- -- (269,651) --
Goodwill................ -- 4,332 14,115 20,044 -- 38,491
Other assets............ 106,601 8,078 (14,981) (10,333) (19,570) 69,795
-------- -------- -------- ---------- --------- ----------
Total assets.......... $429,611 $160,176 $123,201 $2,076,606 $(318,955) $2,470,639
======== ======== ======== ========== ========= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C>
Deposits................ $ -- $ -- $ -- $1,072,266 $ (3,082) $1,069,184
Borrowings from Federal
Home Loan Bank......... -- -- -- 140,500 -- 140,500
Other borrowings........ 15,363 143,139 88,768 480,103 (33,021) 694,352
Senior notes............ 88,209 -- -- -- -- 88,209
Convertible subordinated
debentures............. -- -- -- 75,000 -- 75,000
Minority interest in
consolidated
subsidiaries........... 45,149 -- -- -- 9,787 54,936
Other liabilities....... 41,382 2,580 9,222 68,854 (13,088) 108,950
-------- -------- -------- ---------- --------- ----------
Total liabilities....... 190,103 145,719 97,990 1,836,723 (39,404) 2,231,131
-------- -------- -------- ---------- --------- ----------
Shareholders' equity:
Preferred stock......... -- -- -- 9,143 (9,143) --
Common stock............ 145,521 5,792 21,501 134,590 (161,883) 145,521
Retained earnings....... 88,977 8,665 3,525 96,150 (108,340) 88,977
Unrealized gain on
securities available
for sale............... 5,010 -- 185 -- (185) 5,010
-------- -------- -------- ---------- --------- ----------
Total shareholders'
equity............... 239,508 14,457 25,211 239,883 (279,551) 239,508
-------- -------- -------- ---------- --------- ----------
Total liabilities and
shareholders' equity. $429,611 $160,176 $123,201 $2,076,606 $(318,955) $2,470,639
======== ======== ======== ========== ========= ==========
</TABLE>
F-53
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
CONSOLIDATING CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Gain on sale of loans
and leases............. $ (351) $ 390 $ 5,338 $ 40 $ 3,249 $ 8,666
------- ------- ------- ------- ------- -------
Interest income......... 5,146 3,342 4,125 36,754 (155) 49,212
Interest expense........ 5,209 2,699 1,639 19,012 (155) 28,404
------- ------- ------- ------- ------- -------
Net interest income..... (63) 643 2,486 17,742 -- 20,808
Provision for loan loss. -- -- -- 2,870 -- 2,870
------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan loss............ (63) 643 2,486 14,872 -- 17,938
------- ------- ------- ------- ------- -------
Loan servicing income... (1,084) 640 936 788 -- 1,280
Equity in net income
SPFC................... 6,253 -- -- -- -- 6,253
Gain on sale of SPFC
stock.................. 4,306 -- -- -- -- 4,306
Dividends received from
subsidiaries........... 8,540 -- -- -- (8,540) --
Other income............ (562) (403) 1,857 960 -- 1,852
------- ------- ------- ------- ------- -------
Total other income.... 17,453 237 2,793 1,748 (8,540) 13,691
------- ------- ------- ------- ------- -------
Total revenues...... 17,039 1,270 10,617 16,660 (5,291) 40,295
------- ------- ------- ------- ------- -------
Expenses:
Personnel expense....... 583 2,598 1,798 5,692 -- 10,671
Amortization of PMSR's
and OMSR's............. -- -- 19 -- -- 19
Occupancy expense....... 281 116 110 400 -- 907
Data processing expense. 287 7 17 116 -- 427
Net expenses of other
real estate owned...... 487 -- -- 270 -- 757
General, administrative
and other expense...... 1,624 1,340 2,333 3,056 -- 8,353
------- ------- ------- ------- ------- -------
Total expenses...... 3,262 4,061 4,277 9,534 -- 21,134
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes, minority
interest and
extraordinary item..... 13,777 (2,791) 6,340 7,126 (5,291) 19,161
Income taxes............ 2,303 -- 2,677 2,996 -- 7,976
------- ------- ------- ------- ------- -------
Income (loss) before
minority interest and
extraordinary item..... 11,474 (2,791) 3,663 4,130 (5,291) 11,185
Minority interest in
income of consolidated
subsidiaries........... 153 -- -- -- -- 153
------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item..... 11,321 (2,791) 3,663 4,130 (5,291) 11,032
Extraordinary item--Loss
on early extinguishment
of debt, net of income
taxes.................. (3,995) -- -- -- -- (3,995)
------- ------- ------- ------- ------- -------
Income (loss) before
equity in undistributed
income of subsidiaries. 7,326 (2,791) 3,663 4,130 (5,291) 7,037
Equity in undistributed
income of subsidiaries. (289) -- -- -- 289 --
------- ------- ------- ------- ------- -------
Net (loss) income....... $ 7,037 $(2,791) $ 3,663 $ 4,130 $(5,002) $ 7,037
======= ======= ======= ======= ======= =======
</TABLE>
F-54
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
CONSOLIDATING CONDENSED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER NON-
GUARANTOR GUARANTOR
ICII FMAC SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Gain on sale of loans
and leases............. $ 3,799 $5,294 $ 480 $10,522 $ 1,616 $21,711
------- ------ ------ ------- -------- -------
Interest income......... 4,724 730 15 44,464 (413) 49,520
Interest expense........ 6,245 699 193 29,641 5 36,783
------- ------ ------ ------- -------- -------
Net interest income..... (1,521) 31 (178) 14,823 (418) 12,737
Provision for loan
losses................. -- -- -- 1,500 -- 1,500
------- ------ ------ ------- -------- -------
Net interest income
after Provision for
loan loss............ (1,521) 31 (178) 13,323 (418) 11,237
------- ------ ------ ------- -------- -------
Loan servicing income... 1,205 282 404 119 -- 2,010
Dividends received from
subsidiaries........... -- -- -- -- -- --
Gain (loss) on sale of
servicing rights....... 6,723 -- -- -- 1,342 8,065
Other income............ 50 -- 645 507 -- 1,202
------- ------ ------ ------- -------- -------
Total other income.. 7,978 282 1,049 626 1,342 11,277
------- ------ ------ ------- -------- -------
Total revenues...... 10,256 5,607 1,351 24,471 2,540 44,225
------- ------ ------ ------- -------- -------
Expenses:
Personnel expense....... 4,138 1,918 740 5,639 -- 12,435
Amortization of PMSR's
and OMSR's............. 401 -- 51 266 -- 718
Occupancy expense....... 804 57 44 415 -- 1,320
Data processing expense. 248 1 1 105 -- 355
Net expenses of other
real estate owned...... 2,000 -- -- 768 -- 2,768
General, administrative
and other expense...... 5,803 608 (101) 3,262 -- 9,572
------- ------ ------ ------- -------- -------
Total expenses...... 13,394 2,584 735 10,455 -- 27,168
------- ------ ------ ------- -------- -------
(Loss) income before
income taxes and
minority interest...... (3,138) 3,023 616 14,016 2,540 17,057
Income taxes............ (125) -- 255 5,699 1,072 6,901
------- ------ ------ ------- -------- -------
(Loss) Income before
minority interest and
extraordinary item..... (3,013) 3,023 361 8,317 1,468 10,156
Minority interest in
income of consolidated
subsidiaries........... 1,540 -- -- -- -- 1,540
------- ------ ------ ------- -------- -------
(Loss) Income before
equity in undistributed
income of subsidiaries. (4,553) 3,023 361 8,317 1,468 8,616
Equity in undistributed
income of subsidiaries. 13,169 -- -- -- (13,169) --
------- ------ ------ ------- -------- -------
Net income.............. $ 8,616 $3,023 $ 361 $ 8,317 $(11,701) $ 8,616
======= ====== ====== ======= ======== =======
</TABLE>
F-55
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Independent Auditors' Report............................................. F-57
Balance Sheets........................................................... F-58
Statements of Operations................................................. F-59
Statements of Changes in Members' Equity................................. F-60
Statements of Cash Flows................................................. F-61
Notes to Financial Statements............................................ F-62
Unaudited Financial Statements:
Balance Sheets........................................................... F-71
Statements of Income..................................................... F-72
Statements of Cash Flows................................................. F-73
Notes to Financial Statements............................................ F-74
</TABLE>
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Managers
Franchise Mortgage Acceptance Company LLC:
We have audited the accompanying balance sheets of Franchise Mortgage
Acceptance Company LLC as of December 31, 1996 and 1995, and the related
statements of operations, changes in members' equity and cash flows for the
year ended December 31, 1996 and for the period from June 30, 1995 (inception)
through December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our 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 financial statements referred to above present fairly,
in all material respects, the financial position of Franchise Mortgage
Acceptance Company LLC as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the year ended December 31, 1996 and for
the period from June 30, 1995 (inception) through December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
January 29, 1997
F-57
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
------
Restricted cash.............................................. $ -- $ 526
Interest bearing deposits.................................... 2,594 --
Securities available for sale................................ 39,349 --
Franchise loans held for sale................................ 98,915 181,254
Retained interest in loan securitizations.................... 6,908 --
Premises and equipment, net.................................. 1,162 235
Goodwill..................................................... 4,332 4,226
Receivable from Southern Pacific Thrift & Loan............... -- 579
Receivable from Imperial Credit Industries, Inc.............. -- 924
Accrued interest receivable.................................. 560 1,108
Other investments............................................ 4,383 --
Other assets................................................. 1,973 196
-------- --------
Total assets............................................. $160,176 $189,048
======== ========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Book overdraft............................................... $ 171 $ 445
Payable to Imperial Credit Industries, Inc. ................. 17,728 --
Borrowings................................................... 125,240 69,637
Bonds........................................................ -- 111,995
Accrued interest payable..................................... 148 1,062
Residual interest due to owner............................... -- 526
Other liabilities............................................ 2,432 1,610
-------- --------
Total liabilities........................................ 145,719 185,275
Commitments and contingencies (Note 14)
Members' equity:
Members' capital........................................... 5,792 4,432
Retained earnings (accumulated deficit).................... 8,665 (659)
-------- --------
Total members' equity.................................... 14,457 3,773
-------- --------
Total liabilities and members' equity.................... $160,176 $189,048
======== ========
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 30, 1995
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -------------------
<S> <C> <C>
Revenues:
Gain on sale of loans................... $18,671 $ --
------- ------
Interest income......................... 16,130 1,929
Interest charges........................ 14,489 1,690
------- ------
Net interest income................... 1,641 239
------- ------
Loan servicing income................... 1,191 318
Gain on sale of servicing rights........ -- 31
Other income............................ 63 --
------- ------
Total other income.................... 1,254 349
------- ------
Total revenue......................... 21,566 588
------- ------
Expenses:
Personnel............................... 8,270 356
Professional services................... 1,093 106
Travel.................................. 614 155
Business promotion...................... 450 96
Occupancy............................... 310 94
Messenger service....................... 115 15
Goodwill amortization................... 411 146
General and Administrative.............. 979 279
------- ------
Total expenses........................ 12,242 1,247
------- ------
Net income (loss)..................... $ 9,324 $ (659)
======= ======
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD FROM JUNE 30, 1995
(INCEPTION) THROUGH DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
(DEFICIT) TOTAL
MEMBERS' RETAINED MEMBERS'
CAPITAL EARNINGS EQUITY
-------- ----------- --------
<S> <C> <C> <C>
Balance, June 30, 1995 (inception).............. $ -- $ -- $ --
Members' contribution--ICII..................... 7,592 -- 7,592
Members' contribution--Knyal.................... 645 -- 645
Return of capital--ICII......................... (3,805) -- (3,805)
Net loss........................................ -- (659) (659)
------- ------ -------
Balance, December 31, 1995...................... $ 4,432 $ (659) $ 3,773
Net income...................................... -- 9,324 9,324
Members' Contribution--ICII..................... 1,360 -- 1,360
------- ------ -------
Balance, December 31, 1996...................... $ 5,792 $8,665 $14,457
======= ====== =======
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED FROM JUNE 30, 1995
DECEMBER 31, (INCEPTION) THROUGH
1996 DECEMBER 31, 1995
------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 9,324 $ (659)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 2,883 153
Net change in loans held for sale......... 94,102 (181,254)
Decrease (increase) in interest
receivable............................... 548 (1,108)
Gain on sale of loans..................... (11,763) --
Gain on sale of servicing rights.......... -- (31)
Net change in other liabilities........... (618) 3,198
Net change in other assets................ (7,027) (2,214)
--------- ---------
Net cash provided by (used in) operating
activities............................. 87,449 (181,915)
--------- ---------
Cash flows from investing activities:
Purchases of premises and equipment......... (1,190) (162)
Net change in interest bearing deposits..... (2,594) --
Purchase of securities available for sale... (41,704) --
Purchase of other investments............... (4,383) --
Sale of servicing rights.................... -- 3,805
--------- ---------
Net cash (used in) provided by investing
activities............................. (49,871) 3,643
--------- ---------
Cash flows from financing activities:
Issuance of bonds........................... -- 111,995
Repayment of bonds.......................... (111,995) --
Net change in borrowings from ICII.......... 19,088 --
Net change in borrowings.................... 55,603 69,637
Return of capital........................... -- (3,805)
--------- ---------
Net cash (used in) provided by financing
activities............................. (37,304) 177,827
--------- ---------
Net change in cash...................... 274 (445)
Book overdraft at beginning of period......... (445) --
--------- ---------
Book overdraft at end of period............... $ (171) $ (445)
========= =========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
On June 30, 1995, Imperial Credit Industries, Inc. (ICII) acquired from
Greenwich Capital Financial Products, Inc. (Greenwich), certain assets of
Greenwich's Franchise Mortgage Acceptance Company division (the FMAC
Division), including all of Greenwich's rights under certain servicing
contracts entered into by the FMAC Division (the Servicing Contracts). The
Servicing Contracts pertain to the servicing of franchise loans that were
previously securitized by Greenwich through the FMAC Division and other
franchise loans owned by Greenwich not yet securitized. Concurrent with the
closing of the transactions described above, ICII entered into an operating
agreement with Wayne L. Knyal (Knyal), the former president of the FMAC
Division, for the formation of a California limited liability company named
Franchise Mortgage Acceptance Company, LLC (the Company). In connection with
the acquisition, the Company or its affiliates assumed certain liabilities
related to the Servicing Contracts and Greenwich agreed to act as the
Company's exclusive agent in connection with the securitization of franchise
loans for a period of 24 months.
The Company was formed to originate, securitize and service franchise loans.
Under the terms of the operating agreement, in exchange for a 66 2/3%
ownership interest in the Company, ICII was obligated to contribute to the
Company $1.3 million in cash and all of the assets purchased from Greenwich.
In exchange for a 33 1/3% ownership interest in the Company, Knyal caused his
wholly owned company, Franchise Mortgage Acceptance Corporation ("FMAC
Corporation"), to contribute to the Company all of its rights under a
servicing contract pertaining to franchise loans that were previously
securitized by FMAC Corporation.
On June 30, 1995, ICII completed the acquisition of certain net assets of
the FMAC Division for a net purchase price of $7.6 million which included $3.8
million in contingent consideration based on loan originations after the date
of acquisition up to a maximum principal amount of such loans equal to
$250.0 million. The acquisition was recorded using the purchase method of
accounting. Under this method of accounting, the purchase price was allocated
to the respective assets acquired (primarily purchased servicing rights) with
a fair value of $3.2 million at the date of the purchase transaction. The
excess of the purchase price over the fair value of the net assets acquired
was recorded as goodwill of $4.4 million.
2. BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the balance
sheet and revenues and expenses for the periods presented. Significant balance
sheet accounts which could be materially affected by such estimates include
securities available for sale and retained interest in loan securitizations.
Actual results could differ significantly from those estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less at date of
acquisition to be cash equivalents. Restricted cash includes cash pledged as a
reserve account for the FLRT 1995-B securitization.
INVESTMENT SECURITIES
The Company classifies investments as held-to-maturity, trading, and/or
available-for-sale. Held-to-maturity investments are reported at amortized
cost, trading securities are reported at fair value, with unrealized gains and
F-62
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
losses included in operations, and available-for-sale securities are reported
at fair value with unrealized gains and losses included as a separate
component of members' equity.
Investments held-to-maturity are those securities that management has the
positive intent and ability to hold to maturity.
Investment securities available-for-sale are those securities which are not
held in the trading portfolio and are not held in the held-to-maturity
portfolio.
Realized gains and losses on securities available-for-sale are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
FRANCHISE LOANS HELD FOR SALE
Loans held for sale are carried at the lower of aggregate cost or market.
RETAINED INTEREST IN LOAN SECURITIZATIONS
The Company may create retained interest in loan securitizations as a result
of the sale of loans into securitization trusts. Retained interest in loan
securitizations are carried at fair value.
Each loan securitization has specific credit enhancement requirements in the
form of overcollateralization which must be met before the Company receives
cash flows due. As the securitized assets generate excess cash flows, they are
initially used to pay down the balance of the pass-through certificates until
such time as the ratio of securitized assets to pass-through certificates
reaches the overcollateralization requirement specified in each
securitization. This overcollateralization amount is carried on the balance
sheet as retained interest in loan securitizations. After the
overcollateralization requirement and the other requirements specified in the
pooling and servicing agreement have been met, the Company begins to receive
the excess cash flows and a portion of the retained interest on a monthly
basis.
Retained interest in loan securitizations are amortized using the interest
method. To the extent that actual future performance results are less than the
Company's original performance estimates, the Company's retained interest in
loan securitizations will be written down through a charge to operations in
that period.
GAIN (LOSS) ON SALE OF LOANS
Loans are sold through securitizations with the servicing retained by the
Company. Securitizations typically require credit enhancements in the form of
cash reserves or overcollateralization which are reflected as retained
interest in loan securitizations on the balance sheet. Present value
computations are used to estimate the value of the retained interest and
considering such items as interest rates, prepayment, default and loss
assumptions that management believes market participants would use for similar
instruments. Gains are recognized to the extent that the sales price, less
selling costs, exceeds the allocated basis of the portion of the loans sold.
The Company recognizes the sale of loans when the sales transaction settles
and the risks and rewards of ownership are determined to have passed to the
purchasing party.
SALES OF SERVICING RIGHTS
The Company recognizes gain or loss on the sale of servicing rights when the
sales contract has been executed, a substantial down payment has been made,
and the risks and rewards of ownership are determined to have passed to the
purchasing party.
F-63
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
LOAN ORIGINATION FEES
Origination fees received on franchise loans held for sale, net of direct
costs related to the origination of the loans, are deferred until the time of
sale and are included in the computation of the gain or loss on the sale of
the related loans.
SERVICING FEES
Servicing fees are earned on the cash flow streams from various pools of
securitized loans serviced for others. Servicing fees are recognized as income
when received. At December 31, 1996 and 1995, the Company serviced loans of
$593.7 million and $207.7 million, respectively, for affiliates and others.
PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost, less accumulated depreciation or
amortization. Depreciation on premises and equipment is recorded using the
straight-line method over the estimated useful lives of individual assets
(three to seven years). Leasehold improvements are amortized over the terms of
their related leases or the estimated useful lives of improvements, whichever
is shorter.
INCOME TAXES
Under current Federal and applicable state limited liability company laws
and regulations, limited liability companies are treated as partnerships for
tax reporting purposes and, accordingly, are not subject to income taxes.
Therefore, no provision for income taxes has been made in the Company's
financial statements. For tax purposes, income or losses are included in the
tax returns of the members.
GOODWILL
Goodwill is amortized on a straight-line basis over its estimated useful
life of 15 years. Goodwill is reviewed for possible impairment when events or
changed circumstances may affect the underlying basis of the asset.
HEDGING PROGRAM
The Company regularly securitizes and sells fixed and variable-rate mortgage
loans. To offset the effects of interest rate fluctuations on the value of its
fixed-rate loans held for sale, the Company in certain cases will hedge its
interest rate risk related to loans held for sale by selling U.S. Treasury
securities short or in the forward market.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS 125"), which establishes accounting for transfers and
servicing of financial assets and extinguishment of liabilities and which is
effective for the Company on January 1, 1997. This statement specifies when
financial assets and liabilities are to be removed from an entity's financial
statements, the accounting for servicing assets and liabilities and the
accounting for assets that can be contractually prepaid in such a way that the
holder would not recover substantially all of its recorded investment.
Under SFAS 125, an entity recognizes only assets it controls and liabilities
it has incurred, discontinues recognition of assets only when control has been
surrendered, and discontinues recognition of liabilities only
F-64
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
when they have been extinguished. SFAS 125 requires that the selling entity
continue to carry retained interests, including servicing assets, relating to
assets it no longer recognizes. Such retained interests are based on the
relative fair values of the retained interests of the subject assets at the
date of transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
SFAS 125 requires an entity to recognize its obligation to service financial
assets that are retained in a transfer of assets in the form of a servicing
asset or liability. The servicing asset or liability is to be amortized in
proportion to, and over the period of, net servicing income or loss. Servicing
assets and liabilities are to be assessed for impairment based on their fair
value.
Management has determined that the implementation of SFAS 125 will not have
a material impact on the Company's financial condition or results of
operations. Under the provisions of SFAS 125, securitization interests
retained by the Company as a result of securitization transactions will be
held as either available for sale or trading.
Changes in market value are included in operations, if classified as trading
securities, or in members' equity as unrealized gains or losses, if classified
as available for sale.
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash transactions included the contribution of all of the assets acquired
by ICII from Greenwich including $80,000 of premises and equipment, $11,000 of
prepaid expenses and approximately $3.1 million of servicing rights. In
addition, servicing rights totaling $645,000 were contributed by Wayne Knyal
for his interest in the Company. Cash paid for the period from June 30, 1995
(inception) through December 31, 1995, for interest totaled $1.4 million,
including approximately $1.0 million paid to Southern Pacific Thrift and Loan
(SPTL), an affiliate. During 1996, ICII contributed $1.4 million to the
Company by decreasing the balances of the outstanding payable to ICII by the
amount of the contribution. Cash paid for interest for the year ended
December 31, 1996 was $15.6 million, including approximately $10.0 million
paid to SPTL.
5. FRANCHISE LOANS HELD FOR SALE
At December 31, 1996 and 1995, franchise loans held for sale consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Franchise loans held for sale........................... $94,490 $174,879
Franchise equipment loans and leases held for sale...... 4,385 --
Premium on franchise loans held for sale................ -- 5,946
Net deferred loan fees.................................. (750) (203)
Unearned lease income................................... (497) --
Deferred hedging loss................................... 1,287 632
------- --------
Total franchise loans................................. $98,915 $181,254
======= ========
</TABLE>
The Company's franchise loans are primarily comprised of loans to
experienced franchisees of nationally recognized restaurant concepts. A
substantial portion of its debtors' ability to honor their contracts is
dependent upon the cash flows generated by the franchise restaurant units
themselves. The franchise loans generally are collateralized by the business
property, and the real estate on which the franchises are located. During the
year ended December 31, 1996 and the six-month period ending December 31,
1995, the Company originated or acquired $449.3 million and $163.5 million in
franchise loans, respectively. During the year ended December 31,
F-65
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1996 and the six month period ended December 31, 1995, the Company securitized
$325.1 million and $105.2 million of franchise mortgage loans, respectively.
As of December 31, 1996 and 1995, $125.4 million and $174.9 million,
respectively were pledged as collateral for the borrowings and bonds of the
Company.
As of December 31, 1996 and 1995, there were no nonaccrual, restructured or
impaired loans.
6. PREMISES AND EQUIPMENT, NET
Premises and equipment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------ ----
(IN
THOUSANDS)
<S> <C> <C>
Premises and equipment....................................... $1,286 $242
Less accumulated depreciation and amortization............. (124) (7)
------ ----
Ending balance............................................... $1,162 $235
====== ====
</TABLE>
7. HEDGING
As of December 31, 1996, the Company had open positions of $94.1 million
related to the sales of United States Treasury securities in the forward
market. The proceeds from the short sale are shown net of the related
liability in the accompanying balance sheet at December 31, 1996. At December
31, 1996, the Company's unrealized loss on open positions was $1.3 million.
The Company used the hedging program in anticipation of the formation of the
FLRT 1995-B, a special purpose entity (SPE), into which the Company delivered
$105.2 million of franchise loans. The Company incurred a loss on the hedging
transaction of $632,000 which was recorded as an adjustment to the basis of
the loans collateralizing the pass-through certificates and entered into the
gain or loss on sale when the loans were sold in 1996.
8. BORROWINGS
Borrowings consisted of the following credit facilities available at
December 31, 1996, and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------- ----------------------------------
INTEREST COMMITMENT PRINCIPAL INTEREST COMMITMENT PRINCIPAL
CREDIT FACILITY EXPIRATION DATE INDEX RATE AMOUNT OUTSTANDING RATE AMOUNT OUTSTANDING
--------------- ----------------- ------------- -------- ------------- ----------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Credit Suisse First December 31, 1997 Libor plus 7.31% $ 200,000 $ 48,673 -- $ -- $ --
Boston............ 125 basis
points
Banco Santander.... Under extension Libor plus 7.63% 50,000 16,181 8.00% 25,000 12,615
225 basis
points
Greenwich Capital 30 days on demand Libor plus 7.36% Not specified 35,158 7.25% Not specified 10,054
Financial Markets, 125 basis
Inc............... points
Southern Pacific Not specified Coupon less 9.17% 25,228 25,228 9.17% 46,968 46,968
Thrift & Loan..... approximately
50 basis
points
------------- -------- ------------- -------
$ 275,228 $125,240 $ 71,968 $69,637
============= ======== ============= =======
</TABLE>
The proceeds from the Greenwhich Financial Capital Products, Inc. credit
facility at December 31, 1996, were used to purchase asset backed securities
totaling $39.3 million which are included in securities availble for sale in
the accompanying balance sheets.
F-66
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. BONDS
In December 1995, the Company, through a special purpose entity (SPE),
issued pass-through certificates (the Bonds) secured by $105.2 million of
franchise loans included in franchise loans held for sale to various
investors. The debentures consist of three separate classes, Class A, Class B
and Class C, with principal balances at December 31, 1995 of approximately
$92.6 million, $4.2 million and $4.2 million, respectively. The Class C bonds
are subordinate to Class B and both Class B and C are subordinate to Class A.
The Bonds have a weighted average loan rate of 9.63%, a pass-through rate of
8.59%, and stated maturity of 13 years. The premium associated with the Bonds
of $11.0 million is being amortized as an adjustment to interest expense over
the anticipated life of the Bonds. Due to the Company's retained interest in
the SPE and the disproportionate payments on the pass-through certificates,
the Company accounted for this transaction as a financing.
On March 28, 1996, the Company sold its interest in the SPE to Imperial
Credit Mortgage Holdings, Inc. and affiliate, receiving proceeds from the sale
of $2.8 million. As a result of the sale, the Company removed from its balance
sheet the loans and related bonds of $111.2 million and $112.0 million,
respectively, resulting in a net gain of $3.6 million.
10. RESIDUAL INTEREST DUE TO OWNER AND RESTRICTED CASH
The SPE is required to maintain in a separate reserve account a cash balance
equal to .5% of the original outstanding principal balance of the mortgage
loans collateralizing the Bonds. The remaining balance in this account, if
any, is payable to the residual owner of the SPE at the date the Bonds mature.
The corresponding cash balance is reflected as restricted cash.
11. PROFIT SHARING AND 401(K) PLANS
Beginning July 1, 1993, ICII initiated a 401(k) plan in which employees of
the Company are eligible to participate. Under the plan, employees may elect
to enroll at the beginning of any month in which the employee has been
employed for at least six months. Employees may contribute up to 14% of their
salaries. The Company will match 50% of the employee's contribution up to 4%
of the employee's compensation. The Company may also make a discretionary
contribution on an annual basis to be allocated to participants who have
contributed in excess of 4% of their compensation. The allocation is based
upon a formula set by the plan and requires a five-year vesting period. All
forfeitures are allocated to the remaining participants in the plan.
Distribution of vested benefits to a terminated participant in the 401(k) is
made in accordance with the contribution allocation form signed by the
employee. Distributions are made, by election of the participant, in either
certificates of deposit, ICII common stock and stock or bond mutual funds or a
combination thereof.
The Company contributed $88,000 and $13,000 to the 401(k) plan in for the
year ended December 31, 1996 and from June 30, 1995 (inception) through
December 31, 1995, respectively.
12. TRANSACTIONS WITH AFFILIATES
In the ordinary course of business, the Company has conducted transactions
with affiliated companies. All such transactions are conducted at "arm's
length" in accordance with the Company's policies.
At December 31, 1995, the Company had a net receivable of principal and
interest on franchise loans from SPTL of $579,000. In July 1995, the Company
sold approximately $3.8 million of franchise servicing rights to SPTL,
resulting in a gain of $31,000. The Company also had a receivable from ICII, a
member, of $924,000 bearing interest at 10.4% as of December 31, 1995 and a
payable of $526,000 relating to ICII's residual interest in the Franchise Loan
Receivable Trust 1995-B (FLRT 1995-B).
F-67
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company provides subservicing on a contractual basis for servicing
rights owned by SPTL. At December 31, 1996 and 1995, there was approximately
$183 million and $262 million of loans outstanding underlying this
subservicing arrangement. The Company receives approximately 13 basis points
for providing such services.
The Company purchased $55.3 million in franchise loans at a $6.0 million
premium from SPTL on December 29, 1995. These franchise loans were purchased
by SPTL from Greenwich on November 30, 1995. The selling price between the
Company and SPTL approximated SPTL's carrying value which approximated fair
value.
SPTL has provided warehouse facilities for the Company under which the loans
are closed under SPTL's name with the intent to resell the franchise loans to
the Company for inclusion into securitizations. The rate charged is equivalent
to the rate earned on the franchise loans less approximately 50 basis points,
or 9.17%. As of December 31, 1996 and December 31, 1995, the Company had an
outstanding balance of $25.2 million and $47.0 million, respectively with
respect to this facility. During the year ended December 31, 1996 and from
June 30, 1995 (inception) through December 31, 1995, the Company paid SPTL
$10.3 million and $1.2 million in interest expense associated with this
facility, respectively.
At December 31, 1996, the Company had borrowings from ICII outstanding of
$17.7 million. The Company pays interest at 15% on the outstanding balance.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include, interest bearing deposits, securities
available for sale, retained interest in loan securitizations, receivables
from and payables to affiliate, borrowings and bonds. These estimates are
subjective in nature and involve uncertainties and matters of judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, the fair value estimates presented do not include the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Interest bearing deposits: The carrying values reported in the balance
sheets approximate fair values due to the short-term nature of the assets.
Franchise loans held for sale: The fair value of the loan portfolio is
generally estimated by discounting expected future cash flows at an
estimated market rate of interest. A market rate of interest is estimated
based on the AAA Corporate Bond Rate, adjusted for credit risk and the
Company's cost to administer such loans.
Retained interest in loan securitizations and investments available for
sale: The carrying value reported in the balance sheet approximates fair
value. The fair value was estimated by discounting future cash flows using
rates that an unaffiliated third-party purchaser would require on
instruments with similar terms and remaining maturities.
Receivable due from SPTL and receivable due from ICII: The fair values of
these receivables approximate the carrying values due to their short-term
nature.
Payable due to Imperial Credit Industries: The fair values of these
receivables approximate the carrying values due to their short-term nature.
F-68
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Borrowings: The carrying value reported in the balance sheet approximates
fair value, due to the variable interest rates on these borrowings.
Bonds: The carrying value reported in the balance sheet approximates fair
value due to the proximity of issuance to year-end.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Interest-bearing deposits......... $ 2,594 $ 2,594 $ -- $ --
Franchise loans held for sale..... 98,915 102,872 181,254 185,165
Retained interest in loan
securitizations.................. 6,908 6,908 -- --
Securities available for sale..... 39,349 39,349 -- --
Receivable due from affiliate..... -- -- 579 579
Receivable due from member........ -- -- 924 924
Forward Treasury contracts........ 1,287 1,287 632 632
Liabilities:
Payable due to Imperial Credit
Industries....................... $ 17,728 $ 17,728 $ -- $ --
Borrowings........................ 125,240 125,240 69,637 54,836
Bonds............................. -- -- 111,995 111,995
Residual interest due to member... -- -- 526 526
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Leases
Minimum rental commitments under all noncancelable operating leases at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.......................................................... $ 498
1998.......................................................... 521
1999.......................................................... 534
2000.......................................................... 550
2001.......................................................... 524
------
Thereafter.................................................. 151
------
Total....................................................... $2,778
======
</TABLE>
Rent expense for the year and six months ended December 31, 1996 and 1995
was $292,000 and $94,000, respectively.
LITIGATION
The Company is involved in litigation arising from the normal course of
business. The Company is currently involved in a dispute with a vendor
regarding the value of services rendered. Management does not believe that an
adverse settlement, if any, would have a material impact on the Company's
financial condition or results of operations.
F-69
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The predecessor entity to the Company, and an officer of such entity and of
the Company, among others, are named as defendants in De Wald et al. vs. Knyal
et al. filed on November 15, 1996 in the Los Angeles Superior Court. The
complaint seeks an accounting, monetary and punitive damages for alleged
breach of contract, breach of fiduciary duty, breach of implied covenant of
good faith and fair dealing and fraud arising from an alleged business
relationship. The Company has not been named as a defendant in this lawsuit.
15. SUBSEQUENT EVENT
Effective January 19, 1997, the Company is a guarantor of ICII's $200
million 9 7/8% Senior Notes due January 15, 2007.
F-70
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
UNAUDITED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
ASSETS
------
<S> <C> <C>
Interest bearing deposits................................ $ 2,630 $ 2,594
Securities available for sale, at market................. 2,685 39,349
Loans held for sale...................................... 249,220 98,915
Retained interest in loan and lease securitizations...... 6,601 6,908
Accrued interest on loans................................ 1,190 560
Premises and equipment, net.............................. 1,341 1,162
Goodwill................................................. 4,251 4,332
Other assets............................................. 5,824 6,356
-------- --------
Total assets........................................... $273,742 $160,176
======== ========
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
<S> <C> <C>
Book Overdraft........................................... $ 614 $ 171
Payable to Imperial Credit Industries, Inc............... 20,935 17,728
Other borrowings......................................... 238,116 125,240
Accrued interest payable................................. -- 148
Other liabilities........................................ 2,411 2,432
-------- --------
Total liabilities...................................... $262,076 145,719
-------- --------
Members' equity:
Members' Capital......................................... $ 5,792 $ 5,792
Retained earnings........................................ 5,874 8,665
-------- --------
Total members' equity.................................. 11,666 14,457
-------- --------
Total liabilities and members' equity.................. $273,742 $160,176
======== ========
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
UNAUDITED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Revenue:
Gain on sale of loans...................................... $ 390 $ 6,668
Interest income............................................ 3,342 656
-------- -------
Total interest income.................................... 3,342 656
Interest expense........................................... 2,699 633
-------- -------
Net interest income...................................... 643 23
-------- -------
Loan servicing income...................................... 640 282
Gain (loss) on sale of investment.......................... (403) --
Other income............................................... -- 63
-------- -------
Total other income....................................... 237 345
-------- -------
Total revenue............................................ 1,270 7,036
-------- -------
Expenses:
Personnel expense.......................................... 2,598 2,691
Occupancy expense.......................................... 116 57
Data processing expense.................................... 7 1
Professional services...................................... 478 69
Telephone and other communications......................... 86 3
General and administrative expense......................... 776 602
-------- -------
Total expenses........................................... 4,061 3,423
-------- -------
Net income (loss).......................................... $ (2,791) $ 3,613
======== =======
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
UNAUDITED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ (2,791) $ 3,613
Adjustments to reconcile net income to net cash,
provided by (used in) operating activities:
Depreciation......................................... 110 15
Amortization......................................... 81 78
Net change in loans held for sale.................... (150,305) 156,396
Net change in accrued interest on loans.............. (630) 915
Net change in retained interest in loan and lease
securitizations..................................... 307 --
Net change in accrued interest payable............... (148) (1,062)
Net change in residual interest due owner............ -- (526)
Net change in other assets........................... 532 (524)
Net change in other liabilities...................... (21) 371
--------- ---------
Net cash provided by (used in) operating activities...... (152,865) 159,276
--------- ---------
Cash flows from investing activities:
Net change in interest bearing deposits................ (36) (724)
Net change in securities available for sale............ 36,664 --
Purchases of premises and equipment.................... (289) (73)
--------- ---------
Net cash provided by (used in) investing activities...... 36,339 (797)
--------- ---------
Cash flows from financing activities:
Net change in receivable from affiliates............... -- (1,113)
Net change in payable to affiliates.................... 3,207 --
Net change in borrowings............................... 112,876 (44,924)
Net change in bonds payable............................ -- 111,995)
--------- ---------
Net cash provided by (used in) financing activities...... 116,083 (158,032)
--------- ---------
Net change in cash....................................... (443) 447
Cash at beginning of year................................ (171) (445)
--------- ---------
Cash at end of period.................................... $ (614) $ 2
========= =========
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
On June 30, 1995, Imperial Credit Industries, Inc. (ICII) acquired from
Greenwich Capital Financial Products, Inc. (Greenwich), certain assets of
Greenwich's Franchise Mortgage Acceptance Company division (the FMAC
Division), including all of Greenwich's rights under certain servicing
contracts entered into by the FMAC Division (the Servicing Contracts). The
Servicing Contracts pertain to the servicing of franchise loans owned by
Greenwich not yet securitized. Concurrent with the closing of the transactions
described above, ICII entered into an operating agreement with Wayne L. Knyal
(Knyal), the former president of the FMAC Division, for the formation of a
California limited liability company named Franchise Mortgage Acceptance
Company LLC (the Company). In connection with the acquisition, the Company or
its affiliates assumed certain liabilities related to the Servicing Contracts
and Greenwich agreed to act as the Company's exclusive agent in connection
with securitization of franchise loans for a period of 24 months.
The Company was formed to originate, securitize and service franchise loans.
Under the terms of the operating agreement, in exchange for a 66 2/3%
ownership interest in the Company, ICII was obligated to contribute to the
Company $1.3 million in cash and all of the assets purchased from Greenwich.
In exchange for a 33 1/3% ownership interest in the Company, Knyal caused his
wholly owned company, Franchise Mortgage Acceptance Corporation ("FMAC
Corporation"), to contribute to the Company all of its rights under a
servicing contract pertaining to franchise loans that were previously
securitized by FMAC Corporation.
On June 30, 1995, ICII completed the acquisition of certain net assets of
the FMAC Division for a net purchase price of $7.6 million which included $3.8
million in contingent consideration based on loan originations after the date
of acquisition up to a maximum principal amount of such loans equal to $250.0
million.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and with the instructions to form 10-
Q and Rule 10-01 of 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 (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses
for the periods presented. Actual results could differ significantly from
those estimates. Prior year's financial statements have been reclassified to
conform to the 1997 presentation.
F-74
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. LOANS HELD FOR SALE
Loans held for sale consisted of the following at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1997 1996
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Franchise loans held for sale................ $242,075 $94,490
Franchise equipment loans and leases held for
sale........................................ 12,212 4,385
Net deferred loan fees....................... (3,249) (750)
Unearned lease income........................ (2,053) (497)
Deferred hedging loss........................ 235 1,287
-------- -------
$249,220 $98,915
======== =======
</TABLE>
4. ACCOUNTING PRONOUNCEMENT
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." ("SFAS 125"), which establishes accounting for transfers and
servicing of financial assets and extinguishment of liabilities. This
statement specifies when financial assets and liabilities are to be removed
from an entity's financial statements, the accounting for servicing assets and
liabilities and the accounting for assets that can be contractually prepaid in
such a way that the holder would not recover substantially all of its recorded
investment.
Under SFAS 125, an entity recognizes only assets it controls and liabilities
it has incurred, discontinues recognition of assets only when control has been
surrendered, and discontinues recognition of liabilities only when they have
been extinguished. SFAS 125 requires that the selling entity continue to carry
retained interests, including servicing assets, relating to assets it no
longer recognizes. Such retained interests are based on the relative fair
values of the retained interests of the subject assets at the date of
transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
SFAS 125 requires an entity to recognize its obligation to service financial
assets that are retained in a transfer of assets in the form of a servicing
asset or liability. The servicing asset or liability is to be amortized in
proportion to, and over the period of, net servicing income or loss. Servicing
assets and liabilities are to be assessed for impairment based on their fair
value.
SFAS 125 modifies the accounting for interest-only strips or retained
interests in securitizations, such as capitalized servicing fees receivable,
that can be contractually prepaid or otherwise settled in such a way that the
holder would not recover substantially all of its recorded investment. In this
case, it requires that they be classified as available for sale or as trading
securities. Interest-only strips and retained interests are to be recorded at
market value.
Under the provisions of SFAS 125, management has determined that mortgage
backed securities retained by the Company as a result of securitization
transactions will be classified as trading securities. All other retained
securities will be classified as available for sale or trading as determined
at the time of securitization.
Changes in market value are included in operations, if classified as trading
securities, or in shareholders' equity as unrealized gains or losses, net of
the related tax effect, if classified as available for sale. SFAS 125 was
effective for the Company on January 1, 1997. The implementation of SFAS 125
did not have a material impact on the Company's financial condition or results
of operations.
F-75
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE
TRUST OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST, THE COMPANY OR THE
SUBSIDIARY GUARANTORS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECU-
RITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURI-
TIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information...................................................... vi
Incorporation by Reference................................................. vii
Prospectus Summary......................................................... 1
Risk Factors............................................................... 17
Use of Proceeds............................................................ 31
Accounting Treatment....................................................... 31
Capitalization............................................................. 32
Selected Consolidated Financial Data....................................... 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................ 36
Business................................................................... 60
Management................................................................. 90
Security Ownership of Certain Beneficial Owners and Management............. 97
Certain Transactions....................................................... 98
The Exchange Offer......................................................... 105
The Trust.................................................................. 115
Description of Securities.................................................. 116
Description of Debentures.................................................. 131
Description of Guarantee................................................... 160
Relationship Among the Par Securities, the Debentures and the Guarantee.... 162
Certain United States Federal Income Tax Consequences...................... 164
ERISA Considerations....................................................... 167
Plan of Distribution....................................................... 168
Legal Matters.............................................................. 168
Experts.................................................................... 168
Index to ICII Consolidated Financial Statements............................ F-1
Index to FMAC Financial Statements......................................... F-56
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$70,000,000
IMPERIAL CREDIT
CAPITAL TRUST I
REMARKETED PAR SECURITIES,
SERIES B
(Liquidation Amount $1,000 per Security)
Fully and unconditionally guaranteed,
to the extent set forth herein, by
[LOGO OF IMPERIAL CREDIT INDUSTRIES, INC.]
-----------------
PROSPECTUS
, 1997
-----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Declaration of Imperial Credit Capital Trust I (the "Trust") provides
that no Regular Trustee, affiliate of the Regular Trustee, or any officers,
directors, shareholders, members, partners, employees, representatives or
agents of any Regular Trustee, or any employee or agent of the Trust or its
affiliates (each, an "Indemnified Person") shall be liable, responsible or
accountable in damages or otherwise to the Trust or any employee or agent of
the Trust or its affiliates 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 such Declaration or by law, except that an Indemnified
Person shall be liable for any loss, damage or claim incurred by reason of
such Indemnified Person's gross negligence or willful misconduct with respect
to such acts or omissions. The Declaration also provides that to the fullest
extent permitted by applicable law, Imperial Credit Industries, Inc. shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person 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 such Declaration or by law, except that an Indemnified Person shall
be liable for any loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence or willful misconduct with respect to such acts or
omissions. The Declaration further provides that, to the fullest extent
permitted by applicable law, expenses (including legal fees) incurred by an
Indemnified Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by Imperial Credit Industries, Inc.,
prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Indemnified
Person to repay such amount if it shall be determined that the Indemnified
Person is not entitled to be indemnified for the underlying cause of action as
authorized by the Declaration.
Imperial Credit Industries, Inc., Imperial Business Credit, Inc. and
Imperial Credit Advisors, Inc. are California corporations, and Franchise
Mortgage Acceptance Company LLC is a California limited liability company
(collectively, the "California Registrants"), all of such entities are
governed by the California General Corporation Law (the "CGCL").
Under Section 317 of the CGCL, a California corporation is in certain
circumstances permitted to indemnify its directors and officers against
certain expenses (including attorneys' fees), judgements, fines, settlements
and other amounts actually and reasonably incurred in connection with
threatened, pending or completed civil, criminal, administrative or
investigative actions, suits or proceedings (other than an action by or in the
right of the California Registrants), in which such persons were or are
parties, or are threatened to be made parties, by reason of the fact that they
were or are directors or officers of the California Registrants, if such
persons acted in good faith and in a manner they reasonably believed to be in
the best interests of the California Registrants, and with respect to any
criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. In addition, the California Registrants is in certain
circumstances permitted to indemnify its directors and officers against
certain expenses incurred in connection with the defense or settlement of a
threatened, pending or completed action by or in the right of the California
Registrants, and against amounts paid in settlement of any such action, if
such persons acted in good faith and in a manner they believed to be in the
best interests of the California Registrants and their shareholders provided
that the specified court approval is obtained.
As permitted by Section 317 of the CGCL, the Articles of Incorporation and
By-Laws of the California Registrants provide that the California Registrants
are authorized to provide indemnification for their directors and officers for
breach of their duty to the California Registrants and their shareholders
through bylaw provisions or through agreements with the directors and
officers, or both, in excess of the indemnification otherwise permitted by
Section 317 of the CGCL. The California Registrants's By-laws each provide for
indemnification
II-1
<PAGE>
of its directors and officers to the maximum extent permitted by Section 317
of the CGCL. In addition, agreements entered into by each of the California
Registrants with its directors and its executive officers require the
California Registrants to indemnify such persons against expenses, judgments,
fines settlements and other amounts reasonably incurred in connection with any
proceeding to which any such person may be made a party by reason of the fact
that such person was an agent of the California Registrants (including
judgments, fines and settlements in or of a derivative action, unless
indemnification is otherwise prohibited by law), provided such person acted in
good faith and in a manner he reasonably believed to be in the best interests
of the California Registrants and, in the case of a criminal proceeding, had
no reason to believe his conduct was unlawful. The indemnification agreements
also set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
The Articles of Incorporation of each of the California Registrants provide
that the personal liability of the directors of the California Registrants for
monetary damages shall be eliminated to the fullest extent permissible under
California law. Under Section 204(a)(10) of the CGCL, the personal liability
of a director for monetary damages in an action brought by or in the right of
the corporation for breach of the director's duty to the corporation may be
eliminated, except for the liability of a director resulting from (I) acts or
omissions involving intentional misconduct or the absence of good faith, (ii)
any transaction from which a director derived an improper personal benefit,
(iii) acts or omissions showing a reckless disregard for the director's duty,
(iv) acts or omissions constituting an unexcused pattern of inattention to the
director's duty or (v) the making of an illegal distribution to shareholders
or an illegal loan or guaranty.
Auto Marketing Network, Inc., a Florida corporation ("AMN"), is governed by
the Florida Business Corporation Act. Section 607.0850 of the Florida Business
Corporation Act, provides that a corporation may indemnify any person who was
or is a party (other than an action by or in the right of the corporation) by
reason of the fact that he 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 or agent of another corporation, partnership,
joint venture, trust or other enterprise, against liability incurred in
connection with such proceeding, including any appeal thereof, 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 corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 0850 further provides that a corporation similarly may indemnify any
such person serving in any such capacity who was or is a party in the right of
the corporation to procure a judgment in its favor, against the estimated
expense of litigating the proceeding to conclusion actually and reasonably
incurred in connection with the defense or settlement of such 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 corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable unless, and only to
the extent that the court in which such proceeding was brought, or any other
court of competent jurisdiction, 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 other court shall deem proper.
Section 607.0831 of the Florida Business Corporation Act provides that a
director is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act,
regarding corporate management or policy, by a director, unless (i) the
director breached or failed to perform his duties as a director, (ii) the
director's breach or failure to perform constitutes a violation of criminal
law unless the director had no reasonable cause to believe his conduct was
unlawful, the director derived an improper personal benefit directly or
indirectly, (iii) the director's conduct triggers the liability provisions of
Section 0834 (relating to unlawful distributions), (iv) the director's conduct
constitutes a conscious disregard for the best interest of the corporation, or
will misconduct in a proceeding by or in the right of the corporation or a
shareholder, or (v) the director's conduct constitutes recklessness or an act
or omission committed in bad faith or with malicious purpose or in a manner
exhibiting wanton and willful disregard of human rights, safety, or property
in a proceeding by or in the right of someone other than the corporation or a
shareholder.
II-2
<PAGE>
The AMN's Articles of Incorporation provide that it is authorized to
indemnify any director or officer, or former director or officer, in the
manner provided in it's bylaws and to the fullest extent permitted by the laws
of the State of Florida. There are no further provisions in AMN's bylaws for
indemnification of directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
3.1(a)* Articles of Incorporation, as amended, of Imperial Credit
Industries, Inc.
3.1(b)** Articles of Incorporation of Imperial Business Credit, Inc.
3.1(c)** Articles of Incorporation of Imperial Credit Advisors, Inc.
3.1(d)** Amended Articles of Organization of Franchise Mortgage
Acceptance Company LLC
3.1(e)** Amended and Restated Articles of Organization of Auto Marketing
Network, Inc.
3.2(a)* Bylaws of Imperial Credit Industries, Inc.
3.2(b)** Amended Bylaws of Imperial Business Credit, Inc.
3.2(c)** Bylaws of Imperial Credit Advisors, Inc.
3.2(d)** Operating Agreement of Franchise Mortgage Acceptance Company
3.2(e)** Amended and Restated Bylaws of Auto Marketing Network, Inc.
4.1 Certificate of Trust of Imperial Credit Capital Trust I
4.2 Amended and Restated Declaration of Trust of Imperial Credit
Capital Trust I, with form of Remarketed Par Securities, dated
June 9, 1997.
4.3 Indenture, by and among, Imperial Credit Industries, Inc.,
Imperial Business Credit, Inc., Imperial Credit Advisors, Inc.,
Franchise Mortgage Acceptance Company, LLC, Auto Marketing
Network, Inc., and the Chase Trust Company of California, dated
as of June 9, 1997, with forms of Resettable Rate Debentures
4.4 Registration Rights Agreement, by and among, Imperial Credit
Capital Trust I, Imperial Credit Industries, Inc., Imperial
Business Credit, Inc., Imperial Credit Advisors, Inc., Franchise
Mortgage Acceptance Company, LLC, Auto Marketing Network, Inc.,
and Lehman Brothers, Inc., dated as of June 9, 1997
4.5 Remarketing Agreement, by and among, Imperial Credit Capital
Trust I, Imperial Credit Industries, Inc., and Lehman Brothers,
Inc., dated as of June 9, 1997
4.6 Form of Guarantee Agreement to be executed by Imperial Credit
Industries, Inc., for the benefit of the Holders of Remarketed
Par Securities, Series B
5.1 Opinion of Richards, Layton & Finger, P.A., regarding the
legality of the Remarketed Par Securities
5.2 Opinion of Freshman, Marantz, Orlanski, Cooper & Klein regarding
the legality of the Resettable Rate Debentures
8.1 Opinion of Simpson Thacher & Bartlett regarding tax matters
21.1 Subsidiaries of Imperial Credit Industries, Inc.
23.1(a) Consent of KPMG Peat Marwick LLP regarding Imperial Credit
Industries, Inc.
23.1(b) Consent of KPMG Peat Marwick LLP regarding Franchise Mortgage
Acceptance Company LLC
23.2 Consent of Richards, Layton & Finger, P.A. (contained in Exhibit
5.1)
23.3 Consent of Freshman, Marantz, Orlanski, Cooper & Klein
(contained in Exhibit 5.2)
23.4 Consent of Simpson Thacher & Bartlett (contained in Exhibit 8.1)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney (included on signature page of Registration
Statement)
25.1 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939, as amended, of the Chase Trust Company of California as
Property Trustee for the Amended and Restated Declaration of Trust of
Imperial Credit Capital Trust I
25.2 Statement of eligibility of Trustee under the Trust Indenture Act of
1939, as amended, of the Chase Trust Company of California as Trustee
under the Indenture
25.3 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939, as amended, of the Chase Trust Company of California as
Guarantee Trustee to the Guarantee Agreement
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement by and between Imperial Credit
Capital Trust I and Chase Trust Company of California
</TABLE>
- --------
* Incorporated by reference to Imperial Credit Industries, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-45606) declared
effective May 26, 1992.
** Incorporated by reference to the Registration Statement on Form S-4
(Registration No. 333-22141) declared effective March 31, 1997.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless
in the opinion of their 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.
(b) The 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, including information contained in documents filed
subsequent to the effective date of the Registration Statement.
(c) The 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
HAVE DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE
OF CALIFORNIA ON JUNE 30, 1997.
Imperial Credit Industries, Inc.
/s/ H. Wayne Snavely
By: _________________________________
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints H. Wayne Snavely and Irwin L. Gubman and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-
effective 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, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or 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
CAPACITY INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. Wayne Snavely Chairman, Chief June 30, 1997
- ------------------------------------- Executive Officer,
H. WAYNE SNAVELY President
(Principal
Executive Officer)
/s/ Kevin E. Villani Executive Vice June 30, 1997
- ------------------------------------- President and Chief
KEVIN E. VILLANI Financial Officer
(Principal
Financial and
Accounting Officer)
/s/ Stephen J. Shugerman Director June 30, 1997
- -------------------------------------
STEPHEN J. SHUGERMAN
/s/ Joseph R. Tomkinson Director June 30, 1997
- -------------------------------------
JOSEPH R. TOMKINSON
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert S. Muehlenbeck Director June 30, 1997
- -------------------------------------
ROBERT S. MUEHLENBECK
/s/ G. Louis Graziadio, III Director June 30, 1997
- -------------------------------------
G. LOUIS GRAZIADIO, III
/s/ Perry A. Lerner Director June 23, 1997
- -------------------------------------
PERRY A. LERNER
/s/ James Clayburn LaForce, Jr. Director June 30, 1997
- -------------------------------------
JAMES CLAYBURN LAFORCE, JR.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
HAVE DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE
OF CALIFORNIA ON JUNE 30, 1997.
Imperial Business Credit, Inc.
/s/ H. Wayne Snavely
By: _________________________________
CHAIRMAN
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints H. Wayne Snavely and Irwin L. Gubman and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-
effective 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, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or 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
CAPACITY INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. Wayne Snavely Chairman June 30, 1997
- -------------------------------------
H. WAYNE SNAVELY
/s/ Philip Walden Director and Chief June 30, 1997
- ------------------------------------- Executive Officer
PHILIP WALDEN (Principal
Executive Officer)
/s/ Stephen J. Olson Chief Financial June 30, 1997
- ------------------------------------- Officer (Principal
STEPHEN J. OLSON Financial and
Accounting Officer)
/s/ Stephen J. Shugerman Director June 30, 1997
- -------------------------------------
STEPHEN J. SHUGERMAN
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
HAVE DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE
OF CALIFORNIA ON JUNE 30, 1997.
Imperial Credit Advisors, Inc.
/s/ H. Wayne Snavely
By: _________________________________
CHAIRMAN
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints H. Wayne Snavely and Irwin L. Gubman and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-
effective 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, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or 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
CAPACITY INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. Wayne Snavely Chairman (Principal June 30, 1997
- ------------------------------------- Executive Officer)
H. WAYNE SNAVELY
/s/ Thomas Markel Director and Chief June 30, 1997
- ------------------------------------- Financial Officer
THOMAS MARKEL (Principal
Financial and
Accounting Officer)
/s/ Stephen J. Shugerman Director June 30, 1997
- -------------------------------------
STEPHEN J. SHUGERMAN
/s/ Glenn Wilson, Jr. Director June 30, 1997
- -------------------------------------
GLENN WILSON, JR.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
HAVE DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE
OF CALIFORNIA ON JUNE 30, 1997.
Franchise Mortgage Acceptance
Company LLC
/s/ H. Wayne Snavely
By: _________________________________
CHAIRMAN AND MANAGER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints H. Wayne Snavely and Irwin L. Gubman and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-
effective 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, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or 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
CAPACITY INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. Wayne Snavely Chairman June 30, 1997
- -------------------------------------
H. WAYNE SNAVELY
/s/ Wayne Knyal Manager and Chief June 30, 1997
- ------------------------------------- Executive Officer
WAYNE KNYAL (Principal
Executive Officer)
/s/ Raedelle Walker Chief Financial June 30, 1997
- ------------------------------------- Officer (Principal
RAEDELLE WALKER Financial Officer)
Manager June , 1997
- -------------------------------------
RONALD V. DAVIS
/s/ Michael Matkins Manager June 24, 1997
- -------------------------------------
MICHAEL MATKINS
/s/ Stephen J. Shugerman Manager June 30, 1997
- -------------------------------------
STEPHEN J. SHUGERMAN
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
HAVE DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE
OF CALIFORNIA ON JUNE 30, 1997.
Auto Marketing Network, Inc.
/s/ H. Wayne Snavely
By: _________________________________
CHAIRMAN
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints H. Wayne Snavely and Irwin L. Gubman and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-
effective 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, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or 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
CAPACITY INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. Wayne Snavely Chairman June 30, 1997
- -------------------------------------
H. WAYNE SNAVELY
/s/ Stephen S. Raskin Director and Chief June 30, 1997
- ------------------------------------- Executive Officer
STEPHEN S. RASKIN (Principal
Executive Officer)
/s/ Glenn Yesner Chief Financial June 30, 1997
- ------------------------------------- Officer (Principal
GLENN YESNER Financial and
Accounting Officer)
/s/ Patricia Magee Daly Director June 30, 1997
- -------------------------------------
PATRICIA MAGEE DALY
/s/ Irwin Gubman Director June 30, 1997
- -------------------------------------
IRWIN GUBMAN
/s/ Kevin E. Villani Director June 30, 1997
- -------------------------------------
KEVIN E. VILLANI
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<C> <S> <C>
3.1(a)* Articles of Incorporation, as amended, of Imperial
Credit Industries, Inc.
3.1(b)** Articles of Incorporation of Imperial Business Credit,
Inc.
3.1(c)** Articles of Incorporation of Imperial Credit Advisors,
Inc.
3.1(d)** Amended Articles of Organization of Franchise Mortgage
Acceptance Company LLC
3.1(e)** Amended and Restated Articles of Organization of Auto
Marketing Network, Inc.
3.2(a)* Bylaws of Imperial Credit Industries, Inc.
3.2(b)** Amended Bylaws of Imperial Business Credit, Inc.
3.2(c)** Bylaws of Imperial Credit Advisors, Inc.
3.2(d)** Operating Agreement of Franchise Mortgage Acceptance
Company
3.2(e)** Amended and Restated Bylaws of Auto Marketing Network,
Inc.
4.1 Certificate of Trust of Imperial Credit Capital Trust
I
4.2 Amended and Restated Declaration of Trust of Imperial
Credit Capital Trust I, with form of Remarketed Par
Securities, dated June 9, 1997
4.3 Indenture, by and among, Imperial Credit Industries,
Inc., Imperial Business Credit, Inc., Imperial Credit
Advisors, Inc., Franchise Mortgage Acceptance Company,
LLC, Auto Marketing Network, Inc., and the Chase Trust
Company of California, dated as of June 9, 1997, with
forms of Resettable Rate Debentures
4.4 Registration Rights Agreement, by and among, Imperial
Credit Capital Trust I, Imperial Credit Industries,
Inc., Imperial Business Credit, Inc., Imperial Credit
Advisors, Inc., Franchise Mortgage Acceptance Company,
LLC, Auto Marketing Network, Inc., and Lehman
Brothers, Inc., dated as of June 9, 1997
4.5 Remarketing Agreement, by and among, Imperial Credit
Capital Trust I, Imperial Credit Industries, Inc., and
Lehman Brothers, Inc., dated as of June 9, 1997
4.6 Form of Guarantee Agreement to be executed by Imperial
Credit Industries, Inc., for the benefit of the
Holders of Remarketed Par Securities, Series B
5.1 Opinion of Richards, Layton & Finger, P.A., regarding
the legality of the Remarketed Par Securities
5.2 Opinion of Freshman, Marantz, Orlanski, Cooper & Klein
regarding the legality of the Resettable Rate
Debentures
8.1 Opinion of Simpson Thacher & Bartlett regarding tax
matters
21.1 Subsidiaries of Imperial Credit Industries, Inc.
23.1(a) Consent of KPMG Peat Marwick LLP regarding Imperial
Credit Industries, Inc.
23.1(b) Consent of KPMG Peat Marwick LLP regarding Franchise
Mortgage Acceptance Company LLC
23.2 Consent of Richards, Layton & Finger, P.A. (contained
in Exhibit 5.1)
23.3 Consent of Freshman, Marantz, Orlanski, Cooper & Klein
(contained in Exhibit 5.2)
23.4 Consent of Simpson Thacher & Bartlett (contained in
Exhibit 8.1)
24.1 Power of Attorney (included on signature page of
Registration Statement)
25.1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939, as amended, of the Chase Trust
Company of California as Property Trustee for the
Amended and Restated Declaration of Trust of Imperial
Credit Capital Trust I
</TABLE>
<PAGE>
INDEX TO EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<C> <S> <C>
25.2 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939, as amended, of the Chase Trust
Company of California as Trustee under the Indenture
25.3 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939, as amended, of the Chase Trust
Company of California as Guarantee Trustee to the
Guarantee Agreement
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement by and between Imperial
Credit Capital Trust I and Chase Trust Company of
California
</TABLE>
- -------
* Incorporated by reference to Imperial Credit Industries, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-45606) declared effective May 26,
1992.
** Incorporated by reference to the Registration Statement on Form S-4
(Registration No. 333-22141) declared effective March 31, 1997.
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF TRUST
OF
IMPERIAL CREDIT CAPITAL TRUST I
THIS Certificate of Trust of Imperial Credit Capital Trust I (the "Trust"),
dated May 28, 1997, is being duly executed and filed by Chase Trust Company of
--
California, Chase Manhattan Bank Delaware, Irwin L. Gubman, Kevin E. Villani and
Paul B. Lasiter, as trustees, with the Secretary of State of the State of
Delaware to form a business trust under the Delaware Business Trust Act
(12 Del C. (S) 3801 et seq.).
----- ------
1. Name. The name of the business trust formed hereby is Imperial Credit
----
Capital Trust I.
2. Delaware Trustee. The name and business address of the trustee of the
----------------
Trust in the State of Delaware is Chase Manhattan Bank Delaware, 1201 Market
Street, Wilmington, Delaware 19801, Attention Corporate Trustee Administration.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
CHASE TRUST COMPANY OF
CALIFORNIA, as trustee
By: /s/ Hans H Helley
----------------------------
Name: Hans H Helley
Title: Assistant Vice President
CHASE MANHATTAN BANK
DELAWARE, as trustee
By: /s/ John J. Gashin
----------------------------
Name: John J. Gashin
Title: Vice President
<PAGE>
/s/ Irwin L. Gubman
-------------------------------
IRWIN L. GUBMAN, as trustee
/s/ Kevin E. Villani
-------------------------------
KEVIN E. VILLANI, as trustee
/s/ Paul B. Lasiter
------------------------------
PAUL B. LASITER, as trustee
2
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF BUSINESS
TRUST REGISTRATION OF "IMPERIAL CREDIT CAPITAL TRUST I", FILED IN THIS OFFICE ON
THE TWENTY-EIGHTH DAY OF MAY, A.D. 1997, AT 4 O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL OF SECRETARY'S OFFICE, STATE OF DELAWARE]
2755421 8100 AUTHENTICATION: 8484790
971173785 DATE: 05-28-97
<PAGE>
EXHIBIT 4.2
- --------------------------------------------------------------------------------
AMENDED AND RESTATED DECLARATION OF TRUST
of
Imperial Credit Capital Trust I
Dated as of June 9, 1997
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of Trust
Indenture Act of Section of
1939, as amended Agreement
- ---------------- ----------
<S> <C>
310(a).................................................................6.3
310(b).........................................................6.3(c); 6.3(d)
310(c)...........................................................Inapplicable
311(a).................................................................2.2(b)
311(b).................................................................2.2(b)
311(c)...........................................................Inapplicable
312(a).................................................................2.2(a)
312(b).................................................................2.2(b)
312(c)...........................................................Inapplicable
313(a).................................................................2.3
313(b).................................................................2.3
313(c).................................................................2.3
313(d).................................................................2.3
314(a).................................................................2.4
314(b)...........................................................Inapplicable
314(c).................................................................2.5
314(d)...........................................................Inapplicable
314(e).................................................................2.5
314(f)...........................................................Inapplicable
315(a).........................................................3.9(b); 3.10(a)
315(b)..................................................................2.7(a)
315(c)..................................................................3.9(a)
315(d)..................................................................3.9(b)
316(a).....................................................2.6; 7.6(b); 7.7(c)
316(b)...........................................................Inapplicable
316(c)...........................................................Inapplicable
317(a)...................................................................3.16
317(b)...........................................................Inapplicable
318(a)................................................................2.1(c)
</TABLE>
- ---------------------
* This Cross-Reference Table does not constitute part of the Agreement and
shall not have any bearing upon the interpretation of any of its terms or
provisions.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
INTERPRETATION AND DEFINITIONS................ 1
SECTION 1.1 Interpretation and Definitions...................... 1
Additional Interest.............................................. 2
Affiliate........................................................ 2
Applicable Distribution Rate..................................... 2
Authorized Officer............................................... 2
Beneficial Owners................................................ 2
Business Day..................................................... 2
Business Trust Act............................................... 2
Cedel............................................................ 3
Certificate...................................................... 3
Certificate of Trust............................................. 3
Change of Control................................................ 3
Closing Date..................................................... 3
Code............................................................. 3
Commission....................................................... 3
Common Securities Holder......................................... 3
Common Security.................................................. 4
Common Security Certificate...................................... 4
Corporate Trust Office........................................... 4
Covered Person................................................... 4
Debenture Issuer................................................. 4
Debenture Issuer Indemnified Person.............................. 4
Debenture Trustee................................................ 4
Debentures....................................................... 4
Delaware Trustee................................................. 4
Depositary....................................................... 4
Depositary Participant........................................... 4
Direct Action.................................................... 4
Distribution..................................................... 4
Distribution Date................................................ 4
DWAC............................................................. 5
Election Date.................................................... 5
Euroclear........................................................ 5
Excess Proceeds.................................................. 5
Fiduciary Indemnified Person..................................... 5
Fiscal Year...................................................... 5
Global Security.................................................. 5
Guarantee........................................................ 5
Holder........................................................... 5
Indemnified Person............................................... 5
Indenture........................................................ 5
Initial Distribution Rate........................................ 5
Initial Purchaser................................................ 5
Investment Company............................................... 6
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Company Act........................................... 6
Investment Company Event......................................... 6
Legal Action..................................................... 6
List of Holders.................................................. 6
Majority in Liquidation Amount................................... 6
Maximum Adjusted Distribution Rate............................... 6
Moody's.......................................................... 6
New Preferred Securities......................................... 6
New Preferred Security Certificate............................... 6
New York Stock Exchange.......................................... 6
Notice of Election............................................... 6
Officers' Certificate............................................ 6
Paying Agent..................................................... 7
Person........................................................... 7
Preferred Security............................................... 7
Preferred Security Certificate................................... 7
Private Placement Legend......................................... 7
Property Account................................................. 7
Property Trustee................................................. 7
Pro Rata......................................................... 7
Qualified Institutional Buyer.................................... 8
Quorum........................................................... 8
Redemption/Distribution Notice................................... 8
Redemption Price................................................. 8
Registration Rights Agreement.................................... 8
Regular Trustee.................................................. 8
Regulation S..................................................... 8
Regulation S Global Security..................................... 8
Related Party.................................................... 8
Remarketing...................................................... 8
Remarketing Agent................................................ 8
Remarketing Agreement............................................ 8
Remarketing Settlement Date...................................... 9
Responsible Officer.............................................. 9
Restricted Global Security....................................... 9
Restricted Period................................................ 9
Restricted Security.............................................. 9
Restricted Subsidiary............................................ 9
Rule 144A........................................................ 9
Rule 3a-5........................................................ 9
Scheduled Remarketing Date....................................... 9
Scheduled Remarketing Settlement Date............................ 9
Senior Notes Guarantee........................................... 10
Securities....................................................... 10
Securities Act................................................... 10
Special Event.................................................... 10
Special Mandatory Redemption..................................... 10
Sponsor.......................................................... 10
Subsidiary Guarantee............................................. 10
Successor Delaware Trustee....................................... 10
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Successor Entity................................................. 10
Successor Property Trustee....................................... 10
Successor Security............................................... 10
Super Majority................................................... 10
Tax Event........................................................ 10
Tax Opinion...................................................... 11
Tax Opinion Redemption........................................... 11
10% in Liquidation Amount........................................ 11
30-year Treasury Rate............................................ 11
Transfer Restricted Securities................................... 11
Transfer Restricted Securities Certificate....................... 11
Transfer Restricted Security Redemption.......................... 11
Trust............................................................ 12
Trust Enforcement Event.......................................... 12
Trust Indenture Act.............................................. 12
Trustee" or "Trustees............................................ 12
Wholly-Owned Restricted Subsidiary............................... 12
ARTICLE 2
TRUST INDENTURE ACT...................... 12
SECTION 2.1 Trust Indenture Act; Application.................... 12
SECTION 2.2 Lists of Holders of Securities...................... 13
SECTION 2.3 Reports by the Property Trustee..................... 13
SECTION 2.4 Periodic Reports to the Property Trustee............ 13
SECTION 2.5 Evidence of Compliance with Conditions Precedent.... 13
SECTION 2.6 Trust Enforcement Events; Waiver.................... 14
SECTION 2.7 Trust Enforcement Event; Notice..................... 15
ARTICLE 3
ORGANIZATION.......................... 16
SECTION 3.1 Name and Organization............................... 16
SECTION 3.2 Office.............................................. 16
SECTION 3.3 Purpose............................................. 16
SECTION 3.4 Authority........................................... 17
SECTION 3.5 Title to Property of the Trust...................... 17
SECTION 3.6 Powers and Duties of the Regular Trustees........... 17
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees 20
SECTION 3.8 Powers and Duties of the Property Trustee........... 21
SECTION 3.9 Certain Duties and Responsibilities of the Property
Trustee............................................. 23
SECTION 3.10 Certain Rights of Property Trustee.................. 25
SECTION 3.11 Delaware Trustee.................................... 28
SECTION 3.12 Execution of Documents.............................. 28
SECTION 3.13 Not Responsible for Recitals or Issuance of
Securities.......................................... 28
SECTION 3.14 Duration of Trust................................... 28
SECTION 3.15 Mergers............................................. 28
SECTION 3.16 Property Trustee May File Proofs of Claim........... 30
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE 4
<S> <C>
SPONSOR...................................... 31
SECTION 4.1 Responsibilities of the Sponsor..................... 31
SECTION 4.2 Indemnification and Expenses of the Trustees........ 32
ARTICLE 5
TRUST COMMON SECURITIES HOLDER................. 32
SECTION 5.1 Debenture Issuer's Purchase of Common Securities.... 32
SECTION 5.2 Covenants of the Common Securities Holder........... 32
ARTICLE 6
TRUSTEES............................ 33
SECTION 6.1 Number of Trustees.................................. 33
SECTION 6.2 Delaware Trustee; Eligibility....................... 33
SECTION 6.3 Property Trustee; Eligibility....................... 33
SECTION 6.4 Qualifications of Regular Trustees and Delaware
Trustee Generally................................... 34
SECTION 6.5 Initial Regular Trustees............................ 34
SECTION 6.6 Appointment, Removal and Resignation of
Trustees............................................ 35
SECTION 6.7 Vacancies among Trustees............................ 36
SECTION 6.8 Effect of Vacancies................................. 36
SECTION 6.9 Meetings............................................ 36
SECTION 6.10 Merger, Conversion, Consolidation or
Succession to Business.............................. 37
ARTICLE 7
THE SECURITIES......................... 37
SECTION 7.1 General Provisions Regarding Securities............. 37
SECTION 7.2 Distributions....................................... 39
SECTION 7.3 Redemption of Securities............................ 41
SECTION 7.4 Redemption Procedures............................... 42
SECTION 7.5 Remarketing......................................... 43
SECTION 7.6 Voting Rights of Preferred Securities............... 46
SECTION 7.7 Voting Rights of Common Securities.................. 48
SECTION 7.8 Paying Agent........................................ 49
SECTION 7.9 Transfer of Securities.............................. 49
SECTION 7.10 Mutilated, Destroyed, Lost or Stolen Certificates... 50
SECTION 7.11 Deemed Security Holders............................. 51
SECTION 7.12 Global Securities................................... 51
SECTION 7.13 Restrictive Legend.................................. 54
SECTION 7.14 Special Transfer Provisions......................... 56
SECTION 7.15 Change of Control................................... 59
SECTION 7.16 Asset Sales......................................... 60
ARTICLE 8
DISSOLUTION AND TERMINATION OF TRUST.............. 61
SECTION 8.1 issolution and Termination of Trust................. 61
SECTION 8.2 Liquidation Distribution Upon Dissolution of the
Trust............................................... 62
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION> Page
----
ARTICLE 9
<S> <C>
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, DELAWARE TRUSTEES OR OTHERS....... 62
SECTION 9.1 Liability........................................... 62
SECTION 9.2 Exculpation......................................... 63
SECTION 9.3 Fiduciary Duty...................................... 63
SECTION 9.4 Indemnification..................................... 64
SECTION 9.5 Outside Businesses.................................. 67
ARTICLE 10
ACCOUNTING........................... 67
SECTION 10.1 Fiscal Year........................................ 67
SECTION 10.2 Certain Accounting Matters......................... 67
SECTION 10.3 Banking............................................ 68
SECTION 10.4 Withholding........................................ 68
ARTICLE 11
AMENDMENTS AND MEETINGS.................... 69
SECTION 11.1 Amendments......................................... 69
SECTION 11.2 Meetings of the Holders of Securities; Action
by Written Consent................................. 71
ARTICLE 12
REPRESENTATIONS OF PROPERTY DELAWARE TRUSTEE
AND DELAWARE TRUSTEE...................... 72
SECTION 12.1 Representations and Warranties of the Property
Trustee............................................ 72
SECTION 12.2 Representations and Warranties of the Delaware
Trustee............................................ 73
ARTICLE 13
MISCELLANEOUS.......................... 74
SECTION 13.1 Notices............................................. 74
SECTION 13.2 Governing Law....................................... 74
SECTION 13.3 Intention of the Parties............................ 74
SECTION 13.4 Headings............................................ 75
SECTION 13.5 Successors and Assigns.............................. 75
SECTION 13.6 Partial Enforceability.............................. 75
SECTION 13.7 Counterparts........................................ 75
</TABLE>
EXHIBITS
Exhibit A Form of Remarketed Par Security Certificate, Series A
Exhibit B Form of Preferred Security Certificate, Series B
Exhibit C Form of Common Security Certificate
Exhibit D Notice of Remarketing
Exhibit E Notice of Election
v
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
THIS AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration"), dated
as of June 9, 1997, by and among Imperial Credit Industries, Inc., a California
corporation, as Sponsor, and Irwin L. Gubman, Kevin E. Villani and Paul B.
Lasiter, as the initial Regular Trustees, Chase Trust Company of California, a
state banking corporation, as the initial Property Trustee and Chase Manhattan
Bank Delaware, a Delaware banking corporation, as the initial Delaware Trustee,
not in their individual capacities but solely as Trustees, and the holders, from
time to time, of undivided beneficial ownership interests in the Trust to be
issued pursuant to this Declaration.
WHEREAS, the Trustees and the Sponsor established Imperial Credit
Capital Trust I (the "Trust"), a business trust under the Business Trust Act (as
defined, together with other capitalized terms, herein) pursuant to a
Declaration of Trust, dated as of May 28, 1997, (the "Original Declaration") and
a Certificate of Trust (the "Certificate of Trust") filed with the Secretary of
State of the State of Delaware on May 28, 1997; and
WHEREAS, the sole purpose of the Trust shall be to issue and sell
certain securities representing undivided beneficial ownership interests in the
assets of the Trust, to invest the proceeds from such sales in the Debentures
(as defined herein) issued by the Debenture Issuer and to engage in only those
activities necessary 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 business trust under the Business Trust Act and that
this Declaration constitute the governing instrument of such business trust, the
Trustees hereby declare that all assets contributed to the Trust be held in
trust for the benefit of the Holders, from time to time, of the Securities
representing undivided beneficial ownership interests in the assets of the Trust
issued hereunder, subject to the provisions of this Declaration.
ARTICLE 1
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Interpretation and 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;
<PAGE>
2
(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, Sections,
Recitals and Exhibits are to Articles and Sections of, or Recitals 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;
(f) a reference to the singular includes the plural and vice versa
and a reference to any masculine form of a term shall include the feminine form
of a term, as applicable; and
(g) the following terms have the following meanings:
"Additional Interest" has the meaning specified in the Indenture.
"Adjusted Distribution Rate" has the meaning specified in Section
7.2(a)(ii).
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.
"Applicable Distribution Rate" has the meaning specified in Section
7.2.
"Authorized Officer" of a Person means any Person that is expressly
authorized to bind such Person.
"Beneficial Owners" means, for Preferred Securities represented by a
Global Security, the person who acquires an interest in the Preferred Securities
which is reflected on the records of the Depositary through the Depositary
Participants.
"Business Day" means any day other than a Saturday or Sunday or a day
on which banking institutions in The City of New York are authorized or required
by law or executive order to remain closed or a day on which the Corporate Trust
Office of the Debenture Trustee, or the principal corporate trust office of the
Property Trustee, is closed for business.
"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.
"Cedel" means Cedel, S.A.
<PAGE>
3
"Certificate" means a Common Security Certificate or a Preferred
Security Certificate.
"Certificate of Trust" has the meaning specified in the Recitals
hereto.
"Change of Control" means the occurrence of one or more of the
following events: (i) a person or entity or group (as that term is used in
Section 13(d)(3) of the Exchange Act) of persons or entities shall have become
the beneficial owner of majority of the securities of the Debenture Issuer
ordinarily having the right to vote in the election of directors; (ii) during
any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Debenture Issuer (together with any
directors who are members of such Board of Directors of the Debenture Issuer on
the date hereof and any new directors whose election by such Board of Directors
of the Debenture Issuer or whose nomination for election by the shareholders of
the Debenture Issuer was approved by a vote of 66 2/3% of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Debenture
Issuer then in office; (iii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
the assets of the Debenture Issuer and its Restricted Subsidiaries, taken as a
whole, to any person or entity or group (as so defined) of persons, or entities
(other than to any Wholly Owned Restricted Subsidiary of the Debenture Issuer);
(iv) the merger or consolidation of the Debenture Issuer with or into another
corporation or the merger of another corporation into the Debenture Issuer with
the effect that immediately after such transaction any person or entity or group
(as so defined) of persons or entities shall have become the beneficial owner of
securities of the surviving corporation of such merger or consolidation
representing a majority of the combined voting power of the outstanding
securities of the surviving corporation ordinarily having the right to vote in
the election of directors; or (v) the adoption of a plan relating to the
liquidation or dissolution of the Debenture Issuer.
"Closing Date" means the date on which the Preferred Securities are
issued and sold.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor legislation. A reference to a specific section of the
Code refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this Declaration,
as such specific section or corresponding provision is in effect on the date of
application of the provisions of this Declaration containing such reference.
"Commission" means the Securities and Exchange Commission.
"Common Securities Holder" means Imperial Credit Industries, Inc. in
its capacity as purchaser and holder of all of the Common Securities issued by
the Trust.
"Common Security" has the meaning specified in Section 7.1
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4
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security, substantially in the form of
Exhibit C hereto.
"Corporate Trust Office" means the office of the Debenture Trustee at
which the corporate trust business of the Debenture Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Declaration is located at 101 California Street, Suite 2125,
San Francisco, California 94111.
"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 Imperial Credit Industries, Inc. in its
capacity as issuer of the Debentures under the Indenture.
"Debenture Issuer Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee or any Affiliate thereof; or (d) any officer, employee or agent
of the Trust or its Affiliates.
"Debenture Trustee" means Chase Trust Company of California, in its
capacity as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"Debentures" means the Resettable Rate Debentures, Series A, to be
issued by the Debenture Issuer and to be held by the Property Trustee, or the
Resettable Rate Debentures, Series B, issued in exchange therefor.
"Delaware Trustee" has the meaning set forth in Section 6.2.
"Depositary" means, with respect to Securities issuable in whole or in
part in the form of one or more Global Securities, a clearing agency registered
under the Exchange Act that is designated to act as Depositary for such
Securities.
"Depositary Participant" means a member of, or participant in, the
Depositary.
"Direct Action" has the meaning specified in Section 3.8(e).
"Distribution" means a distribution payable to Holders of Securities
in accordance with Section 7.2.
"Distribution Date" means each date on which Distributions are payable
in accordance with Sections 7.2(b) and (c).
"DWAC" means Deposit and Withdrawal At Custodian Service.
<PAGE>
5
"Election Date", with respect to any Scheduled Remarketing Date, means
the second Business Day prior thereto.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System.
"Excess Proceeds" has the meaning specified in the Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning specified in Section
9.4(b).
"Fiscal Year" has the meaning specified in Section 11.1.
"Global Security" means a fully registered, global Preferred Security
Certificate.
"Guarantee" means the guarantee agreement of the Sponsor in respect of
the Preferred Securities and the Common Securities.
"Guarantors" has the meaning specified in the Indenture.
"Holder" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act; provided, however, that in determining whether the
Holders of the requisite liquidation amount of Preferred Securities have voted
on any matter provided for in this Declaration, then for the purpose of such
determination only (and not for any other purpose hereunder), if the Preferred
Securities remain in the form of one or more Global Securities and if the
Depositary which is the holder of such Global Securities has sent an omnibus
proxy to the Trust assigning voting rights to Depositary Participants to whose
accounts the Preferred Securities are credited on the record date, the term
"Holders" shall mean such Depositary Participants acting at the direction of
Beneficial Owners.
"Indemnified Person" means a Debenture Issuer Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of June 9, 1997, among the
Debenture Issuer and the Debenture Trustee, and any indenture supplemental
thereto pursuant to which the Debentures are to be issued.
"Initial Distribution Rate" has the meaning specified in Section 7.2.
"Initial Purchaser" means Lehman Brothers Inc.
<PAGE>
6
"Investment Company" means an investment company as defined in the
Investment Company Act and the regulations promulgated thereunder.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Investment Company Event" means the receipt by the Trust of an
opinion of counsel, rendered by a law firm having a recognized national
securities practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which Change in 1940 Act Law becomes effective on or after the
Closing Date.
"Legal Action" has the meaning specified in Section 3.6(g).
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount" means, except as provided in the
terms of the Preferred Securities or by the Trust Indenture Act, Holder(s) of
outstanding Securities, voting together as a single class, or, as the context
may require, Holders of outstanding Preferred 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 (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accumulated and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities of the relevant class.
"Maximum Adjusted Distribution Rate" means the rate per annum,
determined on the Scheduled Remarketing Date by the Remarketing Agent in its
discretion, equal to the greater of (a) the 30-year Treasury Rate plus 600 basis
points and (b) a nationally-recognized high-yield index rate for similarly-rated
issues, plus 100 basis points.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"New Preferred Securities" has the meaning specified in Section 7.1.
"New Preferred Security Certificate" has the meaning specified in
Section 7.1.
"New York Stock Exchange" means the New York Stock Exchange, Inc. or
any successor thereto.
"Notice of Election" has the meaning specified in Section 7.5.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person on behalf of such
Person. Any Officers' Certificate
<PAGE>
7
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 Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer on behalf of such Person in rendering
the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer
and on behalf of such Person, such condition or covenant has been complied with;
provided, that the term "Officers' Certificate", when used with reference to
Regular Trustees who are natural persons, shall mean a certificate signed by two
of the Regular Trustees which otherwise satisfies the foregoing requirements.
"Paying Agent" has the meaning specified in Section 3.8(h).
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof or any other entity of whatever nature.
"Preferred Security" has the meaning specified in Section 7.1.
"Preferred Security Certificate" means a definitive certificate in
fully registered form representing a Preferred Security, substantially in the
form of Exhibit A, in the case of Transfer Restricted Securities or Exhibit B,
in the case of New Preferred Securities.
"Private Placement Legend" has the meaning specified in Section 314 of
the Indenture.
"Property Account" has the meaning specified in Section 3.8(c).
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 6.3.
"Pro Rata" means pro rata to each Holder of Securities 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.
<PAGE>
8
"Qualified Institutional Buyer" or "QIB" has the meaning specified in
Rule 144A under the Securities Act.
"Quorum" means a majority of the Regular Trustees or, if there are
only two Regular Trustees, both of them.
"Redemption/Distribution Notice" has the meaning set forth in Section
7.4(a).
"Redemption Price" means the amount for which the Securities will be
redeemed, which amount will equal (i) the redemption price paid by the Debenture
Issuer to repay or redeem, in whole or in part, the Debentures held by the Trust
plus an amount equal to accumulated and unpaid Distributions on such Securities
through the date of their redemption or (ii) such lesser amount as will be
received by the Trust in respect of the Debentures so repaid or redeemed.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Debenture Issuer, the Trust, the
Guarantors and the Remarketing Agent for the benefit of themselves and the
Holders, as the same may be amended from time to time in accordance with the
terms thereof.
"Regular Trustee" means any Trustee other than the Property Trustee
and the Delaware Trustee.
"Regulation S" means Regulation S under the Securities Act and any
successor regulation thereto.
"Regulation S Global Security" means any Global Security or Securities
evidencing Preferred Securities that are to be traded pursuant to Regulation S.
"Related Party" means, with respect to the Sponsor, any direct or
wholly owned subsidiary of the Sponsor or any Person that owns, directly or
indirectly, 100% of the outstanding voting securities of the Sponsor.
"Remarketing" means the operation of the procedures for remarketing
specified in Section 7.5.
"Remarketing Agent" means such agent or agents as the Debenture Issuer
may appoint from time to time for the purpose of remarketing the Preferred
Securities, as set forth in the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement, dated June 9,
1997, among the Trust, the Debenture Issuer and Lehman Brothers Inc., as the
same may be amended, supplemented or modified from time to time.
<PAGE>
9
"Remarketing Settlement Date" means the Scheduled Remarketing
Settlement Date on which purchases and sales of Preferred Securities pursuant to
a Remarketing are consummated.
"Responsible Officer" means, with respect to the Property Trustee, any
officer within the Corporate Trust Office of the Property Trustee, including any
vice-president, any assistant vice-president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer or other officer of the
Corporate Trust Office of the Property Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Restricted Global Security" means any Global Security or Securities
evidencing Preferred Securities that are to be traded pursuant to Rule 144A.
"Restricted Period" has the meaning specified in Section 7.15.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3), as amended from time to time or any successor rule, under the
Securities Act.
"Restricted Subsidiary" has the meaning specified in the Declaration.
"Rule 144A" means Rule 144A, as amended from time to time or any
successor rule, under the Securities Act.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any
successor rule thereunder.
"Scheduled Remarketing Date" means the third Business Day prior to any
Scheduled Remarketing Settlement Date.
"Scheduled Remarketing Settlement Date" means June 14, 2002, or such
other date determined pursuant to this definition, unless a Trust Enforcement
Event has occurred and is continuing on the 25th Business Day prior to such
Scheduled Remarketing Settlement Date, in which case the Scheduled Remarketing
Settlement Date shall be the 30th Business Day after the date of cure or waiver
of such Trust Enforcement Event; provided, that if (x) purchases and sales of
Preferred Securities pursuant to a Remarketing are not consummated on any
Scheduled Remarketing Settlement Date for any reason (including the Debenture
Issuer's failure to make the deposit required pursuant to Section 3.05 of the
Indenture in the event of a Special Mandatory Redemption) other than the
occurrence and continuance of any other Trust Enforcement Event or if (y) the
Debenture Issuer fails to redeem Debentures in connection with a Tax Opinion
Redemption after cancelling the Remarketing, the next Scheduled Remarketing
Settlement Date shall be the 30th Business Day after such Scheduled Remarketing
Settlement Date.
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10
"Senior Notes Guarantee" means the Trust's guarantee of the $200
million aggregate principle amount of the Debenture Issuer's 9 7/8% Senior Notes
due 2007.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"Special Event" means a Tax Event or an Investment Company Event.
"Special Mandatory Redemption" has the meaning specified in Section
7.3.
"Sponsor" means Imperial Credit Industries, Inc., a California
corporation, or any successor entity in a merger, consolidation or amalgamation,
in its capacity as sponsor of the Trust.
"Subsidiary Guarantee" means the guarantee, by the Trust, of the
Debenture Issuer's obligations to pay principal, premium, if any, and interest
on the Debentures.
"Successor Delaware Trustee" has the meaning specified in Section
6.6(b).
"Successor Entity" has the meaning specified in Section 3.15(b)(i).
"Successor Property Trustee" has the meaning specified in Section
6.6(b).
"Successor Security" has the meaning specified in Section 3.15(b)(i)b.
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
"Tax Event" means the receipt by the Debenture Issuer of an opinion of
independent tax counsel to the Debenture Issuer, experienced in such matters, to
the effect that, as a result of any amendment to, change in or announced
proposed 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
adopted or which proposed change, pronouncement or decision is announced on or
after the Closing 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 the
United States federal income tax with respect to income received or accrued on
the Debentures, (ii) interest payable by the Debenture Issuer on such 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 minimus amount of other taxes, duties or
other governmental charges.
<PAGE>
11
"Tax Opinion" means an opinion of an independent tax counsel to the
Debenture Issuer experienced in such matters to the effect that, as a result of
(a) any amendment to, or change (including any announced proposed change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such proposed
change, pronouncement or decision is announced on or after the date of original
issuance of the Securities, that it is more likely than not that (i) the Trust
will be, following the Remarketing Settlement Date, subject to United States
federal income tax with respect to interest accrued or received on the
Debentures, (ii) the Trust will be, following the Remarketing Settlement Date,
subject to more than a de minimis amount of taxes, duties or other governmental
charges, or (iii) interest payable to the Trust on the Debentures, following the
Remarketing Settlement Date, will not be deductible, in whole or in part, by the
Debenture Issuer for United States federal income tax purposes.
"Tax Opinion Redemption" means a redemption of Debentures, on a
Scheduled Remarketing Settlement Date, following receipt of a Tax Opinion, as
specified in Section 3.10 of the Indenture.
"10% in Liquidation Amount" means, except as provided in the terms of
the Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding
Securities, voting together as a single class, or, as the context may require,
Holders of outstanding Preferred 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 (including the stated amount that would
be paid on redemption, liquidation or otherwise, plus accumulated and unpaid
Distributions to the date upon which the voting percentages are determined) of
all outstanding Securities of the relevant class.
"30-year Treasury Rate" means the rate per annum equal to the semi-
annual equivalent yield to maturity of the U.S. Treasury security used, in
accordance with customary financial practice, as the benchmark pricing bond in
pricing new issues of corporate debt securities of 30-year maturities on the
Scheduled Remarketing Date.
"Transfer Restricted Securities" has the meaning specified in Section
7.1.
"Transfer Restricted Securities Certificate" has the meaning specified
in Section 7.1.
"Transfer Restricted Security Redemption" means a redemption, on the
Remarketing Settlement Date, of Debentures issued in exchange for Securities
that were not exchanged pursuant to an Exchange Offer, if any, as specified in
Section 3.11 of the Indenture.
"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).
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12
"Trust" has the meaning specified in the Recitals hereto.
"Trust Enforcement Event" in respect of the Securities means an
Indenture Event of Default has occurred and is continuing in respect of the
Debentures.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office 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.
"Wholly-Owned Restricted Subsidiary" has the meaning specified in the
Declaration.
ARTICLE 2
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 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
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 Trust's classification as a grantor trust for United States
federal income tax purposes and shall not affect the nature of the Securities as
equity securities representing undivided beneficial ownership interests in the
assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
------------------------------
(a) Each of the Sponsor and the Regular Trustees on behalf of the
Trust shall provide the Property Trustee (i), except while the Preferred
Securities are represented by one or more Global Securities, at least one
Business Day prior to the date for payment of Distributions,
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13
a list, in such form as the Property Trustee may reasonably require, of the
names and addresses of the Holders of the Securities ("List of Holders") as of
the record date relating to the payment of such Distributions, and (ii) at any
other time, within 30 days of receipt by the Trust of a written request from the
Property Trustee for a List of Holders as of a date no more than 15 days before
such List of Holders is given to the Property Trustee; provided that neither the
Sponsor nor the Regular Trustees on behalf of the Trust shall 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 Property Trustee by the
Sponsor and the Regular Trustees on behalf of the Trust. 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, and
shall be entitled to the benefits of, Sections 311(a), 311(b) and 312(b) of the
Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
-------------------------------
Within 60 days after May 15 of each year (commencing with the year of
the first anniversary of the issuance of the Preferred Securities), the Property
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Property
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
SECTION 2.4 Periodic Reports to the Property Trustee.
----------------------------------------
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
------------------------------------------------
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this 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) may be given in the form of an Officers' Certificate.
SECTION 2.6 Trust Enforcement Events; Waiver.
--------------------------------
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote or written consent, on behalf of the Holders of all of
the Preferred Securities, waive
<PAGE>
14
any past Trust Enforcement Event in respect of the Preferred Securities and its
consequences, provided that, if the underlying Indenture Event of Default:
(i) is not waivable under the Indenture, the Trust Enforcement
Event under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a
"Super Majority") to be waived under the Indenture, the
related Trust Enforcement Event under the Declaration may
only be waived by the vote or written consent of the
Holders of at least the proportion in liquidation amount
of the Preferred Securities that the relevant Super
Majority represents of the aggregate principal amount of
the Debentures outstanding.
The foregoing provisions of this Section 26 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 Trust Enforcement Event with respect
to the Preferred Securities arising therefrom shall be deemed to have been
cured, for every purpose of this Declaration and the Preferred Securities, but
no such waiver shall extend to any subsequent or other Trust Enforcement Event
with respect to the Preferred Securities or impair any right consequent thereon.
Any waiver by the Holders of the Preferred Securities of a Trust Enforcement
Event with respect to the Preferred Securities shall also be deemed to
constitute a waiver by the Holders of the Common Securities of any such Trust
Enforcement Event 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.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote or written consent, on behalf of the Holders of all of
the Common Securities, waive any past Trust Enforcement Event with respect of
the Common Securities and its consequences, provided that, if the underlying
Indenture Event of Default:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived
such Trust Enforcement Event under the Declaration as
provided below in this Section 2.6(b), the Trust
Enforcement Event under the Declaration shall also not be
waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived under the Indenture, except where the Holders of
the Common Securities are deemed to have waived such Trust
Enforcement Event under the Declaration as provided below
in this Section 2.6(b), the Trust Enforcement Event under
the Declaration may only be waived by the vote or written
consent of the Holders of at least the proportion in
liquidation amount of the Common Securities that the
relevant Super Majority
<PAGE>
15
represents of the aggregate principal amount of
the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any Trust Enforcement Event and all Trust Enforcement Events with respect to the
Common Securities and the consequences thereof until all Trust Enforcement
Events with respect to the Preferred Securities have been cured, waived or
otherwise eliminated, and until such Trust Enforcement Events with respect to
the Preferred Securities 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 Preferred Securities and only the Holders of the Preferred 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 cure, waiver or other elimination, any such default shall cease to
exist and any Trust Enforcement Event 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 Trust
Enforcement Event with respect to the Common Securities or impair any right
consequent thereon.
(c) A waiver of an Indenture Event of Default by the Property Trustee
at the direction of the Holders of the Preferred Securities constitutes a waiver
of the corresponding Trust Enforcement Event with respect to the Preferred
Securities under this Declaration. The foregoing provisions of this Section
2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and
such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act.
SECTION 2.7 Trust Enforcement Event; Notice.
-------------------------------
(a) The Property Trustee shall, within 90 days after the occurrence
of a Trust Enforcement Event, transmit by mail, first class postage prepaid, to
the Holders of the Securities, notices of all defaults with respect to the
Securities actually known to a Responsible Officer of the Property Trustee,
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
Indenture Event of Default, 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 on any of the Debentures, the Property Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Property
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
<PAGE>
16
(i) a default under Sections 6.01(i) or 6.01(iii) of the
Indenture; or
(ii) any default as to which the Property Trustee shall have
received written notice or of which a Responsible Officer
of the Property Trustee charged with the administration of
this Declaration shall have actual knowledge.
ARTICLE 3
ORGANIZATION
SECTION 3.1 Name and Organization.
---------------------
The Trust hereby created is named "Imperial Credit Capital Trust I" as
such name may be modified from time to time by the Regular Trustees following
written notice to the Holders of Securities. The Trust's activities may be
conducted under the name of the Trust or any other name deemed advisable by the
Regular Trustees.
SECTION 3.2 Office.
------
The address of the principal office of the Trust is c/o the Debenture
Issuer, 23550 Hawthorne Boulevard, Building One, Suite 110, Torrance California
90505. On 10 Business Days' written notice to the Holders of Securities, the
Regular 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 and use the gross proceeds from such sale to acquire the
Debentures, and (b) except as otherwise limited herein, to engage in only those
other activities necessary or incidental thereto. The Trust shall not borrow
money, issue debt or reinvest proceeds derived from investments, pledge any of
its assets or otherwise undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified as a grantor trust for United States
federal income tax purposes.
By the acceptance of this Trust, none of the Trustees, the Sponsor,
the Holders of the Preferred Securities or Common Securities or the Preferred
Securities Beneficial Owners will take any position for United States federal
income tax purposes which is contrary to the classification of the Trust 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 Regular Trustees shall have
exclusive authority to carry out the purposes of the Trust. An action taken by
the Regular Trustees in accordance with their powers
<PAGE>
17
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.
(a) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and except
as otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6(b), provided, that the registration statements referred
to in Section 3.6(b)(i), including any amendments thereto, shall be signed by or
on behalf of a majority of the Regular Trustees; and
(c) a Regular 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 Regular Trustees
have power and authority to cause the Trust to execute pursuant to Section 3.6.
SECTION 3.5 Title to Property of the Trust.
------------------------------
Except as provided in Section 3.8 with respect to the Debentures and
the Property 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 ownership interest in the assets of the Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
-----------------------------------------
The Regular Trustees shall have the exclusive power, duty and
authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
Trust may issue no more than two series of Preferred Securities (which will
consist exclusively of the Transfer Restricted Securities and the New Preferred
Securities) and no more than one series of Common Securities, and, provided
further, that there shall be no interests in the Trust other than the
Securities, and the issuance of Securities shall be limited to a one-time,
simultaneous issuance of both Transfer Restricted Securities and Common
Securities on the Closing Date and a one-time issuance of New Preferred
Securities pursuant to an exchange offer required pursuant to the Registration
Rights Agreement;
<PAGE>
18
(b) in connection with the issue and sale of the Preferred
Securities, at the direction of the Sponsor, to:
(i) execute and file with the Commission one or more
registration statements on the applicable forms prepared
by the Sponsor, including any amendments thereto,
pertaining to the Preferred Securities, the Guarantee and
the Debentures;
(ii) if deemed necessary or desirable by the Sponsor, execute
and file an application, prepared by the Sponsor, to the
New York Stock Exchange or any other national stock
exchange or the NASDAQ Stock Market for listing of any
Preferred Securities, the Guarantee and the Debentures;
(iii) if deemed necessary or desirable by the Sponsor, 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 Preferred
Securities, the Guarantee and the Debentures under Section
12(b) of the Exchange Act;
(iv) 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 Preferred Securities in any State in which the Sponsor
has determined to qualify or register such Preferred
Securities for sale;
(v) execute and deliver a purchase agreement and other related
agreements providing for the sale of the Preferred
Securities to the Initial Purchaser;
(vi) execute and deliver the Registration Rights Agreement;
(vii) execute and deliver the Remarketing Agreement;
(viii) execute and enter into the Indenture;
(ix) execute and deliver the Subsidiary Guarantee; and
(x) execute and deliver the Senior Notes Guarantee.
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided, however, that the
Regular 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 of the
Preferred Securities and the Holders of the Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event; provided that the Regular Trustees
shall consult with the Sponsor
<PAGE>
19
and the Property Trustee before taking or refraining from taking any action in
relation to any such Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common Securities
as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required of
the Regular Trustees pursuant to the terms of this Declaration and 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"), including seeking relief under the federal bankruptcy laws
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 to conduct only those services that the Regular Trustees have
authority to conduct directly, and to 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 Regular 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
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of
any notice received from the Debenture Issuer of its election to defer payments
of interest on the Debentures as authorized by 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 of the Preferred
Securities and the Holders of the Common Securities or to enable the Trust to
effect the purposes for which the Trust was created;
<PAGE>
20
(o) to take any action, not inconsistent with applicable law, that
the Regular Trustees determine in their discretion to be necessary or desirable
in carrying out the purposes and functions of the Trust as set out in Section
3.3 or the activities of the Trust as set out in this Section 3.6, including,
but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment
Company Act;
(ii) causing the Trust to be classified as a grantor trust for
United States federal income tax purposes; 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 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 Regular Trustees, on behalf of the
Trust; and
(q) 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 Regular Trustees shall 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 Regular Trustees shall have no power
to, and 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 Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Regular 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) shall cause the Trust not to engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Trustees (including the Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to
Holders of Securities pursuant to the terms of this
Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
<PAGE>
21
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness;
(v) possess any power or otherwise act in such a way as to
vary the Trust assets;
(vi) possess any power or otherwise act in such a way as to
vary the terms of the Securities in any way whatsoever
(except to the extent expressly authorized in this
Declaration or by the terms of the Securities);
(vii) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other
than the Securities; or
(viii) other than as provided in this Declaration or by the terms
of the Securities, (A) direct the time, method and place
of 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, (C) exercise any right to rescind or annul any
declaration that the principal of all the Debentures shall
be due and payable, or (D) 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 counsel to the
effect that such modification will not cause more than an
insubstantial risk that the Trust will be deemed an
Investment Company required to be registered under the
Investment Company Act, or the Trust will not be
classified as a grantor trust for United States federal
income tax purposes;
(ix) take any action inconsistent with the status of the Trust
as a grantor trust for United States federal income tax
purposes; or
(x) revoke any action previously authorized or approved by
vote of the Holders of the Preferred Securities.
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 Trust
and the Holders of the Securities. 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 6.6.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents with regard to the Debentures have been executed and
delivered.
<PAGE>
22
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular 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 Account") in the name of and
under the exclusive control of the Property Trustee on
behalf of the Holders of the Securities 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 Account and make payments to the
Holders of the Preferred Securities and Holders of the
Common Securities from the Property Account in accordance
with Section 7.2. Funds in the Property Account shall be
held uninvested until disbursed in accordance with this
Declaration. The Property Account shall be an account
that is maintained with a banking institution the rating
on whose long-term unsecured indebtedness is at least
equal to the rating assigned to the Preferred Securities
by a "nationally recognized statistical rating
organization", within the meaning of Rule 436(g)(2) under
the Securities Act;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the
Preferred Securities and the Common Securities to the
extent the Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as so directed and
as shall be necessary or appropriate to effect the
distribution of the Debentures to Holders of Securities
upon the occurrence of a Special Event.
(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 this Declaration and the Securities.
(e) The Property Trustee shall take any Legal Action which arises out
of or in connection with a Trust Enforcement Event of which a Responsible
Officer of the Property Trustee has actual knowledge or the Property Trustee's
duties and obligations under this Declaration or the Trust Indenture Act;
provided however, that if a Trust Enforcement Event has occurred and is
continuing and such event is attributable to the failure of the Debenture Issuer
to pay interest or principal on the Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then a Holder of Preferred Securities may directly institute a proceeding
for enforcement of payment to such Holder of the principal of or interest on
Debentures having a principal amount equal to the aggregate
<PAGE>
23
liquidation amount of the Preferred Securities of such Holder (a "Direct
Action") on or after the respective due date specified in the Debentures.
(f) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds
of the liquidation distributed to the Holders of
Securities 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 6.6.
(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 a Trust Enforcement Event actually known to a Responsible
Officer of the Property Trustee occurs and is continuing, the Property Trustee
shall, for the benefit of Holders of the Securities, 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 may authorize one or more Persons (each, a
"Paying Agent") 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
Paying Agent may be removed by the Property Trustee at any time and a successor
Paying Agent or additional Paying Agents may be appointed at any time by the
Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Property Trustee shall 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 the Property Trustee shall have no power
to, and 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 Trust
Enforcement Event and after the curing of all Trust Enforcement Events that may
have occurred, shall undertake to perform only such duties as are specifically
set forth in this Declaration and no implied covenants shall be read into this
Declaration against the Property Trustee. In case a Trust Enforcement Event has
occurred (that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Property Trustee 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.
<PAGE>
24
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of a Trust Enforcement Event and
after the curing or waiving of all such Trust Enforcement
Events 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 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 no implied covenants or obligations
shall be read into this Declaration 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; but
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 of
the Property Trustee, 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 without
negligence, 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
<PAGE>
25
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 Account shall be to deal with
such property in a similar manner as the Property Trustee
deals with similar property for its own account, subject
to the protections and limitations on liability afforded
to the Property Trustee under this Declaration and the
Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or
sufficiency of the Debentures or the payment of any taxes
or assessments levied thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any interest
on any money received by it except as it may otherwise
agree 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 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 Regular 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 Regular 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 Regular
Trustees contemplated by this Declaration shall 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
<PAGE>
26
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 Regular 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 of its
choice or other experts and the advice or opinion of such
counsel and experts with respect to legal matters or
advice within the scope of such experts' area of expertise
shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice
or opinion, such counsel may be counsel to the Sponsor or
any of its Affiliates, and may include any of its
employees. The Property Trustee shall have the right at
any time to seek instructions concerning the
administration of this Declaration from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Declaration at the request or direction of any Holder,
unless such Holder shall have provided to the Property
Trustee security and indemnity, reasonably satisfactory to
the Property Trustee, against the costs, expenses
(including 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)
shall be taken to relieve the Property Trustee, upon the
occurrence of an Indenture 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;
(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
<PAGE>
27
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 of the
Securities, 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 of the
Securities which instructions may only be given by the
Holders of the same proportion in liquidation amount of
the Securities as would be entitled to direct the Property
Trustee under the terms of the Securities in respect of
such remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be
protected in conclusively relying on or acting in or
accordance with such instructions;
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any
obligation to take any action that is discretionary under
the provisions of this Declaration; and
(xii) the Property Trustee shall not be liable for any action
taken, suffered or omitted to be taken by it without
negligence, in good faith and reasonably believed by it to
be authorized or within the discretion, 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.
----------------
<PAGE>
28
Notwithstanding any other provision of this Declaration other than
Section 6.2, 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 Regular Trustees or the Property Trustee described in this Declaration.
Except as set forth in Section 6.2, 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.
SECTION 3.12 Execution of Documents.
----------------------
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, any Regular Trustee is authorized
to execute on behalf of the Trust any documents that the Regular 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 Securities, the Debentures or the Indenture.
SECTION 3.14 Duration of Trust.
-----------------
The Trust shall exist until terminated pursuant to the provisions of
Article 8 hereof.
SECTION 3.15 Mergers.
-------
(a) The Trust may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described in Section 3.15(b) and (c).
(b) The Trust may, at the request of the Sponsor and with the consent
of the Regular Trustees or, if there are more than two, a majority of the
Regular Trustees and without the consent of the Holders of the Securities, the
Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or
into, or be replaced by or convey, transfer or lease its properties
substantially as an entirety to a trust organized as such under the laws of any
State; provided, that:
(i) if the Trust is not the successor, such successor entity
(the "Successor Entity") either:
a. expressly assumes all of the obligations of the Trust
with respect to the Securities; or
<PAGE>
29
b. substitutes for the Preferred Securities other
securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so
long as the Successor Securities rank the same as the
Preferred Securities rank in priority with respect to
Distributions and payments upon liquidation, redemption
and otherwise;
(ii) the Debenture Issuer expressly appoints a trustee of such
Successor Entity that possesses the same powers and duties
as the Property Trustee as the holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities
exchange or with any other or organization on which the
Preferred Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Preferred
Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating
organization;
(v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect
the rights, preferences and privileges of the Holders of
the Preferred Securities (including any Successor
Securities) in any material respect;
(vi) such Successor Entity has a purpose 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 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 Preferred Securities (including any Successor
Securities) in any material respect;
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; and
c. following such merger, consolidation, amalgamation or
replacement, the Trust (or the Successor Entity) will
continue to be
<PAGE>
30
classified as a grantor trust for United States federal
income tax purposes;
(viii) the Sponsor or any permitted successor or assignee owns
all of the Common Securities and guarantees the
obligations of such Successor Entity under the Successor
Securities at least to the extent provided by the
Preferred Securities Guarantee; and
(ix) such Successor Entity expressly assumes all of the
obligations of the Trust with respect to the Trustees.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in aggregate liquidation amount of the Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to, any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it, if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Trust or Successor
Entity to be classified as other than a grantor trust for United States federal
income tax purposes and each Holder of the Securities not to be treated as
owning an undivided interest in the Debentures.
SECTION 3.16 Property Trustee May File Proofs of Claim.
-----------------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and empowered, to the fullest extent permitted by law, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any
Distributions owing and unpaid in respect of the Securities (or, if the
Securities are original issue discount Securities, such portion of the
liquidation amount as may be specified in the terms of such Securities) and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Property Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
<PAGE>
31
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement adjustment or compensation affecting the
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
ARTICLE 4
SPONSOR
SECTION 4.1 Responsibilities of the Sponsor.
-------------------------------
In connection with the issue and sale of the Preferred 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 one or
more registration statements on the applicable forms, including any amendments
thereto, pertaining to the Preferred Securities, the Guarantee and the
Debentures;
(b) to determine the States in which to take appropriate action to
qualify or register for sale all or part of the Preferred Securities and to do
any and all such acts, other than actions which must be taken by 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) to prepare any filing by the Trust of an application to the New
York Stock Exchange or any other national stock exchange or the NASDAQ Stock
Market for listing, if such filing is determined to be necessary or desirable by
the Sponsor;
(d) to prepare any filing by the Trust with the Commission of a
registration statement on Form 8-A, including any amendments thereto, if such
filing is determined to be necessary or desirable by the Sponsor;
(e) to negotiate the terms of a purchase agreement and other related
agreements providing for the sale of the Preferred Securities to the Initial
Purchaser;
<PAGE>
32
(f) to negotiate the terms of the Registration Rights Agreement; and
(g) to negotiate the terms of the Remarketing Agreement.
SECTION 4.2 Indemnification and Expenses of the Trustees.
--------------------------------------------
The Sponsor, in its capacity as Debenture Issuer, agrees to indemnify
the Property Trustee and the Delaware Trustee for, and to hold each of them
harmless against, any loss, liability or expense incurred without negligence or
bad faith on the part of the Property Trustee or the Delaware Trustee, as the
case may be, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending either of them against any claim or liability in
connection with the exercise or performance of any of their respective powers or
duties hereunder; the provisions of this Section 4.2 shall survive the
resignation or removal of the Delaware Trustee or the Property Trustee or the
termination of this Declaration.
ARTICLE 5
TRUST COMMON SECURITIES HOLDER
SECTION 5.1 Debenture Issuer's Purchase of Common Securities.
------------------------------------------------
On the Closing Date, the Trust will sell and the Debenture Issuer will
purchase all of the Common Securities issued by the Trust, for an amount at
least equal to 3% of the capital of the Trust, at the same time as the Preferred
Securities are sold. The aggregate stated liquidation amount of Common
Securities outstanding at any time shall be not less than 3% of the capital of
the Trust.
SECTION 5.2 Covenants of the Common Securities Holder.
-----------------------------------------
For so long as the Preferred Securities remain outstanding, the Common
Securities Holder will covenant (i) to maintain, directly or indirectly, 100%
ownership of the Common Securities, (ii) to cause the Trust to remain a
statutory business trust and not to voluntarily dissolve, wind up, liquidate or
be terminated, except as permitted by this Declaration, (iii) to use its
commercially reasonable efforts to ensure that the Trust will not be an
investment company for purposes of the Investment Company Act, and (iv) to take
no action which would be reasonably likely to cause the Trust to be classified
as an association or a publicly traded partnership taxable as a corporation for
United States federal income tax purposes.
<PAGE>
33
ARTICLE 6
TRUSTEES
SECTION 6.1 Number of Trustees.
------------------
The number of Trustees initially shall be five, and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may
be increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities or by written consent in lieu of such meeting; provided
that the number of Trustees shall be at least three; and provided further that
(1) the Delaware Trustee, in the case of a natural person, shall be a person who
is a resident of the State of Delaware or that, if not a natural person, is an
entity which has its principal place of business in the State of Delaware and
otherwise meets the requirements of applicable law; (2) at least one Regular
Trustee is an employee or officer of, or is affiliated with, the Sponsor; 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.
SECTION 6.2 Delaware Trustee; Eligibility.
-----------------------------
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 6.3 Property Trustee; Eligibility.
-----------------------------
(a) There shall at all times be one Trustee which shall act as
Property Trustee which shall:
(i) not be an Affiliate of the Sponsor; and
<PAGE>
34
(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 other Person permitted by the Commission to
act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate
trust owners, 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 6.3(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 6.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 6.6(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 Guarantee 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.
SECTION 6.4 Qualifications of Regular Trustees and Delaware Trustee
-------------------------------------------------------
Generally.
- ---------
Each Regular Trustee and the Delaware Trustee (unless the Property
Trustee also acts as 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 6.5 Initial Regular Trustees.
------------------------
The initial Regular Trustees shall be:
Irwin L. Gubman, Kevin E. Villani and Paul B. Lasiter, the business
address of all of whom is c/o the Debenture Issuer, 23550 Hawthorne Boulevard,
Building One, Suite 110, Torrance California 90505.
<PAGE>
35
SECTION 6.6 Appointment, Removal and Resignation of Trustees.
------------------------------------------------
(a) Subject to Section 6.6(b), 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; and
(ii) 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.
(b) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 66 until a successor Trustee possessing the
qualifications to act as Property Trustee under Section 3.8(h) (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the Regular Trustees and the Sponsor. The Trustee that acts as Delaware Trustee
shall not be removed in accordance with Section 6.6(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections 6.2 and
6.4 (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 Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his or its
successor shall have been appointed, until his death or its dissolution or until
his or its 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 of the Securities; 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
<PAGE>
36
Delaware Trustee and delivered to the Trust, the Sponsor
and the resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Delaware Trustee or Successor Property Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 6.6.
(e) If no Successor Property Trustee or Successor Delaware Trustee,
as the case may be, shall have been appointed and accepted appointment as
provided in this Section 6.6 within 60 days after delivery to the Sponsor and
the Trust of an instrument of resignation or removal, the resigning or removed
Property Trustee or Delaware Trustee, as applicable, may petition any court of
competent jurisdiction for appointment of a Successor Property Trustee or
Successor Delaware Trustee, as applicable. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Property Trustee or Successor Delaware Trustee, as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
SECTION 6.7 Vacancies among Trustees.
------------------------
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 6.1, or if the number of Trustees is
increased pursuant to Section 6.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 6.6.
SECTION 6.8 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 annul the Trust. Whenever a vacancy in the number of Regular
Trustees shall occur, until such vacancy is filled by the appointment of a
Regular Trustee in accordance with Section 6.6, the Regular Trustees in office,
regardless of their number, shall have all the powers granted to the Regular
Trustees and shall discharge all the duties imposed upon the Regular Trustees by
this Declaration.
SECTION 6.9 Meetings.
--------
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of
<PAGE>
37
any in-person meetings of the Regular Trustees shall be hand delivered or
otherwise delivered in writing (including by facsimile, with a hard copy by
overnight courier) not less than 48 hours before such meeting. Notice of any
telephonic meetings of the Regular 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 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 a Regular Trustee at a meeting
shall constitute a waiver of notice of such meeting except where a Regular
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 Regular Trustees may be taken at a meeting by vote of a majority of the
Regular Trustees present (whether in person or by telephone) and eligible to
vote with respect to such matter, provided that a Quorum is present, or without
a meeting by the unanimous written consent of the Regular Trustees. In the
event there is only one Regular Trustee, any and all action of such Regular
Trustee shall be evidenced by a written consent of such Regular Trustee.
SECTION 6.10 Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Property Trustee, the Delaware Trustee
or any Regular Trustee that is not a natural person, may be merged or converted
or with such Trustee may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of such Trustee, shall be the successor of such Trustee hereunder,
provided such corporation 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 7
THE SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
---------------------------------------
(a) The Regular Trustees shall on behalf of the Trust issue a class
of preferred capital securities representing undivided beneficial ownership
interests in the assets of the Trust (the "Transfer Restricted Securities"), a
class of preferred capital securities to be issued only in exchange for the
Transfer Restricted Securities (the "New Preferred Securities," and, together
with the Transfer Restricted Securities, the "Preferred Securities"), and one
class of common securities representing undivided beneficial ownership interests
in the assets of the Trust (the "Common Securities").
(i) Preferred Securities. The Preferred Securities of the
Trust have an aggregate liquidation amount with respect to
the assets of the Trust of $70,000,000 and a liquidation
amount with respect to the assets of the Trust of $1,000
per Preferred Security. The Transfer Restricted Preferred
<PAGE>
38
Securities are hereby designated for identification
purposes only as the Remarketed Par Securities, Series A,
of the Trust and the New Preferred Securities are hereby
designated for identification purposes only as the
Preferred Securities, Series B, of the Trust. The
Transfer Restricted Preferred Security Certificates and
the New Preferred Security Certificates evidencing the
Preferred Securities, respectively, shall be substantially
in the form of Exhibits A and B 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 stock exchange on which
the Preferred Securities are listed or quoted.
(ii) Common Securities. The Common Securities of the Trust
have an aggregate liquidation amount with respect to the
assets of the Trust of $2,165,000 and a liquidation amount
with respect to the assets of the Trust of $1,000 per
Common Security. The Common Securities are hereby
designated for purposes of identification only as the
Common Securities of the Trust. The Common Security
Certificates evidencing the Common Securities shall be
substantially in the form of Exhibit C to the Declaration,
with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or
practice.
(b) Payment of Distributions on, and the Redemption Price of, the
Preferred Securities and the Common Securities, as applicable, shall be made Pro
Rata based on the liquidation amount of such Preferred Securities and Common
Securities; provided, however, that if on any date on which such Distributions
or the Redemption Price is payable, an Indenture Event of Default shall have
occurred and be continuing, no payment of any Distribution on, or Redemption
Price payable in respect of, any of the Common Securities, and no other payment
on account of the redemption, liquidation or other acquisition of such Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all of the outstanding Preferred Securities for all
distribution periods terminating on or prior thereto, or in the case of amounts
payable on redemption the full amount of the Redemption Price of all of the
outstanding Preferred Securities then called for redemption, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or the
Redemption Price of, the Preferred Securities then due and payable. The Trust
shall issue no securities or other interests in the assets of the Trust other
than the Preferred Securities and the Common Securities.
(c) The Certificates shall be signed on behalf of the Trust by a
Regular Trustee. Such signature shall be the manual or facsimile signature of
any present or any future Regular Trustee. In case a Regular Trustee of the
Trust who shall have signed any of the Certificates shall cease to be such
Regular Trustee before the Certificates so signed shall be delivered by the
Trust, such Certificates nevertheless may be delivered as though the person who
signed such Certificates had not ceased to be such Regular Trustee; and any
Certificate may be signed on behalf of the Trust by such persons who, at the
actual date of execution of such Certificate, shall be the Regular Trustees of
the Trust, although at the date of the execution and delivery of the
<PAGE>
39
Declaration any such person was not such a Regular Trustee. Certificates shall
be printed, lithographed or engraved or may be produced in any other manner as
is reasonably acceptable to the Regular Trustees, as evidenced by their
execution thereof, and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements as the Regular
Trustees may deem appropriate, or as may be required to comply with any law or
with any rule or regulation of any stock exchange on which Securities may be
listed, or to conform to usage.
A Certificate representing Preferred Securities shall not be valid
until authenticated by the manual signature of an authorized officer of the
Property Trustee. Such signature shall be conclusive evidence that such
Certificate has been authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular Trustee, the
Property Trustee shall authenticate the Certificates representing Preferred
Securities for original issue. The aggregate number of Preferred Securities
outstanding at any time shall not exceed the liquidation amount set forth in
Section 7.1(a)(i).
The Property Trustee may appoint an authenticating agent acceptable to
the Trust to authenticate Certificates. An authenticating agent may
authenticate Certificates 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 of the Sponsor.
(d) 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.
(e) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, and subject to
the terms hereof, fully paid and non-assessable beneficial ownership interests
in the assets of the Trust.
(f) Every Person, by virtue of having become a Holder or a Preferred
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 and the terms of the Securities, the Guarantee,
the Indenture and the Debentures.
(g) The holders of the Securities shall have no preemptive or similar
rights.
SECTION 7.2 Distributions.
-------------
(a) Holders of Securities shall be entitled to receive cumulative
cash Distributions at the following rates (each, an "Applicable Distribution
Rate") of the stated liquidation amount of $1,000 per Security:
<PAGE>
40
(i) from the Closing Date to but excluding the Remarketing Settlement
Date, at the rate per annum equal to 10-1/4% (the "Initial Distribution
Rate"); and
(ii) from the Remarketing Settlement Date, if any, to but excluding
the date of redemption, if any, thereof, at the rate per annum (the
"Adjusted Distribution Rate") that results from the Remarketing consummated
on the Remarketing Settlement Date. The Adjusted Distribution Rate shall
not exceed the Maximum Adjusted Distribution Rate.
At all times, the interest rate payable on the Debentures pursuant to
Section 4.01(c) of the Indenture shall equal the Applicable Distribution Rate.
(b) (i) Distributions on the Securities shall be cumulative, shall
accumulate from the date of initial issuance and shall be payable semi-annually,
in arrears, on each June 15 (June 14 in 2002) and December 15, commencing
December 15, 1997, and on the Scheduled Remarketing Settlement Date (each, a
"Distribution Date"), when, as and if available for payment, by each Property
Trustee, except as otherwise described below. Distributions are payable only to
the extent that payments are made in respect of the Debentures held by the
Property Trustee and to the extent the Trust has funds available for the payment
of such Distributions in the Property Account. The amount of Distributions
payable for any period shall be computed (i) for any full 180-day semi-annual
Distribution period on the basis of a 360-day year of twelve 30-day months, (ii)
for any period shorter than a full 180-day semi-annual distribution period for
which Distributions are computed, on the basis of a 30-day month and (iii) for
periods of less than a month, the actual number of days elapsed per 30-day
month. Subject to Section 7.1(b), Distributions shall be made on the Preferred
Securities and the Common Securities on a Pro Rata basis.
(ii) Distributions not paid on the scheduled Distribution Date will
accumulate and compound semi-annually at the Applicable Distribution Rate in
effect at the beginning of the related interest period ("Compounded
Distributions"). "Distributions" shall mean ordinary cumulative Distributions
together with any Compounded Distributions.
(iii) If and to the extent that the Debenture Issuer makes a payment
of interest (including Additional Interest, premium and/or principal on the
Debentures held by the Property Trustee (the amount of any such payment being a
"Payment Amount"), the Property Trustee shall and is directed, to the extent
funds are available for that purpose, to make a Pro Rata distribution of the
Payment Amount to Holders, subject to Section 7.1(b).
(c) Distributions on the Securities shall be payable to the Holders
thereof as they appear on the register of the Trust as of the close of business
on the June 1 and December 1 next preceding the relevant Distribution Date. The
relevant record dates for the Common Securities shall be the same as for the
Preferred Securities. At all times, the Distribution Dates shall correspond to
the interest payment dates on the Debentures. 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, shall
cease to be payable to the Person in whose name such Securities are registered
on the relevant record date, and such
<PAGE>
41
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 this Declaration. If any date on which
Distributions are payable on the Securities is not a Business Day, then payment
of the Distribution payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such payment
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 among the Holders of the Securities.
SECTION 7.3 Redemption of Securities.
------------------------
(a) Upon the repayment or redemption, in whole or in part, of the
Debentures held by the Trust, whether at the stated maturity of the Debentures
or upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be simultaneously applied Pro Rata (subject to
Section 7.1(b) of this Declaration) to redeem Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Debentures so
repaid or redeemed at the Redemption Price. Except with respect to a Special
Mandatory Redemption, Holders shall be given not less than 30 nor more than 60
days notice of such redemption in accordance with Section 7.4 below.
(b) If, at any time, a Special Event shall occur and be continuing,
the Regular Trustees may, within 90 days following the occurrence of such
Special Event, elect to dissolve the Trust upon not less than 30 nor more than
60 days' notice and, after satisfaction of liabilities to creditors, if any,
cause the Debentures to be distributed to the holders of the Securities in
liquidation of the Trust.
(c) On the date fixed for any distribution of Debentures, upon
dissolution of the Trust, (i) the Securities will no longer be deemed to be
outstanding and (ii) certificates representing Securities will be deemed to
represent the Debentures having an aggregate principal amount equal to the
stated liquidation amount of, and bearing accrued and unpaid interest equal to
accumulated and unpaid Distributions on, such Securities until such certificates
are presented to the Sponsor or its agent for transfer or reissuance.
(d) If, by 4:00 p.m., New York City time, on any Scheduled
Remarketing Date, the Remarketing Agent is unable to remarket, at a price of
$1,000 per Preferred Security, all of the Preferred Securities tendered or
deemed tendered for purchase in the Remarketing on such Scheduled Remarketing
Date, (i) such unsold Preferred Securities shall be exchanged on the related
Scheduled Remarketing Settlement Date with the Trust for Debentures having an
aggregate principal amount equal to the aggregate liquidation amount of such
unsold Preferred Securities and such Debentures shall be immediately redeemed by
the Debenture Issuer, unless (ii) as a result of such redemption, less than
$25.0 million principal amount of Debentures would
<PAGE>
42
remain outstanding, in which latter event, the Debenture Issuer shall redeem on
such Scheduled Remarketing Settlement Date all of the outstanding Debentures. In
the case of either such redemption (a "Special Mandatory Redemption"), the
redemption price of the Debentures shall be 100% of the principal amount of the
Debentures so redeemed.
SECTION 7.4 Redemption Procedures.
---------------------
(a) Except with respect to a Special Mandatory Redemption (which
shall not be governed by this Section 7.4(a)), 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 of Securities 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 7.4(a), a
Redemption/Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/ Distribution Notice shall be addressed to the
Holders of Securities at the address of each such Holder appearing in the
register 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.
(b) If fewer than all the outstanding Securities are to be so
redeemed, the Securities will be redeemed Pro Rata and the Preferred Securities
to be redeemed will be redeemed as described in Section 7.4(c) below. The Trust
may not redeem the Securities in part unless all accumulated and unpaid
Distributions to the date of redemption have been paid in full on all Securities
then outstanding. For all purposes of this Declaration, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities shall relate, in the case of any Preferred Security redeemed or to be
redeemed only in part, to the portion of the aggregate liquidation amount of
Preferred Securities which has been or is to be redeemed.
(c) Subject to the Trust's fulfillment of the notice requirements set
forth in Section 7.4(a) above, if Securities are to be redeemed (including a
redemption of Securities following a Special Mandatory Redemption of all of the
Debentures), then (i) with respect to Preferred Securities represented by one or
more Global Securities, by 12:00 noon, New York City time, on the redemption
date, to the extent funds are available, the Property Trustee will deposit
irrevocably with the Depositary or its nominee (or successor Clearing Agency or
its nominee) funds sufficient to pay the applicable Redemption Price with
respect to such Preferred Securities and will give the Depositary irrevocable
instructions and authority to pay the Redemption Price to the Holders of such
Preferred Securities and (ii) with respect to Securities not represented by one
or more Global Securities, the Trust, to the extent funds are available, will
irrevocably deposit with the Paying Agent such funds sufficient to pay the
relevant Redemption Price to the Holders of such Securities and will give the
Paying Agent irrevocable instructions and authority to pay the applicable
Redemption Price by check mailed to the address of the relevant Holder appearing
on the register of the Trust on the redemption date. If any date fixed
<PAGE>
43
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 Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case 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 Guarantee, Distributions on such
Securities will continue to accumulate at the then Applicable Distribution Rate
in effect 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. For these
purposes, the applicable Redemption Price shall not include Distributions which
are being paid to Holders who were Holders on a relevant record date. If notice
of redemption has been given and funds deposited as required, then immediately
prior to the close of business on the date of such deposit or payment,
Distributions will cease to accrue on the Securities called for redemption and
all rights of Holders of such Securities so called for redemption will cease,
except the right of the Holders to receive the Redemption Price, but without
interest on such Redemption Price, and from and after the date fixed for
redemption, such Securities will cease to be outstanding.
Neither the Regular Trustees nor the Trust shall be required to
register or cause to be registered the transfer of any Securities that have been
called for redemption, except in the case of any Securities being redeemed in
part, any portion thereof not to be redeemed.
(d) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Debenture Issuer or its
subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
SECTION 7.5 Remarketing.
-----------
(a) (i) If the Debenture Issuer receives a Tax Opinion at least 35
Business Days prior to an Election Date, the Debenture Issuer may cancel the
Remarketing by giving, to the Property Trustee, the Depositary and the
Remarketing Agent, written notice of such cancellation.
(ii) If the Debenture Issuer does not receive such a Tax Opinion or if
the Debenture Issuer does not elect to cancel the Remarketing after receiving
such Tax Opinion, the Trust shall give a Notice of Remarketing of the Preferred
Securities, substantially in the form attached as, or containing substantially
the information contained in, Exhibit D to this Declaration to the Depositary,
with copies to the Property Trustee and the Remarketing Agent, not less than 20
nor more than 35 Business Days prior to the Election Date. If the Debenture
Issuer is required to redeem Debentures (and thus Preferred Securities) in
connection with a Transfer Restricted Security Redemption, Holders of such
Preferred Securities shall receive notice of such redemption at or prior to the
time when the Notice of Remarketing of the Preferred Securities shall be given
to the Depositary, and such Holders shall not tender their Preferred Securities
for purchase in the Remarketing.
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44
(b) Not later than 4:00 P.M., New York City time, on the Election
Date, each holder of Preferred Securities may give a Notice of Election,
substantially in the form attached as, or containing substantially the
information contained in, Exhibit E to this Declaration ("Notice of Election"),
to the Property Trustee of its election (i) to retain and not to have all or any
portion of the Preferred Securities owned by it remarketed in the Remarketing to
be conducted on the Scheduled Remarketing Date or (ii) to tender all or any
portion of such Preferred Securities for purchase in such Remarketing (such
portion, in either case, shall be in the liquidation amount of $1,000 or any
integral multiple thereof). Any Notice of Election given to the Property
Trustee shall be irrevocable and may not be conditioned upon the level at which
the Adjusted Distribution Rate is established in the Remarketing. Promptly
after 4:30 P.M., New York City time, on the Election Date, the Property Trustee,
based on the Notices of Election received by it through the Depositary prior to
such time, shall notify the Trust, the Debenture Issuer and the Remarketing
Agent of the number of Preferred Securities to be retained by Holders and the
number of Preferred Securities tendered for purchase in the Remarketing. Under
Section 4 of the Remarketing Agreement, the Company, in its capacity as
Debenture Issuer, shall be liable for, and shall pay, any and all costs and
expenses incurred in connection with the Remarketing and the Trust shall not be
liable for such costs and expenses.
(c) If any Holder gives a Notice of Election to tender Preferred
Securities as described in clause (ii) of Section 7.5(b), the Preferred
Securities so subject to such Notice of Election shall be deemed tendered for
purchase in the Remarketing, notwithstanding any failure by such Holder to
deliver or properly deliver such Preferred Securities to the Remarketing Agent
for purchase. If any Holder of Preferred Securities fails timely to deliver a
Notice of Election, as described in Section 7.5(b), such Preferred Securities
shall be deemed tendered for purchase in the Remarketing, notwithstanding such
failure or the failure by such Holder to deliver or properly deliver Preferred
Securities to the Remarketing Agent for purchase.
(d) The right of each Holder to have Preferred Securities tendered
for purchase shall be limited to the extent that (i) the Remarketing Agent
conducts a remarketing pursuant to the terms of the Remarketing Agreement, (ii)
Preferred Securities tendered have not been called for redemption, (iii) the
Remarketing Agent is able to find a purchaser or purchasers for tendered
Preferred Securities at an Adjusted Distribution Rate that does not exceed the
Maximum Adjusted Distribution Rate and (iv) such purchaser or purchasers deliver
the purchase price therefor to the Remarketing Agent.
(e) Prior to 4:00 P.M., New York City time, on the Scheduled
Remarketing Date, the Remarketing Agent shall determine the Adjusted
Distribution Rate, which shall be the rate per annum (rounded to the nearest
one-thousandth (0.001) of one percent per annum) which the Remarketing Agent
determines, in its sole judgment, to be the lowest rate per annum, if any, not
exceeding the Maximum Adjusted Distribution Rate that will enable it to remarket
all Preferred Securities tendered or deemed tendered for purchase at a price of
$1,000 per Preferred Security. Notwithstanding the foregoing, if the
Remarketing Agent is able to remarket some, but is unable to remarket all, of
the Preferred Securities tendered or deemed tendered for purchase in the
Remarketing, the Adjusted Distribution Rate shall be the highest rate, not
exceeding the Maximum Adjusted Distribution Rate, required to remarket the
Preferred Securities sold in the
<PAGE>
45
Remarketing. If holders submit Notices of Election to retain all of the
Securities then outstanding, the Adjusted Distribution Rate shall be the rate
determined by the Remarketing Agent, in its sole discretion, as the rate that
would have been established had a Remarketing been held on the Scheduled
Remarketing Date with respect to such Notice of Election.
(f) If the Remarketing Agent is unable to remarket by 4:00 P.M., New
York City time, on the Scheduled Remarketing Date, all Preferred Securities
tendered or deemed tendered for purchase at a price of $1,000 per Security, each
holder that tendered Preferred Securities for sale shall sell a number of
Preferred Securities on a pro rata basis, to the extent practicable, or by lot,
as determined by the Remarketing Agent in its sole discretion, based on the
number of orders to purchase Preferred Securities in the Remarketing. If the
allocation procedures described in the preceding sentence would result in the
sale of a fraction of a Preferred Security, the Remarketing Agent shall, in its
sole discretion, round up or down the number of Preferred Securities sold by
each holder in the Remarketing so that each Preferred Security sold in the
Remarketing will be a whole Preferred Security and the total number of Preferred
Securities sold equals the total number of Preferred Securities purchased in the
Remarketing.
(g) By approximately 4:30 P.M., New York City time, on the Scheduled
Remarketing Date, the Remarketing Agent shall advise, by telephone (i) the
Depositary, the Property Trustee, the Debenture Trustee, the Trust and the
Sponsor of the Adjusted Distribution Rate determined in the Remarketing and the
number of Preferred Securities sold in the Remarketing, (ii) each purchaser (or
the Depositary Participant thereof) of the Adjusted Distribution Rate determined
in the Remarketing and the number of Preferred Securities such purchaser is to
purchase and (iii) each purchaser to give instructions to its Depositary
Participant to pay the purchase price on the Scheduled Remarketing Settlement
Date in same day funds against delivery of the Preferred Securities purchased
through the facilities of the Depositary.
(h) In accordance with the Depositary's normal procedures, on the
Remarketing Settlement Date, the transactions described above with respect to
each Preferred Security tendered for purchase and sold in the Remarketing shall
be executed through the Depositary, if the Depositary or its nominee is the
Holder of such Preferred Securities, as authorized in accordance with Section
7.5(h), and the accounts of the respective Depositary Participants shall be
debited and credited and such Preferred Securities delivered by book entry as
necessary to effect purchases and sales of such Preferred Securities. The
Depositary shall make payment in accordance with its normal procedures.
(i) If any holder selling Preferred Securities in the Remarketing
fails to deliver such Preferred Securities, the Depositary Participant of such
selling holder and of any other person that was to have purchased Preferred
Securities in the Remarketing may deliver to any such other person a number of
Preferred Securities that is less than the number of Preferred Securities that
otherwise was to be purchased by such person. In such event, the number of
Preferred Securities to be so delivered shall be determined by such Depositary
Participant, and delivery of such lesser number of Preferred Securities shall
constitute good delivery.
<PAGE>
46
(j) The Remarketing Agent is not obligated to purchase any Preferred
Securities that would otherwise remain unsold in a Remarketing. Neither the
Trust, any Trustee, the Sponsor nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of Preferred Securities
for Remarketing.
SECTION 7.6 Voting Rights of Preferred Securities.
-------------------------------------
(a) Except as provided under this Article VII and as otherwise
required by the Business Trust Act, the Trust Indenture Act and other applicable
law, the Holders of the Preferred Securities shall have no voting rights.
(b) Subject to the requirement of the Property Trustee obtaining a
tax opinion in certain circumstances set forth in Section 7.6(d) below, the
Holders of a Majority in Liquidation Amount of the Preferred 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 under the Declaration,
including the right to direct the Property Trustee, as Holder of the Debentures,
to (i) exercise the remedies available to it under the Indenture as a Holder of
the Debentures, (ii) consent to any amendment or modification of the Indenture
or the Debentures where such consent shall be required or (iii) waive any past
default and its consequences that is waivable under the Indenture; provided,
however, that if an Indenture Event of Default has occurred and is continuing,
then the Holders of 25% of the aggregate liquidation amount of the Preferred
Securities may direct the Property Trustee to declare the principal of and
interest on the Debentures due and payable; provided, further, that where a
consent or action under the Indenture would require the consent or act of the
Holders of more than a majority of the aggregate principal amount of Debentures
affected thereby, only the Holders of the percentage of the aggregate stated
liquidation amount of the Preferred Securities which is at least equal to the
percentage required under the Indenture may direct the Property Trustee to give
such consent to take such action.
(c) If the Property Trustee fails to enforce its rights under the
Debentures after a Holder of Preferred Securities has made a written request,
such Holder of Preferred Securities may institute a legal proceeding directly
against the Debenture Issuer to enforce the Property Trustee's rights under the
Indenture without first instituting any legal proceeding against the Property
Trustee or any other person or entity. In addition, if a Trust Enforcement
Event has occurred and is continuing and such event is attributable to the
failure of the Debenture Issuer to make any interest, principal or other
required payments when due under the Indenture, then a Holder of Preferred
Securities may directly institute a Direct Action on or after the respective due
date specified in the Debentures.
(d) The Property Trustee shall notify all Holders of the Preferred
Securities of any notice of any Indenture Event of Default received from the
Debenture Issuer with respect to the Debentures. Such notice shall state that
such Indenture Event of Default also constitutes a Trust Enforcement Event.
Except with respect to directing the time, method, and place of conducting a
proceeding for a remedy, the Property Trustee shall be under no obligation to
take any of the actions described in clause 7.6(b)(i) and (ii) above unless the
Property Trustee has
<PAGE>
47
obtained an opinion of independent tax counsel to the effect that the Trust will
not fail to be classified as a grantor trust for United States federal income
tax purposes, as a result of such action, and each Holder will be treated as
owning an undivided beneficial ownership interest in the Debentures.
(e) In the event the consent of the Property Trustee, as the Holder
of the Debentures, is required under the Indenture with respect to any amendment
or modification of the Indenture, the Property Trustee shall request the
direction of the Holders of the Securities with respect to such amendment or
modification and shall vote with respect to such amendment or modification as
directed by a Majority in Liquidation Amount of the Securities voting together
as a single class; provided, however, that where a consent under the Indenture
would require the consent of the Holders of more than a majority of the
aggregate principal amount of the Debentures, the Property Trustee may only give
such consent at the direction of the Holders of at least the same proportion in
aggregate stated liquidation amount of the Securities. The Property Trustee
shall not take any such action in accordance with the directions of the Holders
of the Securities unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that the Trust will not be classified as
other than a grantor trust for United States federal income tax purposes, as a
result of such action, and each Holder will be treated as owning an undivided
beneficial ownership interest in the Debentures.
(f) A waiver of an Indenture Event of Default with respect to the
Debentures will constitute a waiver of the corresponding Trust Enforcement
Event.
(g) Any required approval or direction of Holders of Preferred
Securities may be given at a separate meeting of Holders of Preferred Securities
convened for such purpose, at a meeting of all of the Holders of Securities or
pursuant to written consent. The Regular Trustees shall cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Preferred Securities. Each such notice
shall include a statement setting forth the following information: (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.
(h) No vote or consent of the Holders of Preferred Securities shall
be required for the Trust to redeem and cancel Preferred Securities or
distribute Debentures in accordance with the Declaration.
(i) Notwithstanding that Holders of Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Securities that are owned at such time by the Debenture Issuer, the Trustees or
any entity directly or indirectly controlled by, or under direct or indirect
common control with, the Debenture Issuer or any Trustee, shall not be entitled
to vote or consent and shall, for purposes of such vote or consent, be treated
as if such Securities were not outstanding.
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48
(j) Holders of the Preferred Securities shall have no rights to
appoint or remove the Trustees, who may be appointed, removed or replaced solely
by the Debenture Issuer, as the Holder of all of the Common Securities. If an
Indenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed at such time by a Majority in
Liquidation Amount of the Preferred Securities.
SECTION 7.7 Voting Rights of Common Securities.
----------------------------------
(a) Except as provided under Section 6.1(b) or this Section 7.7 or as
otherwise required by the Business Trust Act, the Trust Indenture Act or other
applicable law or provided by the Declaration, the Holders of the Common
Securities shall have no voting rights.
(b) The Holders of the Common Securities shall be entitled, in
accordance with Article V of the Declaration, to vote to appoint, remove or
replace any Trustee or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after all
Trust Enforcement Events with respect to the Preferred Securities have been
cured, waived, or otherwise eliminated and subject to the requirement of the
Property Trustee obtaining a tax opinion in certain circumstances set forth in
this paragraph (c), the Holders of a Majority in Liquidation Amount of the
Common Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee, or
direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee, as
Holder of the Debentures, to (i) exercise the remedies available to it under the
Indenture as a Holder of the Debentures, (ii) consent to any amendment or
modification of the Indenture or the Debentures where such consent shall be
required or (iii) waive any past default and its consequences that is waivable
under the Indenture; provided, however, that where a consent or action under the
Indenture would require the consent or act of the Holders of more than a
majority of the aggregate principal amount of Debentures affected thereby, only
the Holders of the percentage of the aggregate stated liquidation amount of the
Common Securities which is at least equal to the percentage required under the
Indenture may direct the Property Trustee to have such consent or take such
action. Except with respect to directing the time, method, and place of
conducting a proceeding for a remedy, the Property Trustee shall be under no
obligation to take any of the actions described in clause 7.7(c)(i) and (ii)
above unless the Property Trustee has obtained an opinion of independent tax
counsel to the effect that, as a result of such action, for United States
federal income tax purposes the Trust will not fail to be classified as a
grantor trust and each Holder will be treated as owning an undivided beneficial
ownership interest in the Debentures.
(d) If the Property Trustee fails to enforce its rights under the
Debentures after a Holder of Common Securities has made a written request, such
Holder of Common Securities may directly institute a legal proceeding directly
against the Debenture Issuer to enforce the Property Trustee's rights under the
Debentures without first instituting any legal proceeding against the Property
Trustee or any other person or entity.
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49
(e) A waiver of an Indenture Event of Default with respect to the
Debentures will constitute a waiver of the corresponding Trust Enforcement
Event.
(f) Any required 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 or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Trust Common Securities are entitled to vote, or of
any matter on 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 the following information: (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.
(g) 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 Debentures in accordance with the Declaration and the terms of the
Securities.
SECTION 7.8 Paying Agent.
------------
In the event that any Preferred Securities are not in book-entry only
form, the Trust shall maintain in the Borough of Manhattan, City of New York,
State of New York, an office or agency where the Trust Preferred Securities may
be presented for payment ("Paying Agent"). The Trust may appoint the paying
agent and may appoint one or more additional paying agents in such other
locations as it shall determine. The term "Paying Agent" includes any
additional paying agent. The Trust may change any Paying Agent without prior
notice to the Holders. The Trust shall notify the Property Trustee of the name
and address of any Paying Agent not a party to this Declaration. If the Trust
fails to appoint or maintain another entity as Paying Agent, the Property
Trustee shall act as such. The Trust or any of its Affiliates may act as Paying
Agent. Chase Trust Company of California shall initially act as Paying Agent
for the Preferred Securities and the Common Securities. In the event the
Property Trustee shall no longer be the Paying Agent, the Regular Trustees shall
appoint a successor (which shall be a bank or trust company acceptable to the
Regular Trustees and the Debenture Issuer) to act as Paying Agent. The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written notice
to the Property Trustee and the Debenture Issuer.
SECTION 7.9 Transfer of Securities.
----------------------
(a) The Trust shall cause to be kept at the Corporate Trust Office of
the Property Trustee a register (the register maintained in such office being
herein sometimes referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Trust shall provide for the
registration of Preferred Securities and of transfers of Preferred Securities.
The Property Trustee is hereby appointed "Security Registrar" for the purpose of
registering Preferred Securities and transfers of Preferred Securities as herein
provided.
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(b) Upon surrender for registration of transfer of any Security at an
office or agency of the Trust designated for such purpose, the Trust shall
execute, and the Property Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denominations and of a like aggregate principal amount.
(c) At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Trust shall execute, and the Property Trustee shall authenticate and deliver,
the Securities which the Holder making the exchange is entitled to receive.
(d) Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Trust or the Property
Trustee) be duly endorsed, or be accompanied by a written instrument of transfer
in form satisfactory to the Trust and the Security Registrar duly executed, by
the Holder thereof or his attorney duly authorized in writing.
(e) No service charge shall be made for any registration of transfer
or exchange of Securities, but the Trust may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities.
(f) If the Securities are to be redeemed in part (other than pursuant
to a Special Mandatory Redemption), the Trust shall not be required (A) to
issue, register the transfer of or exchange any Securities during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of any such Securities selected for redemption under
Section 7.4 and ending at the close of business on the day of such mailing, or
(B) to register the transfer or exchange of any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 7.10 Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If:
(a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees such security or
indemnity as may be required by them to keep each of them, the Sponsor and the
Trust harmless, then, in the absence of notice that such Certificate shall have
been acquired by a bona fide purchaser, any Regular Trustee on behalf of the
Trust shall execute and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
denomination. In connection with the issuance of any new Certificate under this
Section 7.10, the Regular Trustees may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this
<PAGE>
51
Section shall constitute conclusive evidence of an ownership interest in the
relevant Securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
SECTION 7.11 Deemed Security Holders.
-----------------------
The Trustees may treat the Person in whose name any Certificate shall
be registered on register of the Trust as the sole holder of such Certificate
and of the Securities represented by such Certificate 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
Certificate or in the Securities represented by such Certificate on the part of
any Person, whether or not the Trust shall have actual or other notice thereof.
SECTION 7.12 Global Securities.
-----------------
The Transfer Restricted Securities shall be, and the New Preferred
Securities may be, issued as Global Securities, Preferred Securities are to be
issued in the form of one or more Global Securities, then the Trust shall
execute and the Property Trustee shall authenticate and deliver one or more
Global Securities that (i) shall represent and shall be denominated in an amount
equal to the aggregate liquidation amount of all of the Preferred Securities to
be issued in the form of Global Securities and not yet cancelled, (ii) shall be
registered in the name of the Depositary for such Global Security or Preferred
Securities or the nominee of such Depositary, and (iii) shall be delivered by
the Property Trustee to such Depositary or pursuant to such Depositary's
instructions. Global Securities shall bear a legend substantially to the
following effect:
"This Remarketed Preferred Security is a Global Security within the
meaning of the Declaration hereinafter referred to and is registered in the name
of The Depository Trust Company, a New York corporation (the "Depositary"), or a
nominee of the Depositary. This Remarketed Preferred Security is exchangeable
for Remarketed Preferred Securities registered in the name of a person other
than the Depositary or its nominee only in the limited circumstances described
in the Declaration and no transfer of this Remarketed Preferred Security (other
than a transfer of this Remarketed Preferred Security 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) may be registered except in
limited circumstances.
Unless this Remarketed Preferred Security Certificate is presented by
an authorized representative of the Depositary to Imperial Credit Capital Trust
I or its agent for registration of transfer, exchange or payment, and any
Remarketed Preferred Security Certificate issued is registered in the name of
Cede & Co. or such other name as registered by an authorized representative of
the Depositary (and any payment hereon is made to Cede & Co. or to such other
entity as is requested by an authorized representative of the Depositary), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein."
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52
Preferred Securities not represented by a Global Security issued in
exchange for all or a part of a Global Security pursuant to this Section 7.12
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 Property Trustee. Upon execution and
authentication, the Property Trustee shall deliver such Preferred Securities not
represented by a Global Security to the persons in whose names such definitive
Preferred Securities are so registered.
At such time as all interests in Global Securities have been redeemed,
repurchased or cancelled, such Global Securities shall be, upon receipt thereof,
cancelled by the Property Trustee in accordance with standing procedures of the
Depositary. At any time prior to such cancellation, if any interest in Global
Securities is exchanged for Preferred Securities not represented by a Global
Security, redeemed, cancelled or transferred to a transferee who receives
Preferred Securities not represented by a Global Security therefor or any
Preferred Security not represented by a Global Security is exchanged or
transferred for part of Global Securities, the principal amount of such Global
Securities shall, in accordance with the standing procedures of the Depositary,
be reduced or increased, as the case may be, and an endorsement shall be made on
such Global Securities by the Property Trustee to reflect such reduction or
increase.
The Trust and the Property Trustee may for all purposes, including the
making of payments due on the Preferred Securities, deal with the Depositary as
the authorized representative of the Holders for the purposes of exercising the
rights of Holders hereunder. The rights of the owner of any beneficial interest
in a Global Security shall be limited to those established by law and agreements
between such owners and depository participants or Euroclear and Cedel;
provided, that no such agreement shall give any rights to any person against the
Trust or the Property Trustee without the written consent of the parties so
affected. Multiple requests and directions from and votes of the Depositary as
holder of Preferred Securities in global form with respect to any particular
matter shall not be deemed inconsistent to the extent they do not represent an
amount of Preferred Securities in excess of those held in the name of the
Depositary or its nominee.
If at any time the Depositary for any Preferred Securities represented
by one or more Global Securities notifies the Trust that it is unwilling or
unable to continue as Depositary for such Preferred Securities or if at any time
the Depositary for such Preferred Securities shall no longer be eligible under
this Section 7.12, the Trust shall appoint a successor Depositary with respect
to such Preferred Securities. If a successor Depositary for such Preferred
Securities is not appointed by the Trust within 90 days after the Trust receives
such notice or becomes aware of such ineligibility, the Trust's election that
such Preferred Securities be represented by one or more Global Securities shall
no longer be effective and the Trust shall execute, and the Property Trustee
will authenticate and deliver, Preferred Securities in definitive registered
form, in any authorized denominations, in an aggregate liquidation amount equal
to the principal amount of the Global Security or Preferred Securities
representing such Preferred Securities in exchange for such Global Security or
Preferred Securities.
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53
After a Remarketing, the Trust may at any time and in its sole
discretion determine that the Preferred Securities issued in the form of one or
more Global Securities shall no longer be represented by a Global Security or
Preferred Securities. In such event the Trust shall execute, and the Property
Trustee, shall authenticate and deliver, Preferred Securities in definitive
registered form, in any authorized denominations, in an aggregate liquidation
amount equal to the principal amount of the Global Security or Preferred
Securities representing such Preferred Securities, in exchange for such Global
Security or Preferred Securities.
Notwithstanding any other provisions of this Declaration (other than
the provisions set forth in Section 7.9), Global Securities may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
Interests of beneficial owners in a Global Security may be transferred
or exchanged for Preferred Securities not represented by a Global Security and
Preferred Securities not represented by a Global Security may be transferred or
exchange for Global Securities in accordance with rules of the Depositary and
the provisions of Section 7.14.
Any Preferred Security in global form may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Declaration as may be required by the
Depositary or by the National Association of Securities Dealers, Inc. in order
for the Preferred Securities to be tradeable on the PORTAL Market or as may be
required for the Preferred Securities to be tradeable on any other market
developed for trading of securities pursuant to Rule 144A or required to comply
with any applicable law or any regulation thereunder or with Regulation S or
with the rules and regulations of any securities exchange upon which the
Preferred Securities may be listed or traded or to conform with any usage with
respect thereto, or to indicate any special limitations or restrictions to which
any particular Preferred Securities are subject.
Any Preferred Security in global form may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Declaration as may be required by the
Depositary or by the National Association of Securities Dealers, Inc. in order
for the Preferred Securities to be tradeable on the PORTAL Market or as may be
required for the Preferred Securities to be tradeable on any other market
developed for trading of securities pursuant to Rule 144A or required to comply
with any applicable law or any regulation thereunder or with Regulation S or
with the rules and regulations of any securities exchange upon which the
Preferred Securities may be listed or traded or to conform with any usage with
respect thereto, or to indicate any special limitations or restrictions to which
any particular Preferred Securities are subject.
SECTION 7.13 Restrictive Legend.
------------------
(a) Each Global Security and Preferred Security not represented by a
Global Security that constitutes a Restricted Security shall bear the following
legend (the "Private
<PAGE>
54
Placement Legend") on the face thereof until two years after the later of the
date of original issue and the last date on which the Sponsor or any affiliate
of the Sponsor was the owner of such Preferred Securities (or any predecessor
thereto) (the "Resale Restriction Termination Date"), unless otherwise agreed by
the Trust and the Holder thereof:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF,
REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE TRUST THAT: (I)
IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS
SECURITY PRIOR TO THE LATER OF THE DATE WHICH IS TWO YEARS AFTER THE DATE
OF ORIGINAL ISSUANCE HEREOF AND THE LAST DATE ON WHICH THE TRUST OR ANY
AFFILIATE OF THE TRUST WAS THE OWNER OF SUCH RESTRICTED SECURITIES (OR ANY
PREDECESSOR) EXCEPT (A) TO THE TRUST, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A,
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) OUTSIDE THE UNITED
STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS
SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. ANY OFFER,
SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSES (II)(D) AND (E)
IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND THE PROPERTY
TRUSTEE FOR SUCH REMARKETED PREFERRED SECURITIES TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO
THEM IN FORM AND SUBSTANCE."
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55
Any Preferred Security (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms may, upon satisfaction of the requirements of
Section 7.14(b) and surrender of such Preferred Security for exchange to the
Preferred Security Registrar in accordance with the provisions of this Section
7.13(a), be exchanged for a new Preferred Security or Preferred Securities, of
like tenor and aggregate liquidation amount, which shall not bear the
restrictive legend required by this Section 7.13(a).
Upon any sale or transfer of any Restricted Security (including any
interest in a Global Security) (i) that is effected pursuant to an effective
registration statement under the Securities Act or (ii) in connection with which
the Property Trustee receives certificates and other information (including an
opinion of counsel, if requested) reasonably acceptable to the Company and the
Property Trustee to the effect that such security will no longer be subject to
the resale restrictions under federal and state securities laws, then (A) in the
case of a Restricted Security in definitive form, the Preferred Security
registrar or co-registrar shall permit the holder thereof to exchange such
Restricted Security for a security that does not bear the legend set forth in
Section 7.13(a), and shall rescind any such restrictions on transfer and (B) in
the case of Restricted Securities represented by a Global Security, such
Preferred Security shall no longer be subject to the restrictions contained in
the legend set forth in Section 7.13(a) (but still subject to the other
provisions hereof). In addition, any Preferred Security (or security issued in
exchange or substitution therefor) as to which the restrictions on transfer
described in the legend set forth in Section 7.13(a) have expired by their
terms, may, upon surrender thereof (in accordance with terms of this Indenture)
together with such certifications and other information (including an opinion of
counsel having substantial experience in practice under the Securities Act and
otherwise reasonably acceptable to the Company, addressed to the Company and the
Property Trustee and in form acceptable to the Company, to the effect that the
transfer of such Restricted Security has been made in compliance with Rule 144
or such successor provision) acceptable to the Company and the Property Trustee
as either of them may reasonably require, be exchanged for a new Preferred
Security or Preferred Securities of like tenor and aggregate liquidation amount,
which shall not bear the restrictive legends set forth in Section 7.13(a).
SECTION 7.14 Special Transfer Provisions.
---------------------------
(a) At any time after the Remarketing Settlement Date at the request
of the Beneficial Owner of a Preferred Security in global form, such Beneficial
Owner shall be entitled to obtain a definitive Preferred Security upon written
request to the Property Trustee in accordance with the standing instructions and
procedures existing between the Depositary and the Property Trustee for the
issuance thereof. Any transfer after the Remarketing Settlement Date of a
beneficial interest in a Preferred Security in global form which cannot be
effected through book-entry settlement must be effected by the delivery to the
transferee (or its nominee) of a definitive Preferred Security or Preferred
Securities registered in the name of the transferee (or its nominee) on the
books maintained by the Security Registrar. With respect to any such transfer,
the Property Trustee shall cause, in accordance with the standing instructions
and procedures existing between the Depositary and the Property Trustee, the
aggregate liquidation amount of the Global Security to be reduced and, following
such reduction, the Property Trustee
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56
shall cause definitive Preferred Securities in the appropriate aggregate
liquidation amount in the name of such transferee (or its nominee) and bearing
such restrictive legends as may be required by this Declaration to be delivered.
In connection with any such transfer, the Property Trustee may request such
representations and agreements relating to the restrictions on transfer of such
Preferred Securities from such transferee (or such transferee's nominee) as the
Property Trustee may reasonably require.
(b) So long as the Preferred Securities are eligible to be held as
Global Preferred Securities, or unless otherwise required by law, upon any
transfer of a definitive Preferred Security to a QIB in accordance with Rule
144A, unless otherwise requested by the transferor, and upon receipt of the
definitive Preferred Security being so transferred, together with a
certification from the transferor that the transferor reasonably believes the
transferee is a QIB (or other evidence satisfactory to the Property Trustee),
the Property Trustee shall make an endorsement on the Restricted Global Security
to reflect an increase in the aggregate liquidation amount of the Restricted
Global Security, and the Property Trustee shall cancel such definitive Preferred
Security and cause, in accordance with the standing instructions and procedures
existing between the Depositary and the Property Trustees, the aggregate
liquidation amount of Preferred Securities represented by the Restricted Global
Security to be increased accordingly.
(c) So long as the Preferred Securities are eligible for book-entry
settlement, or unless otherwise required by law, upon any transfer of a
definitive Preferred Security in accordance with Regulation S, if requested by
the transferor, and upon receipt of the definitive Preferred Security or
Preferred Securities being so transferred, together with a certification from
the transferor that the transfer was made in accordance with Rule 903 or 904 of
Regulation S or Rule 144 under the Preferred Securities Act (or other evidence
satisfactory to the Property Trustee), the Property Trustee shall make an
endorsement on the Regulation S Global Security to reflect an increase in the
aggregate liquidation amount of the Preferred Securities represented by the
Regulation S Global Security, the Property Trustee shall cancel such definitive
Preferred Security or Preferred Securities and cause, in accordance with the
standing instructions and procedures existing between the Depositary and the
Property Trustee, the aggregate liquidation amount of Preferred Securities
represented by the Regulation S Global Security to be increased accordingly.
(d) If a holder of a beneficial interest in the Restricted Global
Security wishes at any time to exchange its interest in the Restricted Global
Security for an interest in the Regulation S Global Security, or to transfer its
interest in the Restricted Global Security to a person who wishes to take
delivery thereof in the form of an interest in the Regulation S Global Security,
such holder may, subject to the rules and procedures of the Depositary and to
the requirements set forth in the following sentence, exchange or cause the
exchange or transfer or cause the transfer of such interest for an equivalent
beneficial interest in the Regulation S Global Security. Upon receipt by the
Property Trustee, as transfer agent of (1) instructions given in accordance with
the Depositary's procedures from or on behalf of a holder of a beneficial
interest in the Restricted Global Security, directing the Property Trustee (via
DWAC), as transfer agent, to credit or cause to be credited a beneficial
interest in the Regulation S Global Security in an amount equal to the
beneficial interest in the Restricted Global Security to be exchanged or
<PAGE>
57
transferred, (2) a written order given in accordance with the Depositary's
procedures containing information regarding the Euroclear or Cedel account to be
credited with such increase and the name of such account, and (3) a certificate
given by the holder of such beneficial interest stating that the exchange or
transfer of such interest has been made pursuant to and in accordance with Rule
903 or Rule 904 of Regulation S or Rule 144 under the Preferred Securities Act
(or other evidence satisfactory to the Property Trustee), the Property Trustee,
as transfer agent, shall promptly deliver appropriate instructions to the
Depositary (via DWAC), its nominee, or the custodian for the Depositary, as the
case may be, to reduce or reflect on its records a reduction of the Restricted
Global Security by the aggregate liquidation amount of the beneficial interest
in such Restricted Global Security to be so exchanged or transferred from the
relevant participant, and the Property Trustee, as transfer agent, shall
promptly deliver appropriate instructions (via DWAC) to the Depositary, its
nominee, or the custodian for the Depositary, as the case may be, concurrently
with such reduction, to increase or reflect on its records an increase of the
liquidation amount of such Regulation S Global Security by the aggregate
liquidation amount of the beneficial interest in such Restricted Global Security
to be so exchanged or transferred, and to credit or cause to be credited to the
account of the person specified in such instructions (who may be Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear or Cedel or
another agent member of Euroclear or Cedel, or both, as the case may be, acting
for and on behalf of them) a beneficial interest in such Regulation S Global
Security equal to the reduction in the liquidation amount of such Restricted
Global Security.
(e) If a holder of a beneficial interest in the Regulation S Global
Security wishes at any time to exchange its interest in the Regulation S Global
Security for an interest in the Restricted Global Security, or to transfer its
interest in the Regulation S Global Security to a person who wishes to take
delivery thereof in the form of an interest in the Restricted Global Security,
such holder may, subject to the rules and procedures of Euroclear or Cedel and
the Depositary, as the case may be, and to the requirements set forth in the
following sentence, exchange or cause the exchange or transfer or cause the
transfer of such interest for an equivalent beneficial interest in such
Restricted Global Security. Upon receipt by the Property Trustee, as transfer
agent of (l) instructions given in accordance with the
procedures of Euroclear or Cedel and the Depositary, as the case may be, from or
on behalf of a beneficial owner of an interest in the Regulation S Global
Security directing the Property Trustee, as transfer agent, to credit or cause
to be credited a beneficial interest in the Restricted Global Security in an
amount equal to the beneficial interest in the Regulation S Global Security to
be exchanged or transferred, (2) a written order given in accordance with the
procedures of Euroclear or Cedel and the Depositary, as the case may be,
containing information regarding the account with the Depositary to be credited
with such increase and the name of such account, and (3) prior to the expiration
of the Restricted Period, a certificate given by the holder of such beneficial
interest and stating that the person transferring such interest in such
Regulation S Global Security reasonably believes that the person acquiring such
interest in the Restricted Global Security is a QIB and is obtaining such
beneficial interest in a transaction meeting the requirements of Rule 144A and
any applicable securities laws of any state of the United States or any other
jurisdiction (or other evidence satisfactory to the Property Trustee), the
Property Trustee, as transfer agent, shall promptly deliver (via DWAC)
appropriate instructions to the Depositary, its nominee, or the custodian for
the Depositary, as the case may be, to reduce or reflect on its records a
reduction of
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58
the Regulation S Global Security by the aggregate liquidation amount of the
beneficial interest in such Regulation S Global Security to be exchanged or
transferred, and the Property Trustee, as transfer agent, shall promptly deliver
(via DWAC) appropriate instructions to the Depositary, its nominee, or the
custodian for the Depositary, as the case may be, concurrently with such
reduction, to increase or reflect on its records an increase of the liquidation
amount of the Restricted Global Security by the aggregate liquidation amount of
the beneficial interest in the Regulation S Global Security to be so exchanged
or transferred, and to credit or cause to be credited to the account of the
person specified in such instructions a beneficial interest in the Restricted
Global Security equal to the reduction in the liquidation amount of the
Regulation S Global Security. After the expiration of the Restricted Period,
the certification requirement set forth in clause (3) of the second sentence of
this Section 7.14(e) will no longer apply to such exchanges and transfers.
(f) Any beneficial interest in one of the Global Securities that is
transferred to a person who takes delivery in the form of an interest in the
other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interests in such other Global Security for
as long as it remains such an interest.
(g) Prior to or on the 40th day after the later of the commencement
of the offering of the Preferred Securities and the Closing Date (the
"Restricted Period"), beneficial interests in a Regulation S Global Security may
only be held through Morgan Guaranty Trust Company of New York, Brussels office,
as operator of Euroclear or Cedel or another agent member of Euroclear and Cedel
acting for and on behalf of them, unless delivery is made through the Restricted
Global Security in accordance with the certification requirements hereof.
During the Restricted Period, interests in the Regulation S Global Security, may
be exchanged for interests in the Restricted Global Security or for definitive
Preferred Securities only in accordance with the certification requirements
described above.
SECTION 7.15 Change of Control.
-----------------
Upon the occurrence of a Change of Control on or prior to the
Remarketing Settlement Date, each holder of Preferred Securities will have the
right to require the Trust to cause all or any part (equal to $1,000 liquidation
amount or any integral multiple thereof) of the Preferred Securities to be
exchanged for an equivalent principal amount of Debentures. Promptly
thereafter, such Debentures shall be repurchased by the Debenture Issuer, as
described below (the "Change of Control Offer"), at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Change of Control Payment").
Within 10 days following any Change of Control, the Debenture Issuer
shall notify the Trust of such Change of Control and the Trust shall mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to exchange the Preferred Securities for the
Debentures pursuant to the procedures required by the
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59
Declaration and described in such notice. The Trust and the Debenture Issuer
shall comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the exchange of the Preferred
Securities and the repurchase of the Debentures as a result of a Change of
Control.
The Change of Control Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date"), the Trust shall
accept all Preferred Securities tendered in response to the Change of Control
Offer and the Debenture Issuer shall repurchase all Debentures exchanged for
such Preferred Securities. Payment for the Debentures exchanged for any
Preferred Securities so accepted shall be made in the same manner as interest
payments are made under the Indenture.
On the Change of Control Purchase Date, the Trust shall, to the extent
lawful, (a) accept for exchange all Preferred Securities or portions thereof
properly tendered pursuant to the Change of Control Offer, (b) deliver or cause
to be delivered to the Property Trustee the Securities so accepted together with
a certificate of the Regular Trustees stating the aggregate liquidation amount
of Securities or portions thereof being exchanged by the Trust and (c) the Trust
shall then exchange, for such Preferred Securities, Debentures having an
equivalent aggregate principal amount. The Debenture Issuer will promptly
deposit with the Indenture Trustee an amount equal to the Change of Control
Payment in respect of all Preferred Securities or portions thereof so exchanged.
The Indenture Trustee shall promptly mail to each holder of Preferred Securities
so exchanged the Change of Control Payment for such Preferred Securities, and
the Trust shall promptly authenticate and mail (or cause to be transferred by
book entry) to each holder a new Preferred Security equal in liquidation amount
to any unexchanged portion of the Preferred Securities surrendered, if any;
provided that each such new Preferred Securities will be in a liquidation amount
of $1,000 or an integral multiple thereof. The Trust and the Debenture Issuer
shall publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
SECTION 7.16 Asset Sales
-----------
If the aggregate amount of Excess Proceeds under Section 4.07 of the
Indenture exceeds $5.0 million, the Trust shall be required to make an offer to
all holders of Preferred Securities (an "Asset Sale Offer") to exchange, for
such Preferred Securities the maximum principal amount of Debentures that may be
exchanged under Section 4.07 of the Indenture out of the Excess Proceeds, which
Debentures shall then be repurchased by the Debenture Issuer at a price equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon to
the date of purchase.
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60
An Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), the Trust will accept for exchange up to the
liquidation amount of Preferred Securities required to be exchanged pursuant to
this Section (the "Asset Sale Offer Amount") or, if less than the Asset Sale
Offer Amount has been tendered, all Preferred Securities tendered in response to
the Asset Sale Offer.
If the Asset Sale Purchase Date is on or after a Distribution record
date and on or before the related Distribution payment date, any accumulated and
unpaid Distributions and Additional Distributions, if any, shall be paid to the
Person in whose name a Preferred Security is registered at the close of business
on such record date, and no additional Distributions or Additional
Distributions, if any, shall be payable to holders who tender Preferred
Securities pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Trust shall, to the
extent lawful, accept for exchange, on a pro rata basis to the extent necessary,
the Asset Sale Offer Amount of Preferred Securities or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount
has been tendered, all Preferred Securities tendered, and the Regular Trustees
shall deliver to the Property Trustee a certificate stating that such Preferred
Securities or portions thereof were accepted for exchange by the Trustee in
accordance with the terms of this covenant. Promptly following such exchange,
the Debenture Issuer shall (but in any case not later than five days after the
Asset Sale Purchase Date) mail or deliver to each tendering holder an amount
equal to the purchase price of the Debentures exchanged with such holder by the
Trust, and the Trust shall promptly issue a new Preferred Security, and the
Trust shall authenticate and mail or deliver such new Preferred Security to such
holder, in a liquidation amount equal to any unexchanged portion of the
Preferred Security surrendered. Any Preferred Security not so accepted shall be
promptly mailed or delivered by the Trust to the holder thereof. The Trust and
the Debenture Issuer shall publicly announce the results of the Asset Sale Offer
on the Asset Sale Purchase Date.
ARTICLE 8
DISSOLUTION AND TERMINATION OF TRUST
SECTION 8.1 Dissolution and Termination of Trust.
------------------------------------
(a) The Trust shall dissolve upon the earliest of:
(i) the bankruptcy of the Holder of the Common Securities or
the Sponsor;
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(ii) the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor; and the filing of
a certificate of cancellation with respect to the Trust
after obtaining the consent of the Holders of at least a
Majority in Liquidation Amount of the Securities to the
filing of a certificate of cancellation with respect to
the Trust or the revocation of the Sponsor's charter and
the expiration of 90 days after the date of revocation
without a reinstatement thereof;
(iii) the entry of a decree of judicial dissolution of the
Sponsor or the Trust;
(iv) the time when all of the Securities shall have been called
for redemption and the amounts then due shall have been
paid to the Holders in accordance with the terms of the
Securities;
(v) upon the election of the Regular Trustees, following the
occurrence and continuation of a Special Event pursuant to
which the Trust shall have been dissolved in accordance
with the terms of the Securities, and all of the
Debentures shall have been distributed to the Holders of
Securities in exchange for all of the Securities; or
(vi) the time when all of the Regular Trustees and the Sponsor
shall have consented to termination of the Trust provided
such action is taken before the issuance of any
Securities.
(b) As soon as is practicable after the occurrence of an event
referred to in Section 81 and upon completion of the winding up and liquidation
of the Trust, the Trustees shall terminate the Trust by filing a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 39 and Article 10 shall survive the
termination of the Trust.
SECTION 8.2 Liquidation Distribution Upon Dissolution of the Trust.
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(a) In the event of any voluntary or involuntary dissolution,
winding-up and liquidation of the Trust (each a "Liquidation"), the Holders of
the Preferred Securities on the date of the Liquidation will be entitled to
receive, out of the assets of the Trust available for distribution to Holders of
Securities after satisfaction of the Trusts' liabilities to creditors, if any,
distributions in cash or other immediately available funds in an amount equal to
the aggregate of the stated liquidation amount of $1,000 per Security plus
accrued and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"), unless, in connection with such
Liquidation, Debentures in an aggregate stated liquidation amount equal to the
aggregate stated liquidation amount of, with a distribution rate identical to
the distribution rate of, and accrued and unpaid distributions equal to accrued
and unpaid distributions on, such
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62
Securities shall be distributed on a Pro Rata basis to the Holders of the
Securities in exchange for such Securities.
(b) If, upon any such Liquidation, the Liquidation Distribution can
be paid only in part because the Trust has insufficient assets available to pay
in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Securities shall be paid on a Pro Rata basis. The
Holders of the Common Securities will be entitled to receive distributions upon
any such Liquidation Pro Rata with the Holders of the Preferred Securities
except that if an Indenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities with
regard to such distributions.
ARTICLE 9
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, DELAWARE TRUSTEES OR OTHERS
SECTION 9.1 Liability.
---------
(a) Except as expressly set forth in this Declaration, the Preferred
Securities Guarantee and the terms of the Securities, the Sponsor:
(i) shall not be personally liable for the return of any
portion of the capital contributions (or any return
thereon) of the Holders of the Securities which shall be
made solely from assets of the Trust; and
(ii) shall not be required to pay to the Trust or to any Holder
of Securities any deficit upon dissolution of the Trust or
otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Common Securities 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; provided,
however, the Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to 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 of the Preferred Securities 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 9.2 Exculpation.
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(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
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63
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 gross 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 who has been selected with reasonable care by or 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 of Securities might properly be paid.
SECTION 9.3 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 an 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; 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.
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(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 or by applicable law.
SECTION 9.4 Indemnification.
---------------
(a)(i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Debenture Issuer Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by reason
of the fact that he is or was a Debenture Issuer Indemnified Person against
expenses (including attorney fees), 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 Debenture Issuer 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 Debenture Issuer 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 Debenture Issuer Indemnified
Person against expenses (including attorneys' fees) 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 Debenture Issuer 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
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65
reasonably entitled to indemnity for such expenses which such Court of Chancery
or such other court shall deem proper.
(iii) Any indemnification under paragraphs (i) and (ii) of this
Section 9.4(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 Debenture Issuer 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 Regular
Trustees by a majority vote of a quorum consisting of such Regular 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 Regular
Trustees so directs, by independent legal counsel in a written opinion, or (3)
by the Common Security Holder of the Trust.
(iv) Expenses (including attorneys' fees) incurred by a Debenture
Issuer Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 9.4(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 Debenture Issuer 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 9.4(a).
Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer
if a determination is reasonably and promptly made (i) by the Regular Trustees
by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of disinterested
Regular 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 Regular Trustees, counsel or the Common Security Holder at the time
such determination is made, such Debenture Issuer 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 Debenture Issuer 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 Regular Trustees, independent legal
counsel or Common Security Holder reasonably determine that such person
deliberately breached his duty to the Trust or its Common or Preferred Security
Holders.
(v) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 9.4(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 Preferred
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 9.4(a) (a) shall be deemed to be
provided by a contract between the Debenture Issuer and each Debenture Issuer
Indemnified Person who serves in such capacity at any time while this Section
9.4(a) is in effect. Any repeal or modification of this Section 9.4(a) shall
not affect any rights or obligations then existing.
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66
(vi) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Debenture Issuer 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 9.4(a).
(vii) For purposes of this Section 9.4(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
9.4(a) with respect to the resulting or surviving entity as he would have with
respect to such constituent entity if its separate existence had continued.
(viii) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 9.4(a) shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
Debenture Issuer Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a person. The obligation to indemnify as
set forth in this Section 9.4(a) shall survive the satisfaction and discharge of
this Declaration.
(b) The Debenture Issuer agrees to indemnify the (i) Property
Trustee, (ii) the Delaware Trustee, (iii) an Affiliate of the Property Trustee
and the Delaware Trustee, and (iv) any officers, directors, shareholders,
members, partners, employees, representatives, custodians, nominees or agents of
the Property Trustee and 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 loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of the trust 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 9.4(a)
shall survive the satisfaction and discharge of this Declaration.
SECTION 9.5 Outside Businesses.
------------------
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee 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 activities of the Trust, and the Trust and the Holders of Securities 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 activities 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
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67
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.
ARTICLE 10
ACCOUNTING
SECTION 10.1 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 10.2 Certain Accounting Matters.
--------------------------
(a) At all times during the existence of the Trust, the Regular
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 Trust shall use the accrual method of accounting for
United States federal income tax purposes. 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 Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each of the Holders of Securities, within 90 days after the end of each Fiscal
Year of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss.
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, an 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 Regular Trustees shall
endeavor to deliver all such statements within 30 days after the end of each
Fiscal Year of the Trust.
(d) The Regular 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
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income tax returns required to be filed by the Regular Trustees on behalf of the
Trust with any state or local taxing authority.
SECTION 10.3 Banking.
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The Trust shall 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 Account and no other funds of the Trust shall be deposited in the
Property Account. The sole signatories for such accounts shall be designated by
the Regular Trustees; provided, however, that the Property Trustee shall
designate the signatories for the Property Account.
SECTION 10.4 Withholding.
-----------
The Trust and the Regular 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 Regular 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 11
AMENDMENTS AND MEETINGS
SECTION 11.1 Amendments.
----------
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by the Sponsor, the Regular Trustees
(or, if there are more than two Regular Trustees, a majority of the Regular
Trustees), the Property Trustee and the Delaware Trustee.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
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(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received 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);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or
immunities of the Property Trustee, 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
(iii) to the extent the result of such amendment would be to:
a. cause the Trust to be classified other than as a
grantor trust for United States federal income tax
purposes;
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 (i) adversely affect the powers,
preferences or special rights of the Securities, whether by way of amendment to
the Declaration or otherwise or (ii) result in the dissolution, winding-up or
termination of the Trust other than pursuant to the terms of this Declaration or
(iii) change the amount or timing of any distribution of the Securities or
otherwise adversely affect the amount of any distribution required to be made in
respect of the Securities as of a specified date or (iv) restrict the right of a
Holder of Securities to institute suit for the enforcement of any such payment
on or after such date, then the holders of the Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of each of
the Holders of the Securities affected thereby; provided that, if any amendment
or proposal referred to in clause (i) above would adversely affect only the
Preferred Securities or the Common Securities, then only the affected class will
be entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of each of the Holders of such
class of Securities.
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(d) Section 7.9 and this Section 111 shall not be amended without
the consent of all of the Holders of the Securities.
(e) Article 4 shall not be amended without the consent of the Holders
of a Majority in Liquidation Amount of the Common Securities.
(f) The rights of the Holders of the Common Securities under Article
5 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.
(g) Notwithstanding Section 111, this Declaration without the
consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration
that may be inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) to conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any
legislative body, court, government agency or regulatory
authority which amendment does not have a material adverse
effect on the rights, preferences or privileges of the
Holders; or
(v) to modify, eliminate and add to any provision of this
Declaration to ensure that the Trust will be classified as
a grantor trust for U.S. federal income tax purposes 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 such modification, elimination or
addition would not adversely affect in any material
respect the rights, privileges or preferences of any
Holder of the Securities.
SECTION 11.2 Meetings of the Holders of Securities; Action by Written
--------------------------------------------------------
Consent.
- -------
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Regular 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 Preferred
Securities are listed or admitted for trading. The Regular 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 Regular Trustees
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one or more calls in a writing stating that the signing Holders of Securities
wish to call a meeting and indicating the general or specific purpose for which
the meeting is to be called. Any Holders of Securities calling a meeting shall
specify in writing the Certificates held by the Holders of Securities 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 of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at
least 7 days and not more than 60 days before the date of
such meeting. Whenever a vote, consent or approval of the
Holders of Securities is permitted or required under this
Declaration or the rules of any stock exchange on which
the Preferred Securities are listed or admitted for
trading, such vote, consent or approval may be given at a
meeting of the Holders of Securities. Any action that may
be taken at a meeting of the Holders of Securities may be
taken without a meeting if a consent in writing setting
forth the action so taken is signed by the Holders of
Securities 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 of Securities 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 of
Securities entitled to vote who have not consented in
writing. The Regular Trustees may specify that any
written ballot submitted to the Security Holders for the
purpose of taking any action without a meeting shall be
returned to the Trust within the time specified by the
Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act
for it by proxy on all matters in which a Holder of
Securities 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 of Securities executing such proxy.
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 of the Securities were stockholders of a
Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person
that the Regular Trustees may designate; and
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(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 Preferred
Securities are then listed for trading, otherwise
provides, the Regular Trustees, in their sole discretion,
shall establish all other provisions relating to meetings
of Holders of Securities, including notice of the time,
place or purpose of any meeting at which any matter is to
be voted on by any Holders of Securities, 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.
ARTICLE 12
REPRESENTATIONS OF PROPERTY DELAWARE TRUSTEE
AND DELAWARE TRUSTEE
SECTION 12.1 Representations and Warranties of the 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 corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;
(b) the Property Trustee satisfies the requirements set forth in
Section 6.3(a);
(c) 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 it 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);
(d) the execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of the
articles of association or incorporation, as the case may be, or the by-laws (or
other similar organizational documents) of the Property Trustee; and
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(e) no consent, approval or authorization of, or registration with or
notice to, any State or federal banking authority is required for the execution,
delivery or performance by the Property Trustee of this Declaration.
SECTION 12.2 Representations and Warranties of the 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 satisfies the requirements set forth in
Section 6.2 and has the power and authority to execute and deliver, and to carry
out and perform its obligations under the terms of, this Declaration and, if it
is not a natural person, is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization;
(b) the Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and this Declaration. This
Declaration under Delaware law 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);
and
(c) no consent, approval or authorization of, or registration with or
notice to, any State or federal banking authority is require for the execution,
delivery or performance by the Delaware Trustee of this Declaration.
<PAGE>
74
ARTICLE 13
MISCELLANEOUS
SECTION 13.1 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 registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular 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 of
the Securities):
(b) if given to the Delaware Trustee, at the mailing address set
forth below (or such other address as the Delaware Trustee may give notice of to
the Regular Trustees, the Property Trustee and the Holders of the Securities):
(c) if given to the Property Trustee, at its Corporate Trust Office
(or such other address as the Property Trustee may give notice of to the Regular
Trustees, the Delaware Trustee and the Holders of the Securities).
(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 of to the Property Trustee, the Delaware
Trustee and the Trust):
(e) if given to any other Holder, at the address set forth on the
register 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 13.2 Governing Law.
-------------
This Declaration and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State of
Delaware.
SECTION 13.3 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 in a manner consistent with
such classification.
<PAGE>
75
SECTION 13.4 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 13.5 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 13.6 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 13.7 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.
<PAGE>
76
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
IMPERIAL CREDIT INDUSTRIES, INC.,
as Sponsor and Common Securities Holder
BY: /s/ H. Wayne Snavely
______________________________________
Name: H. Wayne Snavely
Title: Chairman
CHASE TRUST COMPANY OF CALIFORNIA
as Property Trustee
BY: /s/ Hans H. Helley
______________________________________
Name: Hans H. Helley
Title: Assistant Vice President
CHASE MANHATTAN BANK DELAWARE
as Delaware Trustee
BY: /s/ John J. Cashin
______________________________________
Name: John J. Cashin
Title: Vice President
IRWIN L. GUBMAN
as Regular Trustee
BY: /s/ Irwin L. Gubman
______________________________________
KEVIN E. VILLANI
as Regular Trustee
BY: /s/ Kevin E. Villani
______________________________________
PAUL B. LASITER
as Regular Trustee
BY: /s/ Paul B. Lasiter
______________________________________
<PAGE>
EXHIBIT A
This Remarketed Par Security is a Global Security within the meaning
of the Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company, a New York corporation (the "Depositary"), or a
nominee of the Depositary. This Remarketed Par Security is exchangeable for
Preferred Securities registered in the name of a person other than the
Depositary or its nominee only in the limited circumstances described in the
Declaration and no transfer of this Remarketed Par Security (other than a
transfer of this Remarketed Par Security as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depository to the Depositary or
another nominee of the Depositary) may be registered except in limited
circumstances.
Unless this Remarketed Par Security Certificate is presented by an
authorized representative of the Depositary to Imperial Credit Capital Trust I
or its agent for registration of transfer, exchange or payment, and any
Remarketed Par Security Certificate issued is registered in the name of Cede &
Co. or such other name as registered by an authorized representative of the
Depositary (and any payment hereon is made to Cede & Co. or to such other entity
as is requested by an authorized representative of the Depositary), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.
CERTIFICATE NO. 1 NUMBER OF REMARKETED PAR SECURITIES:
CUSIP NO. _______
CERTIFICATE EVIDENCING REMARKETED PAR SECURITIES
OF
IMPERIAL CREDIT CAPITAL TRUST I
REMARKETED PAR SECURITIES, SERIES A
(ROPES)
(LIQUIDATION AMOUNT $1,000 PER SECURITY)
Imperial Credit Capital Trust I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), hereby certifies that
Cede & Co. (the "Holder") is the registered owner of ___ remarketed par
securities of the Trust representing undivided beneficial ownership interests in
the assets of the Trust designated the Remarketed Par Securities, Series A
(liquidation amount $1,000 per Security) (the "Preferred Securities"). The
Preferred Securities are transferable on the register of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer as provided in the Declaration (as defined
below). The designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Preferred 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 June 9, 1997 (as the
same may be amended from time to time (the "Declaration"), among Imperial Credit
Industries, Inc., as Sponsor (the "Sponsor"), Irwin L. Gubman, Kevin E. Villani
and Paul B. Lasiter, as Regular Trustees, Chase Trust Company of California, as
Property Trustee, and Chase Manhattan Bank Delaware, as Delaware Trustee.
Capitalized terms used herein but not defined shall have the meaning given to
them in the Declaration. The Holder is entitled to the benefits of the
Guarantee to the extent described therein. The Sponsor will provide a copy of
the Declaration, the Guarantee and the Indenture to a Holder without charge upon
written request to the Sponsor at its principal place of business.
<PAGE>
2
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of undivided indirect beneficial ownership interests in the
Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this
day of June, 1997.
IMPERIAL CREDIT CAPITAL TRUST I
By:______________________________________
Name:
Title: Regular Trustee
This is one of the Securities referred to in the within-mentioned
Declaration.
CHASE TRUST COMPANY OF CALIFORNIA
By:______________________________________
Name:
Title:
<PAGE>
4
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act covering resales of this Security (which effectiveness shall not have been
suspended or terminated at the date of the transfer) and (ii) two years after
the later of the date of original issue and the last date on which the Sponsor
or any affiliate of the Sponsor was the owner of such Preferred Securities (or
any predecessor thereto) (the "Resale Restriction Termination Date"), the
undersigned confirms that it has not utilized any general solicitation or
general advertising in connection with the transfer:
[CHECK ONE]
---------
(1) __ to the Sponsor or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
(3) __ outside the United States to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as amended;
or
(4) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(5) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(6) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
Unless one of the boxes is checked, the Trustees will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if box (3), (4) or
(6) is checked, the Sponsor or the Trustees may require, prior to registering
any such transfer of the Securities, in its sole discretion, such written legal
opinions, certifications (including an investment letter in the case of box (3))
and other information as the Trustees or the Sponsor has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933, as amended.
If none of the foregoing boxes is checked, the Trustees or Registrar shall not
be obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 7.12 of the Declaration shall have
been satisfied.
Dated: __________________ Signed:_______________________________________
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee:______________
<PAGE>
5
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Sponsor as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: ________ __________________________________________________
NOTICE: To be executed by an executive officer
<PAGE>
EXHIBIT B
This Preferred Security is a Global Security within the meaning of the
Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company, a New York corporation (the "Depositary"), or a
nominee of the Depositary. This Preferred Security is exchangeable for
Preferred Securities registered in the name of a person other than the
Depositary or its nominee only in the limited circumstances described in the
Declaration and no transfer of this Preferred Security (other than a transfer of
this Preferred Security 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) may be registered except in limited circumstances.
Unless this Preferred Security Certificate is presented by an
authorized representative of the Depositary to Imperial Credit Capital Trust I
or its agent for registration of transfer, exchange or payment, and any
Preferred Security Certificate issued is registered in the name of Cede & Co. or
such other name as registered by an authorized representative of the Depositary
(and any payment hereon is made to Cede & Co. or to such other entity as is
requested by an authorized representative of the Depositary), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.
CERTIFICATE NO. 1 NUMBER OF PREFERRED SECURITIES:
CUSIP NO. _______
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
IMPERIAL CREDIT CAPITAL TRUST I
PREFERRED SECURITIES, SERIES B
(LIQUIDATION AMOUNT $1,000 PER SECURITY)
Imperial Credit Capital Trust I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), hereby certifies that
Cede & Co. (the "Holder") is the registered owner of ___ preferred securities of
the Trust representing undivided beneficial ownership interests in the assets of
the Trust designated the Preferred Securities, Series B (liquidation amount
$1,000 per Security) (the "Preferred Securities"). The Preferred Securities are
transferable on the register of the Trust, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer as provided in the Declaration (as defined below). The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred 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 June 9, 1997 (as the same may be
amended from time to time (the "Declaration"), among Imperial Credit Industries,
Inc., as Sponsor (the "Sponsor"), Irwin L. Gubman, Kevin E. Villani and Paul B.
Lasiter, as Regular Trustees, Chase Trust Company of California, as Property
Trustee, and Chase Manhattan Bank Delaware, as Delaware Trustee. Capitalized
terms used herein but not defined shall have the meaning given to them in the
Declaration. The Holder is entitled to the benefits of the Guarantee to the
extent described therein. The Sponsor will provide a copy of the Declaration,
the Guarantee and the Indenture to a Holder without charge upon written request
to the Sponsor at its principal place of business.
<PAGE>
2
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for all United States
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of undivided indirect beneficial ownership interests in the
Debentures.
<PAGE>
3
IN WITNESS WHEREOF, the Trust has executed this certificate this _____
day of ___________, 20__.
IMPERIAL CREDIT CAPITAL TRUST I
By:______________________________________
Name:
Title: Regular Trustee
This is one of the Securities referred to in the within-mentioned
Declaration.
By:______________________________________
Name:
Title:
<PAGE>
Exhibit C
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NO. 1 NUMBER OF COMMON SECURITIES: ____
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
IMPERIAL CREDIT CAPITAL TRUST I
COMMON SECURITIES
(LIQUIDATION AMOUNT $1,000 PER COMMON SECURITY)
Imperial Credit Capital Trust I, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), hereby certifies that
IMPERIAL CREDIT INDUSTRIES, INC. (the "Holder") is the registered owner of
common securities of the Trust representing an undivided beneficial ownership
interest in the assets of the Trust designated the Common Securities
(liquidation amount $1,000 per Common Security) (the "Common Securities"). The
Common Securities are not transferable and any attempted transfer thereof shall
be void. 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 June 9, 1997 (as the
same may be amended from time to time, the "Declaration"), among Imperial Credit
Industries, Inc., as Sponsor, Irwin L. Gubman, Kevin E. Villani and Paul B.
Lasiter, as Regular Trustees, Chase Trust Company, as Property Trustee and Chase
Manhattan Bank, as Delaware Trustee. The Holder is entitled to the benefits of
the Guarantee to the extent described therein. Capitalized terms used herein
but not defined shall have the meaning given them in the Declaration. The
Sponsor will provide a copy of the Declaration, the Guarantee and the Indenture
to a Holder without charge upon written request to the Sponsor 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.
By acceptance, the Holder agrees to treat, for all United States
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of an undivided indirect beneficial ownership interest in the
Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this
day of June, 1997.
IMPERIAL CREDIT CAPITAL TRUST I
By:____________________________________
Name:
Title: Regular Trustee
<PAGE>
3
EXHIBIT D
NOTICE OF REMARKETING
OF
REMARKETED PAR SECURITIES, SERIES A,
OF
IMPERIAL CREDIT CAPITAL TRUST I
HOLDERS MUST RETURN, NO LATER THAN 4:00 P.M., NEW YORK CITY TIME, ON
___________ ___, ____, A NOTICE OF ELECTION REGARDING THEIR DECISION TO
TENDER OR NOT TO TENDER THEIR REMARKETED PAR SECURITIES FOR PURCHASE IN THE
REMARKETING. IF A HOLDER DOES NOT RETURN A NOTICE OF ELECTION BY SUCH
TIME, THE REMARKETED PAR SECURITIES OWNED BY SUCH HOLDER SHALL BE DEEMED TO
BE TENDERED FOR PURCHASE IN THE REMARKETING.
________ ___, 2002
Holders of Remarketed Par Securities, Series A (the "Securities"), of
Imperial Credit Capital Trust I, a Delaware statutory business trust (the
"Trust"), are hereby given notice of remarketing of the Preferred Securities
(the "Remarketing") on June 9, 2002 (the "Scheduled Remarketing Date"). For
your information, we are also enclosing:
(i) an [Offering Memorandum], dated _____ __, 2002, relating to the
Preferred Securities and the Remarketing; and
(ii) a Notice of Election (together with the Offering Memorandum, the
"Remarketing Materials").
HOLDERS ARE URGED TO READ THESE MATERIALS IN THEIR ENTIRETY. THE
FOLLOWING SUMMARY OF THE REMARKETING MATERIALS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE REMARKETING MATERIALS.
On the Scheduled Remarketing Date, Lehman Brothers Inc. (the
"Remarketing Agent") will use commercially reasonable efforts to remarket, at a
price equal to 100% of the liquidation amount thereof, Preferred Securities
tendered or deemed tendered for purchase in the Remarketing. Prior to 4:00
P.M., New York City time, on the Scheduled Remarketing Date, the Remarketing
Agent will determine the distribution rate to apply to the Preferred Securities
following the Remarketing (the "Adjusted Distribution Rate"), which will be the
rate per annum (rounded to the nearest one-thousandth (0.001) of one percent per
annum) which the Remarketing Agent determines, in its sole judgment, to be the
lowest rate per annum, not exceeding ____ % per annum (the "Maximum Adjusted
Distribution Rate"), that will enable it to remarket all Preferred Securities
tendered or deemed tendered for remarketing at a price of $1,000 per Preferred
Security. Notwithstanding the foregoing, (i) if the Remarketing Agent is
<PAGE>
4
able to remarket some, but is unable to remarket all, of the Preferred
Securities tendered or deemed tendered for purchase in the Remarketing, the
Adjusted Distribution Rate will be the highest rate, not exceeding the Maximum
Adjusted Distribution Rate, required to remarket the Preferred Securities sold
in the Remarketing and (ii) if the Remarketing Agent is not able to remarket any
Preferred Securities tendered or deemed tendered in the Remarketing, the
Adjusted Distribution Rate will be the Maximum Adjusted Distribution Rate. If
the purchases and sales of Preferred Securities pursuant to the Remarketing are
not consummated on June 9, 2002, the distribution rate on the Preferred
Securities will be increased as described in the Offering Memorandum.
Each holder is being given the opportunity to complete the enclosed
Notice of Election and indicate irrevocably, no later than 4:00 P.M., New York
City time, on June 9, 2002, whether it wishes (i) to retain and not to have all
or any portion of the Preferred Securities owned by it remarketed in the
Remarketing to be conducted on the Scheduled Remarketing Date or (ii) to tender
all or any portion of such Preferred Securities for purchase in the Remarketing
(such portion, in either case, is required to be in the liquidation amount of
$1,000 or any integral multiple thereof). Any Notice of Election given to the
Property Trustee will be irrevocable and may not be conditioned upon the level
at which the Adjusted Distribution Rate is established in the Remarketing. IF
ANY HOLDER OF PREFERRED SECURITIES FAILS TIMELY TO DELIVER SUCH NOTICE OF
ELECTION, THE PREFERRED SECURITIES OWNED BY IT WILL BE DEEMED TO BE TENDERED FOR
PURCHASE IN THE REMARKETING.
Any holder of Preferred Securities that desires to continue to hold a
number of Preferred Securities, but only if the Adjusted Distribution Rate is
not less than a specified rate per annum, should submit a Notice of Election to
tender such Preferred Securities and separately notify the Remarketing Agent of
its interest at the telephone number set forth below. If such holder so
notifies the Remarketing Agent, the Remarketing Agent will give priority to such
holder's purchase of such number of Preferred Securities in the Remarketing,
provided that the Adjusted Distribution Rate is not less than such specified
rate.
[Include description of procedures for completing and returning the
Notice of Election].
If the Remarketing Agent is unable to remarket all Preferred
Securities tendered or deemed tendered for purchase in the Remarketing at a
price of $1,000 per Preferred Security, on the third Business Day following the
Remarketing (i) such unsold Preferred Securities shall be exchanged with the
Trust for Resettable Rate Debentures, Series A, of Imperial Credit Industries,
Inc. (the "Debentures") having an aggregate principal amount equal to the
aggregate liquidation amount of such unsold Preferred Securities and such
Debentures shall be immediately redeemed by ______ unless (ii) as a result of
such redemption, less than $______ principal amount of Debentures would remain
outstanding, in which event, ______ is required to redeem all of the Debentures.
In either case (a "Special Mandatory Redemption"), the redemption price of the
Debentures will be 100% of the aggregate principal amount of the Debentures so
redeemed. AS A RESULT OF SUCH SPECIAL MANDATORY REDEMPTION, ALL PREFERRED
SECURITIES TENDERED OR DEEMED TENDERED FOR PURCHASE IN THE REMARKETING WILL BE
PURCHASED IN THE REMARKETING OR REDEEMED ON THE REMARKETING SETTLEMENT DATE.
[Include description of where questions or requests for assistance
should be directed.]
<PAGE>
5
Very truly yours,
IMPERIAL CREDIT
CAPITAL TRUST I
The Remarketing Agent for the Remarketing is:
LEHMAN BROTHERS INC.
[Address and phone number]
<PAGE>
EXHIBIT E
NOTICE OF ELECTION TO TENDER OR RETAIN
REMARKETED PREFERRED SECURITIES, SERIES A,
OF
IMPERIAL CREDIT CAPITAL TRUST I
THIS NOTICE OF ELECTION MUST BE SUBMITTED TO ________________ AT
________________ NO LATER THAN 4:00 P.M., NEW YORK CITY TIME, ON _______
__, ____. IF A HOLDER DOES NOT RETURN A NOTICE OF ELECTION BY SUCH TIME,
THE REMARKETED PREFERRED SECURITIES OWNED BY SUCH HOLDER SHALL BE DEEMED TO
BE TENDERED FOR PURCHASE IN THE REMARKETING.
1. The undersigned holder of Remarketed Preferred Securities, Series A
(the "Preferred Securities"), issued by Imperial Credit Capital Trust I, a
Delaware statutory business trust (the "Trust"), hereby elects [CHECK
APPROPRIATE BOX OR BOXES]:
[_] To tender $__________ aggregate liquidation amount of its Preferred
Securities for purchase in the Remarketing of the Preferred Securities on
_______ __, ____. [insert the total liquidation amount of all Preferred
Securities held by holder or, if holder elects to tender only a portion of
such Preferred Securities, the liquidation amount of such portion, which
must be $1,000 or any integral multiple thereof].
[_] To retain, and to direct the Trust and the Remarketing Agent not to
remarket in the Remarketing, $__________ aggregate liquidation amount of
its Preferred Securities [insert the total liquidation amount of all
Preferred Securities held by holder or, if holder elects to retain only a
portion of such Preferred Securities, the liquidation amount of such
portion, which must be $1,000 or any integral multiple thereof].
2. After its execution and delivery by the undersigned to ___________,
this Notice of Election shall be irrevocable.
3. If the undersigned elects to tender all or any portion of its
Preferred Securities, the undersigned understands that its right to have its
Preferred Securities tendered for purchase shall be limited to the extent that
(i) the Remarketing Agent conducts a Remarketing as described in the Remarketing
Agreement, (ii) Preferred Securities tendered have not been called for
redemption, (iii) the Remarketing Agent is able to find a purchaser or
purchasers for tendered Preferred Securities at an Adjusted Distribution Rate
that does not exceed ___% per annum and (iv) such purchaser or purchasers
deliver the purchase price therefor to the Remarketing Agent.
4. Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Offering Memorandum, dated __________ __,
____ (the "Offering Memorandum").
The undersigned hereby acknowledges receipt of the Notice of
Remarketing, dated __________ __, ____, and the Offering Memorandum.
Dated: _______ __, ____
_________________________________________
<PAGE>
2
Name of holder of Preferred Securities as
it is appears on the register of Imperial
Credit Capital Trust I, in every
particular, without alteration,
enlargement or any change whatsoever
____________________________
Witness
<PAGE>
EXHIBIT 4.3
IMPERIAL CREDIT INDUSTRIES, INC.
AND
THE SUBSIDIARY GUARANTORS
NAMED HEREIN
$72,165,000
RESETTABLE RATE DEBENTURES, SERIES A
_____________
INDENTURE
DATED AS OF JUNE 9, 1997
_____________
CHASE TRUST COMPANY OF CALIFORNIA
TRUSTEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions 1
Section 1.02 Other Definitions................................ 24
Section 1.03 Incorporation by Reference of Trust Indenture Act 25
Section 1.04 Rules of Construction............................ 26
ARTICLE 2
THE DEBENTURES
Section 2.01 Form and Dating.................................. 26
Section 2.02 Execution and Authentication..................... 28
Section 2.03 Registrar and Paying Agent....................... 29
Section 2.04 Paying Agent to Hold Money in Trust.............. 30
Section 2.05 Holder Lists..................................... 30
Section 2.06 Transfer and Exchange............................ 30
Section 2.07 Replacement Debentures........................... 40
Section 2.08 Outstanding Debentures........................... 41
Section 2.09 Treasury Debentures.............................. 41
Section 2.10 Temporary Debentures............................. 42
Section 2.11 Cancellation..................................... 42
Section 2.12 Defaulted Interest............................... 42
ARTICLE 3
REDEMPTION AND REMARKETING
Section 3.01 Notices to Trustee.............................. 43
Section 3.02 Selection of Debentures to Be Redeemed.......... 43
Section 3.03 Notice of Redemption............................ 43
Section 3.04 Effect of Notice of Redemption.................. 44
Section 3.05 Deposit of Redemption Price..................... 44
Section 3.06 Debentures Redeemed in Part..................... 45
Section 3.07 Optional Redemption............................. 46
Section 3.08 Special Mandatory Redemption.................... 47
Section 3.09 Special Event Redemption; Shortening of Maturity 47
Section 3.10 Tax Opinion Redemption.......................... 48
Section 3.11 Transfer Restricted Security Redemption......... 48
Section 3.12 Remarketing..................................... 49
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 4
COVENANTS
Section 4.01 Payment of Debentures............................... 51
Section 4.02 Maintenance of Office or Agency..................... 53
Section 4.03 Compliance Certificate.............................. 54
Section 4.04 Taxes 55
Section 4.05 Stay, Extension and Usury Laws...................... 55
Section 4.06 Change of Control................................... 55
Section 4.07 Asset Sales 57
Section 4.08 Restricted Payments................................. 59
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred
Stock............................................... 61
Section 4.10 Liens............................................... 63
Section 4.11 Dividend and Other Payment Restrictions Affecting
Subsidiaries........................................ 63
Section 4.12 Transactions with Affiliates........................ 64
Section 4.13 Business Activities................................. 66
Section 4.14 Reports............................................. 66
Section 4.15 Additional Subsidiary Guarantees.................... 66
Section 4.16 Fees and Expenses................................... 66
ARTICLE 5
SUCCESSORS
Section 5.01 Limitations on Merger, Consolidation or Sale of
Substantially All Assets............................ 67
Section 5.02 Successor Corporation Substituted................... 68
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default................................... 68
Section 6.02 Acceleration........................................ 69
Section 6.03 Other Remedies...................................... 70
Section 6.04 Waiver of Past Defaults............................. 71
Section 6.05 Control by Majority................................. 71
Section 6.06 Limitation on Suits................................. 71
Section 6.07 Rights of Holders to Receive Payment................ 72
Section 6.08 Collection Suit by Trustee.......................... 72
Section 6.09 Trustee May File Proofs of Claim.................... 72
</TABLE>
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Section 6.10 Priorities......................................... 73
Section 6.11 Undertaking for Costs.............................. 74
ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee.................................... 74
Section 7.02 Rights of Trustee.................................... 75
Section 7.03 Individual Rights of Trustee......................... 76
Section 7.04 Trustee's Disclaimer................................. 76
Section 7.05 Notice of Defaults................................... 77
Section 7.06 Reports by Trustee to Holders........................ 77
Section 7.07 Compensation and Indemnity........................... 77
Section 7.08 Replacement of Trustee............................... 78
Section 7.09 Successor Trustee by Merger, etc..................... 79
Section 7.10 Eligibility; Disqualification........................ 79
Section 7.11 Preferential Collection of Claims Against the Company 80
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant
Defeasance........................................... 80
Section 8.02. Legal Defeasance and Discharge....................... 80
Section 8.03 Covenant Defeasance.................................. 81
Section 8.04 Conditions to Legal or Covenant Defeasance........... 81
Section 8.05 Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions........ 83
Section 8.06 Repayment to the Company............................. 84
Section 8.07 Reinstatement........................................ 84
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders........................... 85
Section 9.02 With Consent of Holders.............................. 86
Section 9.03 Compliance with Trust Indenture Act.................. 87
Section 9.04 Revocation and Effect of Consents.................... 88
Section 9.05 Notation on or Exchange of Debentures................ 88
Section 9.06 Trustee to Sign Amendments, etc...................... 88
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ARTICLE 10
SUBSIDIARY GUARANTEES
Section 10.01 Subsidiary Guarantees............................... 89
Section 10.02 Execution and Delivery of Subsidiary Guarantees..... 90
Section 10.03 Subsidiary Guarantors May Consolidate, etc., on
Certain Terms....................................... 91
Section 10.04 Releases Following Sale of Assets................... 92
Section 10.05 Limitation of Subsidiary Guarantor's Liability...... 93
Section 10.06 Application of Certain Terms and Provisions to the
Subsidiary Guarantors............................... 93
ARTICLE 11
SUBORDINATION
Section 11.01 Agreement to Subordinate........................... 94
Section 11.02 Liquidation; Dissolution; Bankruptcy............... 94
Section 11.03 Default on Designated Senior Debt.................. 95
Section 11.04 Acceleration of Debentures......................... 96
Section 11.05 When Distribution Must Be Paid Over................ 96
Section 11.06 Notice by Company.................................. 96
Section 11.09 Subrogation........................................ 97
Section 11.08 Relative Rights.................................... 97
Section 11.09 Subordination May Not Be Impaired by Company....... 97
Section 11.10 Distribution or Notice to Representative........... 98
Section 11.11 Rights of Trustee and Paying Agent................. 98
Section 11.12 Authorization to Effect Subordination.............. 98
Section 11.14 Amendments......................................... 99
ARTICLE 12
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls...................... 99
Section 12.02 Notices........................................... 99
Section 12.03 Communication by Holders with Other Holders....... 100
Section 12.04 Certificate and Opinion as to Conditions Precedent 100
Section 12.05 Statements Required in Certificate or Opinion..... 101
Section 12.06 Rules by Trustee and Agents....................... 101
Section 12.07 Legal Holidays.................................... 101
Section 12.08 No Recourse Against Others........................ 102
Section 12.09 Duplicate Originals............................... 102
Section 12.10 Governing Law..................................... 102
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Section 12.11 No Adverse Interpretation of Other Agreements..... 102
Section 12.12 Successors........................................ 102
Section 12.13 Severability...................................... 102
Section 12.14 Counterpart Originals............................. 103
Section 12.15 Table of Contents, Headings, etc.................. 103
SIGNATURES........................................................... 104
</TABLE>
EXHIBITS
Exhibit A-1 Form of Debenture
Exhibit A-2 Form of Regulation S Temporary Debenture
Exhibit B-1 Form of Certificate for Exchange or Registration of Transfer
of Rule 144A Global Debenture to Regulation S Global
Debenture
Exhibit B-2 Form of Certificate for Exchange or Registration of Transfer
From Regulation S Global Debenture to Rule 144A Global
Debenture
Exhibit B-3 Form of Certificate for Exchange or Registration of Transfer
of Certificated Debentures
Exhibit B-4 Form of Certificate for Exchange or Registration of Transfer
From Rule 144A Global Debenture or Regulation S Permanent
Global Debenture to Certificated Debenture
Exhibit B-5 Form of Certificate for Exchange or Registration of Transfer
From Certificated Debenture to Rule 144A Global Debenture or
Regulation S Permanent Global Debenture
v
<PAGE>
INDENTURE, dated as of June 9, 1997, between Imperial Credit Industries,
Inc., a California corporation (the "Company"), the Initial Subsidiary
Guarantors (as defined) and Chase Trust Company of California, a California
corporation, as trustee ("Trustee").
Each party agrees as follows for the benefit of each other and for the
equal and ratable benefit of the Holders of the Resettable Rate Debentures,
Series A (the "Series A Debentures") and the Resettable Rate Debentures, Series
B (the "Series B Debentures" and, together with the Series A Debentures, the
"Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01 Definitions
"9 7/8% Senior Notes" means the 9 7/8% Senior Notes due 2007 of the Company
issued under an Indenture dated as of January 23, 1997.
"30-Year Treasury Rate" means the rate per annum equal to the semi-annual
equivalent yield to maturity of the U.S. Treasury security used, in accordance
with customary financial practice, as the benchmark pricing bond in pricing new
issues of corporate debt securities of 30-year maturities on the Scheduled
Remarketing Date.
"Acquired Debt" means, with respect to any specified Person (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Interest" means all of the additional interest owing pursuant
to Section 5 of the Registration Rights Agreement.
"Adjusted Distribution Rate" has the meaning specified in the Declaration.
"Adjusted Interest Rate" has the meaning specified in Section 3.12.
"Adjusted Treasury Rate" means the Treasury Rate plus 0.50%.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, control
(including, with correlative meanings, the terms controlling, controlled by and
under common control with), as used
<PAGE>
2
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control. Notwithstanding the
foregoing, no Person (other than the Company or any Restricted Subsidiary of the
Company) in whom a Special Purpose Subsidiary makes an Investment in connection
with a Qualified Securitization Transaction shall be deemed to be an Affiliate
of the Company or any of its Restricted Subsidiaries solely by reason of such
Investment.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Members" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or exchange of
beneficial interests in a Global Debenture, the rules and procedures of the
Depositary that are applicable to such transfer or exchange
"Asset Sale" means (a) any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (other than as permitted under Sections
5.01 or 10.03) (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary, as the
case may be), (ii) all or substantially all the assets of any division or line
of business of the Company or any Restricted Subsidiary, (iii) any other assets
of the Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary, as the case may be,
including any sale of the stock of a Restricted Subsidiary, or (iv) any
Securitization Related Asset, or (b) any issuance of Capital Stock (other than
non-convertible preferred stock that is not Disqualified Stock) by any of the
Company's Restricted Subsidiaries, except any such issuance to the Company or
any Wholly Owned Restricted Subsidiary that is a Subsidiary Guarantor.
Notwithstanding the foregoing, an "Asset Sale" does not include (a) a
disposition by a Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary or by the Company to a Wholly Owned Restricted Subsidiary, (b) a
disposition that constitutes a Restricted Payment permitted by Section 4.08),
(c) sales of Receivables in Qualified Securitization Transactions for the fair
market value thereof, including cash in an amount at least equal to 75% of the
book value thereof as determined in accordance with GAAP, (d) transfers of
Receivables by a Special Purpose Subsidiary to third parties in a Qualified
Securitization Transaction and (e) any trade or exchange by the Company or any
Restricted Subsidiary of any assets for similar assets of a Related Business
owned
<PAGE>
3
or held by another Person; provided that (1) the fair market value of the assets
traded or exchanged by the Company or such Restricted Subsidiary (including any
cash or Cash Equivalents to be delivered by the Company or such Restricted
Subsidiary) is reasonably equivalent to the fair market value of the asset or
assets (together with any cash or Cash Equivalents) to be received by the
Company or such Restricted Subsidiary and (2) such exchange is approved by a
majority of the directors of the Company who are not employees of the Company or
its Restricted Subsidiaries.
"Authentication Order" means an Officers' Certificate ordering the Trustee
to authenticate Debentures.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Board Resolution" means a resolution duly adopted by the Board of
Directors of the Company.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capitalized Excess Servicing Fees Receivables" mean, with respect to the
sale of Receivables in a Qualified Securitization Transaction, the present value
of the excess of the weighted average coupon on the Receivables sold over the
sum of (i) the coupon in the pass-through certificates, (ii) a base servicing
fee paid to the loan or lease servicer and (iii) expected losses to be incurred
on the portfolio of Receivables sold, considering prepayment assumptions.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means: (i) United States dollars; (ii) Government
Securities (except that for purpose of this definition, Government Securities
must have a remaining Weighted Average Life to Maturity of not more than one
year from the date of investment therein); (iii) commercial paper or other
short-term corporate obligation that has received a rating of at least A-1 or AA
from Standard & Poor's Corporation
<PAGE>
4
("S&P"), P-1 or Aa2 from Moody's Investor Services, Inc. ("Moody's"), F-1 or AA
from Fitch Investor Service, Inc. ("Fitch"), or D-1 or AA from Duff & Phelps
Credit Rating Co., ("Duff"); (iv) time deposits, certificates of deposit, bank
acceptances or bank notes issued by any bank having capital surplus and
undivided profits aggregating at least $500,000,000 (or the foreign currency
equivalent thereof) and at least a high A rating (or the equivalent) from any
two of the following: S&P, Moody's, Thomson Bankwatch, Inc. or IBCA, Inc.; (v)
money market preferred stocks which, at the date of acquisition and at all times
thereafter, are accorded ratings of at least mid AA by any two of the following:
S&P, Moody's, Fitch or Duff; (vi) tax-exempt obligations that are accorded
ratings at the time of investment therein of at least mid AA (or equivalent
short-term ratings) by any two of the following; S&P, Moody's, Fitch or Duff;
(vii) master repurchase agreements with foreign or domestic banks having capital
and surplus of not less than $500,000,000 (or the foreign equivalent thereof) or
primary dealers so long as (a) such bank or dealer has a rating of at least mid
AA from any two of the following: S&P, Moody's, Fitch or Duff; (b) such
agreements are collateralized with obligations of the United States government
or its agencies at a ratio of 102%, or with other collateral rated at least mid
AA from any two of the following: S&P, Moody's, Fitch or Duff, at a rate of 103%
and, in either case marked to market weekly and (c) such securities shall be
held by a third-party agent; (viii) guaranteed investment contracts and/or
agreements of a bank, insurance company or other institution whose unsecured,
uninsured and unguaranteed obligations (or claims-paying ability) are, at the
time of investment therein, rated AAA by any two of the following: S&P, Moody's,
Fitch or Duff; (ix) money market funds, the portfolio of which is limited to
investments described in clauses (i) through (viii); (x) with respect to Non-
Domestic Persons, instruments that are comparable to those described in clauses
(i), (ii), (iv) and (vii) in the country in which such Non-Domestic Person is
organized or has its principal business operations; and (xii) up to $1,000,000
in the aggregate of other financial assets held by Restricted Subsidiaries. In
no event shall any of the Cash Equivalents described in clauses (iii) through
(viii), (x) and (xi) above have a final maturity more than one year from the
date of investment therein.
"Certificated Debentures" means Debentures that are in the form of the
Debentures attached hereto as Exhibit A-1, that do not include the information
called for by footnotes 1 and 2 thereof.
"Change of Control" means the occurrence of one or more of the following
events: (i) a person or entity or group (as that term is used in Section
13(d)(3) of the Exchange Act) of persons or entities shall have become the
beneficial owner of a majority of the securities of the Company ordinarily
having the right to vote in the election of directors; (ii) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any directors
who are members of such Board of Directors of the Company on the date hereof and
any new directors whose election by such Board of Directors of the Company
<PAGE>
5
or whose nomination for election by the shareholders of the Company was approved
by a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; (iii) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the Company
and its Restricted Subsidiaries, taken as a whole, to any person or entity or
group (as so defined) of persons, or entities (other than to any Wholly Owned
Restricted Subsidiary of the Company); (iv) the merger or consolidation of the
Company with or into another corporation or the merger of another corporation
into the Company with the effect that immediately after such transaction any
person or entity or group (as so defined) of persons or entities shall have
become the beneficial owner of securities of the surviving corporation of such
merger or consolidation representing a majority of the combined voting power of
the outstanding securities of the surviving corporation ordinarily having the
right to vote in the election of directors; or (v) the adoption of a plan
relating to the liquidation or dissolution of the Company.
"Common Trust Securities" means the common securities issued by the Trust.
"Company Guarantee" means the Guarantee Agreement, dated as of June 9,
1997, made by the Company in respect of the Securities and the Common Trust
Securities.
"Comparable Treasury Issue" means with respect to any prepayment date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life 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 last day of the
Remaining Life, the two most closely corresponding United States Treasury
securities 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 using such securities.
"Comparable Treasury Price" means (A) the average of five Reference
Treasury Dealer Quotations for such prepayment date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Indenture
Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of all consolidated Indebtedness of the
Company and its Restricted Subsidiaries, excluding Warehouse Indebtedness and
Guarantees thereof
<PAGE>
6
permitted to be incurred pursuant to clause (iii) of Section 4.09 to (ii) the
Consolidated Net Worth of the Company.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Subsidiary Guarantor, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that Net Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Restricted Subsidiaries and in
Persons that are not Restricted Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 or such other address as the Trustee may give
notice to the Company.
<PAGE>
7
"Debenture Custodian" means the Trustee, as custodian with respect to the
Global Debentures, or any successor entity thereto.
"Declaration" means the Amended and Restated Declaration of Trust, dated as
of June 9, 1997, by and among the Company, as Sponsor, and Kevin E. Villani,
Irwin L. Gubman and Paul B. Lasiter, as the Regular Trustees, Chase Trust
Company of California, as the Property Trustee and Chase Manhattan Bank
Delaware, a Delaware corporation, as the Delaware Trustee.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means any Senior Debt permitted under this
Indenture the principal amount of which is $25,000,000 or more and that has been
designated by the Company as "Designated Senior Debt."
"Depositary" means, with respect to the Debentures issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Debentures, until a successor shall have been
appointed and become such Depositary pursuant to the applicable provision of
this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Stated Maturity of the Debentures.
"Dissolution Event" means an event pursuant to which the Trust is dissolved
in accordance with the Declaration, and the Debentures held by the Property
Trustee are distributed to the holders of the Securities and Common Trust
Securities issued by the Trust pro rata in accordance with the Declaration.
"Dollars" and "$" means lawful money of the United States of America.
"Election Date," with respect to any Scheduled Remarketing Date, means the
second Business Day prior thereto.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
<PAGE>
8
"Equity Offering" means an underwritten primary public offering of Equity
Interests (other then Disqualified Stock) of the Company pursuant to an
effective registration statement under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company pursuant
to the Registration Rights Agreement to exchange Series B Securities for Series
A Securities and Series B Debentures for Series A Debentures.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other then Indebtedness under the Warehouse Facilities) in
existence on the Issue Date, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Global Debentures" means, individually and collectively, the Regulation S
Temporary Global Debenture, the Regulation S Permanent Global Debenture and the
Rule 144A Global Debenture.
"Government Securities" means direct obligations of the United States of
America, or any agency or instrumentality thereof for the payment of which the
full faith and credit of the United States of America is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, in either case in the ordinary course of business and not for speculative
or investment purposes.
"Holder" means a Person in whose name a Debenture is registered.
<PAGE>
9
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable, (ii) all Capital
Lease Obligations of such Person, (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and expense accruals
arising in the ordinary course of business), (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit), (v) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock other than Permitted SPTL Preferred Stock (but excluding any
accrued dividends), (vi) all Warehouse Indebtedness, (vii) all obligations of
the type referred to in clauses (i) through (vi) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guaranty, (viii) all obligations of the
type referred to in clauses (i) through (vii) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. Except in the case of Warehouse Indebtedness
(the amount of which shall be determined in accordance with the definition
thereof) the amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
Notwithstanding the foregoing, the term "Indebtedness" does not include deposit
liabilities of any Restricted Subsidiary, the deposits of which are insured by
the Federal Deposit Insurance Corporation or any successor agency or
Indebtedness of any Restricted Subsidiary to the Federal Home Loan Bank of San
Francisco or any successor thereto incurred in the ordinary course of business
and secured by qualifying mortgage loans or mortgage-backed securities.
"Indenture" means this Indenture as amended or supplemented from time to
time.
<PAGE>
10
"Indenture Default" means any event that is or with the passage of time or
the giving of notice or both would be an Indenture Event of Default.
"Initial Subsidiary Guarantors" means the initial Subsidiary Guarantors as
of the date of this Indenture.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel, rendered by a law firm having a recognized national securities
practice, to the effect that, as a result of the occurrence of a change in law
or regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority, the
Trust is or will be considered an "investment company" that is required to be
registered under the Investment Company Act, which change becomes effective on
or after the Issue Date.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, such Person is no longer a Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value (as determined as
set forth in the last paragraph under Section 4.08) of the Equity Interests of
such Restricted Subsidiary not sold or disposed of; provided, however, that this
requirement shall not apply if (i) the class of Equity Interests of the
Restricted Subsidiary owned by the Company is registered under Section 12 of the
Exchange Act and is listed on a national securities exchange or quoted on a
national quotations system and (ii) if the Company has entered into an agreement
with the Restricted Subsidiary that provides the Company with the right to
demand (subject to customary restrictions) registration of all of its Equity
Interests under the Securities Act.
"Issue Date" means the date on which the Series A Debentures are originally
issued.
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11
"Lien" means, with respect to any Person, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind on the assets of such Person,
including (i) any conditional sale or other title retention agreement or lease
in the nature thereof, and (ii) any claim (whether direct or indirect through
subordination or other structural encumbrance against any Securitization Related
Asset sold or otherwise transferred by such Person to a buyer, unless such
Person is not liable for any losses thereon).
"Maximum Adjusted Distribution Rate" means the rate per annum, determined
on the Scheduled Remarketing Date by the Remarketing Agent in its discretion,
equal to the greater of (a) the 30-Year Treasury Rate plus 600 basis points and
(b) a nationally-recognized high-yield index rate for similarly-rated issues,
plus 100 basis points.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and after any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), or (b) is directly or indirectly liable (as a guarantor or
otherwise); (ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness (other than the Debentures being offered hereby) of the
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12
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers" means the Chief Executive Officer, the President, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the principal executive officer, principal financial officer or
principal accounting officer of the Company.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. Except with respect to any opinion delivered
pursuant to Article 8, the counsel may be an employee of the Company or the
Trustee. The counsel may be counsel to the Company or the Trustee.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Debentures are subordinated to Senior Debt pursuant to
the Indenture.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary: (i) in a Subsidiary Guarantor or in SPTL or a Person that will, upon
the making of such Investment, become a Subsidiary Guarantor; provided, however,
that the primary business of such Subsidiary Guarantor is a Related Business;
and provided further, that any Investment by the Company in SPTL must be in the
form of Permitted SPTL Preferred Stock or in a security senior to such stock;
(ii) in another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Subsidiary Guarantor;
provided, however, that such Person's primary business is a Related Business;
(iii) comprised of Cash Equivalents; (iv) comprised of Receivables owing to the
Company or any Restricted Subsidiary if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; (v) comprised of payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made
<PAGE>
13
in the ordinary course of business; (vi) comprised of stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (vii) in any Person to the extent such Investment
represents the non-cash portion of the consideration received for an Asset Sale
as permitted pursuant to Section 4.07; (viii) comprised of Receivables of the
Company or any of its Wholly Owned Restricted Subsidiaries; or (ix) comprised of
Securitization Related Assets arising in a Qualified Securitization Transaction.
"Permitted Liens" means, with respect to any Person: (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review; (c) Liens for property taxes not yet subject to penalties for non-
payment or which are being contested in good faith and by appropriate
proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights of way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real property or
Liens incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or additions to,
property of such Person (but excluding Capital Stock of another Person);
provided, however, that the Lien may not extend to any other property owned by
such Person or any of its Subsidiaries at the time the Lien is Incurred, and the
Indebtedness secured by the Lien may not be Incurred more than 180 days after
the latest of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
(g) Liens on Receivables owned by the Company or a Restricted Subsidiary, as the
case may be, to secure Indebtedness permitted under clause (ii) of Section 4.09
and Liens to secure Indebtedness under mortgage loan repurchase agreements or
repurchase facilities
<PAGE>
14
permitted under clause (iii) of Section 4.09; (h) Liens on Securitization
Related Assets (or on the Capital Stock of any Subsidiary of such Person
substantially all the assets of which are Securitization Related Assets);
provided, however, that, (x) any such Liens may only encumber Securitization
Related Assets in an amount not to exceed 75% of the excess, if any, of (i) the
total amount of Securitization Related Assets, determined on a consolidated
basis in accordance with GAAP, as of the creation of such Lien over (ii) an
amount equal to 150% of all unsecured Senior Indebtedness of the Company and its
Restricted Subsidiaries as of the time of creation of such Lien, and (y) the
balance of Securitization Related Assets, not permitted to be encumbered by the
foregoing proviso (x) shall remain unencumbered by any Lien; (i) Liens on
Receivables and other assets of a Special Purpose Subsidiary incurred in
connection with a Qualified Securitization Transaction; (j) Liens existing on
the Issue Date; (k) Liens on property or shares of Capital Stock of another
Person at the time such other Person becomes a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such other Person becoming such a
Subsidiary; provided further, however, that such Lien may not extend to any
other property owned by such Person or any of its Subsidiaries; (l) Liens on
property at the time such Person or any of its Subsidiaries acquires the
property, including, any acquisition by means of a merger or consolidation with
or into such Person or a Subsidiary of such Person; provided, however, that such
Liens are not created, incurred or assumed in connection with, or in
contemplation of such acquisition; provided further, however, that the Liens may
not extend to any other property owned by such Person or any of its
Subsidiaries; (m) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a Restricted Subsidiary of
such Person; (n) Liens (other than on any Securitization Related Assets)
securing Hedging Obligations; (o) Liens on cash or other assets (other than
Securitization Related Assets) securing Warehouse Indebtedness of the Company or
its Restricted Subsidiaries; (p) Liens to secure any Permitted Refinancing
Indebtedness as a whole, or in part, with any Indebtedness permitted under this
Indenture to be Incurred and secured by any Lien referred to in the foregoing
clauses (f), (j), (k) and (l); provided, however, that (x) such new Lien shall
be limited to all or part of the same property that secured the original Lien
(plus improvements to or on such property) and (y) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the sum of
(A) the outstanding, principal amount or, if greater, committed amount of the
Indebtedness described under clauses (f), (j), (k) or (l), as the case may be,
at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement; (q) Liens securing
deposit liabilities of any Restricted Subsidiary, the deposits of which are
insured by the Federal Deposit Insurance Corporation or any successor agency or
Indebtedness of any Restricted Subsidiary to the Federal Home Loan Bank of San
Francisco or any successor thereto incurred in the ordinary course of business
and secured by qualifying mortgage loans or mortgage-backed securities; and (r)
Liens on assets of Unrestricted Subsidiaries that secure Non-
<PAGE>
15
Recourse Debt of Unrestricted Subsidiaries. Notwithstanding the foregoing,
"Permitted Liens" will not include any Lien described in clauses (f), (j) or (k)
above to the extent such Lien applies to any Additional Assets acquired directly
or indirectly from Net Proceeds pursuant to Section 4.07.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Debentures, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Debentures on terms at least as favorable to the
Holders of Debentures as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (v) such Indebtedness
may not include a Guaranty of Indebtedness of a Person that is not a Subsidiary
of the Company.
"Permitted SPTL Preferred Stock" means nonvoting (except as provided in the
second proviso below), noncumulative, perpetual preferred stock of SPTL which
would qualify as Tier 1 capital or the equivalent thereof on an unrestricted
basis for purposes of the capital requirements contained in 12 C.F.R. Part 325,
Subpart A, or any successor provision; provided that the total liquidation
preference of such preferred stock outstanding at any time shall not exceed 20%
of the Consolidated Net Worth of SPTL (after giving effect to the issuance of
such preferred stock); and provided further, that the holders of such stock may
be granted the right to elect directors constituting less than a majority of the
board of directors of SPTL if dividends on such have not been paid for six
dividend periods, whether consecutive or not, and until such time as SPTL has
paid or declared and set apart for payment dividends for four consecutive
dividend periods.
"Permitted Warehouse Indebtedness" means Warehouse Indebtedness in
connection with a Warehouse Facility; provided, however, that (i) the assets as
to which such Warehouse Indebtedness relates are or, prior to any funding under
the related
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16
Warehouse Facility with respect to such assets, were eligible to be recorded as
held for sale on the consolidated balance sheet of the Company in accordance
with GAAP, (ii) such Warehouse Indebtedness will be deemed to be Permitted
Warehouse Indebtedness (a) in the case of a Purchase Facility, only to the
extent the holder of such Warehouse Indebtedness has no contractual recourse to
the Company and its Restricted Subsidiaries to satisfy claims in respect of such
Permitted Warehouse Indebtedness in excess of the realizable value of the
Receivables financed thereby, and (b) in the case of any other Warehouse
Facility, only to the extent of the lesser of (A) the amount advanced by the
lender with respect to the Receivables financed under such Warehouse Facility,
and (B) the principal amount of such Receivables and (iii) any such Indebtedness
has not been outstanding in excess of 364 days.
"Person" means any individual, corporation, limited liability company,
partnership, association, joint stock company, trust or trustee thereof, estate
or executor thereof, unincorporated organization or joint venture.
"Property Trustee" has the meaning specified in the Declaration.
"Purchase Facility" means any Warehouse Facility in the form of a purchase
and sale facility pursuant to which the Company or a Restricted Subsidiary of
the Company sells Receivables to a financial institution and retains a right of
first refusal upon the subsequent resale of such Receivables by such financial
institution.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which (i) the Company or any of its Restricted
Subsidiaries (other than a Special Purpose Subsidiary) sells, conveys or
otherwise transfers to a Special Purpose Subsidiary or (ii) the Company, any of
its Restricted Subsidiaries or a Special Purpose Subsidiary sells, conveys or
otherwise transfers to a special purpose owner trust or other Person Receivables
(together with any assets related to such Receivables, including, without
limitation, all collateral securing such Receivables, all contracts and all
guarantees or other obligations in respect of such Receivables, proceeds of such
Receivables and other assets which are customarily transferred in connection
with asset securitization transactions involving Receivables) of the Company or
any of its Restricted Subsidiaries in transactions constituting "true sales"
under the Bankruptcy Laws and as "sales" under GAAP, as evidenced by an Opinion
of Counsel to such effect.
"Quotation Agent" means Lehman Brothers Inc. and their respective
successors; provided, however, that if the foregoing shall cease to be a primary
United States Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
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17
"Receivables" means consumer, mortgage and commercial loans, equipment or
other lease receivables and receivables purchased or originated by the Company
or any Restricted Subsidiary in the ordinary course of business; provided,
however, that for purposes of determining the amount of a Receivable at any
time, such amount shall be determined in accordance with GAAP, consistently
applied, as of the most recent practicable date.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, 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 prepayment date.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date of this Indenture, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Regular Trustees" has the meaning set forth in the Declaration.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Debenture" means a Regulation S Temporary Global
Debenture or Regulation S Permanent Global Debenture, as appropriate.
"Regulation S Permanent Global Debenture" means a permanent global note
that contains the paragraph referred to in footnote 1 and the additional
schedule referred to in footnote 2 to the form of the Debenture attached hereto
as Exhibit A-1, and that is deposited with and registered in the name of the
Depositary, representing the Debentures sold in reliance on Regulation S.
"Regulation S Temporary Global Debenture" means a single temporary global
note in the form of the Debenture attached hereto as Exhibit A-2 that is
deposited with and registered in the name of the Depositary, representing
Debentures sold in reliance on Regulation S.
"Remarketing" means the operation of the procedures for remarketing
specified in Section 7.5 of the Declaration (or, if a Dissolution Event occurs
prior to a Scheduled Remarketing Date, specified in Section 3.12 hereof).
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18
"Remarketing Agent" means such agent or agents as the Company may appoint
from time to time for the purpose of remarketing the Securities (or the
Debentures, pursuant to Article IV hereof), as set forth in the Remarketing
Agreement.
"Remarketing Agreement" means the Remarketing Agreement, dated as of June
9, 1997, among the Trust, the Company and Lehman Brothers Inc., as the same may
be amended, supplemented or modified from time to time.
"Remarketing Settlement Date" means the Scheduled Remarketing Settlement
Date on which purchases and sales of Securities pursuant to a Remarketing are
consummated.
"Related Business" means any consumer or commercial finance business or any
financial advisory or financial service business.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Residual Certificates" means, with respect to the sale of Receivables in a
Qualified Securitization Transaction, any certificates representing Receivables
not sold or transferred in such transaction or otherwise retained by or returned
to the Person transferring such Receivables.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Office (or any successor group of the
Trustee) assigned by the Trustee to administer its corporate trust matters.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Retained Interest" means, with respect to the sale of Receivables in a
Qualified Securitization Transaction, the interest and rights retained by the
Person in the Receivables transferred or sold in a Qualified Securitization
Transaction, including any rights to receive cash flow attributable to such
Receivables.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Debenture" means a permanent global note that contains
the paragraph referred to in footnote 1 and the additional schedule referred to
in footnote 2 to the form of the Debenture attached hereto as Exhibit A-1, and
that is deposited with
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19
and registered in the name of the Depositary, representing Debentures sold in
reliance on Rule 144A.
"Scheduled Remarketing Date" means the third Business Day prior to any
Scheduled Remarketing Settlement Date.
"Scheduled Remarketing Settlement Date" means June 14, 2002, or such other
date determined pursuant to this definition, unless a Trust Enforcement Event
has occurred and is continuing on the 25th Business Day prior to such Scheduled
Remarketing Settlement Date, in which case the Scheduled Remarketing Settlement
Date will be the 30th Business Day after the date of cure or waiver of such
Trust Enforcement Event; provided that if (x) purchases and sales of Securities
pursuant to a Remarketing are not consummated on any Scheduled Remarketing
Settlement Date for any reason (including the Company's failure to make the
deposit required in the event of a Special Mandatory Redemption) other than the
occurrence and continuance of any other Trust Enforcement Event or if (y) the
Company fails to redeem Debentures in connection with a Tax Opinion Redemption
after cancelling the Remarketing, the next Scheduled Remarketing Settlement Date
will be the 30th Business Day after such Scheduled Remarketing Settlement Date.
"SEC" means the Securities and Exchange Commission.
"Securities" means the $70,000,000 aggregate liquidation amount of
Remarketed Par Securities, Series A of the Trust, representing undivided
beneficial ownership interests in the assets of the Trust or any Remarketed Par
Securities, Series B, of the Trust, issued in exchange therefor pursuant to the
Exchange Offer.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Related Assets" means, with respect to a Qualified
Securitization Transaction: (i) the Capitalized Excess Servicing Fees Receivable
retained by the Person who transfers or sells Receivables in such a transaction;
(ii) the Retained Interest held by such Person in the Receivables sold or
transferred in such transaction; and (iii) Residual Certificates retained by
such Person in such transaction.
"Senior Debt" means all Indebtedness permitted to be incurred by the
Company under the terms of this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Debentures and all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (i) any liability for federal, state,
local or other taxes owed or owing by the Company,
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20
(ii) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (iii) any trade payables or (iv) any Indebtedness that is incurred
in violation of this Indenture.
"Senior Indebtedness" means all Indebtedness of the Company or the
Subsidiary Guarantors that is not, by its terms, subordinated in right of
payment to the Debentures or the Subsidiary Guarantees, respectively.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Special Event" means either an Investment Company Event or a Tax Event.
"Special Purpose Subsidiary" means a Wholly Owned Restricted Subsidiary of
the Company (a) that is designated (as set forth below) as a "Special Purpose
Subsidiary" by the Board of Directors of the Company, (b) that does not engage
in, and whose charter prohibits it from engaging in, any activities other than
Qualified Securitization Transactions, (c) no portion of the Indebtedness or any
other Obligations (contingent or otherwise) of which (i) is guaranteed by the
Company or any other Restricted Subsidiary of the Company, (ii) is recourse to
or obligates the Company or any other Restricted Subsidiary of the Company in
any way other than pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection with a
Qualified Securitization Transaction or (iii) subjects any property or asset of
the Company or any other Restricted Subsidiary of the Company, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Securitization
Transaction, (d) with which neither the Company nor any other Restricted
Subsidiary of the Company has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company and (e) with which neither the Company nor any
other Restricted Subsidiary of the Company has any obligation to maintain or
preserve such Restricted Subsidiary's financial condition or cause such
Restricted Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"SPFC" means Southern Pacific Funding Corporation, a California corporation
and a partially owned Subsidiary of the Company.
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21
"SPTL" means Southern Pacific Thrift & Loan Association, a California
corporation and a Subsidiary of the Company.
"Stated Maturity" means, with respect to any installment of principal or
interest on any series of Indebtedness, the date on which such payment of
principal or interest was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such principal or interest prior to the date
originally scheduled for the payment thereof.
"Strategic Investor Repurchase Transaction" means the repurchase,
redemption or other retirement for value of any Equity Interests of any
Restricted Subsidiary (a) from a strategic partner or investor owning such
Equity Interests that, except for such Investment, would not be an Affiliate of
the Company or its Restricted Subsidiaries and (b) in a transaction whose terms
comply with the provisions of Section 4.12 hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof); provided that SPFC and
ICIFC shall not be considered Subsidiaries of the Company unless the Company
owns more than 50% of the total voting power of shares of Capital Stock on or
after March 31, 1997.
"Subsidiary Guarantors" means each of (i) the Restricted Subsidiaries of
the Company other than SPTL and the Special Purpose Subsidiaries and (ii) any
other Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of this Indenture, and their respective successors and assigns.
"Tax Event" means the receipt by the Trust of an opinion of independent tax
counsel to the Company, experienced in such matters, to the effect that, as a
result of any amendment to, change in or announced proposed 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 adopted or which
propsed change, 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 Company
<PAGE>
22
on the 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.
"Tax Opinion" means an opinion of an independent tax counsel to the Company
experienced in such matters to the effect that, as a result of (a) any amendment
to, or change (including any announced proposed change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or (b) any official administrative
pronouncement or judicial decision interpreting or applying such laws of
regulations, or which amendment or change is effective or such propsed change,
pronouncement or decision is announced on or after the Issue Date, that it is
more likely than not that (i) the Trust will be, following the Remarketing
Settlement Date, subject to United States federal income tax with respect to
interest accrued or received on the Debentures, (ii) the Trust will be,
following the Remarketing Settlement Date, subject to more than a de minimis
amount of taxes, duties or other governmental charges, or (iii) interest payable
to the Trust on the Debentures, following the Remarketing Settlement Date, will
not be deductible, in whole or in part, by the Company for United States federal
income tax purposes.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date on which this Indenture is qualified under the TIA.
"Transfer Restricted Securities" means securities that bear or are required
to bear the legend set forth in Section 2.06 hereof.
"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 and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities", for the maturity corresponding to the
Remaining Life (if no maturity is within three months before or after the
Remaining Life, yields for the two published maturities most closely
corresponding to the Remaining Life shall be determined and the Treasury Rate
shall be interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the calculation date or does
not contain such yields, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, calculated using a price for
the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the
<PAGE>
23
Comparable Treasury Price for such prepayment date. The Treasury Rate shall be
calculated on the third business day preceding the prepayment date.
"Trust" means Imperial Credit Capital Trust I, a Delaware statutory
business trust.
"Trust Enforcement Event" has the meaning specified in the Declaration.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (b) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (c) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (d) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.08. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09, the Company shall be in default of
such covenant). The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under Section 4.09, (ii) such Subsidiary becomes a
<PAGE>
24
Subsidiary Guarantor and (iii) no Default or Event of Default would be in
existence following such designation.
"Warehouse Facility" means any funding arrangement, including a Purchase
Facility, with a financial institution or other lender or purchaser, to the
extent (and only to the extent) funding thereunder is used exclusively to
finance or refinance the purchase or origination of Receivables by the Company
or a Restricted Subsidiary of the Company for the purpose of (i) pooling such
Receivables prior to securitization or (ii) sale, in each case in the ordinary
course of business.
"Warehouse Indebtedness" means the greater of (x) the consideration
received by the Company or its Restricted Subsidiaries under a Warehouse
Facility and (y) in the case of a Purchase Facility, the book value of the
Receivables financed under such Warehouse Facility until such time as such
Receivables are (i) securitized, (ii) repurchased by the Company or its
Restricted Subsidiaries or (iii) sold by the counterparty under the Warehouse
Facility to a Person who is not an Affiliate of the Company.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Restricted Subsidiaries of such
Person and one or more Wholly Owned Subsidiaries of such Person.
Section 1.02 Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section
- ---- ----------
<S> <C>
"Accredited Investor"....................... 2.01
"Applicable Interest Rate".................. 4.01
"Affiliate Transaction"..................... 4.12
"Asset Sale Offer".......................... 4.07
"Asset Sale Offer Period"................... 4.07
</TABLE>
<PAGE>
25
<TABLE>
<S> <C>
"Asset Sale Offer Purchase Date"............ 4.07
"Bankruptcy Law"............................ 6.01
"Benefitted Party".......................... 10.01
"Change of Control Offer"................... 4.06
"Change Of Control Offer Period"............ 4.06
"Change of Control Payment"................. 4.06
"Change of Control Purchase Date"........... 4.06
"Custodian"................................. 6.01
"DTC"....................................... 2.03
"Event of Default".......................... 6.01
"Extension Period".......................... 4.01
"incur"..................................... 4.09
"Initial Interest Rate"..................... 4.01
"Legal Holiday"............................. 12.07
"Notice of Election"........................ 3.12
"Paying Agent".............................. 2.03
"Payment Blockage Notice"................... 11.03
"Payment Default"........................... 6.01
"QIB"....................................... 2.01
"Registrar"................................. 2.03
"Restricted Payments"....................... 4.08
"Transfer Restricted Security".............. 2.06
"Transfer Restricted Security Redemption"... 3.11
"Trustee"................................... 8.05
</TABLE>
Section 1.03 Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Debentures;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Debentures means the Company or any successor obligor
upon the Debentures.
<PAGE>
26
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04 Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE DEBENTURES
Section 2.01 Form and Dating
The Debentures and Subsidiary Guarantees and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1, which is part
of this Indenture. The Debentures may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Debenture shall be dated
the date of its authentication. The Debentures shall be issued initially in
denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Debentures shall constitute, and
are hereby expressly made, a part of this Indenture, and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
(a) Rule 144A Global Debentures. Debentures offered and sold within the
United States to qualified institutional buyers as defined in Rule 144A ("QIBs")
in reliance on Rule 144A shall be issued initially in the form of Rule 144A
Global Debentures, which shall be deposited on behalf of the purchasers of the
Debentures represented thereby with the Depositary at its New York office, and
registered in the
<PAGE>
27
name of the Depositary or a nominee of the Depositary, duly executed by the
Company and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Rule 144A Global Debentures may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee as hereinafter provided.
(b) Regulation S Global Debentures. Debentures offered and sold in
reliance on Regulation S shall be issued initially in the form of the Regulation
S Temporary Global Debenture, which shall be deposited on behalf of the
purchasers of the Debentures represented thereby with the Trustee, at its New
York office, as custodian for the Depositary, and registered in the name of the
Depositary or the nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The "40-day restricted
period" (as defined in Regulation S) shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary certifying that it has
received certification of non-United States beneficial ownership of 100% of the
aggregate principal amount of the Regulation S Temporary Global Debenture
(except to the extent of any beneficial owners thereof who acquired an interest
therein pursuant to another exemption from registration under the Securities Act
and who will take delivery of a beneficial ownership interest in a Rule 144A
Global Debenture, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from the Company. Following the termination of the 40-
day restricted period, beneficial interests in the Regulation S Temporary Global
Debenture shall be exchanged for beneficial interests in Regulation S Permanent
Global Debentures pursuant to the Applicable Procedures. Simultaneously with
the authentication of Regulation S Permanent Global Debentures, the Trustee
shall cancel the Regulation S Temporary Global Debenture. The aggregate
principal amount of the Regulation S Temporary Global Debenture and the
Regulation S Permanent Global Debentures may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
(c) Global Debentures in General. Each Global Debenture shall represent
such of the outstanding Debentures as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Debentures
from time to time endorsed thereon and that the aggregate amount of outstanding
Debentures represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Debenture to reflect the amount of any increase or decrease in the amount of
outstanding Debentures represented thereby shall be made by the Trustee or the
Debenture Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
<PAGE>
28
Except as set forth in Section 2.06 hereof, the Global Debentures may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
(d) Book-Entry Provisions. This Section 2.01(d) shall apply only to Rule
144A Global Debentures and the Regulation S Permanent Global Debentures
deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(d) and Section 2.02, authenticate and deliver the Global Debentures
that (i) shall be registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instructions or held by the Trustee as custodian
for the Depositary.
Agent Members shall have no rights either under this Indenture with respect
to any Global Debenture held on their behalf by the Depositary or by the Trustee
as custodian for the Depositary or under such Global Debenture, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Debenture for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices of such Depositary governing the
exercise of the rights of an owner of a beneficial interest in any Global
Debenture.
(e) Certificated Debentures. At any time after the Remarketing Settlement
Date, a Holders may request that its interest in a Global Debenture be exchanged
for Debentures in certificated form substantially in the form of Exhibit A-1
attached hereto (but without including the text referred to in footnotes 1 and 2
thereto).
Section 2.02 Execution and Authentication
Two Officers shall sign the Debentures for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Debentures
and may be in facsimile form.
If an Officer whose signature is on a Debenture no longer holds that office
at the time a Debenture is authenticated, the Debenture shall nevertheless be
valid.
<PAGE>
29
A Debenture shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Debenture
has been authenticated under this Indenture.
The Trustee shall, upon delivery of an Authentication Order, authenticate
Debentures for original issue up to the aggregate principal amount stated in
paragraph 4 of the Debentures. The aggregate principal amount of Debentures
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Debentures. An authenticating agent may authenticate Debentures
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
Neither the Company nor the Trustee shall have any responsibility for any
defect in the CUSIP number that appears on any Debenture, check, advice of
payment or redemption notice, and any such document may contain a statement to
the effect that CUSIP numbers have been assigned by an independent service for
convenience of reference and that neither the Company nor the Trustee shall be
liable for any inaccuracy in such numbers.
Section 2.03 Registrar and Paying Agent
The Company shall maintain in the Borough of Manhattan, the City of New
York, State of New York, and in such other locations as it shall determine, (i)
an office or agency where Debentures may be presented for registration of
transfer or for exchange ("Registrar") and (ii) an office or agency where
Debentures may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of the Debentures and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Debentures.
<PAGE>
30
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Debenture Custodian with respect to the Global
Debentures. The Company initially appoints the Trustee to act as the Registrar
and Paying Agent with respect to the Certificated Debentures.
Section 2.04 Paying Agent to Hold Money in Trust
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal,
premium, if any, interest and Additional Interest, if any, on the Debentures,
and shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary 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. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Debentures.
Section 2.05 Holder Lists
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Debentures, and the Company shall otherwise comply with TIA (S) 312(a).
Section 2.06 Transfer and Exchange
(a) Transfer and Exchange of Global Debentures. The transfer and exchange
of Global Debentures or beneficial interests therein shall be effected through
the Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act. Beneficial
interests in a Global Debenture may be transferred to Persons who take delivery
thereof in the form of a beneficial interest in the same Global Debenture in
accordance with the transfer restrictions set forth in the legend in subsection
(g) of this Section 2.06. Transfers of beneficial interests in
<PAGE>
31
the Global Debentures to Persons required to take delivery thereof in the form
of an interest in another Global Debenture shall be permitted as follows:
(i) Rule 144A Global Debenture to Regulation S Global Debenture. If,
at any time, an owner of a beneficial interest in a Rule 144A Global
Debenture deposited with the Depositary (or the Trustee as custodian for
the Depositary) wishes to transfer its interest in such Rule 144A Global
Debenture to a Person who is required or permitted to take delivery thereof
in the form of an interest in a Regulation S Global Debenture, such owner
shall, subject to the Applicable Procedures, exchange or cause the exchange
of such interest for an equivalent beneficial interest in a Regulation S
Global Debenture as provided in this Section 2.06(a)(i). Upon receipt by
the Trustee of (1) instructions given in accordance with the Applicable
Procedures from an Agent Member directing the Trustee to credit or cause to
be credited a beneficial interest in the Regulation S Global Debenture in
an amount equal to the beneficial interest in the Rule 144A Global
Debenture to be exchanged, (2) a written order given in accordance with the
Applicable Procedures containing information regarding the participant
account of the Depositary to be credited with such increase and (3) a
certificate in the form of Exhibit B-1 hereto given by the owner of such
beneficial interest stating that the transfer of such interest has been
made in compliance with the transfer restrictions applicable to the Global
Debentures and pursuant to and in accordance with Rule 903 or Rule 904 of
Regulation S, then the Trustee, as Registrar, shall instruct the Depositary
to reduce or cause to be reduced the aggregate principal amount at maturity
of the applicable Rule 144A Global Debenture and to increase or cause to be
increased the aggregate principal amount at maturity of the applicable
Regulation S Global Debenture by the principal amount at maturity of the
beneficial interest in the Rule 144A Global Debenture to be exchanged, to
credit or cause to be credited to the account of the Person specified in
such instructions a beneficial interest in the Regulation S Global
Debenture equal to the reduction in the aggregate principal amount at
maturity of the Rule 144A Global Debenture, and to debit, or cause to be
debited, from the account of the Person making such exchange or transfer
the beneficial interest in the Rule 144A Global Debenture that is being
exchanged or transferred.
(ii) Regulation S Global Debenture to Rule 144A Global Debenture. If,
at any time, an owner of a beneficial interest in a Regulation S Global
Debenture deposited with the Depositary (or with the Trustee as custodian
for the Depositary) wishes to transfer its interest in such Regulation S
Global Debenture to a Person who is required or permitted to take delivery
thereof in the form of an interest in a Rule 144A Global Debenture, such
owner shall, subject to the Applicable Procedures, exchange or cause the
exchange of such interest for an
<PAGE>
32
equivalent beneficial interest in a Rule 144A Global Debenture as provided
in this Section 2.06(a)(ii). Upon receipt by the Trustee of (1) written
instructions from the Depositary, directing the Trustee, as Registrar, to
credit or cause to be credited a beneficial interest in the Rule 144A
Global Debenture equal to the beneficial interest in the Regulation S
Global Debenture to be exchanged, such instructions to contain information
regarding the participant account with the Depositary to be credited with
such increase, (2) a written order given in accordance with the Applicable
Procedures containing information regarding the participant account of the
Depositary and (3) a certificate in the form of Exhibit B-2 attached hereto
given by the owner of such beneficial interest stating (A) if the transfer
is pursuant to Rule 144A, that the Person transferring such interest in a
Regulation S Global Debenture reasonably believes that the Person acquiring
such interest in a Rule 144A Global Debenture is a QIB and is obtaining
such beneficial interest in a transaction meeting the requirements of Rule
144A and any applicable blue sky or securities laws of any state of the
United States, (B) that the transfer complies with the requirements of Rule
144 under the Securities Act and any applicable blue sky or securities laws
of any state of the United States or (C) if the transfer is pursuant to any
other exemption from the registration requirements of the Securities Act,
that the transfer of such interest has been made in compliance with the
transfer restrictions applicable to the Global Debentures and pursuant to
and in accordance with the requirements of the exemption claimed, such
statement to be supported by an Opinion of Counsel from the transferee or
the transferor in form reasonably acceptable to the Company and to the
Registrar, then the Trustee, as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate principal amount at maturity of
such Regulation S Global Debenture and to increase or cause to be increased
the aggregate principal amount at maturity of the applicable Rule 144A
Global Debenture by the principal amount at maturity of the beneficial
interest in the Regulation S Global Debenture to be exchanged, and the
Trustee, as Registrar, shall instruct the Depositary, concurrently with
such reduction, to credit or cause to be credited to the account of the
Person specified in such instructions a beneficial interest in the
applicable Rule 144A Global Debenture equal to the reduction in the
aggregate principal amount at maturity of such Regulation S Global
Debenture and to debit or cause to be debited from the account of the
Person making such transfer the beneficial interest in the Regulation S
Global Debenture that is being transferred.
(b) Transfer and Exchange of Certificated Debentures. After the
Remarketing Settlement Date, when Certificated Debentures are presented by a
Holder to the Registrar with a request:
(x) to register the transfer of the Certificated Debentures; or
<PAGE>
33
(y) to exchange such Certificated Debentures for an equal principal
amount of Certificated Debentures of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested;
provided, however, that the Certificated Debentures presented or surrendered for
register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder
or by his attorney, duly authorized in writing; and
(ii) in the case of a Certificated Debenture that is a Transfer
Restricted Security, such request shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of such Holder,
without transfer, or such Transfer Restricted Security is being
transferred to the Company, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto);
(B) if such Transfer Restricted Security is being transferred to
a QIB in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule 144
under the Securities Act or pursuant to an effective registration
statement under the Securities Act, a certification to that effect
from such Holder (in substantially the form of Exhibit B-3 hereto); or
(C) if such Transfer Restricted Security is being transferred in
reliance on any other exemption from the registration requirements of
the Securities Act (including Rule 904 thereunder), a certification to
that effect from such Holder (in substantially the form of Exhibit B-3
hereto) and an Opinion of Counsel from such Holder or the transferee
reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities Act.
(c) Transfer of a Beneficial Interest in a Rule 144A Global Debenture or
Regulation S Permanent Global Debenture for a Certificated Debenture
(i) At any time after the Remarketing Settlement Date, any Person
having a beneficial interest in a Rule 144A Global Debenture or Regulation
S Permanent Global Debenture may upon request, subject to the Applicable
<PAGE>
34
Procedures, exchange such beneficial interest for a Certificated Debenture.
Upon receipt by the Trustee of written instructions or such other form of
instructions as is customary for the Depositary, from the Depositary or its
nominee on behalf of any Person having a beneficial interest in a Rule 144A
Global Debenture or Regulation S Permanent Global Debenture, and, in the
case of a Transfer Restricted Security, the following additional
information and documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial owner, a
certification to that effect from such Person (in substantially the
form of Exhibit B-4 hereto);
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 under the
Securities Act or pursuant to an effective registration statement
under the Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit B-4 hereto); or
(C) if such beneficial interest is being transferred in reliance
on any other exemption from the registration requirements of the
Securities Act (including Rule 904 thereunder), a certification to
that effect from the transferor (in substantially the form of Exhibit
B-4 hereto) and an Opinion of Counsel from the transferee or the
transferor reasonably acceptable to the Company and to the Registrar
to the effect that such transfer is in compliance with the Securities
Act,
in which case the Trustee or the Debenture Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depositary and the Debenture Custodian, cause the aggregate
principal amount of Rule 144A Global Debentures or Regulation S Permanent Global
Debentures, as applicable, to be reduced accordingly and, following such
reduction, the Company shall execute and the Trustee shall authenticate and
deliver to the transferee a Certificated Debenture in the appropriate principal
amount.
(ii) Certificated Debentures issued in exchange for a beneficial
interest in a Rule 144A Global Debenture or Regulation S Permanent Global
Debenture, as applicable, pursuant to this Section 2.06(c) 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 Certificated Debentures to the Persons
<PAGE>
35
in whose names such Debentures are so registered. Following any such
issuance of Certificated Debentures, the Trustee, as Registrar, shall
instruct the Depositary to reduce or cause to be reduced the aggregate
principal amount at maturity of the applicable Global Debenture to reflect
the transfer.
(d) Restrictions on Transfer and Exchange of Global Debentures.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Debenture may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary.
(e) Transfer and Exchange of a Certificated Debenture for a Beneficial
Interest in a Global Debenture. Holders of Certificated Debentures may offer,
resell, pledge or otherwise transfer such Debentures only pursuant to an
effective registration statement under the Securities Act, inside the United
States to a QIB in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a transaction meeting the requirements of Rule 904
under the Securities Act or to the Company, in each case in compliance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction.
When Certificated Debentures are presented by a Holder to the Registrar
with a request (x) to register the transfer of the Certificated Debentures or
(y) to exchange such Certificated Debentures for an equal principal amount of
Certificated Debentures of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transactions are met; provided, however, that the Certificated Debentures
presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder
or by his attorney, duly authorized in writing, which instructions, if
applicable, shall direct the Trustee (A) to cancel any Certificated
Debenture being exchanged for another Certificated Debenture or a
beneficial interest in a Global Debenture in accordance with Section 2.11
hereof, and (B) to make, or to direct the Registrar to make, an endorsement
on the appropriate Global Debenture to reflect an increase in the aggregate
principal amount of the Debentures represented by such Global Debenture;
and
(ii) such request shall be accompanied by the following additional
information and documents, as applicable:
<PAGE>
36
(A) if such Certificated Debenture is being delivered to the Registrar
by a Holder for registration in the name of such Holder, without
transfer, a certification to that effect from such Holder (in
substantially the form of Exhibit B-5 hereto); or
(B) if such Certificated Debenture is being transferred to a QIB in
accordance with Rule 144A, pursuant to Rule 144 under the Securities
Act or pursuant to an exemption from registration in accordance with
Rule 904 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to
that effect from such Holder (in substantially the form of Exhibit B-5
hereto).
(f) Authentication of Certificated Debentures in Absence of Depositary. If
at any time after the Remarketing Settlement Date:
(i) the Depositary for the Debentures notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global
Debentures and a successor Depositary for the Global Debentures is not
appointed by the Company within 90 days after delivery of such notice; or
(ii) the Company delivers to the Trustee an Officers' Certificate or
an order signed by two Officers of the Company notifying the Trustee that
it elects to cause the issuance of Certificated Debentures under this
Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, authenticate and
deliver, Certificated Debentures in an aggregate principal amount equal to the
principal amount of the Global Debentures in exchange for such Global
Debentures.
(g) Legends
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Debenture certificate evidencing Global Debentures and, after
the Remarketing Settlement Date, Certificated Debentures (and all
Debentures issued in exchange therefor or substitution thereof) shall bear
a legend in substantially the following form (each a "Transfer Restricted
Security"):
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
<PAGE>
37
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF
THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Debenture) pursuant to Rule 144 under the Securities Act or pursuant to an
effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Certificated Debenture, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Certificated
Debenture that does not bear the legend set forth in (i) above and
rescind any restriction on the transfer of such Transfer Restricted
Security upon receipt of a certification from the transferring Holder
substantially in the form of Exhibit B-3 hereto; and
<PAGE>
38
(B) in the case of any Transfer Restricted Security represented
by a Global Debenture, such Transfer Restricted Security shall not be
required to bear the legend set forth in (i) above, but shall continue
to be subject to the provisions of Section 2.06(a) and (b) hereof;
provided, however, that with respect to any request for an exchange of
a Transfer Restricted Security that is represented by a Global
Debenture for a Certificated Debenture that does not bear the legend
set forth in (i) above, which request is made in reliance upon Rule
144, the Holder thereof shall certify in writing to the Registrar that
such request is being made pursuant to Rule 144 (such certification to
be substantially in the form of Exhibit B-4 hereto).
(iii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Debenture) in reliance on any exemption from the registration requirements
of the Securities Act (other than exemptions pursuant to Rule 144A or Rule
144 under the Securities Act) in which the Holder or the transferee
provides an Opinion of Counsel to the Company and the Registrar in form and
substance reasonably acceptable to the Company and the Registrar (which
Opinion of Counsel shall also state that the transfer restrictions
contained in the legend are no longer applicable):
(A) in the case of any Transfer Restricted Security that is a
Certificated Debenture, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Certificated
Debenture that does not bear the legend set forth in (i) above and
rescind any restriction on the transfer of such Transfer Restricted
Security; and
(B) in the case of any Transfer Restricted Security represented
by a Global Debenture, such Transfer Restricted Security shall not be
required to bear the legend set forth in (i) above, but shall continue
to be subject to the provisions of Section 2.06(a) and (b) hereof.
(iv) Notwithstanding the foregoing, upon consummation of the Exchange
Offer in accordance with the Registration Rights Agreement, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate Series B Debentures in
exchange for Series A Debentures accepted for exchange in the Exchange
Offer, which Series B Debentures shall not bear the legend set forth in (i)
above, and the Registrar shall rescind any restriction on the transfer of
such Series B Debentures, in each case unless the Holder of such Series A
Debentures is either (A) a broker-dealer, (B) a Person participating in the
distribution of the Series
<PAGE>
39
A Debentures or (C) a Person who is an affiliate (as defined in Rule 144A)
of the Company.
(h) Cancellation and/or Adjustment of Global Debentures. At such time as
all beneficial interests in Global Debentures have been exchanged for
Certificated Debentures, redeemed, repurchased or cancelled, all Global
Debentures shall be returned to or retained and cancelled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Debenture is exchanged for an interest in
another Global Debenture or for Certificated Debentures, redeemed, repurchased
or cancelled, the principal amount of Debentures represented by such Global
Debenture shall be reduced accordingly and an endorsement shall be made on such
Global Debenture, by the Trustee or the Debenture Custodian, at the direction of
the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Debentures and,
after the Remarketing Settlement Date, Certificated Debentures, at the
Registrar's request.
(ii) 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 (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Article 3
and Sections 4.06, 4.07 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Debenture selected for redemption in whole or in part,
except the unredeemed portion of any Debenture being redeemed in part.
(iv) All Certificated Debentures and Global Debentures issued upon any
registration of transfer or exchange of Certificated Debentures or Global
Debentures shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Certificated Debentures or Global Debentures surrendered upon such
registration of transfer or exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange
Debentures during a period beginning at the opening of business 15
days
<PAGE>
40
before the day of any selection of Debentures for redemption under
Section 3.02 hereof and ending at the close of business on the day of
selection; or
(B) to register the transfer of or to exchange any Debenture so
selected for redemption in whole or in part, except the unredeemed
portion of any Debenture being redeemed in part; or
(C) to register the transfer of or to exchange a Debenture
between a record date and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a transfer of
any Debenture, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any Debenture is registered as the absolute owner
of such Debenture for the purpose of receiving payment of principal of and
interest and Additional Interest, if any, on such Debentures, and neither
the Trustee, any Agent nor the Company shall be affected by notice to the
contrary.
(vii) The Trustee shall authenticate Certificated Debentures and
Global Debentures in accordance with the provisions of Section 2.02 hereof.
The Registrar may rely on information set forth in a certificate
substantially in the form of Exhibit B-1, B-2, B-3, B-4 or B-5 hereto, and other
certificates and opinions received pursuant to this Section 2.06 and, in the
absence of receipt of such a certificate or opinion, shall not be deemed to have
knowledge of a transfer of an interest in a Global Security absent actual
knowledge of such transfer.
Section 2.07 Replacement Debentures
If any mutilated Debenture is surrendered to the Trustee, or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Debenture, the Company shall issue and the Trustee, upon the
written order of the Company signed by two Officers of the Company, shall
authenticate a replacement Debenture if the Trustee's requirements are met. If
required by the Trustee or the Company, 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 and any authenticating agent from
any loss that any of them may suffer if a Debenture is replaced. The Company
may charge for its expenses in replacing a Debenture.
<PAGE>
41
Every replacement Debenture is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Debentures duly issued hereunder.
Section 2.08 Outstanding Debentures
The Debentures outstanding at any time are all the Debentures authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Debenture effected by
the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.09 hereof, a
Debenture does not cease to be outstanding because the Company or an Affiliate
of the Company holds the Debenture.
If a Debenture is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.
If the principal amount of any Debenture is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest and Additional Interest,
if any, on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay the principal amount of any Debentures due and payable on that date, then
on and after that date such Debentures shall be deemed to be no longer
outstanding and shall cease to accrue interest and Additional Interest.
Section 2.09 Treasury Debentures
In determining whether the Holders of the required principal amount of
Debentures have concurred in any direction, waiver or consent, Debentures owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Debentures that the Trustee knows are so
owned shall be so disregarded.
<PAGE>
42
Section 2.10 Temporary Debentures
Until Certificated Debentures are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Debentures upon a written
order of the Company signed by two Officers of the Company. Temporary
Debentures shall be substantially in the form of Certificated Debentures but may
have variations that the Company considers appropriate for temporary Debentures
and as shall be reasonably acceptable to the Trustee. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate Certificated
Debentures in exchange for temporary Debentures.
Holders of temporary Debentures shall be entitled to all of the benefits of
this Indenture.
Section 2.11 Cancellation
The Company at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Debentures surrendered
for registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled Debentures (subject to the record retention requirement
of the Exchange Act). Certification of the destruction of all cancelled
Debentures shall be delivered to the Company. The Company may not issue new
Debentures to replace Debentures that it has paid or that have been delivered to
the Trustee for cancellation.
Section 2.12 Defaulted Interest
If the Company defaults in a payment of interest on the Debentures, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Debentures and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Debenture and the date of the proposed payment. The Company shall fix or
cause to be fixed each such special record date and payment date; provided that
no such special record date shall be less than 10 days prior to the related
payment date for such defaulted interest. At least 15 days before the special
record date, the Company (or, upon the written request of the Company, the
Trustee in the name and at the expense of the Company) shall mail or cause to be
mailed to Holders a notice that states the special record date, the related
payment date and the amount of such interest to be paid.
<PAGE>
43
ARTICLE 3
REDEMPTION AND REMARKETING
Section 3.01 Notices to Trustee
If the Company elects to redeem Debentures pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date (unless a
shorter notice shall be satisfactory to the Trustee), an Officers' Certificate
setting forth the Section of this Indenture pursuant to which the redemption
shall occur, the redemption date, the principal amount of Debentures to be
redeemed and the redemption price.
Section 3.02 Selection of Debentures to Be Redeemed
If less than all of the Debentures are to be redeemed, the Trustee shall
select the Debentures to be redeemed among the Holders of the Debentures in
compliance with the requirements of the principal national securities exchange,
if any, on which the Debentures are listed or, if the Debentures are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee shall
deem fair and appropriate. In the event of partial redemption by lot, the
Trustee shall make the selection not less than 30 nor more than 60 days prior to
the redemption date from the outstanding Debentures not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the Debentures
selected for redemption and, in the case of any Debenture selected for partial
redemption, the portion of the principal amount thereof to be redeemed.
Debentures and portions of them selected to be redeemed shall be in principal
amounts of $1,000 or whole multiples of $1,000; except that if all of the
Debentures of a Holder are to be redeemed, the entire outstanding amount of
Debentures held by such Holder, even if not a multiple of $1,000, shall be
redeemed. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Debentures called for redemption also apply to portions
of Debentures called for redemption.
Section 3.03 Notice of Redemption
At least 30 days but not more than 60 days before a redemption date (other
than a redemption in connection with a Special Mandatory Redemption), the
Company shall mail, by first class mail, a notice of redemption to each Holder
whose Debentures are to be redeemed at its registered address.
The notice shall identify the Debentures to be redeemed and shall state:
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44
(1) the redemption date;
(2) the redemption price;
(3) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
redemption date, upon surrender of such Debenture, a new Debenture or
Debentures in principal amount equal to the unredeemed portion will be
issued;
(4) the name and address of the Paying Agent;
(5) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest and Additional Interest, if any, on Debentures called for
redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Debentures pursuant to which the Debentures
called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Debentures.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense.
Section 3.04 Effect of Notice of Redemption
Once notice of redemption is mailed, Debentures called for redemption
become irrevocably due and payable on the redemption date at the price set forth
in the Debenture.
Section 3.05 Deposit of Redemption Price
(a) On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest and Additional Interest, if any, on all Debentures to be
redeemed on that date. The Trustee or the Paying Agent shall return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, and accrued
interest and Additional Interest, if any, on all Debentures to be redeemed.
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45
(b) If the Company is required to redeem Debentures on the Scheduled
Remarketing Settlement Date as part of a Special Mandatory Redemption, by 12:00
P.M., New York City time, on the Business Day prior to the Scheduled Remarketing
Settlement Date, the Company shall deposit irrevocably, with the Trustee,
sufficient funds to pay the Redemption Price with respect to the Debentures to
be redeemed. Promptly thereafter, and in any event no later than 12:30 P.M.,
New York City time, on such Business Day prior to the Scheduled Remarketing
Settlement Date, the Indenture Trustee shall give notice to the Remarketing
Agent, in writing, of the receipt or non-receipt of such funds.
Interest on the Debentures to be redeemed will cease to accrue on the
applicable redemption date, whether or not such Debentures are presented for
payment, if the Company makes the redemption payment. If any Debenture called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest will be
paid on the unpaid principal, from the redemption date until such principal is
paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Debentures and in Section
4.01 hereof. Section 8.06 shall apply to any Debentures not redeemed within 2
years from the redemption date.
Section 3.06 Debentures Redeemed in Part
Upon surrender of a Debenture that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Debenture equal in principal amount to the unredeemed portion of
the Debenture surrendered.
<PAGE>
46
Section 3.07 Optional Redemption
The Debentures are redeemable at the option of the Company, in whole or in
part, at any time or from time to time through and including June 15, 2001 at a
redemption price (the "Initial Optional Redemption Price") equal to the greater
of (i) 100% of the principal amount of such Debentures and (ii) as determined by
a Quotation Agent, the sum of the present values of the principal amount of such
Debentures as if redeemed on June 14, 2002, together with scheduled prepayments
of interest from the prepayment date to but excluding June 14, 2002, discounted
to the prepayment date on a semi-annual basis (assuming a 360-day year
consisting of 30-day months) at the Adjusted Treasury Rate, plus, in each case,
accrued and unpaid interest and Additional Interest, if any, to the date of
redemption.
On and after June 15, 2012, the Debentures are redeemable prior to maturity
at the option of the Company, in whole or in part, at any time at the redemption
prices described in the next sentence, plus accrued and unpaid interest and
Additional Interest, if any, to the date of redemption. The redemption price
(expressed as a percentage of principal amount) shall be equal to 100% plus the
product of (x) the Adjusted Distribution Rate and (y) the applicable Factor if
redeemed during the twelve-month period beginning on June 15th of the years
indicated below, the applicable "Factor" shall equal:
<TABLE>
<CAPTION>
YEAR %
---- ---
<S> <C>
2012....................... 50%
2013....................... 45%
2014....................... 40%
2015....................... 35%
2016....................... 30%
2017....................... 25%
2018....................... 20%
2019....................... 15%
2020....................... 10%
2021....................... 5%
</TABLE>
On and after June 15, 2022, the redemption price will be 100% of the
principal amount of the Debentures to be redeemed, plus accrued and unpaid
interest and Additional Interest, if any, to the date of redemption.
Any redemption pursuant to this Section 3.07 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
<PAGE>
47
Section 3.08 Special Mandatory Redemption
If, by 4:00 P.M., New York City time, on any Scheduled Remarketing Date,
the Remarketing Agent is unable to remarket, at a price of $1,000 per Security,
all of the Securities tendered or deemed tendered for purchase in the
Remarketing on such Scheduled Remarketing Date, then (i) such unsold Securities
shall be exchanged on the related Scheduled Remarketing Settlement Date with the
Trust for Debentures having an aggregate principal amount equal to the aggregate
liquidation amount of such unsold Securities and such Debentures shall be
immediately redeemed, unless (ii) as a result of such redemption, less than
$25,000,000 principal amount of Debentures would remain outstanding. In such
latter event, the Company shall redeem on such Scheduled Remarketing Settlement
Date all of the Debentures (thereby causing the Trust to redeem all of the
outstanding Securities) and the Remarketing will be cancelled. In either case
of (i) or (ii) above, the redemption price of the Debentures shall be 100% of
the principal amount of the outstanding Debentures so redeemed.
If a Dissolution Event occurs prior to a Scheduled Remarketing Date,
references in this Section 3.08 to Securities shall be deemed to be references
to the Debentures and references to a Remarketing of Securities shall be deemed
to be references to a Remarketing of the Debentures.
Any redemption pursuant to this Section 3.08 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
Section 3.09 Special Event Redemption; Shortening of Maturity
If an Investment Company Event shall occur and be continuing, the Company
has option, after the Remarketing Settlement Date, to redeem the Debentures, in
whole but not in part, at any time within 90 days following the occurrence of
such an Investment Company Event at a redemption price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Additional Interest, if any, to the date of redemption.
If a Tax Event shall occur and be continuing and in the opinion of
independent tax counsel to the Trust experienced in such matters, there would in
all cases, after effecting the termination of the Trust and the distribution of
the Debentures to the holders of the Trust Securities in exchange therefor upon
liquidation of the Trust, be more than an insubstantial risk that the Tax Event
would continue to exist, then the Company will have the right (a) to shorten the
Stated Maturity of the Debentures to a date not earlier than June 14, 2012 (a
"Maturity Advancement") such that, in the opinion of such independent tax
counsel, after advancing the Stated Maturity of the Debentures, interest paid on
the Debentures will be deductible by the Company for United States federal
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48
income tax purposes or (b) after the Scheduled Remarketing Date, to redeem the
Debentures, in whole but not in part, at any time within 90 days following the
occurrence of a Tax Event at a redemption price equal to 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Additional
Interest to the date of redemption.
Any redemption pursuant to this Section 3.09 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
Section 3.10 Tax Opinion Redemption
If the Company receives a Tax Opinion at least 35 business days prior to
the Election Date, the Remarketing may be cancelled at the option of the
Company, in which case the Debentures shall be redeemed by the Company on the
Scheduled Remarketing Settlement Date, in whole but not in part, at a redemption
price equal to 100% of the principal amount of such Debentures plus accrued and
unpaid interest and Additional Interest thereon to such Scheduled Remarketing
Settlement Date.
Any redemption pursuant to this Section 3.10 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
Section 3.11 Transfer Restricted Security Redemption
If an Exchange Offer occurs under the Registration Rights Agreement, the
Company shall be required, on the Remarketing Settlement Date, to redeem, in
whole (but not in part), Series A Debentures which were not exchanged pursuant
to the Exchange Offer (a "Transfer Restricted Security Redemption"). As part of
a Transfer Restricted Security Redemption, on the Schedule Remarketing
Settlement Date, Remarketed Par Securities, Series A of the Trust which were not
exchanged pursuant to the Exchange Offer shall be exchanged with the Trust for
Series A Debentures having an aggregate principal amount equal to the aggregate
liquidation of such Securities and such Debentures shall immediately be redeemed
by the Company at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Additional Interest, if any, to the
date of redemption. If the Company is required to redeem Debentures in
connection with a Transfer Restricted Security Redemption, holders of such
Securities shall receive notice of such redemption at or prior to the time that
the Notice of Remarketing is required to be given to the Depository pursuant to
Section 3.12.
Any redemption pursuant to this Section 3.11 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
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Section 3.12 Remarketing
This Section 3.12 shall only become effective upon a Dissolution Event
which occurs prior to the Remarketing of the Securities pursuant to Section 7.5
of the Declaration. Until such Dissolution Event, this Section 3.12 shall have
no force and effect.
(a) If the Company receives a Tax Opinion at least 35 Business Days prior
to an Election Date, the Company shall have the option to cancel the Remarketing
by giving, to the Property Trustee, the Depositary and the Remarketing Agent,
written notice of such cancellation. In such event, all of the Debentures are
subject to a Tax Opinion Redemption in accordance with Section 3.10.
(b) If the Company does not receive such a Tax Opinion or if the Company
does not elect to cancel the Remarketing after receiving such a Tax Opinion, not
less than 20 nor more than 35 Business Days prior to the Election Date, the
Company shall give a Notice of Remarketing of the Debentures to the Depositary,
with copies to the Trustee and the Remarketing Agent, not less than 20 nor more
than 35 Business Days prior to the Election Date.
(c) Not later than 4:00 P.M., New York City time, on the Election Date,
each holder of Debentures may give a Notice of Election ("Notice of Election"),
to the Trustee of its election (i) to retain and not to have all or any portion
of the Debentures owned by it remarketed in the Remarketing to be conducted on
the Scheduled Remarketing Date or (ii) to tender all or any portion of such
Debentures for purchase in such Remarketing (such portion, in either case, shall
be in a principal amount of $1,000 or any integral multiple thereof). Any
Notice of Election given to the Trustee shall be irrevocable and may not be
conditioned upon the level at which the Adjusted Interest Rate is established in
the Remarketing. Promptly after 4:30 P.M., New York City time, on the Election
Date, the Trustee, based on the Notices of Election received by it through the
Depositary prior to such time, shall notify the Company and the Remarketing
Agent of the aggregate principal amount of Debentures to be retained by Holders
and the aggregate principal amount of Debentures tendered for purchase in the
Remarketing.
(d) If any holder of Debentures gives a Notice of Election to tender
Debentures as described in clause (ii) of Section 3.12(b), the Debentures so
subject to such Notice of Election shall be deemed tendered for purchase in the
Remarketing, notwithstanding any failure by such holder of Debentures to deliver
or properly deliver such Debentures to the Remarketing Agent for purchase. If
any holder of Debentures fails timely to deliver a Notice of Election, as
described in Section 3.12(b), such Debentures shall be deemed tendered for
purchase in the Remarketing, notwithstanding
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such failure or the failure by such holder to deliver or properly deliver
Debentures to the Remarketing Agent for purchase.
(e) The right of each holder of Debentures to have Debentures tendered for
purchase shall be limited to the extent that (i) the Remarketing Agent conducts
a remarketing pursuant to the terms of the Remarketing Agreement, (ii)
Debentures tendered have not been called for redemption, (iii) the Remarketing
Agent is able to find a purchaser or purchasers for tendered Debentures at an
Adjusted Interest Rate that does not exceed the Maximum Adjusted Distribution
Rate and (iv) such purchaser or purchasers deliver the purchase price therefor
to the Remarketing Agent.
(f) Prior to 4:00 P.M., New York City time, on the Scheduled Remarketing
Date, the Remarketing Agent shall determine the Adjusted Distribution Rate,
which shall be the rate per annum (rounded to the nearest one-thousandth (0.001)
of one percent per annum) which the Remarketing Agent determines, in its sole
judgment, to be the lowest rate per annum, if any, not exceeding the Maximum
Adjusted Interest Rate that will enable it to remarket all Debentures tendered
or deemed tendered for purchase at a price of 100% of the aggregate principal
amount of such Debentures (the "Adjusted Interest Rate "). Notwithstanding the
foregoing, if the Remarketing Agent is able to remarket some, but is unable to
remarket all, of the Debentures tendered or deemed tendered for purchase in the
Remarketing, the Adjusted Interest Rate shall be the highest rate, not exceeding
the Maximum Adjusted Interest Rate, required to remarket Debentures sold in the
Remarketing . If holders of Securities submit Notices of Election to retain all
of the Securities then outstanding, the Adjusted Distribution Rate will be the
rate determined by the Remarketing Agent in its sole discretion, as the rate
that would have been established had a Remarketing been held on the Scheduled
Remarketing Date. Under Section 4 of the Remarketing Agreement, the Company, in
its capacity as the issuer of Debentures, shall be liable for, and shall pay,
any and all costs and expenses incurred in connection with the Remarketing and
the Trust shall not be liable for any such costs and expenses.
(g) By approximately 4:30 P.M., New York City time, on the Scheduled
Remarketing Date, the Remarketing Agent shall advise, by telephone (i) the
Depositary, the Trustee, the Trust and the Company of the Adjusted Interest Rate
determined in the Remarketing and the aggregate principal amount of Debentures
sold in the Remarketing, (ii) each purchaser (or the Depositary Participant
thereof) of the Adjusted Interest Rate determined in the Remarketing and the
aggregate principal amount of Debenture such purchaser is to purchase and (iii)
each purchaser to give instructions to its Depositary Participant to pay the
purchase price on the Scheduled Remarketing Settlement Date in same day funds
against delivery of the Debentures purchased through the facilities of the
Depositary.
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(h) In accordance with the Depositary's normal procedures, on the
Remarketing Settlement Date, the transactions described above with respect to
the Debentures tendered for purchase and sold in the Remarketing shall be
executed through the Depositary, if the Depositary or its nominee is the holder
of such Debentures, and the accounts of the respective Depositary Participants
shall be debited and credited and such Debentures delivered by book entry as
necessary to effect purchases and sales of such Debentures. The Depositary
shall make payment in accordance with its normal procedures.
(i) If any holder selling Debentures in the Remarketing fails to deliver
such Debentures, the Depositary Participant of such selling holder and of any
other person that was to have purchased Debentures in the Remarketing may
deliver to any such other person an aggregate principal amount of Debentures
that is less than the aggregate principal amount of the Debentures that
otherwise was to be purchased by such person. In such event, the aggregate
principal amount of the Debentures that is to be so delivered shall be
determined by such Depositary Participant, and delivery of such lesser amount of
Debentures shall constitute good delivery.
(j) The Remarketing Agent is not obligated to purchase any Debentures that
would otherwise remain unsold in a Remarketing. Neither the Trust nor any
Trustee nor the Company nor the Remarketing Agent shall be obligated in any case
to provide funds to make payment upon tender of Debentures for Remarketing.
ARTICLE 4
COVENANTS
Section 4.01 Payment of Debentures
(a) The Company shall pay or cause to be paid the principal of, premium, if
any, and interest and Additional Interest, if any, on the Debentures on the
dates and in the manner provided in the Debentures. Principal, premium, if any,
and interest and Additional Interest, if any, shall be considered paid on the
date due if the Paying Agent (other than the Company or a Subsidiary), holds at
least one Business Day before that date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest and Additional Interest, if any, then
due. Such Paying Agent shall return to the Company, no later than five Business
Days following the due date for payment, any money (including accrued interest,
if any) that exceeds such amount of principal, premium, if any, and interest and
Additional Interest, if any, required for payment on the Debentures.
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52
(b) The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the applicable
interest rate on the Debentures to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace period)
at the same rate to the extent lawful.
(c) From the Issue Date to but excluding the Remarketing Settlement Date,
the "Applicable Interest Rate" will be 10 1/4% per annum (the "Initial Interest
Rate"). From the Remarketing Settlement Date to but excluding the date of
redemption of the Debentures, the Applicable Interest Rate will equal the
Adjusted Distribution Rate (or, if a Dissolution Event occurs prior to the
Scheduled Remarketing Date, the Adjusted Interest Rate) that results from the
Remarketing consummated on the Remarketing Settlement Date.
The Debentures shall accrue interest at the Applicable Interest Rate, from
the Issue Date or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, as the case may be, and shall be payable,
semi-annually in arrears, on June 15 (June 14 in 2002) and December 15 of each
year, commencing December 15, 1997, and on each Scheduled Remarketing Settlement
Date (each, an "Interest Payment Date"), until the principal thereof is paid or
made available for payment, to the holder of such Debenture on the close of
business on the regular record rate.
Interest that is not paid on an applicable Interest Payment Date, to the
extent permitted by law, will compound semi-annually and will accrue at the
Applicable Interest Rate in effect at the beginning of the related interest
period, including (to the extent permitted by applicable law) during an
extension of an interest payment period as set forth below in Section 4.01(d).
The amount of interest payable for any period will be computed (i) for any
full 180-day semi-annual interest payment period, on the basis of a 360-day year
of twelve 30-day months and (ii) for any period shorter than a full 180-day
semi-annual interest payment period, on the basis of 30-day months and for
periods of less than a month, the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the
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 additional interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date such payment was originally
payable.
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53
The term "interest", as used herein, shall include interest payments,
Additional Interest and interest on interest payments not paid on the applicable
Interest Payment Date.
(d) Following the Remarketing Settlement Date, as long as no Event of
Default has occurred and is continuing, the Company shall have the right, at any
time during the term of the Debentures, from time to time, to defer payment of
interest on such Debentures, for a period not to exceed to 10 consecutive semi-
annual periods (an "Extension Period"); provided, that no Extension Period may
extend beyond the Stated Maturity of the Debentures. There may be multiple
Extension Periods of varying lengths during the term of the Debentures. At the
end of each Extension Period, if any, the Company shall pay all interest and
Additional Interest then accrued and unpaid, together with interest thereon,
compounded semi-annually at the Applicable Interest Rate in effect at the
beginning of such Extension Period, to the extent permitted by applicable law.
During any such Extension Period, the Company may not, and may not permit any
Subsidiary of the Company to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank on a parity with or junior in interest to
the Debentures or make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any Subsidiary of the Company if such
guarantee ranks on a parity or junior in interest to the Debentures (other than
(a) dividends or distributions in common stock of the Company, (b) payments
under the Company Guarantee, (c) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, and (d) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans).
Prior to the termination of any such Extension Period, the Company may further
extend the interest payment period, provided that no Extension Period may exceed
10 consecutive semi-annual periods or extend beyond the Stated Maturity of the
Debentures. 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.
(e) The Company shall give the Property Trustee, the Regular Trustees and
the Trustee written notice of its election of such Extension Period not less
than one Business Day prior to the record date for the related interest payment.
The Property Trustee shall promptly give notice of the Company's selection of
such Extension Period to the holders of the Securities.
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54
Section 4.02 Maintenance of Office or Agency
The Company shall maintain in the Borough of Manhattan, The City of New
York, an office or agency (which may be an office of the Trustee or Registrar)
where Debentures may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Debentures
and this Indenture may be served. The Company shall give prompt written notice
to the Trustee of the location, and any change in the location, of such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Debentures may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
Section 4.03 Compliance Certificate
(a) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled in all
respects its obligations under this Indenture and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge each
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in any respect in default in the performance or
observance of any of the terms, provisions and conditions hereof or thereof (or,
if such Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he may have knowledge and what action
each is taking or proposes to take with respect thereto).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the
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55
Company's independent public accountants (who shall be a firm of established
national reputation reasonably satisfactory to the Trustee) that in making the
examination necessary for certification of such financial statements nothing has
come to their attention which would lead them to believe that either the Company
or any of its Subsidiaries has violated any provisions of Article 4 or Article 5
of this Indenture or, if any such violation has occurred, specifying the nature
and period of existence thereof, it being understood that such accountants shall
not be liable directly or indirectly to any person for any failure to obtain
knowledge of any such violation.
(c) The Company shall, so long as any of the Debentures are outstanding,
deliver to the Trustee, forthwith upon becoming aware of (i) any Default or
Event of Default or (ii) any event of default under any other mortgage,
indenture or instrument as that term is used in Section 6.01(v) which permits an
acceleration that could become an Event of Default, an Officers' Certificate
specifying such Default, Event of Default or event of default and what action
the Company is taking or proposes to take with respect thereto.
Section 4.04 Taxes
The Company shall, and shall cause each of its Subsidiaries to, pay prior
to delinquency all material taxes, assessments, and governmental levies except
as contested in good faith and by appropriate proceedings.
Section 4.05 Stay, Extension and Usury Laws
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.06 Change of Control
Upon the occurrence of a Change of Control on or prior to the Remarketing
Settlement Date, each Holder of Debentures shall have the right to require the
Company to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Debentures pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof
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56
plus accrued and unpaid interest and Additional Interest, if any, thereon to the
date of purchase (the "Change of Control Payment"). If at the time of the
Change of Control the Trust is the owner of all of the Debentures, the Trust
shall make the Change of Control Offer for the Securities in accordance with the
procedures set forth in Section 7.15 of the Declaration, and the Company shall
repurchase the Debentures exchanged by the Trust for the Securities as set forth
in the Declaration. In connection with such a Change of Control Offer, on the
Change of Control Purchase Date, the Company shall promptly deposit with the
Trustee an amount equal to the Change of Control Payment in respect of all
Securities or portions thereof so exchanged. The Trustee shall promptly mail to
each holder of Securities so exchanged the Change of Control Payment for such
Securities.
The following procedures apply to a Change of Control Offer when the Trust
is not the owner of all of the Debentures:
Within 10 days following any Change of Control, the Company shall mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Debentures pursuant to the
procedures required by this Indenture and described in such notice. The Company
shall comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Debentures
as a result of a Change of Control.
The Change of Control Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Change
of Control Offer Period (the "Change of Control Purchase Date"), the Company
shall purchase all Debentures tendered in response to the Change of Control
Offer. Payment for any Debentures so purchased shall be made in the same manner
as interest payments are made.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Debenture is registered at
the close of business on such record date, and no additional interest or
Additional Interest, if any, shall be payable to Holders who tender Debentures
pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (a) accept for payment all Debentures or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Debentures or portions thereof so tendered and (c) deliver or cause to be
delivered to the Trustee the Debentures so
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accepted together with an Officers' Certificate stating the aggregate principal
amount of Debentures or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to each Holder of Debentures so tendered the
Change of Control Payment for such Debentures, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Debenture equal in principal amount to any unpurchased portion of the
Debentures surrendered, if any; provided that each such new Debenture shall be
in a principal amount of $1,000 or an integral multiple thereof. The Company
shall publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
Section 4.07 Asset Sales
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
in excess of $1,000,000 unless (i) the Company (or the Restricted Subsidiary, as
the case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board of
Directors, except for sales of Securitization Related Assets, which require no
such resolution) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet, excluding
contingent liabilities and trade payables), of the Company or any such
Restricted Subsidiary that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the Restricted Subsidiary may apply such Net Proceeds, (a) to
permanently reduce Senior Indebtedness (other than the Debentures or the 9 7/8%
Senior Notes or the Subsidiary Guarantees thereof) of the Company or of the
Subsidiary Guarantors, or (b) to an Investment (excluding Guarantees of
Indebtedness or other obligations), the making of a capital expenditure or the
acquisition of other tangible assets, in each case in or with respect to a
Related Business. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph shall be deemed to
constitute "Excess Proceeds." If at the time of the Asset Sale Offer the Trust
is the owner of all of the Debentures, the Trust shall make the Asset Sale Offer
for the Securities in accordance with the procedures set forth in Section 7.16
of the Declaration,
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and the Company shall repurchase the Debentures exchanged by the Trust for the
Securities as set forth in the Declaration. Promptly following such exchange,
the Company shall (but in any case not later than five days after the Asset Sale
Purchase Date) mail or deliver to each tendering holder of Securities an amount
equal to 100% of the principal amount of the Debentures exchanged therefor plus
accrued and unpaid interest thereon, including Additional Interest to the date
of purchase.
The following procedures apply to an Asset Sale Offer when the Trust is not
the owner of all of the Debentures:
When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company shall be required to make an offer to all Holders of Debentures and, at
the Company's election, the 9 7/8% Senior Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Debentures (and, if applicable, the
9 7/8% Senior Notes) that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Additional Interest, if any, thereon to the
date of purchase, in accordance with the procedures set forth in this Indenture
and in the indenture governing the 9 7/8% Senior Notes.
To the extent that the aggregate amount of Debentures (and, if applicable,
the 9 7/8% Senior Notes) tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
An Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), the Company shall purchase the principal
amount of Debentures (and, if applicable, the 9 7/8% Senior Notes) required to
be purchased pursuant to this covenant (the "Asset Sale Offer Amount") or, if
less than the Asset Sale Offer Amount has been tendered, all Debentures (and, if
applicable, the 9 7/8% Senior Notes) tendered in response to the Asset Sale
Offer. Payment for any Debentures (and, if applicable, the 9 7/8% Senior Notes)
so purchased shall be made in the same manner as interest payments are made.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
and Additional Interest, if any, shall be paid to the Person in whose name a
Debenture is registered at the close of business on such record date, and no
additional interest or Additional
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Interest, if any, shall be payable to Holders who tender Debentures pursuant to
the Asset Sale Offer.
On or before the Asset Sale Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Debentures (and, if applicable, the 9 7/8% Senior
Notes) or portions thereof tendered pursuant to the Asset Sale Offer, or if less
than the Asset Sale Offer Amount has been tendered (and, if applicable, the
9 7/8% Senior Notes), all Debentures (and, if applicable, the 9 7/8% Senior
Notes) tendered, and shall deliver to the Trustee an Officers' Certificate
stating that such Debentures (and, if applicable, the 9 7/8% Senior Notes) or
portions thereof were accepted for payment by the Company in accordance with the
terms of this covenant. The Company, the Depository or the Paying Agent, as the
case may be, shall promptly (but in any case not later than five days after the
Asset Sale Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Debentures (and, if applicable, the 9 7/8%
Senior Notes) tendered by such Holder and accepted by the Company for purchase.
The Company shall promptly issue a new Debenture, and the Trustee, upon written
request from the Company shall authenticate and mail or deliver such new
Debenture to such Holder, in a principal amount equal to any unpurchased portion
of the Debenture surrendered. Any Debenture not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Asset Sale Offer on the Asset Sale Purchase
Date.
Section 4.08 Restricted Payments
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or distribution on
account of the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of the
Company's or any of its Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Restricted Subsidiary that is a Subsidiary Guarantor or to SPTL);
(ii) purchase, redeem or otherwise acquire or retire for value (including
without limitation in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent of
the Company or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company that
is a Subsidiary Guarantor or by SPTL); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Debentures (other than Debentures),
except a payment of interest or principal at Stated Maturity; or (iv)
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make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) at the time of and immediately after giving effect to such Restricted
Payment, the Company would be able to incur at least $1.00 of additional
Indebtedness pursuant to the test in the first sentence of Section 4.09; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the Issue
Date (excluding Restricted Payments permitted by clauses (x) and (y) of the next
succeeding paragraph), is less than the sum of (i) 25% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the Issue Date to the end
of the Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the Issue Date of Equity Interests (other
than Disqualified Stock) of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), (iii) to the extent that any Restricted Investment that was
made after the Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment, (iv) 25% of any dividends received by the
Company or a Wholly Owned Restricted Subsidiary that is a Subsidiary Guarantor
or by SPTL after the Issue Date from an Unrestricted Subsidiary of the Company,
plus (v) $15,000,000.
The foregoing provisions shall not prohibit: (v) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (w) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than to
a Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (x) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash
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proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (y) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the Company
or any Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement or other management agreement or plan;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $500,000 in any twelve-
month period plus the aggregate cash proceeds received by the Company during
such twelve-month period from any reissuance of Equity Interests by the Company
to members of management of the Company and its Subsidiaries; and (z) the
repurchase, redemption or other retirement for value of any Equity Interests of
any Restricted Subsidiary in a Strategic Investor Repurchase Transaction; and no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated shall be deemed to be Restricted Payments at the
time of such designation and shall reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments shall be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation, (y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments at the
time they were made. Such designation shall only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.08 were computed, which calculations may be based upon the
Company's latest available financial statements.
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Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume, guaranty or otherwise become directly or indirectly liable with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and the Company shall not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company or any Subsidiary
Guarantor may incur Indebtedness (including Acquired Debt) or any Subsidiary
Guarantor may issue preferred stock or SPTL may incur Permitted SPTL Preferred
Stock if, on the date of such incurrence and after giving effect thereto, the
Company's Consolidated Leverage Ratio does not exceed 2.0 to 1.0.
The foregoing provisions shall not apply to:
(i) Indebtedness of the Company existing on the Issue Date;
(ii) the incurrence by the Company of Indebtedness represented by the
Debentures or by the Subsidiary Guarantors of Indebtedness represented by the
Subsidiary Guarantees;
(iii) the incurrence of Permitted Warehouse Indebtedness by the Company or
any of its Restricted Subsidiaries, and any Guarantee by the Company of such
Indebtedness incurred by a Restricted Subsidiary, provided, however, that to the
extent any such Indebtedness of the Company or a Subsidiary Guarantor ceases to
constitute Permitted Warehouse Indebtedness, such Indebtedness shall be deemed
to be incurred at such time by the Company or such Subsidiary Guarantor, as the
case may be;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, Indebtedness
that was permitted by this Indenture to be incurred or that was outstanding at
the Issue Date;
(v) the incurrence by the Company or a Restricted Subsidiary of Hedging
Obligations directly related to (A) Indebtedness of the Company or a Restricted
Subsidiary incurred in conformity with the provisions of this Indenture, (B)
Receivables held by the Company or its Restricted Subsidiaries pending sale in a
Qualified Securitization Transaction, (C) Receivables of the Company or its
Restricted Subsidiaries that have been sold pursuant to a Warehouse Facility,
(D) Receivables that the Company or the Restricted Subsidiary reasonably expects
to purchase or commit to purchase, finance or accept as collateral, or (E)
Securitization Related Assets and other assets owned or financed by the Company
or its Restricted Subsidiaries in the ordinary course
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63
of business; provided, however, that, in the case of each of the foregoing
clauses (A) through (E), such Hedging Obligations are eligible to receive hedge
accounting treatment in accordance with GAAP as applied by the Company and its
Restricted Subsidiaries on the Issue Date; and
(vi) Indebtedness of the Subsidiary Guarantors or of SPTL to the Company or
Permitted SPTL Preferred Stock issued to the Company to the extent that such
Indebtedness or such Permitted SPTL Preferred Stock constitutes a Permitted
Investment of the Company of the type permitted under the definition of
Permitted Investments;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
other than a Special Purpose Subsidiary of intercompany Indebtedness owing to
the Company or any of its Restricted Subsidiaries other than a Special Purpose
Subsidiary; provided, however, that (i) any subsequent issuance or transfer of
any Capital Stock which results in any such Indebtedness being held by a Person
other than a Restricted Subsidiary and (ii) any sale or transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary (other than a Special Purpose Subsidiary) shall be deemed, in each
case, to constitute the incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be;
(viii) the incurrence by a Special Purpose Subsidiary of Non-Recourse Debt
in a Qualified Securitization Transaction and the incurrence by the Company's
Unrestricted Subsidiaries of Non-Recourse Debt; provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of the Special Purpose
Subsidiary or other Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary of the
Company; and
(ix) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness in an aggregate principal amount which, together with the principal
amount of all Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of Incurrence (other than Indebtedness permitted by
clauses (ii) through (vii) above, or the first paragraph of this covenant), does
not exceed $10,000,000.
Section 4.10 Liens
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, create, incur or
otherwise cause or suffer to exist or become effective any Lien for the benefit
of any Indebtedness ranking pari passu with or junior to the Debentures, other
than Permitted Liens, upon any property or assets of the Company or any
Restricted Subsidiary of the Company or any shares of stock or debt of any
Restricted Subsidiary of the Company which owns property or assets, now owned or
hereafter acquired, unless (i) if such lien secures Indebtedness
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which is pari passu with the Debentures, then the Debentures are secured on an
equal and ratable basis or (ii) if such lien secures Indebtedness which is
junior to the Debentures, any such lien shall be junior to a lien granted to the
holders of the Debentures. The Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Section 4.11 Dividend and Other Payment Restrictions Affecting Subsidiaries
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the Issue Date,
(b) the Warehouse Facilities as in effect as of the Issue Date, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, additions, replacements or refinancings thereof; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, additions, replacements or refinancings are no more restrictive with
respect to such dividend and other payment restrictions than those contained in
the Warehouse Facilities as in effect on the Issue Date, (c) Indebtedness or
other contractual requirements of a Special Purpose Subsidiary in connection
with a Qualified Securitization Transaction; provided that such restrictions
apply only to such Special Purpose Subsidiary, (d) this Indenture and the
Debentures, (e) applicable law, (f) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred, (g) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (h) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (i) Permitted Refinancing
Indebtedness;
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provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced.
Section 4.12 Transactions with Affiliates
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $2,000,000, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$10,000,000, in addition to such Officers' Certificate, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an investment banking firm of national standing which is not an
Affiliate of the Company; provided, however, that such fairness opinion shall
not be required with respect to a Qualified Securitization Transaction or other
transaction that is made in the ordinary course of business of the Company or
such Restricted Subsidiary, as the case may be, and is consistent with the past
business practice of the Company or such Restricted Subsidiary. Notwithstanding
the foregoing, the following shall not be deemed Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (ii) any issuance of
securities, or other payments, compensation, benefits, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans approved by the Board of Directors in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (iii) the grant of stock options or
similar rights to employees and directors of the Company pursuant to plans
approved by the Board of Directors in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(iv) loans or advances to employees in the ordinary course of business in
accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $500,000 in aggregate principal
amount
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outstanding at any one time, (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries, (vi) transactions between or among the Company
and/or its Restricted Subsidiaries, (vii) Restricted Payments and Permitted
Investments (other than Strategic Investor Repurchase Transactions) that are
permitted by Section 4.08, and (viii) transactions between a Special Purpose
Subsidiary and any Person in which the Special Purpose Subsidiary has an
Investment.
Section 4.13 Business Activities
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any Restricted Subsidiary to, engage in any line of business
that is not a Related Business (except as a result of Investments in other
businesses made or acquired in connection with the activities or conduct of the
Related Businesses in the ordinary course of business by the Company and its
Restricted Subsidiaries, including Investments obtained as a result of the
foreclosure of Liens securing amounts lent by the Company or any of its
Restricted Subsidiaries).
Section 4.14 Reports
On or prior to the Remarketing Settlement Date, whether or not required by
the rules and regulations of the SEC, so long as any Debentures are outstanding,
the Company shall furnish to the Holders of Debentures (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K even if the Company were not required to
file such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the SEC on Form
8-K even if the Company were not required to file such reports. In addition,
whether or not required by the rules and regulations of the SEC, the Company
shall file a copy of all such information and reports with the SEC for public
availability (unless the SEC shall not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company and the Subsidiary Guarantors have agreed
that, for so long as any Debentures remain outstanding, they shall furnish to
the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Section 4.15 Additional Subsidiary Guarantees
On or prior to the Remarketing Settlement Date, the Company shall not, and
shall not permit any of the Subsidiary Guarantors to, make any Investment in any
Subsidiary
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that is not a Subsidiary Guarantor unless either (i) such Investment is
permitted by the Section 4.08, or (ii) such Subsidiary executes a Subsidiary
Guarantee and delivers an opinion of counsel in accordance with the provisions
of this Indenture.
Section 4.16 Fees and Expenses
Because the Trust is being formed solely to facilitate an investment in the
Debentures, the Company, as borrower, hereby covenants to pay all debts and
obligations (other than with respect to the Securities) and all costs and
expenses of the Trust (including, but not limited to, all costs and expenses of
the Trustees, all costs and expenses relating to the operation of the Trust, and
all costs and expenses attributable to the Remarketing) and to pay any and all
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed on the Trust by the United States, or any other
taxing authority, so that the net amounts received and retained by the Trust and
the Property Trustee after paying such expenses will be equal to the amounts the
Trust and the Property Trustee would have received had no such costs or expenses
been incurred by or imposed on the Trust. The foregoing obligations of the
Company are for the benefit of, and shall be enforceably by, any person to whom
any such debts, obligations, costs, expenses and taxes are owed (each, a
"Creditor") whether or not such Creditor has received notice thereof. Any such
Creditor may enforce such obligations of the Company directly against the
Company, and the Company irrevocably waives any right or remedy to require that
any such Creditor take any action against the Trust or any other person before
proceeding against the Company. The Company shall execute such additional
agreements as may be necessary or desirable to give full effect to the
foregoing.
ARTICLE 5
SUCCESSORS
Section 5.01 Limitations on Merger, Consolidation or Sale of Substantially All
Assets
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless: (i) the Company is
the surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (ii) the entity or Person formed
by or surviving any such consolidation or
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merger (if other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Debentures and this
Indenture pursuant to a supplemental Indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Restricted Subsidiary of the Company, the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the test described in the first sentence of Section
4.09.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture if applicable comply with this Indenture. The Trustee shall be
entitled to conclusively rely upon such Officers' Certificate and Opinion of
Counsel.
Section 5.02 Successor Corporation Substituted
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided, however, that the Company shall not be released
or discharged from the obligation to pay the principal of or interest on the
Debentures.
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ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default
On or prior to the Remarketing Settlement Date, the following
constitute "Events of Default": (i) default for 30 days in the payment when due
of interest on any Debenture; (ii) default in payment when due of the principal
of or premium, if any, on any Debenture; (iii) failure by the Company for 30
days to comply with any of Sections 4.06, 4.07, 4.08 or 4.09 of this Indenture;
(iv) failure by the Company for 60 days after notice to comply with any of its
other agreements in this Indenture or the Debentures; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of this
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of any
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5,000,000 or more; (vi) failure by the Company or
any of its Significant Subsidiaries to pay final judgments aggregating in excess
of $5,000,000, which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by this Indenture or if, at the time
thereof, any Subsidiary Guarantee of a Subsidiary Guarantor that is a
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect, or any Subsidiary Guarantor, or any Person acting on behalf of any such
Subsidiary Guarantor, shall deny or disaffirm, in writing, its obligation under
its Subsidiary Guarantee; (viii) the Company or any of its Significant
Subsidiaries pursuant to or within the meaning of any Bankruptcy Law (a)
commences a voluntary case, (b) consents to the entry of an order for relief
against it in an involuntary case, (c) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (d) makes a
general assignment for the benefit of its creditors, (e) generally is unable to
pay its debts as the same become due; or (ix) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that (a) is for relief
against the Company or any of its Significant Subsidiaries in an involuntary
case, (b) appoints a Custodian of the Company or any of its Significant
Subsidiaries or for all or substantially all of their property, (c) orders the
liquidation of the Company or any of its Significant Subsidiaries, and the order
or decree remains unstayed and in effect for 60 days.
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After the Remarketing Settlement Date, only the events described in
subparagraphs (i), (ii), (iv) and (viii) will constitute "Events of Default."
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
Section 6.02 Acceleration
If an Event of Default (other than an Event of Default specified in
clauses (viii) and (ix) of Section 6.01, with respect to the Company or any
Restricted Subsidiary) occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of the then
outstanding Debentures by written notice to the Company and the Trustee may
declare the unpaid principal of and any accrued interest on all the Debentures
to be due and payable immediately. Upon such declaration the principal and
interest shall be due and payable immediately. If an Event of Default specified
in clause (viii) or (ix) of Section 6.01 occurs with respect to the Company or
any Restricted Subsidiary, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. In the event of a declaration of acceleration of the
Debentures because an Event of Default in Section 6.01(v) hereof has occurred
and is continuing, such declaration of acceleration shall be automatically
annulled if the holders of the Indebtedness described in Section 6.01(v) hereof
have rescinded the declaration of acceleration in respect of such Indebtedness
within 15 Business Days thereof and if (i) the annulment of such acceleration
would not conflict with any judgment or decree of a court of competent
jurisdiction, (ii) all existing Events of Default, except non-payment of
principal or interest which shall have become due solely because of the
acceleration, have been cured or waived and (iii) the Company has delivered an
Officers' Certificate to the Trustee to the effect of clauses (i) and (ii)
above. In accordance with the provisions of Section 6.04, the Holders of a
majority in principal amount of the then outstanding Debentures by written
notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or interest that has become
due solely because of the acceleration) have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Debentures pursuant to the
optional redemption provisions of Section 3.07 of this Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Debentures. If an Event of
Default occurs prior to June 15, 2000 by reason of any
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willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding the prohibition on redemption of the Debentures
prior to such date, then the premium specified in Section 3.07 for optional
redemptions shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Debentures.
Section 6.03 Other Remedies
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Debentures or to enforce the performance of any provision of the Debentures
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
Section 6.04 Waiver of Past Defaults
(1) Holders of a majority in aggregate principal amount of the
Debentures then outstanding by written notice to the Trustee may on behalf of
the Holders of all of the Debentures waive any existing Default or Event of
Default and its consequences under this Indenture (except a continuing Default
or Event of Default in the payment of interest or premium or Additional Interest
on, or the principal of, any Debenture held by a non-consenting Holder). Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
(2) The Trustee may, without the consent of any Holders of the
Debentures, waive any Event of Default that relates to untimely or incomplete
reports or information if the legal rights of the Holders would not be
materially adversely affected thereby and may waive any other defaults the
effect of which would not materially adversely affect the rights of the Holders
under this Indenture.
Section 6.05 Control by Majority
The Holders of a majority in principal amount of the then outstanding
Debentures may 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 it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that
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the Trustee determines may be unduly prejudicial to the rights of other Holders,
or that may involve the Trustee in personal liability.
Section 6.06 Limitation on Suits
A Holder may pursue a remedy with respect to this
Indenture or the Debentures only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Debentures make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 60-day period the Holders of a majority in aggregate
principal amount of the then outstanding Debentures do not give the Trustee
a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
Section 6.07 Rights of Holders to Receive Payment
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Debenture to receive payment of principal, premium, if any, and
interest on the Debenture, on or after the respective due dates expressed in the
Debenture, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or adversely affected without the
consent of the Holder.
Section 6.08 Collection Suit by Trustee
If an Event of Default specified in Section 6.01(i) or (ii) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an
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express trust against the Company for the whole amount of principal and interest
remaining unpaid on the Debentures and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim
The Trustee is authorized 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 the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Debentures), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder 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 Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties which the Holders of the
Debentures may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Debentures or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
Section 6.10 Priorities
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
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Second: to Holders for amounts due and unpaid on the Debentures for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Debentures
for principal, premium and interest, respectively;
Third: without duplication, to Holders of Debentures for any other
Obligations owing to the Holders of Debentures under the Debentures or this
Indenture; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders.
Section 6.11 Undertaking for Costs
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07,
or a suit by Holders of more than 10% in principal amount of the then
outstanding Debentures.
ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee
(1) If an Event of Default has occurred and is continuing, 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.
(2) Except during the continuance of an Event of Default:
(a) The duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no
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implied covenants or obligations shall be read into this Indenture against
the Trustee.
(b) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(3) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(a) This paragraph does not limit the effect of paragraph (2) of this
Section.
(b) The Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(c) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(4) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (1),
(2) and (3) of this Section.
(5) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(7) All indemnifications and releases from liability granted herein to the
Trustee shall extend to the directors, officers, employees and agents of the
Trustee and to the Paying Agent and Registrar.
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Section 7.02 Rights of Trustee
(1) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document, but the
Trustee may, in its discretion, make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney.
(2) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(3) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(6) The permissive rights of the Trustee to do things enumerated in this
Indenture shall not be construed as a duty unless so specified herein.
Section 7.03 Individual Rights of Trustee
The Trustee in its individual or any other capacity may become the owner or
pledgee of Debentures and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to Sections 7.10 and
7.11. Subject to the provisions of Section 310(b) of the TIA, the Trustee shall
be permitted to engage in transactions with the Company and its Subsidiaries
other than those contemplated by this Indenture.
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Section 7.04 Trustee's Disclaimer
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Debentures, it shall not be
accountable for the Company's use of the proceeds from the Debentures or any
money paid to the Company or upon the Company or upon the Company's direction
under any provision hereof. The Trustee shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee and
it shall not be responsible for any statement or recital herein or any statement
in the Debentures or any other document in connection with the sale of the
Debentures or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05 Notice of Defaults
The Trustee shall not be deemed to have notice of a Default or an Event of
Default unless (i) the Trustee has received written notice thereof from the
Company or any Holder or (ii) a Responsible Officer of the Trustee shall have
actual knowledge thereof. Except as otherwise expressly provided herein, the
Trustee shall not be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein, or
of any of the documents executed in connection with the Debentures, or as to the
existence of a Default or Event of Default hereunder.
Subject to Section 6.04(2), if a Default or Event of Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to Holders
a notice of the Default or Event of Default within 90 days after it obtains
knowledge of the existence of such Event of Default. Except in the case of a
Default or Event of Default in payment of principal, premium or interest on any
Debenture, the Trustee may withhold the notice if and so long as a committee of
its Responsible Officers in good faith determines that withholding the notice is
in the interests of Holders.
Section 7.06 Reports by Trustee to Holders
Within 60 days after each October 15 beginning with the October 15
following the date of this Indenture, the Trustee shall mail to Holders a brief
report dated as of such reporting date that complies with TIA (S) 313(a) (but if
no event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA (S) 313(b). The Trustee shall also transmit by mail all
reports as required by TIA (S) 313(c).
Commencing at the time this Indenture is qualified under the TIA, a copy of
each report at the time of its mailing to Holders shall be filed with the SEC
and each stock
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exchange on which the Debentures are listed. The Company shall promptly notify
the Trustee when the Debentures are listed on any stock exchange.
Section 7.07 Compensation and Indemnity
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee and its agents, employees, officers
and directors against any and all losses, liabilities or expenses incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, except as set forth in the next paragraph. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve
the Company of its obligations hereunder. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through its own negligence or bad faith.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Debentures on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Debentures. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(viii) or (ix) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
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Section 7.08 Replacement of Trustee
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the trust hereby
created by so notifying the Company. The Holders of a majority in principal
amount of the then outstanding Debentures may remove the Trustee by so notifying
the Trustee and the Company. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Debentures
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder who has been a Holder
for at least six months fails to comply with Section 7.10, such Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders. The retiring Trustee shall promptly transfer all property held by it
as Trustee to the successor Trustee, provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
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the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by Federal or
state authority and shall have (or in the case of a corporation included in a
bank holding company system, the related bank holding company shall have) a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1) and 310(a)(5). The Trustee is subject to TIA (S) 310(b).
Section 7.11 Preferential Collection of Claims Against the Company
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, with respect to
the Debentures, elect to have either Section 8.02 or 8.03 be applied to all
outstanding Debentures upon compliance with the conditions set forth below in
this Article Eight.
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Section 8.02. Legal Defeasance and Discharge
Upon the Company's exercise under Section 8.01 of the option applicable to
this Section 8.02, the Company shall be deemed to have been discharged from its
obligations with respect to all outstanding Debentures on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Debentures, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other obligations under such
Debentures and this Indenture (and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of outstanding Debentures to receive
solely from the trust fund described in Section 8.04, and as more fully set
forth in such Section, payments in respect of the principal of, premium, if any,
and interest and Additional Interest, if any, on such Debentures when such
payments are due, (b) the Company's obligations with respect to such Debentures
under Sections 2.03, 2.05, 2.06, 2.07, 2.10 and 4.02, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 with respect to the Debentures.
Section 8.03 Covenant Defeasance
Upon the Company's exercise under Section 8.01 of the option applicable to
this Section 8.03, the Company shall be released from its obligations under the
covenants contained in Sections 4.03, 4.04, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11,
4.12, 4.14 and 4.15 and Article Five with respect to the outstanding Debentures
on and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Debentures shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Debentures shall not be deemed
outstanding for accounting purposes). For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Debentures, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document
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and such omission to comply shall not constitute a Default or an Event of
Default under Section 6.01(iii) or (iv), but, except as specified above, the
remainder of this Indenture and such Debentures shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.03, Sections 6.01(iii) through 6.01(vii) shall not
constitute Events of Default.
Section 8.04 Conditions to Legal or Covenant Defeasance
The following shall be the conditions to the application of either Section
8.02 or Section 8.03 to the outstanding Debentures:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 who shall agree to comply with the provisions of this
Article Eight applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Debentures, (a)
cash in U.S. Dollars in an amount, or (b) non-callable Government
Securities which through the scheduled payment of principal and interest
and Additional Interest, if any, in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment, cash in U.S. Dollars in an amount, or (c) a combination thereof,
in such amounts, as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge the principal of, premium, if any, and interest and
Additional Interest, if any, on the outstanding Debentures on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Debentures are being defeased to maturity
or to a particular redemption date of such principal or installment of
principal, premium, if any, or interest; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such non-callable Government Securities to said payments with respect to
the Debentures;
(2) In the case of an election under Section 8.02, either (i) (A) the
Debentures will become due and payable at their stated maturity within one
year after the date of such election pursuant to Section 8.02 or, within
one year after the date of such election, the Debentures will be redeemable
at the option of the Company and will be redeemed by the Company pursuant
to irrevocable instructions issued to the Trustee at the time of such
election for the giving of a notice of redemption by the Trustee for such
redemption and (B) the Company shall have delivered to the Trustee an
Opinion of Counsel in the United States
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reasonably satisfactory to the Trustee to the effect that the Holders of
the outstanding Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will
be subject to Federal income tax in the same amount, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred or (ii) the Company shall have delivered to the Trustee an
Opinion of Counsel in the United States reasonably satisfactory to the
Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
date hereof, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the outstanding Debentures will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance has not occurred;
(3) In the case of an election under Section 8.03, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably satisfactory to the Trustee to the effect that the Holders of
the outstanding Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and
will be subject to Federal income tax in the same amount, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) No Default or Event of Default with respect to the Debentures
shall have occurred and be continuing on the date of such deposit or, in so
far as Section 6.01(viii) or (ix) is concerned, at any time in the period
ending on the 91st day after the date of such deposit (it being understood
that this condition shall not be deemed satisfied until the expiration of
such period);
(5) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) In the case of an election under either Section 8.02 or 8.03, the
Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 8.02 or 8.03 was not made by the Company with the intent of
preferring the Holders
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over other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and
(7) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating
that all conditions precedent provided for relating to either the Legal
Defeasance under Section 8.02 or the Covenant Defeasance under Section 8.03
(as the case may be) have been complied with as contemplated by this
Section 8.04.
Section 8.05 Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions
Subject to Section 8.06, all money and Government Securities (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant to
Section 8.04 in respect of the outstanding Debentures shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Debentures and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Debentures of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 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 the outstanding Debentures.
Anything in this Article Eight to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in Section
8.04 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(1)), are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to the Company
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Debenture and remaining unclaimed for two years after such
principal, and premium,
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if any, or interest has become due and payable shall be paid to the Company on
its request or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Debenture shall thereafter, as a creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.07 Reinstatement
If the Trustee or Paying Agent is unable to apply any United States Dollars
or Government Securities in accordance with Section 8.02 or 8.03, as the case
may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Debentures shall be
revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 8.02 or 8.03, as the case may
be; provided, however, that, if the Company makes any payment of principal of,
premium, if any, or interest on any Debenture following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Debentures to receive such payment from the money held by the Trustee or
Paying Agent and provided further that if such order or judgment is issued in
connection with the insolvency, receivership or other similar occurrence with
respect to the Trustee, upon the reinstatement of such obligations the Company
shall be released from its obligations under Sections 4.03, 4.04, 4.06, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.14 and 4.15 and Article 5.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders
Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee
may amend or supplement this Indenture or the Debentures without the consent of
any Holder of a Debenture:
(a) to cure any ambiguity, defect or inconsistency;
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(b) to provide for uncertificated Debentures in addition to or in
place of certificated Debentures;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Debentures in the case of a merger or consolidation pursuant
to Article Five hereof;
(d) to provide for additional Subsidiary Guarantors as set forth in
Section 4.15;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Debentures or that does not adversely affect
the legal rights hereunder of any Holder of the Debenture; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a resolution of its Board
of Directors authorizing the execution of any such supplemental indenture, and
upon receipt by the Trustee of the documents described in Section 9.06 hereof,
the Trustee shall join with the Company in the execution of any supplemental
indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations which may be therein contained,
but the Trustee shall not be obligated to enter into such supplemental indenture
which affects its own rights, duties or immunities under this Indenture or
otherwise.
For purposes of Section 9.01(e), any amendment or supplement which extends
the period of time during which the Debentures may not be redeemed at the option
of the Company shall not be deemed to adversely affect the legal rights under
the Indenture of any holders.
Section 9.02 With Consent of Holders
The Company and the Trustee may amend or supplement this Indenture or the
Debentures with the written consent of the Holders of at least a majority in
principal amount of the then outstanding Debentures (including consents obtained
in connection with a tender offer or exchange offer for the Debentures) and any
existing Default (including, without limitation, an acceleration of the
Debentures) or compliance with any provision of this Indenture or the Debentures
may be waived with the written consent of the Holders of at least a majority in
principal amount of the then outstanding Debentures (including consents obtained
in connection with a tender offer or exchange offer for the Debentures).
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Upon the request of the Company, accompanied by a resolution of its Board
of Directors authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders as aforesaid, and upon receipt by the Trustee of the
documents described in Section 9.06 hereof, 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.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment or waiver, but it shall
be sufficient if such consent approves the substance thereof.
After a supplement, amendment or waiver under this Section becomes
effective, the Company shall mail to the Holders of each Debenture affected
thereby a notice briefly describing the supplement, amendment or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture, amendment or waiver. Subject to Sections 6.04(1) and 6.07 hereof,
the Holders of a majority in principal amount of the Debentures then outstanding
may waive compliance in a particular instance by the Company with any provision
of this Indenture or the Debentures. However, without the consent of each
Holder affected, a supplement, amendment or waiver under this Section may not
(with respect to any Debentures held by a non-consenting Holder):
(1) reduce the principal amount of Debentures whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any
Debenture or alter the provisions with respect to redemption of the
Debentures other than pursuant to Sections 4.06 and 4.07 hereof;
(3) reduce the rate of or change the time for payment of interest,
including default interest, or Additional Interest on any Debenture;
(4) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Additional Interest on any Debenture
(except a recision of acceleration of the Debentures by the Holders of at
least a majority in aggregate principal amount of the Debentures and a
waiver of the payment default that resulted from such acceleration);
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(5) make any Debenture payable in money other than that stated in the
Debenture;
(6) make any change in Section 6.04(1) or 6.07 hereof or in this
sentence of this Section 9.02 or the rights of Holders of Debentures to
receive payments of principal of or premium, if any, or interest or
Additional Interest on the Debentures;
(7) waive a redemption payment with respect to any Debenture (other
than a payment required by the provisions of Sections 4.06 or 4.07 hereof);
or
(8) make any change in the foregoing amendment and waiver provisions.
Section 9.03 Compliance with Trust Indenture Act
Every amendment to this Indenture or the Debentures shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents
Until a supplement, amendment or waiver becomes effective, a consent to it
by a Holder is a continuing consent by the Holder and every subsequent Holder or
portion of a Debenture that evidences the same debt as the consenting Holder's
Debenture, even if notation of the consent is not made on any Debenture.
However, any such Holder or subsequent Holder may revoke the consent as to its
Debenture if the Trustee receives written notice of revocation before the date
the waiver or amendment becomes effective. An amendment or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
The Company may fix a record date for determining which Holders must
consent to such amendment or waiver. If the Company fixes a record date, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation pursuant to Section 2.05, or
(ii) such other date as the Company shall designate.
Section 9.05 Notation on or Exchange of Debentures
The Trustee may place an appropriate notation about a supplement, amendment
or waiver on any Debenture thereafter authenticated. The Company in exchange
for all Debentures may issue and the Trustee shall authenticate new Debentures
that reflect the supplement, amendment or waiver.
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Failure to make the appropriate notation or issue a new Debenture shall not
affect the validity and effect of such supplement, amendment or waiver.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if the amendment does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive and,
subject to Section 7.01, shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that such amendment
or supplemental indenture is authorized or permitted by this Indenture, that it
is not inconsistent herewith, and that it will be valid and binding upon the
Company in accordance with its terms. The Company may not sign an amendment or
supplemental indenture until the Board of Directors approves it.
ARTICLE 10
SUBSIDIARY GUARANTEES
Section 10.01 Subsidiary Guarantees
Subject to the provisions of this Article 10, each Subsidiary Guarantor,
jointly and severally, hereby unconditionally guarantees to each Holder of a
Debenture authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, that: (a) the principal of, and premium, if any, and
interest on the Debentures shall be duly and punctually paid in full when due,
whether at maturity, by acceleration or otherwise, and interest on overdue
principal, and premium, if any, and (to the extent permitted by law) interest on
any interest, if any, on the Debentures and all other obligations of the Company
to the Holders or the Trustee hereunder or under the Debentures (including fees,
expenses or other) shall be promptly paid in full or performed, all in
accordance with the terms hereof; and (b) in case of any extension of time of
payment or renewal of any Debentures or any of such other obligations, the same
shall be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any amount so guaranteed or failing
performance of any other obligation of the Company to the Holders, for whatever
reason, each Subsidiary Guarantor shall be obligated to pay, or to perform or to
cause the performance of, the same immediately. An Event of Default under this
Indenture or the Debentures shall constitute an event of default under this
Subsidiary Guarantee, and shall entitle the Trustee or the Holders of Debentures
to accelerate the obligations of each Subsidiary
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Guarantor hereunder in the same manner and to the same extent as the obligations
of the Company. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Debentures or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Debentures with
respect to any thereof, the entry of any judgment against the Company, any
action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each
Subsidiary Guarantor hereby waives and relinquishes: (a) any right to require
the Trustee, the Holders or the Company (each, a "Benefitted Party") to proceed
against the Company, the Subsidiaries or any other Person or to proceed against
or exhaust any security held by a Benefitted Party at any time or to pursue any
other remedy in any secured party's power before proceeding against the
Subsidiary Guarantors; (b) any defense that may arise by reason of the
incapacity, lack of authority, death or disability of any other Person or
Persons or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy or any other proceeding) of any other
Person or Persons; (c) demand, protest and notice of any kind (except as
expressly required by this Indenture), including but not limited to notice of
the existence, creation or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of the Subsidiary
Guarantors, the Company, the Subsidiaries, any Benefitted Party, any creditor of
the Subsidiary Guarantors, the Company or the Subsidiaries or on the part of any
other Person whomsoever in connection with any obligations the performance of
which are hereby guaranteed; (d) any defense based upon an election of remedies
by a Benefitted Party, including but not limited to an election to proceed
against the Subsidiary Guarantors for reimbursement; (e) any defense based upon
any statute or rule of law which provides that the obligation of a surety must
be neither larger in amount nor in other respects more burdensome than that of
the principal; (f) any defense arising because of a Benefitted Party's election,
in any proceeding instituted under the Bankruptcy Law, of the application of
Section 1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code. The Subsidiary Guarantors hereby covenant that the Subsidiary Guarantees
shall not be discharged except by payment in full of all principal, premium, if
any, and interest on the Debentures and all other costs provided for under this
Indenture, or as provided in Section 8.01.
If any Holder or the Trustee is required by any court or otherwise to
return to either the Company or the Subsidiary Guarantors, or any trustee or
similar official acting in relation to either the Company or the Subsidiary
Guarantors, any amount paid by the Company or the Subsidiary Guarantors to the
Trustee or such Holder, the Subsidiary Guarantees, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each of the
Subsidiary Guarantors agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Subsidiary Guarantor
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agrees that, as between it, on the one hand, and the Holders of Debentures and
the Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article 6 hereof for the purposes
hereof, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any acceleration of such obligations as provided in Article 6
hereof, such obligations (whether or not due and payable) shall forthwith become
due and payable by such Subsidiary Guarantor for the purpose of the Subsidiary
Guarantee.
Section 10.02 Execution and Delivery of Subsidiary Guarantees
To evidence the Subsidiary Guarantees set forth in Section 10.01 hereof,
each of the Subsidiary Guarantors agrees that a notation of the Subsidiary
Guarantees substantially in the form included in Exhibit A-1 hereto shall be
endorsed on each Debenture authenticated and delivered by the Trustee and that
this Indenture shall be executed on behalf of the Subsidiary Guarantors by the
Chairman of the Board, any Vice Chairman, the President or one of the Vice
Presidents or Manager-Members, as applicable, of the Subsidiary Guarantors,
under a facsimile of its seal reproduced on this Indenture and attested to by an
Officer other than the Officer executing this Indenture.
Each of the Subsidiary Guarantors agree that the Subsidiary Guarantees set
forth in this Article 10 will remain in full force and effect and apply to all
the Debentures notwithstanding any failure to endorse on each Debenture a
notation of the Subsidiary Guarantees.
If an Officer whose facsimile signature is on a Debenture no longer holds
that office at the time the Trustee authenticates the Debenture on which the
Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall be valid
nevertheless.
The delivery of any Debenture by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees
set forth in this Indenture on behalf of the Subsidiary Guarantors.
Section 10.03 Subsidiary Guarantors May Consolidate, etc., on Certain Terms
(a) Nothing contained in this Indenture or in the Debentures shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into the Company
or another Subsidiary Guarantor, or shall prevent the transfer of all or
substantially all of the assets of a Subsidiary Guarantor to the Company or
another Subsidiary Guarantor. Upon any such consolidation, merger, transfer or
sale, the Subsidiary Guarantee of such Subsidiary Guarantor shall no longer have
any force or effect.
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(b) Each Subsidiary Guarantor shall not, in a single transaction or series
of related transactions, consolidate or merge with or into (whether or not such
Subsidiary Guarantor is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity other than the Company or another Subsidiary Guarantor unless (i) subject
to the provisions of Section 10.04 hereof, the entity or Person formed by or
surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of such Subsidiary Guarantor under its Guarantee and this Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (ii) immediately after such transaction no Default or Event of Default
exists; (iii) such Subsidiary Guarantor or the entity or Person formed by or
surviving any such consolidation or merger (if other than Subsidiary Guarantor),
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) shall have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of such Subsidiary Guarantor immediately preceding the transaction and (B)
shall, at the time of such transaction and after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable four-
quarter period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.10; and (iv) such Subsidiary Guarantor shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
addressed to the Trustee, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or disposition and such supplemental
indenture, if any, comply with this Indenture and that such supplemental
indenture is enforceable. In case of any such consolidation, merger or transfer
of assets 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 Subsidiary Guarantees endorsed upon the Debentures and the due
and punctual performance of all of the covenants and conditions of this
Indenture to be performed by such Guarantor, such successor corporation shall
succeed to and be substituted for such Subsidiary Guarantor with the same effect
as if it had been named herein as a Subsidiary Guarantor. Such successor
corporation thereupon may cause to be signed any or all of the Subsidiary
Guarantees to be endorsed upon all of the Debentures issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee. All the Subsidiary Guarantees so issued shall in all respects have the
same legal rank and benefit under this Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of this Indenture
as though all of such Subsidiary Guarantees had been issued at the date of the
execution hereof.
(c) The Trustee, subject to the provisions of Section 10.04 hereof, shall
be entitled to receive an Officers' Certificate and an Opinion of Counsel as
conclusive
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evidence that any such consolidation, merger, sale or conveyance, and any such
assumption of Obligations, comply with the provisions of this Section 10.03.
Such Officers' Certificate and Opinion of Counsel shall comply with the
provisions of Section 12.05.
Section 10.04 Releases Following Sale of Assets
In the event of a sale or other disposition of all or substantially all of
the assets of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all (or substantially all) of the
Capital Stock of any Subsidiary Guarantor, which sale or other disposition
otherwise complies with the terms of this Indenture, then such Subsidiary
Guarantor (in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all or substantially all of the Capital Stock of
such Subsidiary Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all or substantially all of the assets
of such Subsidiary Guarantor) shall be released from and relieved of any
obligations under its Subsidiary Guarantee; provided that the Net Proceeds from
such sale or other disposition are treated in accordance with the provisions of
Section 4.08 hereof. Upon delivery by the Company to the Trustee of an
Officer's Certificate and Opinion of Counsel, to the effect that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture, including without limitation Section 4.08 hereof, the Trustee
shall execute any documents reasonably required in order to evidence the release
of any such Subsidiary Guarantor from its obligations under its Subsidiary
Guarantee. Any Subsidiary Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of and
interest on the Debentures and for the other obligations of any Subsidiary
Guarantor under this Indenture as provided in this Article 10.
Section 10.05 Limitation of Subsidiary Guarantor's Liability
Each Subsidiary Guarantor, and by its acceptance hereof each Holder, hereby
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, the
Holders and such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under this Article 10 shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
this Article 10, result in the
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obligations of such Subsidiary Guarantor under the Subsidiary Guarantee of such
Subsidiary Guarantor not constituting a fraudulent transfer or conveyance.
Section 10.06 Application of Certain Terms and Provisions to the Subsidiary
Guarantors
(a) For purposes of any provision of this Indenture which provides for the
delivery by any Subsidiary Guarantor of an Officers' Certificate and/or an
Opinion of Counsel, the definitions of such terms in Section 1.01 shall apply to
such Subsidiary Guarantor as if references therein to the Company were
references to such Subsidiary Guarantor.
(b) Any request, direction, order or demand which by any provision of this
Indenture is to be made by any Guarantor, shall be sufficient if evidenced as
described in Section 12.02 as if references therein to the Company were
references to such Subsidiary Guarantor.
(c) 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
Debentures to or on any Subsidiary Guarantor may be given or served as described
in Section 12.02 as if references therein to the Company were references to such
Subsidiary Guarantor.
(d) Upon any demand, request or application by any Subsidiary Guarantor to
the Trustee to take any action under this Indenture, such Subsidiary Guarantor
shall furnish to the Trustee such certificates and opinions as are required in
Section 12.04 hereof as if all references therein to the Company were references
to such Subsidiary Guarantor.
ARTICLE 11
SUBORDINATION
Notwithstanding anything in this Article 11 to the contrary, from the Issue
Date until the Remarketing Settlement Date, this Article 11 shall not apply to
the Debentures and shall have no effect.
Section 11.01 Agreement to Subordinate
The Company agrees, and each Holder by accepting a Debenture agrees,
that after the Remarketing Settlement Date the Indebtedness evidenced by the
Debenture will be subordinated in right of payment, to the extent and in the
manner provided in this Article, to the prior payment in full of all Senior Debt
(whether outstanding on the date
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thereof or thereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
Section 11.02 Liquidation; Dissolution; Bankruptcy
After the Remarketing Settlement Date, upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before Holders shall be entitled
to receive any payment with respect to the Debentures (except that Holders
may receive (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section
8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full, any distribution to which Holders
would be entitled but for this Article shall be made to holders of Senior
Debt (except that Holders may receive (i) Permitted Junior Securities and
(ii) payments and other distributions made from any defeasance trust
created pursuant to Section [8.01] hereof), as their interests may appear.
Section 11.03 Default on Designated Senior Debt
After the Remarketing Settlement Date, the Company may not make any
payment or distribution to the Trustee or any Holder in respect of Obligations
with respect to the Debentures and may not acquire from the Trustee or any
Holder any Debentures for cash or property (other than (i) Permitted Junior
Securities and (ii) payments and other distributions made from any defeasance
trust created pursuant to Section 8.01 hereof) until all principal and other
Obligations with respect to the Senior Debt have been paid in full if:
(i) a default in the payment of any principal or other Obligations
with respect to Designated Senior Debt occurs and is continuing beyond any
applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
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(ii) a default, other than a payment default, on Designated Senior
Debt occurs and is continuing that then permits holders of the Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice of
the default (a "Payment Blockage Notice") from a Person who may give it
pursuant to Section 11.11 hereof. If the Trustee receives any such Payment
Blockage Notice, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section unless and until (i) at least 360 days shall
have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if
any, and interest on the Debentures that have come due have been paid in
full in cash. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in
respect of the Debentures and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 11.03(ii) hereof,
179 days pass after notice is received if the maturity of such Designated
Senior Debt has not been accelerated,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 11.04 Acceleration of Debentures
After the Remarketing Settlement Date, if payment of the Debentures is
accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Debt of the acceleration.
Section 11.05 When Distribution Must Be Paid Over
After the Remarketing Settlement Date, in the event that the Trustee
or any Holder receives any payment of any Obligations with respect to the
Debentures at a time when the Trustee or such Holder, as applicable, has actual
knowledge that such payment is prohibited by Section 11.03 hereof, such payment
shall be held by the Trustee or such Holder, in trust for the benefit of, and
shall be paid forthwith over and delivered, upon written request, to, the
holders of Senior Debt as their interests may appear or their Representative
under the indenture or other agreement (if any) pursuant to which Senior Debt
may have been issued, as their respective interests may appear, for application
to
<PAGE>
97
the payment of all Obligations with respect to Senior Debt remaining unpaid to
the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 11, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 11, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
Section 11.06 Notice by Company
After the Remarketing Settlement Date, the Company shall promptly
notify the Trustee and the Paying Agent of any facts known to the Company that
would cause a payment of any Obligations with respect to the Debentures to
violate this Article, but failure to give such notice shall not affect the
subordination of the Debentures to the Senior Debt as provided in this Article.
Section 11.09 Subrogation
After all Senior Debt is paid in full and until the Debentures are
paid in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Debentures) to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Senior Debt. A distribution made under this Article to holders of Senior
Debt that otherwise would have been made to Holders is not, as between the
Company and Holders, a payment by the Company on the Debentures.
Section 11.08 Relative Rights
This Article defines the relative rights of Holders and holders of
Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of and
interest on the Debentures in accordance with their terms;
<PAGE>
98
(2) affect the relative rights of Holders and creditors of the Company
other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders.
If the Company fails because of this Article to pay principal of or
interest on a Debenture on the due date, the failure is still a Default or Event
of Default.
Section 11.09 Subordination May Not Be Impaired by Company
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Debentures shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company or
any Holder to comply with this Indenture.
Section 11.10 Distribution or Notice to Representative
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 11, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt 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 11.
Section 11.11 Rights of Trustee and Paying Agent
Notwithstanding the provisions of this Article 11 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 or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Debentures, unless the Trustee shall have received at
its Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Debentures to violate this Article. Only
<PAGE>
99
the Company or a Representative may give the notice. Nothing in this Article 11
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
Section 11.12 Authorization to Effect Subordination
Each Holder of a Debenture by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 11, and appoints the Trustee to act as the Holder's attorney-in-
fact for any and all such purposes. If the Trustee does not file a proper proof
of claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
such claim, the Representatives of the Designated Senior Debt are hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Debentures.
Section 11.14 Amendments
The provisions of this Article 11 shall not be amended or modified in
a manner materially adverse to the interest of the holders of Senior Debt
without the written consent of the holders of all Designated Senior Debt.
ARTICLE 12
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the duties imposed by TIA (S) 318(c) shall
control.
Section 12.02 Notices
Any notice or communication by the Company, any Subsidiary Guarantor or the
Trustee to the other is duly given if in writing and delivered in Person or
mailed by first-class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the other's address:
<PAGE>
100
If to the Company or a Subsidiary Guarantor:
Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building 1, Suite 210
Torrance, CA 90505
Attention: General Counsel
Telecopier No.: (310) 791-8230
If to the Trustee:
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Telecopier No.: (415) 693-8850
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
<PAGE>
101
Section 12.03 Communication by Holders with Other Holders
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Debentures. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been complied with.
Section 12.05 Statements Required in Certificate or Opinion
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as 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.
<PAGE>
102
Section 12.06 Rules by Trustee and Agents
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07 Legal Holidays
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
Section 12.08 No Recourse Against Others
No director, officer, manager, member, organizer, employee, incorporator or
shareholder of the Company or any Subsidiary Guarantor, as such, shall have any
liability for any Obligations of the Company or any Subsidiary Guarantor under
the Debentures, this Indenture or any Subsidiary Guarantee or for any claim
based on, in respect of or by reason of such obligations or their creation.
Each Holder by accepting a Debenture waives and releases all such liability.
This waiver and release are part of the consideration for issuance of the
Debentures.
Section 12.09 Duplicate Originals
The parties may sign any number of copies of this Indenture. One signed
copy is enough to prove this Indenture.
Section 12.10 Governing Law
The internal law of the State of New York shall govern and be used to
construe this Indenture and the Debentures (without regard to conflicts of law
provisions). Each party hereto irrevocably submits itself to the non-exclusive
jurisdiction of the state and federal courts of New York for purposes of this
Indenture and agrees and consents that service of process may be made upon it in
any legal proceeding relating to this Indenture by any means allowed under
federal or New York law. The parties hereto hereby waive and agree not to
assert, by way of motion, as a defense or otherwise, that any such proceeding is
brought in an inconvenient forum or that the venue thereof is improper.
<PAGE>
103
Section 12.11 No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.12 Successors
All agreements of the Company in this Indenture, and the Debentures shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 12.13 Severability
In case any provision in this Indenture or the Debentures shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 12.14 Counterpart Originals
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 12.15 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table 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.
<PAGE>
SIGNATURES
IMPERIAL CREDIT INDUSTRIES, INC.
By: /s/ H. Wayne Snavely
----------------------------------------------------
Name: H. Wayne Snavely
Title: Chairman
Dated as of June 9, 1997
Attest:____________________
IMPERIAL BUSINESS CREDIT, INC.
By: /s/ H. Wayne Snavely
Name: H. Wayne Snavely
Title: Chairman
Dated as of June 9, 1997
Attest:____________________
IMPERIAL CREDIT ADVISORS, INC.
By: /s/ H. Wayne Snavely
----------------------------------------------------
Name: H. Wayne Snavely
Title: Chairman
Dated as of June 9, 1997
Attest:____________________
FRANCHISE MORTGAGE ACCEPTANCE CO. LLC
By: /s/ H. Wayne Snavely
----------------------------------------------------
Name: H. Wayne Snavely
Title: Chairman
Dated as of June 9, 1997
Attest:____________________
<PAGE>
AUTO MARKETING NETWORK, INC.
By: /s/ H. Wayne Snavely
----------------------------------------------------
Name: H. Wayne Snavely
Title: Chairman
Dated as of June 9, 1997
Attest:____________________
IMPERIAL CREDIT CAPITAL TRUST I
By: /s/ H. Wayne Snavely
----------------------------------------------------
Name: H. Wayne Snavely
Title: Chairman
Dated as of June 9, 1997
Attest:____________________
CHASE TRUST COMPANY OF CALIFORNIA, as Trustee
By: /s/ Hans H. Helley
----------------------------------------------------
Name: Hans H. Helley
Title: Assistant Vice President
Dated as of: June 9, 1997
Attest:______________________
<PAGE>
(Face of Security)
Resettable Rate Debentures, Series A
No. 1 $72,165,000
CUSIP No. 452729 AE6
IMPERIAL CREDIT INDUSTRIES, INC.
promises to pay to Chase Trust Company of California or registered assigns,
the principal sum of Seventy-Two Million One Hundred Sixty-Five Thousand Dollars
on June 15, 2032, or earlier in certain circumstances as described on the
reverse hereof Interest Payment Dates: June 15 (June 14 in 2002) and December
15, commencing December 15, 1997, and on each Scheduled Remarketing Settlement
Date Record Dates: June 1 and December 1 (whether or not a Business Day)
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
TRUSTEE CERTIFICATE OF AUTHENTICATION
Dated: June ___, 1997
This is one of the Debentures
referred to in the within-mentioned
Indenture
CHASE TRUST COMPANY OF CALIFORNIA,
as Trustee
By:
----------------------------------
(Authorized Signature)
A1-2
<PAGE>
(Back of Security)
Resettable Rate Debentures, Series A
Unless and until it is exchanged, after the Remarketeing Settlement Date,
in whole or in part for Debentures in definitive form, this Debenture may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary. Unless this certificate is presented by
an authorized representative of The Depository Trust Company (55 Water Street,
New York, New York) ("DTC"), to the issuer or its agent for registration of
transfer, exchange or payment, and any certificate issued is registered in the
name of Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT
OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
A1-3
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Imperial Credit Industries, Inc., a California corporation
(the "Company"), promises to pay interest on the principal amount of this
Debenture at the rate and in the manner specified below and shall pay the
Additional Interest, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. Interest on the Debentures will be payable
semi-annually in arrears on each June 15 (June 14 in 2002) and December 15,
commencing on December 15, 1997, and on each Scheduled Remarketing Settlement
Date (each an "Interest Payment Date"), to Holders of record on the immediately
preceding June 1 and December 1, respectively. If any such Interest Payment Date
is not a Business Day, then payment of the interest payable on such date shall
be made on the next succeeding Business Day (and without any additional interest
or other payment in respect of any such delay), except that, if, such Business
Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date such payment was originally payable.
Interest will be computed (i) for any full 180-day semi-annual interest
payment period, on the basis of a 360-day year of twelve 30-day months and (ii)
for any period shorter than a full 180-day semi-annual interest payment period
for which interest payments are computed, on the basis of 30-day months and for
periods of less than a month, the actual number of days elapsed per 30-day
month. Interest on the Debentures will accrue 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 the date of original issuance of the Debentures.
To the extent lawful, the Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
applicable interest rate on the Debentures; it shall pay interest on overdue
installments of interest (without regard to applicable grace periods) at the
same rate, to the extent lawful, (i) if payment is made during the period of
five Business Days following the date on which such interest was due, to the
Persons who were to receive payment on the date such interest was due or (ii) if
payment is made after such period, to the Persons who are Holders on a
subsequent special record date, which date shall be at the earliest practicable
date but in all events at least five Business Days prior to the payment date.
From the Issue Date to but excluding the Remarketing Settlement Date, the
"Applicable Interest Rate" will be 10 1/4% per annum (the "Initial Interest
Rate"). From and after the Remarketing Settlement Date to but excluding the date
of redemption of the Debentures, the Applicable Interest Rate will equal the
Adjusted Distribution Rate (or, if a Dissolution Event occurs prior to a
Scheduled Remarketing Date, the Adjusted Interest Rate) that results from the
Remarketing consummated on the Remarketing Settlement Date.
Following the Remarketing Settlement Date, as long as no Event of Default
has occurred and is continuing, the Company shall have the right, at any time
during the term of the Debentures, from time to time, to defer payment of
interest on such Debentures, for a period not to exceed to 10 consecutive semi-
annual periods (an "Extension
A1-4
<PAGE>
Period"); provided, that no Extension Period may extend beyond the Stated
Maturity of the Debentures. There may be multiple Extension Periods of varying
lengths during the term of the Debentures. At the end of each Extension Period,
if any, the Company shall pay all interest and Additional Interest then accrued
and unpaid, together with interest thereon, compounded semi-annually at the
Applicable Interest Rate in effect at the beginning of such Extension Period, to
the extent permitted by applicable law. During any such Extension Period, the
Company may not, and may not permit any Subsidiary of the Company to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire,
or make a liquidation payment with respect to, any of the Company's capital
stock or (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank on a
parity with or junior in interest to the Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any Subsidiary of the Company if such guarantee ranks on a parity or junior in
interest to the Debentures (other than (a) dividends or distributions in common
stock of the Company, (b) payments under the Company Guarantee, (c) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, and
(d) purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans). Prior to the termination of any such
Extension Period, the Company may further extend the interest payment period,
provided that no Extension Period may exceed 10 consecutive semi-annual periods
or extend beyond the Stated Maturity of the Debentures. 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 shall give the Property Trustee, the Regular Trustees and the
Trustee written notice of its election of such Extension Period not less than
one Business Day prior to the record date for the related interest payment. The
Property Trustee shall promptly give notice of the Company's election of such
Extension Period to the holders of the Securities.
2. Maturity Advancement; Tax Event Redemption. If a Tax Event shall occur
and be continuing and in the opinion of independent tax counsel to the Trust
experienced in such matters, there would in all cases, after effecting the
termination of the Trust and the distribution of the Debentures to the holders
of the Trust Securities in exchange therefor upon liquidation of the Trust, be
more than an insubstantial risk that the Tax Event would continue to exist, then
the Company will have the right (a) to shorten the Stated Maturity of the
Debentures to a date not earlier than June 14, 2012 (a "Maturity Advancement")
such that, in the opinion of such independent tax counsel, after advancing the
Stated Maturity of the Debentures, interest paid on the Debentures will be
deductible by the Company for United States federal income tax purposes or (b)
after the Scheduled Remarketing Date, to redeem the Debentures, in whole but not
in part, at any time within 90 days following the occurrence of a Tax Event at a
redemption price equal to 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Additional Interest to the date of redemption.
A1-5
<PAGE>
3. Method of Payment. The Company will pay interest on the Debentures
(except defaulted interest) and Additional Interest, if any, to the Persons who
are registered Holders of Debentures at the close of business on the record date
next preceding the Interest Payment Date, even if such Debentures are cancelled
after such record date and on or before such Interest Payment Date. Principal,
premium, if any, interest and Additional Interest, if any, on the Debentures
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest and Additional Interest, if any, may be made by check mailed
to the Holders of the Debentures at their respective addresses set forth in the
register of Holders of Debentures; provided that all payments with respect to
Debentures the Holders of which have given wire transfer instructions to the
Company and the Trustee will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
The Company will pay principal, premium, if any, and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts.
4. Paying Agent and Registrar. Initially the Trustee under the Indenture
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to any Holder. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar.
5. Indenture. The Company issued the Debentures under an Indenture dated
as of June 9, 1997 ("Indenture") among the Company, the Subsidiary Guarantors
and the Trustee. The terms of the Debentures include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the
date of the Indenture. The Debentures are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. The
terms of the Indenture shall govern any inconsistencies between the Indenture
and the Debentures. Terms not otherwise defined herein shall have the meanings
assigned in the Indenture. The Debentures are general unsecured obligations of
the Company limited to $72,165,000 in aggregate principal amount.
6. Optional Redemption. The Debentures are redeemable at the option of
the Company, in whole or in part, at any time or from time to time through and
including June 15, 2001 at a redemption price (the "Initial Optional Redemption
Price") equal to the greater of (i) 100% of the principal amount of such
Debentures and (ii) as determined by a Quotation Agent, the sum of the present
values of the principal amount of such Debentures as if redeemed on June 14,
2002, together with scheduled prepayments of interest from the prepayment date
to but excluding June 14, 2002, discounted to the prepayment date on a semi-
annual basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate, plus, in each case, accrued and unpaid interest and
Additional Interest, if any, to the date of redemption.
On and after June 15, 2012, the Debentures are redeemable prior to maturity
at the option of the Company, in whole or in part, at any time at the redemption
prices described in the next sentence, plus accrued and unpaid interest and
Additional Interest, if any, to the date of redemption. The redemption price
(expressed as a percentage of principal amount) shall be equal to 100% plus the
product of (x) the Adjusted
A1-6
<PAGE>
Distribution Rate and (y) the applicable Factor if redeemed during the twelve-
month period beginning on June 15th of the years indicated below, the applicable
"Factor" shall equal:
<TABLE>
<CAPTION>
YEAR %
- ---- ---
<S> <C>
2012....................................... 50
2013....................................... 45
2014....................................... 40
2015....................................... 35
2016....................................... 30
2017....................................... 25
2018....................................... 20
2019....................................... 15
2020....................................... 10
2021....................................... 5
</TABLE>
On and after June 15, 2022, the redemption price will be 100% of the
principal amount of the Debentures to be redeemed, plus accrued and unpaid
interest and Additional Interest, if any, to the date of redemption.
7. Special Mandatory Redemption. If, by 4:00 P.M., New York City time, on
any Scheduled Remarketing Date, the Remarketing Agent is unable to remarket, at
a price of $1,000 per Security, all of the Securities tendered or deemed
tendered for purchase in the Remarketing on such Scheduled Remarketing Date,
then (i) such unsold Securities shall be exchanged on the related Scheduled
Remarketing Settlement Date with the Trust for Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of such unsold
Securities and such Debentures shall be immediately redeemed, unless (ii) as a
result of such redemption, less than $25,000,000 principal amount of Debentures
would remain outstanding. In such latter event, the Company shall redeem on
such Scheduled Remarketing Settlement Date all of the Debentures (thereby
causing the Trust to redeem all of the outstanding Securities) and the
Remarketing will be cancelled. In either case of (i) or (ii) above, the
redemption price of the Debentures shall be 100% of the principal amount of the
outstanding Debentures so redeemed.
8. Investment Company Event Redemption. If an Investment Company Event shall
occur and be continuing, the Company has the option, after the Remarketing
Settlement Date, to redeem the Debentures, in whole but not in part, at any time
within 90 days following the occurrence of such Investment Company Event at a
redemption price equal to 100% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Additional Interest, if any, to the date of
redemption.
A1-7
<PAGE>
9. Tax Opinion Redemption. If the Company receives a Tax Opinion at least
35 business days prior to the Election Date, the Remarketing may be cancelled at
the option of the Company, in which case the Debentures shall be redeemed by the
Company on the Scheduled Remarketing Settlement Date, in whole but not in part,
at a redemption price equal to 100% of the principal amount of such Debentures
plus accrued and unpaid interest and Additional Interest thereon to such
Scheduled Remarketing Settlement Date.
10. Transfer Restricted Security Redemption. If an Exchange Offer occurs
under the Registration Rights Agreement, the Company will be required, on the
Remarketing Settlement Date, to redeem, in whole (but not in part), certain
Debentures which were not exchanged pursuant to the Exchange Offer (a "Transfer
Restricted Security Redemption"). As part of a Transfer Restricted Security
Redemption, on the Schedule Remarketing Settlement Date such Securities will be
exchanged with the Trust for Debentures having an aggregate principal amount
equal to the aggregate liquidation of such Securities and such Debentures shall
immediately be redeemed by the Company at a redemption price equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Additional
Interest, if any, to the date of redemption.
11. Remarketing. If the holders of Securities receive Debentures upon the
liquidation or dissolution of the Trust, the Debentures will be subject to
Remarketing procedures as set forth in the Indenture.
12. Change of Control. If there is a Change of Control, the Company shall be
required to offer to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of each Holder's Debentures at a purchase price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. Holders of Debentures that are
subject to an offer to purchase will receive an offer to purchase from the
Company prior to any related purchase date, and may elect to have such
Debentures purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing below. If at the time of the Change of Control the Trust is
the owner of all of the Debentures, the Trust shall make the Change of Control
Offer for the Securities and the Company will repurchase the Debentures
exchanged by the Trust for the Securities as set forth in the Declaration.
13. Asset Sale. If the Company consummates any Asset Sale, the Company will
be required, under certain circumstances, to apply the Excess Proceeds thereof
to an offer to all Holders of Debentures to purchase the maximum principal
amount of Debentures that may be purchased out of the Excess Proceeds at an
offer price in cash equal to 100% of the principal amount of the Debentures plus
accrued and unpaid interest, if any, to the date of purchase, in accordance with
the procedures set forth in the Indenture. Holders of Debentures that are
subject to an offer to purchase will receive an offer to purchase from the
Company prior to any related purchase date, and may elect to have such
Debentures purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing below. If at the time of the Asset Sale Offer the Trust is
the owner of all of the Debentures, the Trust shall make the Asset Sale Offer
for the Securities and the Company will repurchase the Debentures exchanged by
the Trust for the Securities as set forth in the Declaration.
A1-8
<PAGE>
14. Denominations, Transfer, Exchange. The Debentures are in face
denominations of $1,000 and integral multiples of $1,000. The Debentures may be
transferred and exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Debenture or portion of a
Debenture selected for redemption.
15. Persons Deemed Owners. Prior to due presentment to the Trustee for
registration of the transfer of this Debenture, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Debenture is registered
as its absolute owner for the purpose of receiving payment of principal of and
interest on this Debenture and for all other purposes whatsoever, whether or not
this Debenture is overdue, and neither the Trustee, any Agent nor the Company
shall be affected by notice to the contrary. The registered holder of a
Debenture shall be treated as its owner for all purposes.
16. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture and the Debentures may be amended or supplemented with the written
consent of the Holders of at least a majority in principal amount of the then
outstanding Debentures, and any existing Default (except a Default or Event of
Default relating to the payment of principal, premium or interest) or compliance
with any provision of the Indenture or the Debentures may be waived with the
written consent of the Holders of at least a majority in principal amount of the
then outstanding Debentures. Without the consent of any Holder, the Indenture
or the Debentures may be amended or supplemented to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Debentures in addition to or in
place of certificated Debentures, to provide for the assumption of the Company's
obligations to Holders of the Debentures in case of a merger or consolidation,
to provide for additional Subsidiary Guarantors, to make any change that would
provide any additional rights or benefits to the Holders of the Debentures or
that does not materially adversely affect the legal rights of any such Holder
under the Indenture, or to comply with the requirements of the Securities and
Exchange Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
17. Defaults and Remedies. On or prior to the Remarketing Settlement Date,
Events of Default include: (i) a default for 30 days in the payment when due of
interest on any Debenture; (ii) a default in payment when due of the principal
of or premium, if any, on any Debenture; (iii) failure by the Company for 30
days to comply with any of Sections 4.06, 4.07, 4.08 or 4.09 of the Indenture;
(iv) failure by the Company for 60 days after notice to comply with any of its
other agreements in the Indenture or the Debentures; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of any
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the
A1-9
<PAGE>
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $5,000,000
or more; (vi) failure by the Company or any of its Significant Subsidiaries to
pay final judgments aggregating in excess of $5,000,000, which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) except as permitted by
the Indenture or if, at the time thereof, any Subsidiary Guarantee of a
Subsidiary Guarantor that is a Significant Subsidiary shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Subsidiary Guarantor that is a Significant
Subsidiary, or any Person acting on behalf of any such Subsidiary Guarantor,
shall deny or disaffirm, in writing, its obligation under its Subsidiary
Guarantee; or (viii) certain events of bankruptcy or insolvency with respect to
the Company or any Restricted Subsidiary. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Debentures may declare all the Debentures to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect to
the Company or any Restricted Subsidiary, all outstanding Debentures will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Debentures except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Debentures. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Debentures may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of the Debentures
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal, premium or interest) if it
determines that withholding notice is in their interest. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
After the Remarketing Settlement Date, only the events described in
subparagraphs (i), (ii), (iv) and (viii) will constitute "Events of Default."
18. Ranking. Until the Remarketing Settlement Date, the Debentures will be
general unsecured obligations of the Company ranking on a parity with all
Indebtedness of the Company, if any, that is not subordinated to the Debentures
and senior to any Indebtedness of the Company that is subordinated to the
Debentures. Until the Remarketing Settlement Date, when the Subsidiary
Guarantees will be released, the Subsidiary Guarantees will rank on a parity
with all future Indebtedness of the Subsidiary Guarantors, if any, that is not
subordinated to the Subsidiary Guarantees and senior to any Indebtedness of the
Subsidiary Guarantors that is subordinated to the Subsidiary Guarantees. After
the Remarketing Settlement Date, the Debentures will be subordinated and junior
in right of payment to all Senior Debt (as defined in the Indenture) of the
Company. After the Remarketing Settlement Date, the Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
whether under the Indenture or any existing or other indenture that the Company
may enter into in the future or otherwise.
A1-10
<PAGE>
19. Trustee Dealings with the Company. Subject to the provisions of the
Indenture, the Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Subject to
the provisions of Section 310(b) of the Trust Indenture Act, the Trustee shall
be permitted to engage in transactions with the Company and its Subsidiaries
other than those contemplated by the Indenture.
20. No Recourse Against Others. No director, officer, employee,
incorporator, organizer, manager, member or shareholder of the Company or any
Subsidiary Guarantor, as such, shall have any liability for any obligations of
the Company or any Subsidiary Guarantor under the Debentures, the Indenture or
any Subsidiary Guarantee or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Debentures, by accepting
a Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Debentures.
21. Authentication. This Debenture shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
22. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Debentures under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set forth
in the Registration Rights Agreement dated as of the date of the Indenture,
between the Company and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
24. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Debentures and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Debentures
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building 1, Suite 210
Torrance, CA 90505
A1-11
<PAGE>
Attention: General Counsel
Telecopier No.: (310) 791-8230
A1-12
<PAGE>
SUBSIDIARY GUARANTEE
The Subsidiary Guarantors listed below (hereinafter referred to as the
"Subsidiary Guarantors," which term includes any successors or assigns under the
Indenture (the "Indenture") and any additional Subsidiary Guarantors), have
jointly and severally irrevocably and unconditionally guaranteed (i) the due and
punctual payment of the principal of, premium, if any, and interest on the
Resettable Rate Debentures, Series A (the "Debentures"), of Imperial Credit
Industries, Inc., a California corporation (the "Company"), whether at stated
maturity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue principal, and premium if any, and (to the extent permitted by
law) interest on any interest, if any, on the Debentures, and the due and
punctual performance of all other obligations of the Company, to the Holders or
the Trustee all in accordance with the terms set forth in Article 10 of the
Indenture, (ii) in case of any extension of time of payment or renewal of any
Debentures or any such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise, and (iii) the
payment of any and all costs and expenses (including reasonable attorneys' fees)
incurred by the Trustee or any Holder in enforcing any rights under this
Subsidiary Guarantee.
The obligations of each Subsidiary Guarantor to the Holder and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 10 of the Indenture and reference is hereby made to such
Indenture for the precise terms of this Guarantee.
No shareholder, officer, director, manager, member, organizer or
incorporator, as such, past, present or future of each Subsidiary Guarantor
shall have any liability under this Subsidiary Guarantee by reason of his or its
status as such shareholder, officer, director, member, manager, organizer or
incorporator.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Subsidiary Guarantor and its successors
and assigns until the Scheduled Remarketing Settlement Date and shall inure to
the benefit of the successors and assigns of the Trustee and the Holders, and,
in the event of any transfer or assignment of rights by any Holder or the
Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Guarantee of payment and
not of collectibility.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Debenture upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
A1-13
<PAGE>
The Obligations of each Subsidiary Guarantor under this Subsidiary
Guarantee shall be limited to the extent necessary to insure that it does not
constitute a fraudulent conveyance or fraudulent transfer under applicable law.
THE TERMS OF ARTICLE 10 OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
IMPERIAL BUSINESS CREDIT, INC.
By:
----------------------------------------------------
Name:
Title:
Dated as of _______________, 1997
Attest:____________________
IMPERIAL CREDIT ADVISORS, INC.
By:
----------------------------------------------------
Name:
Title:
Dated as of _______________, 1997
Attest:____________________
FRANCHISE MORTGAGE ACCEPTANCE CO. LLC
By:
----------------------------------------------------
Name:
Title:
Dated as of _______________, 1997
Attest:____________________
A1-14
<PAGE>
AUTO MARKETING NETWORK, INC.
By:
----------------------------------------------------
Name:
Title:
Dated as of _______________, 1997
Attest:____________________
IMPERIAL CREDIT CAPITAL TRUST I
By:
----------------------------------------------------
Name:
Title:
Dated as of _______________, 1997
Attest:____________________
A1-15
<PAGE>
Assignment Form
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
----------------------------------------------------
agent to transfer this Debenture on the books of the Company. The agent may
substitute another to act for him.
Date:
-------------------
Your Signature:
------------------------
(Sign exactly as your name appears on the face of this Debenture)
Signature Guarantee./*/
- -------------------
/*/ Signature(s) must be guaranteed by an eligible guarantor institution
(banks, stock brokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program) pursuant to
Securities and Exchange Commission Rule 17 Ad-15.
A-16
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have all or any part of this Debenture purchased by
the Company pursuant to Section 4.06 or 4.07 of the Indenture, check the box
below:
[_] Section 4.06 [_] Section 4.07
If you want to elect to have only part of the Debenture purchased by the
Company pursuant to Section 4.06 or 4.07 of the Indenture, state the amount you
elect to have purchased (if all, write "ALL"): $___________
Date: Your Signature:
-------------------------- ------------------------------
(Sign exactly as your name appears on the face of this Debenture)
Tax Identification No.:____________________
_____
Signature Guarantee./*/
__________________________________
/*/ Signature(s) must be guaranteed by an eligible guarantor institution
(banks, stock brokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program) pursuant to
Securities and Exchange Commission Rule 17 Ad-15.
A-17
<PAGE>
SCHEDULE OF EXCHANGES FOR CERTIFICATED DEBENTURES/2/
The following exchanges of a part of this Global Debenture for Certificated
Debentures have been made:
<TABLE>
<CAPTION>
Principal Amount of
this Signature of
Amount of decrease in Amount of increase in Global Debenture authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Debenture
Date of Exchange this Global Debenture this Global Debenture (or increase) Custodian
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------------------
2. To be included only if the Note is issued in global form.
A2-1
<PAGE>
Exhibit A-2
(Face of Regulation S Temporary Global Security)
Resettable Rate Debentures, Series A
No. 1 $__________
CUSIP No.
IMPERIAL CREDIT INDUSTRIES, INC.
promises to pay to _______________________________________
or registered assigns, the principal sum of ___________________
Dollars on June 15, 2032, or earlier in certain circumstances as described on
the reverse.
Interest Payment Dates: June 15 (June 14 in 2001) and December 15, commencing
December 15, 1997, and on each Scheduled Remarketing Settlement Date
Record Dates: June 1 and December 1 (whether or not a Business Day)
A2-1
<PAGE>
IMPERIAL CREDIT INDUSTRIES, INC.
By:
-----------------------------------------------
Name:
Title:
By:
-----------------------------------------------
Name:
Title:
TRUSTEE CERTIFICATE OF AUTHENTICATION
Dated: _________________
This is one of the Debentures
referred to in the within-mentioned
Indenture
CHASE TRUST COMPANY OF CALIFORNIA,
as Trustee
By:
------------------------
(Authorized Signature)
A2-2
<PAGE>
(Back of Security)
Resettable Rate Debentures, Series A
Unless and until it is exchanged in whole or in part for Debentures in
definitive form, this Debenture may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT
OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL DEBENTURE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED DEBENTURES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
A2-3
<PAGE>
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY
GLOBAL DEBENTURE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST THEREON.
Subject to the provisions hereof, Imperial Credit Industries, Inc., a
California corporation (the "Company"), promises to pay to ______ the principal
sum of ______________ UNITED STATES DOLLARS (U.S. $_________) on June 15, 2032,
or earlier in certain circumstances as defined in the Indenture, and to pay
interest on the principal amount of this Debenture at the Applicable Interest
Rate. Interest on the Debentures will be payable semi-annually in arrears on
each June 15 (June 14 in 2002) and December 15, commencing on December 15, 1997,
and on each Scheduled Remarketing Settlement Date (each an "Interest Payment
Date"). If any such Interest Payment Date is not a Business Day, then payment
of the interest payable on such date shall be made on the next succeeding
Business Day (and without any additional interest or other payment in respect of
any such delay), except that, if, such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable.Interest will be computed (i) for any full 180-
day semi-annual interest payment period, on the basis of a 360-day year of
twelve 30-day months and (ii) for any period shorter than a full 180-day semi-
annual interest payment period for which interest payments are computed, on the
basis of 30-day months and for periods of less than a month, the actual number
of days elapsed per 30-day month. Interest on the Debentures will accrue 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 the date of the original
issuance of this Debenture.
This Regulation S Temporary Global Debenture is issued in respect of an
issue of Resettable Rate Debentures, Series A (the "Debentures") of the Company,
limited to the aggregate principal amount of U.S. $_____________ issued pursuant
to an Indenture (the "Indenture") dated as of June 9, 1997, among the Company
and Chase Trust Company of California, as trustee (the "Trustee"), and is
governed by the terms and conditions of the Indenture, which terms and
conditions are incorporated herein by reference and, except as otherwise
provided herein, shall be binding on the Company and the Holder hereof as if
fully set forth herein. Unless the context otherwise requires, the terms used
herein shall have the meanings specified in the Indenture.
Until this Regulation S Temporary Global Debenture is exchanged for
Regulation S Permanent Global Debentures, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Debenture shall in all other respects be
entitled to the same benefits as other Debentures under the Indenture.
This Regulation S Temporary Global Debenture is exchangeable in whole or in
part for one or more Regulation S Permanent Global Debentures or Rule 144A
Global Debentures only (i) on or after the termination of the 40-day restricted
period (as defined in Regulation S) and (ii) upon presentation of certificates
(accompanied by an Opinion of Counsel, if applicable) required by Article 2 of
the Indenture. Upon exchange of all interest in this Regulation S Temporary
Global Debenture for one or more Regulation S Permanent Global Debentures or
Rule 144A Global Debentures, the Trustee shall cancel this Regulation S
Temporary Global Debenture.
This Regulation S Temporary Global Debenture shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This Regulation
S Temporary Global Debenture shall be governed by and construed
A2-4
<PAGE>
in accordance with the laws of the State of the New York. All references to
"$," "Dollars," "dollars" or "U.S. $" are to such coin or currency of the United
States of America as at the time shall be legal tender for the payment of public
and private debts therein.
A2-5
<PAGE>
SCHEDULE OF EXCHANGES FOR GLOBAL Debentures
The following exchanges of a part of this Regulation S Temporary
Global Debenture for other Global Debentures have been made:
<TABLE>
<CAPTION>
Amount of decrease Principal Amount of this Signature of
in Amount of increase in Global Debenture authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Debenture
Date of Exchange this Global Debenture this Global Debenture (or increase) Custodian
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
A2-6
<PAGE>
Exhibit B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL DEBENTURE TO REGULATION S GLOBAL DEBENTURE
(Pursuant to Section 2.06(a)(i) of the Indenture)
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Re: Resettable Rate Debentures, Series A of Imperial Credit Industries, Inc.
Reference is hereby made to the Indenture, dated as of June 9, 1997 (the
"Indenture"), among Imperial Credit Industries, Inc., as issuer (the "Company"),
the Subsidiary Guarantors and Chase Trust Company of California, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $_______ principal amount of Debentures which are
evidenced by one or more Rule 144A Global Debentures (CUSIP No. U45021AB5) and
held with the Depositary in the name of ____________________________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Debentures to a Person who will take delivery thereof in the
form of an equal principal amount of Debentures evidenced by one or more
Regulation S Global Debentures (CUSIP No. U452729AE6), which amount, immediately
after such transfer, is to be held with the Depositary.
In connection with such request and in respect of such Debentures, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Debentures and pursuant
to and in accordance with Rule 903 or Rule 904 under the United States
Securities Act of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:
(1) The offer of the Debentures was not made to a person in the United States;
(2) either:
(a) at the time the buy order was originated, the transferee was outside
the United States or the Transferor and any person acting on its behalf
reasonably believed and believes that the transferee was outside the
United States; or
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither the Transferor nor
any person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 904(b) of Regulation S;
B1-1
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary.
Upon giving effect to this request to exchange a beneficial interest in a
Rule 144A Global Debenture for a beneficial interest in a Regulation S Global
Debenture, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Regulation S Global Debentures pursuant
to the Indenture and the Securities Act and, if such transfer occurs prior to
the end of the 40-day restricted period associated with the initial offering of
Debentures, the additional restrictions applicable to transfers of interest in
the Regulation S Temporary Global Debenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Lehman Brothers Inc., Montgomery
Securities and Dabney/Resnick/Imperial, LLC, the initial purchasers of such
Debentures being transferred. Terms used in this certificate and not otherwise
defined in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
__________________________
[Insert Name of Transferor]
By: ______________________
Name:
Title:
Dated: ____________________, ____
cc: Imperial Credit Industries, Inc.
B1-2
<PAGE>
Exhibit B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL DEBENTURE TO RULE 144A GLOBAL DEBENTURE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Re: Resettable Rate Debentures, Series A of Imperial Credit Industries, Inc.
Reference is hereby made to the Indenture, dated as of June 9, 1997 (the
"Indenture"), among Imperial Credit Industries, Inc., as issuer (the "Company"),
the Subsidiary Guarantors and Chase Trust Company of California, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $_______ principal amount of Debentures which are
evidenced by one or more Regulation S Global Debentures (CUSIP No. U452729AE6)
and held with the Depositary in the name of __________________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Debentures to a Person who will take delivery thereof in the
form of an equal principal amount of Debentures evidenced by one or more Rule
144A Global Debentures (CUSIP No. 45021AE6), to be held with the Depositary.
In connection with such request and in respect of such Debentures, the
Transferor hereby certifies that:
[CHECK ONE]
[_] such transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Debentures are being transferred to a Person that the
Transferor reasonably believes is purchasing the Debentures for its own
account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account
is a "qualified institutional buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
or
[_] such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
or
B2-1
<PAGE>
[_] such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Debentures
are being transferred in compliance with the transfer restrictions
applicable to the Global Debentures and in accordance with the requirements
of the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and such Debentures are being transferred in compliance with any applicable blue
sky securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Debentures for a beneficial interest in Rule 144A Global
Debentures, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Rule 144A Global Debentures pursuant to
the Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Lehman Brothers Inc., Montgomery
Securities and Dabney/Resnick/Imperial, LLC, the initial purchasers of such
Debentures being transferred. Terms used in this certificate and not otherwise
defined in the Indenture have the meanings set forth in Regulation S under the
Securities Act.
__________________________
[Insert Name of Transferor]
By:
----------------------------
Name:
Title:
Dated: _____________, _____
cc: Imperial Credit Industries, Inc.
B2-1
<PAGE>
Exhibit B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF CERTIFICATED DEBENTURES
(Pursuant to Section 2.06(b) of the Indenture)
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Re: Resettable Rate Debentures, Series A of Imperial Credit Industries,
Inc.
Reference is hereby made to the Indenture, dated as of June 9, 1997 (the
"Indenture"), among Imperial Credit Industries, Inc., as issuer (the "Company"),
the Subsidiary Guarantors and Chase Trust Company of California, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
In connection with such request and in respect of the Debentures surrendered
to the Trustee herewith for exchange (the "Surrendered Debentures"), the Holder
of such Surrendered Debentures hereby certifies that:
[CHECK ONE]
[_] the Surrendered Debentures are being acquired for the Transferor's own
account, without transfer;
or
[_] the Surrendered Debentures are being transferred to the Company;
or
[_] the Surrendered Debentures are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Debentures are being transferred to
a Person that the Transferor reasonably believes is purchasing the
Surrendered Debentures for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A;
or
B3-1
<PAGE>
[_] the Surrendered Debentures are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
[_] the Surrendered Debentures are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Debentures
are being transferred in compliance with the transfer restrictions
applicable to the Global Debentures and in accordance with the requirements
of the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Debentures are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Lehman Brothers Inc., the initial
purchaser of such Debentures being transferred. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
__________________________
[Insert Name of Transferor]
By:
---------------------------------------
Name:
Title:
Dated: _____________, _____
cc: Imperial Credit Industries, Inc.
B3-2
<PAGE>
Exhibit B-4
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL DEBENTURE OR REGULATION S PERMANENT GLOBAL DEBENTURE
TO CERTIFICATED DEBENTURE
(Pursuant to Section 2.06(c) of the Indenture)
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Re: Resettable Rate Debentures, Series A of Imperial Credit Industries,
Inc.
Reference is hereby made to the Indenture, dated as of June 9, 1997 (the
"Indenture"), among Imperial Credit Industries, Inc., as issuer (the "Company"),
the Subsidiary Guarantors and Chase Trust Company of California, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
This letter relates to $_______ principal amount of Debentures which are
evidenced by one or more [Rule 144A Global Debentures (CUSIP No. 452729AE6)]
[Regulation S Permanent Global Debenture (CUSIP No. U45021AB5)] and held with
the Depositary in the name of ____________________________ (the "Transferor").
The Transferor has requested a transfer of such beneficial interest in the
Debentures to a Person who will take delivery thereof in the form of an equal
principal amount of Debentures evidenced by one or more Certificated Debentures
(CUSIP No. 452729AC0), which Debentures, immediately after such transfer, are to
be delivered to the transferor at the address set forth below.
In connection with such request and in respect of the Debentures surrendered
to the Trustee herewith for exchange (the "Surrendered Debentures"), the Holder
of such Surrendered Debentures hereby certifies that:
[CHECK ONE]
[_] the Surrendered Debentures are being transferred to the beneficial owner of
such Debentures;
or
[_] the Surrendered Debentures are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Debentures are being transferred to
a Person that the Transferor reasonably believes is purchasing the
Surrendered Debentures for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified
B4-1
<PAGE>
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A;
or
[_] the Surrendered Debentures are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
[_] the Surrendered Debentures are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Debentures
are being transferred in compliance with the transfer restrictions
applicable to the Global Debentures and in accordance with the requirements
of the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Debentures are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Lehman Brothers Inc., the initial
purchasers of such Debentures being transferred. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
__________________________
[Insert Name of Transferor]
By:
-------------------------------------
Name:
Title:
Dated: _____________, _____
__________________________
[Address of Transferor]
__________________________
cc: Imperial Credit Industries, Inc.
B4-2
<PAGE>
Exhibit B-5
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM CERTIFICATED DEBENTURE TO RULE 144A GLOBAL DEBENTURE OR
REGULATION S PERMANENT GLOBAL DEBENTURE
(Pursuant to Section 2.06(e) of the Indenture)
Chase Trust Company of California
101 California Street
Suite 2725
San Francisco, CA 94111
Attention: Corporate Trust Department
Re: Resettable Rate Debentures, Series A of Imperial Credit Industries,
Inc.
Reference is hereby made to the Indenture, dated as of June 9, 1997 (the
"Indenture"), among Imperial Credit Industries, Inc., as issuer (the "Company"),
the Subsidiary Guarantors and Chase Trust Company of California, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
In connection with such request and in respect of the Debentures surrendered
to the Trustee herewith for exchange (the "Surrendered Debentures"), the Holder
of such Surrendered Debentures hereby certifies that:
[CHECK ONE]
[_] the Surrendered Debentures are being transferred to the beneficial owner of
such Debentures;
or
[_] the Surrendered Debentures are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Debentures are being transferred to
a Person that the Transferor reasonably believes is purchasing the
Surrendered Debentures for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting the
requirements of Rule 144A;
or
[_] the Surrendered Debentures are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
B5-1
<PAGE>
or
[_] the Surrendered Debentures are being transferred in a transaction permitted
by Rule 904 under the Securities Act;
or
[_] the Surrendered Debentures are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Debentures
are being transferred in compliance with the transfer restrictions
applicable to the Global Debentures and in accordance with the requirements
of the exemption claimed, which certification is supported by an Opinion of
Counsel, provided by the transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that such
transfer is in compliance with the Securities Act;
and the Surrendered Debentures are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Lehman Brothers Inc., the initial
purchasers of such Debentures being transferred. Terms used in this certificate
and not otherwise defined in the Indenture have the meanings set forth in Rule
144 or Regulation S under the Securities Act.
__________________________
[Insert Name of Transferor]
By:
------------------------------------
Name:
Title:
Dated: _____________, _____
cc: Imperial Credit Industries, Inc.
B5-2
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
Dated as of June 9, 1997
by and among
IMPERIAL CREDIT CAPITAL TRUST I,
IMPERIAL CREDIT INDUSTRIES, INC.,
IMPERIAL BUSINESS CREDIT, INC.
IMPERIAL CREDIT ADVISORS, INC.,
FRANCHISE MORTGAGE ACCEPTANCE CO. LLC., and
AUTO MARKETING NETWORK, INC., as Guarantors
and
LEHMAN BROTHERS INC.,
as Initial Purchaser
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
---------
into as of June 9, 1997 by and among Imperial Credit Industries, Inc., a
California corporation (the "Company"), Imperial Business Credit, Inc., a
-------
California corporation, Imperial Credit Advisors, Inc., a California
corporation, Franchise Mortgage Acceptance Co. LLC, a California limited
liability company, and Auto Marketing Network, Inc., a Florida corporation
(together, the "Guarantors"), Imperial Credit Capital Trust I, a Delaware
----------
statutory business trust (the "Trust," and together with the Company and the
-----
Guarantors, the "Registrants"), and Lehman Brothers Inc. (the "Initial
----------- -------
Purchaser").
- ---------
This Agreement is entered into in connection with the Purchase Agreement,
dated as of June 5, 1997, among the Registrants and the Initial Purchaser (the
"Purchase Agreement"), which provides for the sale by the Trust to the Initial
- --------- ---------
Purchaser of $70,000,000 aggregate liquidation amount of the Trust's Remarketed
Par Securities, Series A, liquidation amount $1,000 per security (the "Preferred
---------
Securities"). The Company will be the owner of all of the beneficial ownership
- ----------
interest represented by the common securities (the "Common Securities") of the
------ ----------
Trust. The Preferred Securities and the Common Securities will be guaranteed
(the "Guarantee") by the Company, to the extent of funds held by the Trust.
---------
Concurrently with the issuance of the Preferred Securities, the Guarantee and
the Common Securities, the Trust will invest the proceeds of each thereof in the
Company's Resettable Rate Debentures, Series A (the "Debentures" and, together
----------
with the Preferred Securities, the Guarantee and the Debenture Guarantees (as
defined herein), the "Securities"). To induce the Initial Purchaser to enter
----------
into the Purchase Agreement and the Remarketing Agreement (as defined herein),
the Registrants have agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchaser and its direct and indirect
transferees and assigns. The execution and delivery of this Agreement is a
condition to the Initial Purchaser's obligation to purchase the Preferred
Securities under the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
---
Additional Distributions: As defined in Section 5.
------------------------
Additional Interest: As defined in Section 5.
-------------------
Additional Interest Payment Date: With respect to the Transfer Restricted
--------------------------------
Securities, each Distribution Date until the earlier of (i) the date on which
Additional Interest (and corresponding Additional Distributions) no longer are
payable or (ii) maturity of the Securities.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
1
<PAGE>
Closing Date: The date of this Agreement.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: A registered Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the New Securities to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the
Registrants of the New Securities in the same aggregate principal amount as the
aggregate principal amount of Transfer Restricted Securities that were tendered
by Holders thereof pursuant to the Exchange Offer.
Debenture Guarantees: The Debt Guarantee, dated as of June 9, 1997, among
--------------------
the Guarantors, the Company and Chase Trust Company of California, as trustee.
Debentures: As defined in the preamble.
----------
Declaration: Declaration of Trust, dated as of June 9, 1997, among Chase
-----------
Trust Company of California, as Property Trustee, Chase Manhattan Bank Delaware,
as Delaware Trustee and the other trustees named therein, pursuant to which the
Preferred Securities are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Distribution: As defined in the Declaration.
------------
Effectiveness Target Date: As defined in Section 5.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The registration by the Registrants under the Act of the
--------------
New Securities pursuant to a Registration Statement pursuant to which the
Registrants will offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for New Securities in an aggregate principal
amount equal to the aggregate amount of the Transfer Restricted Securities
tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the purchasers of Transfer
--------------
Restricted Securities in the Remarketing propose to sell the Securities to
certain "qualified institutional buyers," as such term is defined in Rule 144A
under the Securities Act, and to certain non-U.S. persons.
2
<PAGE>
Guarantee: The Guarantee, dated as of June 9, 1996, between the Company
---------
and Chase Trust Company of California, as Guarantee Trustee, pursuant to which
the Guarantee is being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
Guarantors: As defined in the preamble hereto.
----------
Holders: As defined in Section 2(b) hereof.
-------
Indemnified Party: As defined in Section 8(a) hereof.
-----------------
Indenture: The Indenture, dated as of June 9, 1997, among the Company,
---------
Chase Trust Company of California, as trustee (the "Trustee"), and the
-------
Guarantors, pursuant to which the Debentures and the New Debentures are to be
issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
Initial Purchaser: As defined in the preamble hereto.
-----------------
NASD: National Association of Securities Dealers, Inc.
----
New Debentures: The Company's Resettable Rate Debentures, Series B to be
--------------
issued pursuant to the Indenture in the Exchange Offer.
New Securities: The securities to be issued pursuant to the Indenture,
--------------
the Declaration and the Guarantee in the Exchange Offer, or if the Debentures
have been distributed to the Holders of the Preferred Securities in liquidation
of the Trust, the New Debentures.
Person: An individual, partnership, corporation, trust or unincorporated
------
organization, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
----------
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Registrants: The Trust, the Guarantors and the Company or, if the
-----------
Debentures have been distributed to the Holders of the Preferred Securities in
liquidation of the Trust, the Company only.
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Registrants
----------------------
relating to (a) an offering of New Securities pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
3
<PAGE>
Remarketing Agreement: That certain Remarketing Agreement dated as of
----------------------
June 9, 1997 by and among the Company, the Trust and the Broker Dealer or Broker
Dealers named therein, as such agreement is amended from time to time.
Securities: As defined in the preamble hereto.
----------
Shelf Filing Deadline: As defined in Section 4 hereof.
---------------------
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date of the Indenture.
Transfer Restricted Securities: Each Security, (for the purposes of this
------------------------------
definition, if the Debentures have been distributed to the Holders of Preferred
Securities in liquidation of the Trust, each Debenture) until the earliest to
occur of (a) the date on which such Security has been exchanged by a person
other than a Broker-Dealer for New Securities in the Exchange Offer, (b)
following the exchange by a Broker-Dealer in the Exchange Offer of such security
for one or more New Securities, the date on which such New Securities are sold
to a purchaser who receives from such Broker-Dealer on or prior to the date of
such sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (c) the date on which such Security has been effectively registered
under the Act and disposed of in accordance with the Shelf Registration
Statement or (d) the date after the Closing Date on which such Security is sold
to the public pursuant to Rule 144 under the Act;
Underwritten Registration or Underwritten Offering: A registration in
------------------------- ---------------------
which securities of the Registrants are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
------------------------------
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to be a
-----------------------------------------
holder of Transfer Restricted Securities (each, a "Holder") whenever such Person
------
owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable
law or Commission policy (after the procedures set forth in Section 6(a) below
have been complied with), the Registrants shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 30 days after the Closing Date, an Exchange Offer Registration Statement
under the Act relating to the New Securities and the Exchange Offer, (ii)
4
<PAGE>
use their respective best efforts to cause such Registration Statement to become
effective at the earliest possible time, but in no event later than 90 days
after the Closing Date, (iii) in connection with the foregoing, file (A) all
pre-effective amendments to such Registration Statement as may be necessary in
order to cause such Registration Statement to become effective, (B) if
applicable, a post-effective amendment to such Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings in connection
with the registration and qualification of the New Securities to be made under
the Blue Sky laws of such jurisdictions as are necessary to permit Consummation
of the Exchange Offer, and (iv) upon the effectiveness of such Registration
Statement, commence the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the New Securities to be offered in
exchange for the Transfer Restricted Securities and to permit resales of New
Securities held by Broker-Dealers as contemplated by Section 3(c) below.
(b) The Registrants shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 business days. Registrants shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the New Securities shall be included in the
Exchange Offer Registration Statement. Registrants shall use their respective
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 business days thereafter.
(c) The Registrants shall indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Securities that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the New Securities received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such resales by Broker-Dealers that the
Commission may require in order to permit such resales pursuant thereto, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Securities held by any such Broker-Dealer except to the extent
required by the Commission as a result of a change in policy after the date of
this Agreement.
The Registrants shall use their best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of New Securities acquired by Broker-
Dealers for their own accounts as a result of market-making activities or other
trading activities, and to ensure that it conforms with the requirements of this
5
<PAGE>
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year from the date on which the
Exchange Offer Registration Statement is declared effective.
The Registrants shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
one-year period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Registrants are not required to file
------------------
an Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with), (ii) the Company has received an opinion of independent tax counsel,
experienced in such matters, to the effect that, as a result of the consummation
of the Exchange Offer there is more than an insubstantial risk that (A) the
Trust would be subject to United States federal income tax with respect to
income received or accrued on the Debentures or New Debentures, (B) interest
payable by the Company on the Debentures or New Debentures would not be
deductible by the Company, in whole or in part, for United States federal income
tax purposes, or (C) the Trust would be subject to more than a de minimis amount
of other taxes, duties or other governmental charges or (iii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 business days
of the Consummation of the Exchange Offer (A) that such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer, or
(B) that such Holder may not resell the New Securities acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, or (C) that such
Holder is a Broker-Dealer and holds Securities acquired directly from the
Registrants or one of their affiliates, then the Registrants shall use their
respective best efforts to:
(x) cause to be filed a shelf registration statement pursuant to Rule
415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration Statement")
----------------------------
on or prior to the earliest to occur of (1) the 30th day after the date on
which the Registrants determine that they are not required to file the
Exchange Offer Registration Statement, (2) the 30th day after the date on
which the Registrants receive notice from a Holder of Transfer Restricted
Securities as contemplated by clause (ii) above, and (3) the 60th day after
the Closing Date (such earliest date being the "Shelf Filing Deadline"),
---------------------
which Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof; and
(y) use their best efforts to cause such Shelf Registration Statement
to be declared effective by the Commission on or before the 30th day after
the Shelf Filing Deadline.
6
<PAGE>
The Registrants shall use their best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for resales of Securities by the Holders of Transfer
Restricted Securities entitled to the benefit of this Section 4(a), and to
ensure that it conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least three years following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with the
------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
- ----------------------------
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Registrants in writing, within 20 business days after receipt of a request
therefor, such information as the Registrants may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Additional Interest (and corresponding Additional Distributions)
pursuant to Section 5 hereof unless and until such Holder shall have used its
best efforts to provide all such reasonably requested information. Each Holder
as to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Registrants all information required to be disclosed in order to
make the information previously furnished to the Registrants by such Holder not
materially misleading.
SECTION 5. ADDITIONAL INTEREST AND ADDITIONAL DISTRIBUTIONS
If (i) any of the Registration Statements required by this Agreement is
not filed with the Commission on or prior to the date specified for such filing
in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
-------------------------
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a post-
effective amendment to such Registration Statement that cures such failure and
that is itself immediately declared effective (each such event referred to in
clauses (i) through (iv), a "Registration Default"), the Company and each of the
--------------------
Guarantors hereby jointly and severally will pay additional interest
("Additional Interest") on the Debentures (including in respect of amounts
- ---------------------
occurring during any Extension Period) and corresponding Additional
Distributions (the "Additional Distributions") will become payable on the
------------------------
Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 liquidation or principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues. The amount of the Additional Interest (and
corresponding Additional Distributions) shall increase by an additional $.05 per
week per $1,000 liquidation or principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Additional Interest (and
corresponding Additional Distributions) of $.50 per week per $1,000 liquidation
7
<PAGE>
or principal amount of Transfer Restricted Securities. All accrued Additional
Interest (and corresponding Additional Distributions) shall be paid by the
Company to DTC by wire transfer of immediately available funds or by federal
funds check and to holders of definitive securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified on each Additional Interest Payment Date,
as provided in the Indenture. Following the cure of all Registration Defaults
relating to any particular Transfer Restricted Securities, the accrual of
Additional Interest (and corresponding Additional Distributions) with respect to
such Transfer Restricted Securities will cease.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Registrants shall comply with all of the provisions of
Section 6(c) below, shall use their best efforts to effect such exchange to
permit the sale of Transfer Restricted Securities being sold in accordance with
the intended method or methods of distribution thereof, and shall comply with
all of the following provisions:
(i) If in the reasonable opinion of counsel to the Registrants there
is a question as to whether the Exchange Offer is permitted by applicable
law, the Registrants hereby agree to seek a no-action letter or other
favorable decision from the Commission allowing the Registrants to Consummate
an Exchange Offer for the Transfer Restricted Securities. The Registrants
each hereby agree to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially unreasonable
action to effect a change of Commission policy. The Registrants each hereby
agree, however, to (A) participate in telephonic conferences with the
Commission, (B) deliver to the Commission staff an analysis prepared by
counsel to the Registrants setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursue a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Registrants, prior to the
Consummation thereof, a written representation to the Registrants (which may
be contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of the
Registrants, (B) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, a
distribution of the New Securities to be issued in the Exchange Offer and (C)
it is acquiring the New Securities in its ordinary course of business. In
addition, all such Holders of Transfer Restricted Securities shall otherwise
cooperate in the Registrants' preparations for the Exchange Offer.
8
<PAGE>
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any
such Holder using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
----------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
----------------------------------
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including any no-
action letter obtained pursuant to clause (i) above), and (2) must comply
with the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a secondary
resale transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K if the resales are of New Securities
obtained by such Holder in exchange for Securities acquired by such Holder
directly from the Company or the Trust.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Registrants shall provide a supplemental letter to the
Commission (A) stating that the Company, the Guarantors and the Trust are
registering the Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988),
----------------------------------
Morgan Stanley and Co., Inc. (available June 5, 1991) and, if applicable, any
----------------------------
no-action letter obtained pursuant to clause (i) above and (B) including a
representation that neither the Company, the Guarantors nor the Trust has
entered into any arrangement or understanding with any Person to distribute
the New Securities to be received in the Exchange Offer and that, to the best
of the Registrants' information and belief, each Holder participating in the
Exchange Offer is acquiring the New Securities in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the New Securities received in the
Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Registrants shall comply with all the provisions of
Section 6(c) below and shall use their best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will as expeditiously as possible prepare and file
with the Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
(c) General Provisions. In connection with any Registration Statement and
------------------
any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Securities by
Broker-Dealers), the Registrants shall:
(i) use their best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder, financial
statements of the Guarantors) for the period specified in Section 3 or 4 of
this Agreement, as applicable; upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein (A)
to
9
<PAGE>
contain a material misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Registrants shall file promptly an
appropriate amendment to such Registration Statement, in the case of clause
(A), correcting any such misstatement or omission, and, in the case of either
clause (A) or (B), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the related Prospectus
to become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth
in Section 3 or 4 hereof, as applicable, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the Act, and to comply fully with the
applicable provisions of Rules 424 and 430A under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition of
all securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by
the sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, to confirm such advice in writing, (A)
when the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any Registration Statement or any post-
effective amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act or
of the suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any jurisdiction,
or the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document incorporated
by reference therein untrue, or that requires the making of any additions to
or changes in the Registration Statement or the Prospectus in order to make
the statements therein not misleading. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company, the Trust and the Guarantors shall use their best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
10
<PAGE>
Registration Statement), which documents will be subject to the review of
such Holders and underwriter(s), if any, for a period of at least five
business days, and the Company and the Trust will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which a selling Holder of Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s), if
any, shall reasonably object within five business days after the receipt
thereof. A selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains a
material misstatement or omission;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s), if any, make the Company's and the Trust's representatives
available (and representatives of the Guarantors) for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such selling
Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the selling
Holders, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by such
selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of each of the
Registrants and cause each of the Registrant's officers, directors, managers
and employees to supply all information reasonably requested by any such
Holder, underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the underwriter(s), if
any, promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer Restricted
Securities, information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the purchase price
being paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after the Company and the Trust are notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority in aggregate principal amount of
Securities covered thereby or the underwriter(s), if any;
11
<PAGE>
(ix) furnish to each selling Holder and each of the underwriter(s),
if any, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including, if
requested in writing by a Holder, all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each selling Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Registrants hereby consent to the use of
the Prospectus and any amendment or supplement thereto by each of the selling
Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
(xi) enter into, and cause the Guarantors to enter into, such
agreements (including an underwriting agreement), and make, and cause the
Guarantors to make, such representations and warranties, and take all such
other actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement, all to such extent as
may be requested by the Initial Purchaser or by any Holder of Transfer
Restricted Securities or underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this Agreement; and
whether or not an underwriting agreement is entered into and whether or not
the registration is an Underwritten Registration, the Registrants shall:
(A) furnish to each Purchaser, each selling Holder and each
underwriter, if any, in such substance and scope as they may request and
as are customarily made by issuers to underwriters in primary underwritten
offerings, upon the date of the Consummation of the Exchange Offer and, if
applicable, the effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration Statement,
as the case may be, signed by (y) the President, any Vice President, or
any Manager and (z) a principal financial or accounting officer of each
of the Company and each Guarantor, confirming, as of the date thereof,
the matters set forth in paragraphs (b), (c), (d) and (e) of Section 8
of the Purchase Agreement and such other matters as such parties may
reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration Statement,
as the case may be, of counsel for the Registrants covering the matters
set forth in paragraph [h] of Section 8 of the Purchase Agreement and
such other matter as such parties may reasonably request, and in any
event including a statement to the effect that such counsel has
participated in conferences with officers and other representatives of
the Registrants, representatives of the independent public accountants
for the
12
<PAGE>
Company, the Initial Purchaser representatives and the Initial
Purchaser's counsel in connection with the preparation of such
Registration Statement and the related Prospectus and have considered
the matters required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that such
counsel advises that, on the basis of the foregoing (relying as to
materiality to a large extent upon facts provided to such counsel by
officers and other representatives of the Registrants and without
independent check or verification), no facts came to such counsel's
attention that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the case of
the Exchange Offer Registration Statement, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus contained in such Registration Statement as of its date and,
in the case of the opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included in
any Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters by underwriters in
connection with primary underwritten offerings, and affirming the
matters set forth in the comfort letters delivered pursuant to Section
8(m) of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the underwriting
agreement, if any, the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be indemnified pursuant to
said Section; and
(C) deliver such other documents and certificates as may be reasonably
requested by such parties to evidence compliance with clause (A) above and
with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company and the Trust pursuant to this
clause (xi), if any.
If at any time the representations and warranties of the Company, the
Trust and the Guarantors contemplated in clause (A)(1) above cease to be true
and correct, the Company, the Trust or the Guarantors shall so advise the
Purchasers and the underwriter(s), if any,
13
<PAGE>
and each selling Holder promptly and, if requested by such Persons, shall
confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with, and cause the Guarantors to cooperate with, the selling
Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Transfer Restricted
Securities under the securities or Blue Sky laws of such jurisdictions as the
selling Holders or underwriter(s) may request and do any and all other acts
or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however, that neither the Company, the
Guarantors nor the Trust shall be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) shall issue, upon the request of any Holder of Securities covered
by the Shelf Registration Statement, New Securities, having an aggregate
principal amount equal to the aggregate principal amount of Securities
surrendered to the Company by such Holder in exchange therefor or being sold
by such Holder; such New Securities to be registered in the name of such
Holder or in the name of the purchaser(s) of such Securities, as the case may
be; in return, the Securities held by such Holder shall be surrendered to the
Company for cancellation;
(xiv) cooperate with, and cause the Guarantors to cooperate with, the
selling Holders and the underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and enable
such Transfer Restricted Securities to be in such denominations and
registered in such names as the Holders or the underwriter(s), if any, may
request at least two business days prior to any sale of Transfer Restricted
Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted Securities
covered by the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriter(s), if any, to consummate
the disposition of such Transfer Restricted Securities, subject to the
proviso contained in clause (viii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D) above
shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of Transfer Restricted
Securities, the Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;
14
<PAGE>
(xvii) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of the Registration Statement and provide
the Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xix) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration Statement;
(xx) cause the Indenture and, if the Debentures shall not have been
distributed to the Holders of the Preferred Securities in liquidation of the
Trust, the Declaration and the Guarantee to be qualified under the TIA not
later than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate, and cause the
Guarantors to cooperate, with the Trustee and the Holders of Securities to
effect such changes to the Indenture, the Declaration and the Guarantee as
may be required for such Indenture, Declaration and Guarantee to be so
qualified in accordance with the terms of the TIA; and execute, and cause the
Guarantors to execute, and use their best efforts to cause the Indenture
Trustee, the Guarantee Trustee and the Property Trustee to execute, all
documents that may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such Indenture,
Declaration and the Guarantee to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by the
Holders of a majority in aggregate principal amount of Securities or the
managing underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security that,
upon receipt of any notice from the Company of the existence of any fact of the
kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted
15
<PAGE>
Securities pursuant to the applicable Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 6(c)(xvi) hereof, or until it is advised in writing (the "Advice") by
------
either Registrant that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus. If so directed by either Registrant, each Holder
will deliver to either Registrant (at such Registrant's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Transfer Restricted Securities that was current at the
time of receipt of such notice. In the event either Registrant shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including
the date when each selling Holder covered by such Registration Statement shall
have received the copies of the supplemented or amended Prospectus contemplated
by Section 6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Registrants' performance of or compliance
with this Agreement will be borne by the Registrants, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by the Initial
Purchaser or Holder with the NASD (and, if applicable, the fees and expenses of
any "qualified independent underwriter" and its counsel that may be required by
the rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the New Securities
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Registrants and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing Securities on a national securities exchange or automated quotation
system pursuant to the requirements hereof; and (vi) all fees and disbursements
of independent certified public accountants of the Company and the Trust
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Registrants will, in any event, bear their internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Registrants.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchaser and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Latham & Watkins or such other
16
<PAGE>
counsel as may be chosen by the Holders of a majority in principal amount of the
Transfer Restricted Securities for whose benefit such Registration Statement is
being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company, the Trust and each Guarantor, jointly and severally,
agree to indemnify and hold harmless (i) each Holder, each participating Broker-
Dealer or the Initial Purchaser selling New Securities and (ii) each person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) any such person (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "controlling person") and (iii) the
------------------
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Participant"), to the
-----------
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Participant) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus (or any amendment or
supplement thereto), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any act or failure to act or any alleged act or
failure to act in connection with, or relating in any manner to the transactions
contemplated hereby, except insofar as such losses, claims, damages, liabilities
or expenses are caused by an untrue statement or omission or alleged untrue
statement or omission that is made in reliance upon and in conformity with
information relating to any of the Holders furnished in writing to the Company
and the Trust by any of the Holders expressly for use therein.
In case any action or proceeding (including any governmental or regulatory
investigation or proceeding) shall be brought or asserted against any of the
Participants with respect to which indemnity may be sought against the Company,
the Trust or the Guarantors, such Participant (or the Participant controlled by
such controlling person) shall promptly notify the Company and the Trust in
writing; provided, that the failure to give such notice shall not relieve the
Company, the Trust or the Guarantors of its respective obligations pursuant to
this Agreement. Such Participant shall have the right to employ its own counsel
in any such action and the fees and expenses of such counsel shall be paid, as
incurred, by the Company, the Trust and the Guarantors (regardless of whether it
is ultimately determined that an Participant is not entitled to indemnification
hereunder). The Company, the Trust and the Guarantors shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for such Participants, which firm shall be designated by
the Holders. The Company and the Trust shall be liable for any settlement of any
such action or proceeding effected with the Company's or the Trust's respective
prior written consent, which consent shall not be withheld unreasonably, and the
Company and the
17
<PAGE>
Trust agree to indemnify and hold harmless any Participant from and against any
loss, claim, damage, liability or expense by reason of any settlement of any
action effected with the written consent of the Company or the Trust. Neither
the Company nor the Trust, without the prior written consent of each
Participant, settle or compromise or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened action, claim, litigation
or proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not any Participant is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Participant from all liability arising out of such action, claim,
litigation or proceeding.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Trust and each Guarantor, and their respective
directors, officers, and any person controlling (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company, the Trust and the
Guarantors, and the respective officers, directors, partners, employees,
managers, representatives and agents of each such person, to the same extent as
the foregoing indemnity from the Company, the Trust and the Guarantors to each
of the Participants, but only with respect to claims and actions based on
information relating to such Participant furnished in writing by such
Participant expressly for use in any Registration Statement. In case any action
or proceeding shall be brought against the Company, the Trust, the Guarantors or
their respective directors, managers, officers or any such controlling person in
respect of which indemnity may be sought against a Participant, such Participant
shall have the rights and duties given the Company, the Trust, and the
Guarantors and the Company, the Trust and the Guarantors and their directors or
officers or such controlling person shall have the rights and duties given to
each Participant by the preceding paragraph. In no event shall the liability of
any selling Participant hereunder be greater in amount than the dollar amount of
the proceeds received by such Participant upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is unavailable
to an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Trust and the Company on the one hand and the Participants on the other hand
from their sale of Transfer Restricted Securities or if such allocation is not
permitted by applicable law, the relative fault of the Trust, the Company and
the Guarantors on the one hand and of the Participant on the other in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Trust, the Company and the Guarantors on the one hand
and of the Participant on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Trust or any Guarantor or by the
Participant and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
18
<PAGE>
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Registrants and each Participant agree that it would not be just and
equitable if contribution pursuant to this Section 8(c) were determined by pro
rata allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, none of the Participants shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the total discount received by such Participant with respect to the
Securities exceeds the amount of any damages which such Participant has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Participant's obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Securities held by each of the Participants hereunder and not joint.
SECTION 9. RULE 144A
The Registrants hereby agree with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
19
<PAGE>
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Registrants agree that monetary damages (including the
--------
liquidated damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company and the Trust will not, and
--------------------------
will cause the Guarantors not to, on or after the date of this Agreement enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Trust has previously entered into
any agreement granting any registration rights, with respect to its securities,
to any Person, which are inconsistent with the rights granted to the Holders in
this Agreement. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's and the Trust's securities under any agreement in effect on the
date hereof.
(c) Adjustments Affecting the Securities. The Company and the Trust will
------------------------------------
not take any action, or permit any change to occur, with respect to the
Securities that would materially and adversely affect the ability of the Holders
to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company and the Trust have
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being tendered
pursuant to the Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being tendered pursuant to
such Exchange Offer may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities being tendered or registered.
(e) Notices. All statements, reports, notices and other communications
-------
provided for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or
20
<PAGE>
certified, return receipt requested), telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Declaration; and
(ii) if to the Registrants:
Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building 1, Suite 210
Torrance, California 90505
Telecopier No.: (310) 373-4305
Attention: Chief Financial Officer
With a copy to:
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Boulevard
Beverly Hills, California 90212
Telecopier No.: (310) 274-8357
Attention: Thomas J. Poletti
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
21
<PAGE>
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement, the Remarketing Agreement, the Indenture, the Guarantee and the
Debenture Guarantees, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company and the Trust with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
(l) Required Consents. Whenever the consent or approval of Holders of a
-----------------
specified percentage of Transfer Restricted Securities is required hereunder,
Transfer Restricted Securities held by the Company or its affiliates (as such
term is defined in Rule 405 under the Act) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
IMPERIAL CREDIT INDUSTRIES, INC.
By: /s/ H. Wayne Snavely
---------------------------------
Name: H. Wayne Snavely
Title: Chairman
IMPERIAL CREDIT CAPITAL TRUST I
By: /s/ Kevin E. Villani
---------------------------------
IMPERIAL BUSINESS CREDIT, INC.
By: /s/ H. Wayne Snavely
---------------------------------
Name: H. Wayne Snavely
Title: Chairman
IMPERIAL CREDIT ADVISORS, INC.
By: /s/ H. Wayne Snavely
---------------------------------
Name: H. Wayne Snavely
Title: Chairman
FRANCHISE MORTGAGE ACCEPTANCE CO. LLC
By: /s/ H. Wayne Snavely
---------------------------------
Name: H. Wayne Snavely
Title: Chairman
AUTO MARKETING NETWORK, INC.
By: /s/ H. Wayne Snavely
---------------------------------
Name: H. Wayne Snavely
Title: Chairman
23
<PAGE>
Accepted as of the date hereof
LEHMAN BROTHERS INC.
By: /s/ David J. Kim
---------------------------------
Name: David J. Kim
Title: Senior Vice President
24
<PAGE>
EXHIBIT 4.5
$70,000,000
IMPERIAL CREDIT CAPITAL TRUST I
REMARKETED PAR SECURITIES, SERIES A
REMARKETING AGREEMENT
---------------------
June 9, 1997
Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Imperial Credit Capital Trust I, a Delaware statutory business trust
(the "Trust"), is issuing today $70,000,000 in aggregate liquidation amount of
the Trust's Remarketed Par Securities, Series A (liquidation amount $1,000 per
Security) (the "Preferred Securities"), guaranteed (the "Guarantee"; together
with the Preferred Securities, the "Securities") by the Company (as defined
herein) to the extent set forth in the Guarantee Agreement, dated as of June 9,
1997 (the "Guarantee Agreement"), between the Company and Chase Trust Company of
California, as Guarantee Trustee (the "Guarantee Trustee"). Imperial Credit
Industries, Inc., a California corporation (the "Company"), will be the owner of
all of the beneficial ownership interests represented by common securities (the
"Common Securities") of the Trust. Concurrently with the issuance of the
Securities and the Company's purchase of all of the Common Securities, the Trust
will invest the proceeds of each thereof in the Company's Resettable Rate
Debentures, Series A (the "Resettable Rate Debentures, Series A"). The
Resettable Rate Debentures, Series A are to be issued pursuant to an Indenture,
dated as of June 9, 1997 (the "Indenture"), between the Company, the Trust,
Imperial Business Credit, Inc., a California corporation ("IBC"), Imperial
Credit Advisors, Inc., a California corporation ("ICA"), Franchise Mortgage
Acceptance Co. LLC, a California limited liability company ("FMA"), Auto
Marketing Network, Inc., a Florida corporation ("AMN"), and Chase Trust Company
of California, as Indenture Trustee (the "Indenture Trustee"). Collectively,
IBC, ICA, FMA and AMN are referred to as the "Guarantors".
Pursuant to a registration rights agreement, dated as of June 9, 1997
(the "Registration Rights Agreement"), among the Company, the Trust, the
Guarantors and the Initial Purchaser, the Company, the Trust and the Guarantors
have agreed, subject to the conditions stated therein, to file with the
Securities and Exchange Commission (the "Commission") a registration statement
within 30 days after the date of original issuance of the Preferred Securities
and to use their best efforts to commence an offer to exchange (the "Exchange
Offer") the Securities for Preferred Securities, Series B, of the Trust (the
"New Preferred Securities" and, together with the Preferred Securities, the
"Trust Preferred Securities") and a new Company guarantee pursuant to a new
guarantee agreement (the "New Guarantee Agreement") between the Company and the
Guarantee Trustee in respect of the New Preferred Securities (the "New
Guarantee" and, together with the New Preferred Securities, the "New
Securities"), which New Securities will have been registered under the
Securities Act, and will otherwise be identical in all respects to the
Securities or to cause a
<PAGE>
2
shelf registration statement to become effective under the Securities Act with
respect to the Securities and the Resettable Rate Debentures, Series A, and to
remain effective for the period designated in the Registration Rights Agreement.
In connection with the Exchange Offer, the Company's Resettable Rate Debentures,
Series B (the "New Debentures" and, together with the Resettable Rate
Debentures, Series A, the "Debentures"), to be issued pursuant to the Indenture,
are to be exchanged with the Trust for the Resettable Rate Debentures, Series A.
The Remarketing Agent (as defined herein) and Holders of Transfer Restricted
Securities (as defined in the Registration Rights Agreement) will be entitled to
the benefits of the Registration Rights Agreement.
The Amended and Restated Declaration of Trust of the Trust, dated as
of June 9, 1997 (the "Declaration"), provides for the Remarketing (as defined
below) of the New Preferred Securities, unless the New Securities have not been
issued pursuant to the Exchange Offer, in which event the Declaration provides
for the remarketing of the Preferred Securities; provided that if the Debentures
have been distributed to the holders of the Trust Preferred Securities in
liquidation of the Trust, the Indenture provides for the remarketing of the New
Debentures unless the New Debentures have not been issued in connection with the
Exchange Offer, in which event the Indenture provides for the remarketing of the
Resettable Rate Debentures, Series A. As used in this Agreement, the term
"Remarketed Securities" means the securities remarketed pursuant to the
Declaration or the Indenture, as the case may be; the term "Remarketing
Procedures" means Section 7.5 of the Declaration and Section 3.12 of the
Indenture; and the term "Remarketing" means the remarketing of the Remarketed
Securities pursuant to the Remarketing Procedures.
In connection with the Remarketing, the Company and the Trust (unless
the Debentures have been distributed to the holders of the Trust Preferred
Securities in liquidation of the Trust, in which case the Company only) (each,
an "Issuer of the Remarketed Securities") will prepare final Offering Materials
(as defined below) setting forth or including a description of the terms of the
Remarketed Securities, the terms of the Remarketing, a description of each
Issuer of the Remarketed Securities and any material developments relating to
the Company occurring after the date of the most recent financial statements
included therein. Each Issuer of the Remarketed Securities shall deliver copies
of the Offering Materials to the Remarketing Agent pursuant to the terms of this
Agreement. The Company and the Trust hereby confirm that they have authorized
the use of the Offering Materials in connection with the remarketing of the
Remarketed Securities by the Remarketing Agent in accordance with Section 1
hereof. As used herein, "Preliminary Offering Materials" and "Offering
Materials" shall mean, respectively, (i) if a registration statement is not
filed in connection with the Remarketing, any preliminary offering memorandum
and the final offering memorandum prepared in connection with such Remarketing
and (ii) if a registration statement is filed in connection with the
Remarketing, the Registration Statement and any amendments thereto referred to
in Section 2(a) and any preliminary prospectus included therein, and the
Registration Statement and the Prospectus (each as defined herein).
Capitalized terms used herein and not otherwise defined are used as
defined in the Declaration or the Indenture, as the case may be.
Section 1. Appointment and Obligations of the Remarketing Agent. (a)
The Trust and the Company hereby appoint Lehman Brothers Inc., as exclusive
remarketing agent (the
<PAGE>
3
"Remarketing Agent"), and Lehman Brothers Inc. accepts appointment as
Remarketing Agent, for the purpose of (i) remarketing Remarketed Securities on
behalf of the holders thereof and (ii) performing such other duties as are
assigned to the Remarketing Agent in the Remarketing Procedures, all in
accordance with and pursuant to the Remarketing Procedures.
(b) The Remarketing Agent agrees (i) to use commercially reasonable
efforts to remarket the Remarketed Securities tendered or deemed tendered to the
Remarketing Agent in the Remarketing, (ii) to notify each Issuer of the
Remarketed Securities promptly of the Adjusted Distribution Rate and (iii) to
carry out such other duties as are assigned to the Remarketing Agent in the
Remarketing Procedures, all in accordance with the provisions of the Remarketing
Procedures.
(c) The Remarketing Agent represents and warrants to the Company that
it will remarket the Remarketed Securities upon the terms and conditions set
forth in this Agreement and in the Offering Materials.
(d) On the Scheduled Remarketing Date, the Remarketing Agent shall
use commercially reasonable efforts to remarket at a price equal to 100% of the
liquidation or principal amount thereof, Remarketed Securities tendered or
deemed tendered for purchase. Prior to 4:00 P.M., New York City time, on the
Scheduled Remarketing Date, the Remarketing Agent shall determine the Adjusted
Distribution Rate, which shall be the rate per annum (rounded to the nearest
one-thousandth (0.001) of one percent per annum) which the Remarketing Agent
determines, in its sole judgment, to be the lowest rate per annum, if any, not
exceeding the Maximum Adjusted Distribution Rate that will enable it to remarket
all Remarketed Securities tendered or deemed tendered for remarketing at a price
of $1,000 per Remarketed Security.
(e) If any holder of Remarketed Securities timely delivered a Notice
of Election to tender such Remarketed Securities and separately notifies the
Remarketing Agent that such holder desires to purchase a number of Remarketed
Securities in the Remarketing, but only if the Adjusted Distribution Rate is not
less than a specified rate per annum, the Remarketing Agent shall give priority
to such holder's purchase of such number of Remarketed Securities in the
Remarketing, provided that the Adjusted Distribution Rate is not less than such
specified rate.
(f) By approximately 4:30 P.M., New York City time, on the Scheduled
Remarketing Date, the Remarketing Agent shall advise, by telephone (i) the
Depositary, the Property Trustee, the Indenture Trustee and each Issuer of the
Remarketed Securities of the Adjusted Distribution Rate and the number of
Remarketed Securities sold in the Remarketing, (ii) each purchaser of Remarketed
Securities (or the Depositary Participant thereof) of the Adjusted Distribution
Rate and the number of Remarketed Securities such purchaser is to purchase and
(iii) each purchaser to give instructions to its Depositary Participant to pay
the purchase price on the Remarketing Settlement Date in same day funds against
delivery of the Remarketed Securities purchased through the facilities of the
Depositary.
(g) If the Remarketing Agent is unable to remarket by 4:00 P.M., New
York City time, on the Scheduled Remarketing Date all Remarketed Securities
tendered or deemed tendered for purchase at a price of $1,000 per Remarketed
Security and receives notice from the Indenture
<PAGE>
4
Trustee that the Company has deposited with the Indenture Trustee, not later
than 12 Noon, New York City time, on the Business Day prior to the related
Scheduled Remarketing Settlement Date, sufficient moneys to redeem Debentures in
a principal amount equal to the liquidation or principal amount of the
Remarketed Securities not so remarketed, then the Remarketing Agent shall make
payment to the Depositary Participant of each tendering holder of Remarketed
Securities by the close of business on the Remarketing Settlement Date, against
delivery through the facilities of the Depositary of such holder's tendered
Remarketed Securities, of the purchase price for such tendered Remarketed
Securities sold in the Remarketing. If the Company shall not have deposited such
moneys with the Indenture Trustee prior to such time, the Remarketing Agent
shall not make payment to such Depositary Participant of such purchase price.
2. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees (i) on and as of the date the Offering
Materials are first distributed to holders of the Remarketed Securities (the
"Commencement Date"), (ii) on and as of each Effective Date (as defined herein),
if any, if such Effective Date is not the Commencement Date and (iii) on and as
of the Scheduled Remarketing Date on which Remarketing occurs (the "Remarketing
Date"), that:
(a) If a registration statement is required to be filed in connection
with the Remarketing, such registration statement, and any required amendment
thereto, with respect to the Remarketed Securities have (i) been prepared in
conformity in all material respects with the requirements of the Securities Act
and the rules and regulations (the "Rules and Regulations") of the Commission
thereunder, (ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. As used in this Agreement,
"Effective Time" means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "Effective Date" means the date of the
Effective Time of such registration statement; "Preliminary Prospectus" means
each prospectus included in any such registration statement, or amendments
thereof, before it became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of the Remarketing
Agent pursuant to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at its Effective Time,
including any documents incorporated by reference therein at such time and all
information contained in the final prospectus filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations in accordance with Section 5(b)
hereof and deemed to be a part of the Registration Statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations. The Commission has not
issued any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus.
(b) If a registration statement is required to be filed in connection
with the Remarketing, the Registration Statement conforms (and the Prospectus
and any further amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the Commission, as the
case may be, will conform) in all respects to the requirements of the Securities
Act and the Rules and Regulations.
<PAGE>
5
(c) If a registration statement is required to be filed in connection
with the Remarketing, the documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents become effective or are filed with Commission, as the case may be,
will conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder.
(d) (i) If a registration statement is required to be filed in
connection with the Remarketing, the Registration Statement and any amendment
thereto did not and will not, as of its Effective Date, contain 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
(ii) each of the other Offering Materials and any amendment or supplement
thereto will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to information
contained in or omitted from the Offering Materials in reliance upon and in
conformity with written information furnished to either Issuer of the Remarketed
Securities by or on behalf of the Remarketing Agent specifically for inclusion
therein. Reference herein to the Offering Materials shall be deemed to refer to
and include any document filed by the Company under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which is incorporated in the Offering
Materials by reference, and any reference to any amendment or supplement to the
Offering Materials shall be deemed to refer to and include any document filed
under the Exchange Act after the date of the Offering Materials and incorporated
by reference in the Offering Materials.
(e) If a registration statement is not required to be filed in
connection with the Remarketing, it is not required by applicable law or
regulation in connection with the Remarketing in the manner contemplated by this
Agreement to register the Remarketed Securities or, if the Remarketed Securities
include Trust Preferred Securities, the Resettable Rate Debentures, Series A or
the New Debentures under the Securities Act or to qualify the Declaration, the
New Guarantee (or, if the Exchange Offer has not been consummated, the
Guarantee) or the Indenture in respect of Remarketed Securities or the
Debentures under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act").
(f) Each of the Company and IBC, ICA, FMA, AMN and any other
subsidiary of the Company (other than the Trust) that is a guarantor of the
Company's obligations under the Debentures immediately prior to the Remarketing
Settlement Date (collectively, the "Subsidiaries") has been duly organized and
is validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization, is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
its ownership or leasing of property or the conduct of its business requires
such qualification (except where the failure to be so qualified and in good
standing would not have a Material Adverse Effect), and has all power and
authority necessary to own or hold its properties and to conduct the business in
which it is engaged. As used herein, "Material Adverse Effect" means a material
adverse effect on the condition (financial or
<PAGE>
6
otherwise), results of operations, business or prospects of the Company and its
subsidiaries, taken as a whole.
(g) The authorized and outstanding capital stock of the Company as set
forth in the Offering Materials is accurate. All of the outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable and conform to the description thereof
contained in the Offering Materials.
(h) The Company owns a majority of the outstanding shares of capital
stock of, or membership interests in, as applicable, each of the Subsidiaries,
and all of such shares of capital stock or membership interests are duly
authorized and validly issued and are fully paid and nonassessable. All of such
shares of capital stock or membership interests, as applicable, of each of the
Subsidiaries are owned by the Company free and clear of any security interest,
claim, lien or encumbrance. Except as described in the Offering Materials,
there are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, shares of the capital stock or membership
interests of any of the Subsidiaries.
(i) Assuming due authorization, execution and delivery of this
Agreement by the Remarketing Agent, this Agreement is a legally valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and to general equitable principles
(whether considered in a proceeding in equity or at law).
(j) Assuming due authorization, execution and delivery thereof by the
Indenture Trustee, the Indenture is a legally valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and to general equitable principles (whether considered in a
proceeding in equity or at law).
(k) Assuming due authentication by the Indenture Trustee, the New
Debentures (or, if the Exchange Offer has not been consummated, the Resettable
Rate Debentures, Series A) are duly and validly issued and outstanding and
constitute the legally valid and binding obligations of the Company, entitled to
the benefits of the Indenture and enforceable against the Company in accordance
with their terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and to general equitable principles
(whether considered in a proceeding in equity or at law).
(l) Assuming due authorization, execution and delivery thereof by the
Guarantee Trustee, the New Guarantee Agreement (or, if the Exchange Offer has
not been consummated, the Guarantee Agreement) is a legally valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
<PAGE>
7
creditors' rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law).
(m) The performance of this Agreement, the Indenture and the New
Debentures (or, if the Exchange Offer has not been consummated, the Resettable
Rate Debentures, Series A) and, if the Remarketed Securities are Trust Preferred
Securities, the Declaration and the New Guarantee Agreement (or, if the Exchange
Offer has not been consummated, the Guarantee Agreement) by the Company (the
"Company Transactions") does not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan or credit agreement or other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries is bound or to which
any of the property or assets of the Company or any of the Subsidiaries is
subject, nor will such actions result in any violation of the provisions of the
charter, by-laws, operating agreement or other organizational documents of the
Company or any of the Subsidiaries or any statute, order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Company,
any of the Subsidiaries or any of their properties or assets (except to the
extent any such conflict, breach, violation or default does not or will not, as
the case may be, have a Material Adverse Effect); and except for such consents,
approvals, authorizations, registrations or qualifications as may be required
under applicable state securities laws in connection with the initial
distribution of the Preferred Securities or the Remarketing by the Remarketing
Agent, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the Company Transactions.
(n) Neither the Company nor any of the Subsidiaries is in breach or
violation of any of the terms or provisions of any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company or
any of the Subsidiaries are a party or by which the Company or any of the
Subsidiaries are bound or to which any of the property or assets of the Company
or any of the Subsidiaries are subject, which breach or violation would have a
Material Adverse Effect, nor is the Company or any of the Subsidiaries in
violation of the provisions of its charter, by-laws, operating agreement or
other organizational documents or any statute or any judgment, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of the Subsidiaries or any of their properties or assets,
which violation would have a Material Adverse Effect.
(o) The Remarketed Securities, the Indenture, this Agreement and, if
the Remarketed Securities are Trust Preferred Securities, the Declaration, the
New Guarantee Agreement (or, if the Exchange Offer has not been consummated, the
Guarantee Agreement) and the New Debentures (or, if the Exchange Offer has not
been consummated, the Resettable Rate Debentures, Series A) conform or will
conform in all material respects to the descriptions thereof contained in the
Offering Materials.
(p) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company or any of the Subsidiaries
is a party or of which any property or assets of the Company or any of the
Subsidiaries is the subject which, if determined
<PAGE>
8
adversely to the Company or any of the Subsidiaries, could reasonably be
expected to have a Material Adverse Effect, otherwise than as set forth in the
Offering Materials.
(q) If a registration statement is required to be filed in connection
with the Remarketing, the conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
(r) Neither the Company nor any of the Subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the Offering Materials, any material losses or
interferences with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Offering Materials; and, since such date, there have not
been any material changes in the capital stock or long-term debt of the Company
or any of the Subsidiaries or any material adverse changes in the condition
(financial or otherwise), results of operations, business or prospects of the
Company and the Subsidiaries, taken as a whole (a "Material Adverse Change"), or
any developments that could reasonably be expected to involve a prospective
Material Adverse Change, otherwise than as set forth or contemplated in the
Offering Materials.
(s) The financial statements (including the related notes) of the
Company included or incorporated by reference in the Offering Materials comply
as to form in all material respects with the requirements of the Securities Act,
present fairly the financial condition and results of operations of the entities
purported to be shown thereby, at the dates and for the periods indicated, and
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(t) The firm of independent public accountants who have certified
certain financial statements of the Company, whose report is included or
incorporated by reference in the Offering Materials and who have delivered the
initial letter referred to in Section 6(l) hereof (the "Independent Public
Accountants"), were independent public accountants under Rule 101 of AICPA's
Code of Professional Conduct and its interpretations and rulings during the
periods covered by the financial statements on which they reported included or
incorporated by reference in the Offering Materials.
(u) The Company and each of the Subsidiaries has good and marketable
title in fee simple to all real property and good title to all personal property
owned by each of them, in each case free and clear of all liens, encumbrances
and defects except (i) such as are described in the Offering Materials or (ii)
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries; and all real property and buildings held
under lease by the Company and each of the Subsidiaries are held by them under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and the Subsidiaries. The
Company and each of the Subsidiaries enjoy peaceful and undisturbed possession
under all leases to which they are party as lessee, except where the failure to
enjoy peaceful and undisturbed possession would not have a
<PAGE>
9
Material Adverse Effect. No consent need be obtained from any person with
respect to any such lease in connection with the transactions contemplated
hereby and in the Offering Materials, except for such as have been obtained or
the failure to obtain such consent would not have a Material Adverse Effect.
None of the properties or assets, the value of which is reflected in the
financial statements included in the Offering Materials, is held under any lease
(except for properties or assets held under capital leases and leasehold
improvements held under both capital leases and operating leases). The Company
and the Subsidiaries maintain such insurance as may be required by law and such
other insurance, to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated.
(v) The Company and the Subsidiaries own or possess adequate rights to
use all material patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of their businesses, and to the best of the
Company's knowledge, the conduct of their businesses will not conflict with, and
neither the Company nor any of the Subsidiaries has received any notice of any
claim of conflict with, any such rights of others (except in any such case for
any conflict that would not have a Material Adverse Effect).
(w) The Company and each of the Subsidiaries is in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended (or any successor statute),
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 or any of its
subsidiaries would have any liability; none of the Company and its subsidiaries
has incurred or expects to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Section 412 or 4971 of the Internal Revenue Code of 1986, as amended (or any
successor statute), including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company or any of
its subsidiaries 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.
(x) The Company and the Subsidiaries have filed all federal, state and
local income and franchise tax returns required to be filed through the date
hereof and have paid, or made adequate reserve or provision for the payment of,
all taxes shown as due thereon, and the Company has no knowledge of any tax
deficiency that has had (or could have) a Material Adverse Effect, except as set
forth or contemplated in the Offering Materials.
(y) The Company and the Subsidiaries (i) make and keep accurate books
and records and (ii) maintain internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management's specific authorization, (B) transactions are recorded as necessary
to permit preparation of their consolidated financial statements and to maintain
accountability for their assets, (C) access to their assets is permitted only in
accordance with management's specific authorization and (D) the reported
accountability for their assets is compared with existing assets at reasonable
intervals.
<PAGE>
10
(z) Neither the Company nor any of the Subsidiaries, nor any director,
officer, member, manager, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, has used any
corporate funds during the last five years for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity; made any
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977 (or any successor statute); or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.
(aa) Neither the Company nor any of the Subsidiaries is (i) an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the rules
and regulations of the Commission thereunder or (ii) a "holding company" or a
"subsidiary company" or an "affiliate" of a holding company within the meaning
of the Public Utility Holding Company Act of 1935, as amended (the "PUHC Act").
(bb) Neither the Company nor any of the Subsidiaries has taken, nor
will any of them take, directly or indirectly, any action designed to, or that
could reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Remarketed Securities to facilitate the
remarketing of the Remarketed Securities.
3. Representations, Warranties and Agreements of the Company and the
Trust. The Company and the Trust, jointly and severally, represent, warrant and
agree, unless the Debentures have been distributed to the holders of the Trust
Preferred Securities in liquidation of the Trust at the time of making of the
following representations, (i) on and as of the Commencement Date, (ii) on and
as of each Effective Date, if any, if such Effective Date is not the
Commencement Date and (iii) on and as of the Remarketing Date, that:
(a) The Trust is validly existing as a statutory business trust in
good standing under the Business Trust Act of the State of Delaware (the
"Delaware Business Trust Act") with the trust power and authority to own
property and conduct its business as described in the Memorandum, and has
conducted and will conduct no business other than the transactions contemplated
by this Agreement as described in the Offering Materials; the Trust is not a
party to or bound by any agreement or instrument other than this Agreement, the
Declaration, the Registration Rights Agreement and the purchase agreement
relating to the initial distribution of the Preferred Securities (the "Purchase
Agreement"); the Trust has no liabilities or obligations other than those
arising out of the transactions contemplated by this Agreement, the Registration
Rights Agreement, the Declaration and the Purchase Agreement or described in the
Offering Materials; and the Trust is not a party to or subject to any action,
suit or proceeding of any nature.
(b) Assuming due authorization, execution and delivery of the
Declaration by the Property Trustee and the Delaware Trustee (each as defined in
the Declaration), the Declaration constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally
<PAGE>
11
and general equitable principles (whether considered in a proceeding in equity
or at law), and will conform in all material respects to the descriptions
thereof contained in the Offering Materials.
(c) All of the outstanding Remarketed Securities and Common
Securities have been duly authorized and are validly issued, fully paid and non-
assessable and will conform in all material respects to the descriptions thereof
contained in the Offering Materials.
(d) Assuming due authorization execution and delivery of this
Agreement by the Remarketing Agent, this Agreement is a legally valid and
binding agreement of the Trust, enforceable against the Trust in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law).
(e) The performance of this Agreement, the Declaration, and the
Remarketed Securities by the Trust, and the distribution of the Debentures upon
the liquidation of the Trust in the circumstances contemplated by the
Declaration and described in the Offering Materials (the "Trust Transactions")
will not violate any statute or order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Trust or any of its
assets; and except for such consents, approvals, authorizations, registrations
or qualifications as may be required under applicable state securities laws in
connection with the initial distribution of the Preferred Securities or the
Remarketing, no consent, approval, authorization or order of or filing or
registration with, any such court or governmental agency or body was or is
required for the Trust Transactions.
(f) The Trust is not an "investment company" within the meaning of
such term under the Investment Company Act and the rules and regulations of the
Commission thereunder.
4. Fees and Expenses. (a) For the performance of its services as
Remarketing Agent hereunder, the Company, in its capacity as the issuer of the
Debentures, agrees to pay to the Remarketing Agent a fee, payable on the
Remarketing Settlement Date, equal to 3.50% of the liquidation or principal
amount of the outstanding Remarketed Securities tendered or deemed tendered for
purchase on the related Scheduled Remarketing Date, less such liquidation or
principal amount of the Remarketed Securities, if any, tendered or deemed
tendered for purchase and not sold in the Remarketing, by wire transfer to an
account designated by the Remarketing Agent. The percentage in the prior
sentence shall be reduced by .35% for each improvement in credit rating of the
Company's unsecured senior debt in effect on the Scheduled Remarketing Date
compared to B2, which is the credit rating of Moody's Investors Service Inc.
("Moody's") in effect on such debt on the date of issuance of the Remarketed
Securities. For the purposes of the foregoing, the credit rating of the
Company's unsecured senior debt shall be considered improved for each rating
category (including numerical, "+" or "-" or other indicators) that such rating
on the Scheduled Remarketing Date by Moody's or Standard & Poors Ratings Group
("S&P"), whichever is lower, is better than B2 or B or the equivalent of such
ratings by Moody's and S&P.
(b) The Company, in its capacity as the issuer of the Debentures,
agrees to pay: (a) the costs incident to the preparation and printing and, if
applicable, filing of the Preliminary Offering
<PAGE>
12
Materials and the Offering Materials and any amendments and exhibits thereto;
(b) the costs of distributing the Preliminary Offering Materials and the
Offering Materials and any amendment or supplement thereto or any document
incorporated by reference therein; (c) the fees and expenses of qualifying the
Remarketed Securities under the securities laws of the several jurisdictions as
provided in Section 5(j) and of preparing, printing and distributing a Blue Sky
Memorandum (including related reasonable fees and expenses of counsel to the
Remarketing Agent required in connection with "blue sky" functions); (d) the
filing fees incident to securing any required review of the National Association
of Securities Dealers, Inc. of the terms of sale of the Remarketed Securities;
(e) any applicable listing and other fees; (f) all other costs and expenses
incident to the performance of the obligations of the Company and the Trust
under this Agreement; and (g) the reasonable fees and expenses of counsel to the
Remarketing Agent in connection with its duties hereunder. The Trust shall not
be liable for any fees and expenses included in this Section 4.
5. Further Agreements of the Company. The Company agrees:
(a) To furnish to the Remarketing Agent, (i) copies of the
Declaration, the New Guarantee Agreement (or, if the Exchange Offer has not been
consummated, the Guarantee Agreement) and the Indenture and any amendment to any
thereof and each report or other document mailed or made available to holders of
the Remarketed Securities (including annual and quarterly reports to
shareholders and all documents mailed or made available to its other security
holders) or filed by the Company with the Commission after the end of the fiscal
year of the Company preceding the Remarketing, (ii) notice of the purchase of
Remarketed Securities by the Company or any subsidiary or affiliate of the
Company as soon as the Company shall become aware of such purchase, (iii) notice
of the occurrence of any of the events set forth in Section 6(n) or (p), (iv)
notice of the giving or receipt of any notice under Section 8 and (v) in
connection with the Remarketing, such other information as the Remarketing Agent
may reasonably request from time to time, in such form as the Remarketing Agent
may reasonably request, including but not limited to, the financial condition of
the Company or any subsidiary thereof.
(b) To file a registration statement with the Commission if required
under the Securities Act in connection with the Remarketing and, in that event,
to prepare the Prospectus in a form approved by the Remarketing Agent and to
file such Prospectus pursuant to and within the time required by the Rules and
Regulations; to advise the Remarketing Agent, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Remarketing Agent with copies
thereof; to file promptly all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
the Prospectus and for so long as the delivery of a prospectus is
required in connection with the Remarketing; to advise the Remarketing Agent,
promptly after it receives notice thereof, of the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the qualification
of the Remarketed Securities for remarketing in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and,
<PAGE>
13
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or suspending
any such qualification, to use promptly its best efforts to obtain its
withdrawal;
(c) If a registration statement is required to be filed in connection
with the Remarketing, to furnish promptly to the Remarketing Agent and to
counsel for the Remarketing Agent a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith;
(d) To furnish to the Remarketing Agent, without charge, as many
copies of the Offering Materials and any supplements and amendments thereto and,
if a registration statement is required to be filed in connection with the
Remarketing, as many conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto, as the
Remarketing Agent may reasonably request.
(e) If a registration statement is required to be filed in connection
with the Remarketing, to file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Remarketing Agent, be required
by the Securities Act or requested by the Commission;
(f) Prior to filing with the Commission or otherwise making any
amendment or supplement to the Offering Materials, the Company shall furnish a
copy thereof to the Remarketing Agent and counsel to the Remarketing Agent and
will not effect any such amendment or supplement to which the Remarketing Agent
shall reasonably object by notice to the Company after a reasonable period to
review such amendment or supplement.
(g) If, at any time on or after the Commencement Date and prior to the
Remarketing Settlement Date, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for the Remarketing
Agent or counsel for the Company, to amend or supplement the Offering Materials
in order that the Offering Materials will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in light of the circumstances existing at the
time it is delivered in the Remarketing, or if it is necessary to amend or
supplement the Offering Materials to comply with applicable law, to promptly
prepare such amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Materials, as so amended or
supplemented, will comply with applicable law and to furnish to the Remarketing
Agent such number of copies as it may reasonably request.
(h) If a registration statement is filed in connection with the
Remarketing, as soon as practicable after the Effective Date of the Registration
Statement, to make generally available to the Company's security holders and to
deliver to the Remarketing Agent an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the option of the
Company, Rule 158);
<PAGE>
14
(i) For a period of five years following the Remarketing Settlement
Date, to furnish to the Remarketing Agent upon its request copies of any annual
reports, quarterly reports and current reports filed with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by
the Commission, and such other documents, reports and information as shall be
furnished by the Company to the Indenture Trustee, the Property Trustee or the
holders of the Remarketed Securities.
(j) To use its reasonable best efforts to qualify the Remarketed
Securities for sale under the securities or Blue Sky laws of such jurisdictions
as the Remarketing Agent reasonably designates and to continue such
qualifications in effect so long as reasonably required to complete the
distribution of the Remarketed Securities. The Company will also arrange for
the determination of the eligibility for investment of the Remarketed Securities
under the laws of such jurisdictions as the Remarketing Agent reasonably
requests. Notwithstanding the foregoing, the Company shall not be obligated to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to file a general consent to service of process in any
jurisdiction.
(k) To take such steps as shall be necessary to ensure that none of
the Company, the Trust or any subsidiary of the Company shall become (i) an
"investment company" within the meaning of the Investment Company Act and the
rules and regulations of the Commission thereunder or (ii) a "holding company"
or a "subsidiary company" or an "affiliate" of a holding company within the
meaning of the PUHC Act.
(l) To take all reasonable steps to satisfy the conditions set forth
in Section 6 hereof.
6. Conditions to the Remarketing Agent's Obligations. The
obligations of the Remarketing Agent hereunder are subject, as of the
Commencement Date and at all times on or prior to the Scheduled Remarketing
Date, to the accuracy of the representations and warranties on the part of the
Company and the Trust herein, to the accuracy of the statements of officers of
the Company and of the Trust made pursuant to the provisions hereof, to the
performance by the Company and the Trust of their respective obligations
hereunder and to the following additional conditions:
(a) on each of the Commencement Date and the Scheduled Remarketing
Date, the Remarketing Agent shall have received:
(i) a certificate, dated such date and signed by an authorized
officer of the Trust acceptable to the Remarketing Agent, to the effect
that the representations and warranties of the Trust contained in this
Agreement are true and correct as of such date and that the Trust has
performed all of its obligations to be performed hereunder on or prior to
such date; and
(ii) a certificate, dated such date and signed by an authorized
officer of the Company to the effect that no event described in Section
6(g)(i) or (ii) or subsection 6(j) has occurred as of such date, and to the
effect that the representations and warranties of the Company contained in
the Agreement are true and correct as of such date and that the
<PAGE>
15
Company has performed all of its obligations to be performed hereunder on
or prior to such date.
The officers signing and delivering such certificate on behalf of the Company
and the Trust may rely upon the best of their knowledge as to proceedings
threatened;
(b) each of the Company and the Trust shall have furnished to the
Remarketing Agent on each of the Commencement Date and the Scheduled Remarketing
Date, such additional certificates or other documents as are typically delivered
in connection with a transaction of this type and which the Remarketing Agent
may reasonably request;
(c) On the Commencement Date and the Scheduled Remarketing Date,
Freshman, Marantz, Orlanski, Cooper & Klein, a law corporation, counsel for the
Company and the Trust, or such other counsel satisfactory to the Remarketing
Agent, shall have furnished to the Remarketing Agent its written opinion, as
counsel to the Company and the Trust, addressed to the Remarketing Agent and
dated such date, in form and substance reasonably satisfactory to the
Remarketing Agent, to the effect that:
(i) Each of the Company and the Subsidiaries is validly existing
as a corporation or limited liability company, as applicable, and in
corporate or limited liability company good standing under the laws of its
jurisdiction of incorporation or organization, is qualified to do business
and is in corporate or limited liability company, as applicable, good
standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of property or the conduct of its business requires
such qualification (except where the failure to be so qualified and in good
standing would not have a Material Adverse Effect), and has corporate or
limited liability company power to own its properties and conduct its
business;
(ii) The Company has corporate power to consummate the
transactions contemplated by, this Agreement;
(iii) The execution and delivery of this Agreement have been
duly authorized by all requisite corporate action of the Company; and this
Agreement has been duly executed and delivered by the Company;
(iv) Assuming due authorization, execution and delivery by the
Indenture Trustee, the Indenture is a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law);
(v) Assuming due authentication by the Indenture Trustee, the
New Debentures (or, if the Exchange Offer has not been consummated, the
Resettable Rate Debentures, Series A) are legal, valid and binding
obligations of the Company, entitled to the benefits of the Indenture,
enforceable against the Company in accordance with their terms, subject to
<PAGE>
16
the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and to general equitable principles (whether
considered in a proceeding in equity or at law);
(vi) If the Remarketed Securities are Trust Preferred
Securities, assuming due authorization, execution and delivery by the
Guarantee Trustee, the New Guarantee Agreement (or, if the Exchange Offer
has not been consummated, the Guarantee Agreement) is the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and to
general equitable principles (whether considered in a proceeding in equity
or at law);
(vii) All of the outstanding shares of capital stock of, or
membership interests in, as applicable, each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and nonassessable, and
held of record by the Company free and clear of any security interest,
claim, lien or encumbrance; and, to our knowledge, there are no outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, shares of the capital stock or membership interests of
any of the Subsidiaries, except as described in the Offering Materials;
(viii) The performance of this Agreement, the Remarketed
Securities, the Indenture and the New Debentures (or, if the Exchange Offer
has not been consummated, the Resettable Rate Debentures, Series A) and, if
the Remarketed Securities are Trust Preferred Securities, the Declaration
and the New Guarantee Agreement (or, if the Exchange Offer has not been
consummated, the Guarantee Agreement) by the Company and the Trust, as
applicable, will not (A) to the to the knowledge of such counsel conflict
with or result in a breach or violation of, or constitute a default under,
any indenture, mortgage, deed of trust, loan or credit agreement, or any
other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries
or any of its or their property or assets are subject which such breach or
violation would have a Material Adverse Effect or (B) result in any
violation of the provisions of the charter or bylaws, or operating
agreements, as applicable, of the Company or any of the Subsidiaries or any
federal or California statute, or any order, rule or regulation of any
federal or California court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries or any of their
properties or assets; and except for such consents, approvals,
authorizations, registrations or qualifications as may be required under
applicable state securities laws in connection with the remarketing of the
Remarketed Securities by the Remarketing Agent, no consent, approval,
authorization or order of, or filing or registration with, any federal or
California court or governmental agency or body having jurisdiction over
the Company or any of the Subsidiaries or any of their properties or assets
is required for compliance by the Company with all of the provisions of
this Agreement other than, if a registration statement is required to be
filed in connection with the Remarketing, under the Securities Act;
<PAGE>
17
(ix) The descriptions in the Offering Materials of the
Remarketed Securities, the Indenture and this Agreement and, if the
Remarketed Securities are Trust Preferred Securities, the Declaration and
the New Guarantee Agreement (or, if the Exchange Offer has not been
consummated, the Guarantee Agreement) and the New Debentures (or, if the
Exchange Offer has not been consummated, the Resettable Rate Debentures,
Series A) conform in all material respects to the descriptions thereof;
(x) Except as set forth or referred to in the Offering
Materials, no legal or governmental proceedings pending or, to the
knowledge of such counsel, threatened to which the Company or any of the
Subsidiaries is a party or of which any property or assets of the Company
or any of the Subsidiaries is the subject which, if determined adversely to
the Company or any of the Subsidiaries, could reasonably be expected to
have a Material Adverse Effect;
(xi) If a registration statement is required to be filed in
connection with the Remarketing, no stop order suspending the effectiveness
of the Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by the
Commission;
(xii) If a registration statement is required to be filed in
connection with the Remarketing, the Registration Statement, as of its
Effective Date, and the Prospectus, as of its date, and any further
amendments or supplements thereto, as of their respective dates, made by
the Company prior to the Remarketing Date (other than the financial
statements and other financial data contained therein, as to which such
counsel need express no opinion) complied as to form in all material
respects with the requirements of the Securities Act and the Rules and
Regulations; the documents incorporated by reference in the Prospectus and
any further amendment or supplement to any such incorporated document made
by the Company prior to the Scheduled Remarketing Date (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion), when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder;
(xiii) None of the Company, any of the Subsidiaries or the Trust
is (A) an "investment company" within the meaning of the Investment Company
Act and the rules and regulations thereunder or (B) a "holding company" or
a "subsidiary company" or an "affiliate" of a holding company within the
meaning of the PUHC Act;
(xiv) If no registration statement is required to be filed in
connection with the Remarketing, no registration of the Remarketed
Securities or, if the Remarketed Securities include Trust Preferred
Securities, the New Debentures (or, if the Exchange Offer has not been
consummated, the Resettable Rate Debentures, Series A) under the Securities
Act, and no qualification of the Indenture or, if the Remarketed Securities
are Trust Preferred Securities, the Declaration or the New Guarantee
Agreement (or, if the Exchange Offer has not been consummated, the
Guarantee Agreement) under the Trust Indenture Act of 1939,
<PAGE>
18
as amended, is required for the Remarketing of the Remarketed Securities
solely in the manner contemplated by the Offering Materials;
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Issuers of the
Remarketed Securities, representatives of the Remarketing Agent and
representatives of counsel for the Remarketing Agent at which the contents of
the Offering Materials and related matters were discussed and, although such
counsel has not undertaken to investigate or verify independently, and does not
assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Offering Materials, on the basis of the foregoing,
no information has come to the attention of such counsel that causes such
counsel to believe that, (x) if a registration statement was required to be
filed in connection with the Remarketing, the Registration Statement, as of the
Effective Date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or (y) the other Offering Materials contained
or contains an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (except, in each
case, as to financial statements, including the notes thereto, included therein,
as to which no belief need be expressed), as of the Commencement Date, the
Effective Date, if any, (if the Effective Date is not the Commencement Date) and
the Remarketing Date.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the federal laws of the United States of America
and the laws of the State of California.
(d) If the Remarketed Securities are Trust Preferred Securities, on
the Commencement Date and the Scheduled Remarketing Date, Simpson Thacher &
Bartlett, or such other counsel satisfactory to the Remarketing Agent, shall
have furnished to the Remarketing Agent its written opinion, as special tax
counsel for the Company and the Trust, addressed to the Remarketing Agent and
dated such date, in form and substance reasonably satisfactory to the
Remarketing Agent, to the effect that:
(i) The Trust will not be taxable as a corporation for United
States federal income tax purposes;
(ii) Subject to the qualifications set forth therein, the
statements made in the Offering Materials under the caption "Certain United
States Federal Income Tax Consequences" accurately describe the material
United States federal income tax consequences of the purchase, ownership
and disposition of the Remarketed Securities;
(e) If the Remarketed Securities include Trust Preferred Securities,
on the Commencement Date and the Scheduled Remarketing Date, Richards, Layton &
Finger, P.A., Delaware counsel for the Company and the Trust, or such other
counsel satisfactory to the Remarketing Agent, shall have furnished to the
Remarketing Agent its written opinion, on certain matters of Delaware law
relating to the validity of the Securities, addressed to the Remarketing
<PAGE>
19
Agent and dated such date, in form and substance reasonably satisfactory to the
Remarketing Agent, to the effect that:
(i) The Trust is validly existing in good standing as a
business trust under the Delaware Trust Act with the business trust power
and authority to own property and to conduct its business as described in
the Offering Materials and to enter into and perform its obligations under
this Agreement, the Remarketed Securities and the Common Securities.
(ii) The Common Securities are validly issued and (subject to
the terms of the Declaration) fully paid undivided beneficial ownership
interests in the assets of the Trust (such counsel may note that the
holders of Common Securities will be subject to the withholding provisions
of Section 10.4 of the Declaration, will be required to make payment or
provide indemnity or security as set forth in the Declaration and will be
liable for the debts and obligations of the Trust to the extent provided in
Section 9.1(b) of the Declaration); under the Delaware Trust Act and the
Declaration the issuance of the Common Securities is not subject to
preemptive or other similar rights.
(iii) The Remarketed Securities are validly issued and
(subject to the terms of the Declaration) fully paid and non-assessable
undivided beneficial ownership interests in the Trust, the holders of the
Remarketed Securities will be entitled to the benefits of the Declaration
(subject to the limitations set forth in clause (v) below) and will be
entitled to the same limitation of personal liability under Delaware law as
extended to stockholders of private corporations for profit (such counsel
may note that the holders of Remarketed Securities are subject to the
withholding provisions of Section 10.4 of the Declaration and are required
to make payment or provide indemnity or security as set forth in the
Declaration).
(iv) All necessary trust action has been taken to duly
authorize the execution and delivery by the Trust of this Agreement.
(v) Assuming the Declaration has been duly authorized by the
Company and has been duly executed and delivered by the Company and the
Regular Trustees, and assuming due authorization, execution and delivery of
the Declaration by the Property Trustee and the Delaware Trustee, the
Declaration constitutes a valid and binding obligation of the Company and
the Regular Trustees, enforceable against the Company and the Regular
Trustees in accordance with its terms, except to the extent that
enforcement thereof may be limited by (i) bankruptcy, insolvency,
receivership, liquidation, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and remedies, (ii) general principles of equity
(regardless of whether considered and applied in a proceeding in equity or
at law) and (iii) considerations of public policy and the effect of
applicable law relating to fiduciary duties.
(vi) The consummation by the Trust of the transactions
contemplated by this Agreement and compliance by the Trust with its
obligations hereunder will not violate
<PAGE>
20
(i) any of the provisions of the Certificate of Trust or the Declaration or
(ii) any applicable Delaware law or administrative regulation.
(vii) Assuming that the Trust derives no income from or
connected with services provided within the State of Delaware and has no
assets, activities (other than having a Delaware Trustee as required by the
Delaware Trust Act and the filing of documents with the Secretary of State
of Delaware) or employees in the State of Delaware, no filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any Delaware court or Delaware governmental
authority or agency (other that as may be required under the securities or
blue sky laws of the state of Delaware, as to which such counsel need
express no opinion) is necessary or required in connection with the due
authorization, execution and delivery of this Agreement.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the federal laws of the United States of America
and the laws of the State of Delaware.
(f) On the Commencement Date and the Scheduled Remarketing Date, with
respect to the letter of the Independent Public Accountants delivered to the
Remarketing Agent concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Remarketing Agent a
letter (as used in this paragraph, the "bring-down letter") of such accountants,
addressed to the Remarketing Agent and dated such date (i) confirming that they
are independent public accountants within the meaning of the Securities Act and
under the guidelines of the American Institute of Certified Public Accountants,
(ii) stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates as of which
specified financial information is given in the Offering Materials, as of a date
not more than five days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the financial information
and other matters covered by the initial letter and (iii) confirming in all
material respects the conclusions and findings set forth in the initial letter.
(g) (i) Neither the Company nor any of the Subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Offering Materials losses or interferences with
their businesses, taken as a whole, from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Offering Materials or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company or
any of the Subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated in
the Offering Materials, the effect of which, in any such case described in
clause (i) or (ii), is, in the sole judgment of the Remarketing Agent, so
material and adverse as to make it impracticable or inadvisable to proceed with
the Remarketing on the terms and in the manner contemplated herein and in the
Offering Materials.
(h) Without the prior written consent of the Remarketing Agent, the
Declaration or the Indenture shall not have been amended in any manner, or
otherwise contain any provision
<PAGE>
21
contained therein as of the date hereof that, in the opinion of the Remarketing
Agent, materially changes the nature of the Remarketed Securities or the
Remarketing Procedures.
(i) Subsequent to the Commencement Date, there shall not have occurred
any of the following: (i) trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or materially
limited; (ii) a banking moratorium shall have been declared by federal or state
authorities; (iii) the United States shall have become engaged in hostilities,
there shall have been an escalation in hostilities involving the United States
or there shall have been a declaration of a national emergency or war by the
United States; or (iv) there shall have occurred such a material adverse change
in general economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States shall be
such) as to make it, in the reasonable judgment of the Remarketing Agent,
impracticable or inadvisable to proceed with the Remarketing on the terms and in
the manner contemplated herein and in the Offering Materials.
(j) Subsequent to the Commencement Date, (i) no downgrading shall have
occurred in the rating accorded the Remarketed Securities by a "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Securities Act and (ii) no
such organization shall have publicly announced that it has under surveillance
or review, with possible negative implications, its rating of any of the
Preferred Securities.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Remarketing Agent.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Remarketing
Agent and each person, if any, who controls the Remarketing Agent within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Remarketed Securities), to which the Remarketing Agent or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in the Preliminary Offering Materials or Offering Materials
or in any amendment or supplement thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iii) any act or failure to act
or any alleged act or failure to act by the Remarketing Agent in connection
with, or relating in any manner to, the Remarketed Securities or the sale of
Remarketed Securities contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon matters covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be
<PAGE>
22
taken by such Remarketing Agent through its gross negligence or willful
misconduct), and shall reimburse the Remarketing Agent and each such controlling
person on a quarterly basis for any legal or other expenses reasonably incurred
by the Remarketing Agent or controlling person in connection with investigating
or defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Preliminary Offering Materials or Offering Materials or in any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company or the Trust by or on behalf of the Remarketing Agent
specifically for inclusion therein and described in a letter from the
Remarketing Agent to the Company. The foregoing indemnity agreement is in
addition to any liability which the Company may otherwise have to the
Remarketing Agent or to any controlling person of the Remarketing Agent.
(b) The Remarketing Agent shall indemnify and hold harmless the
Company, each of its directors and officers, the Trust and each Trustee, and
each person, if any, who controls the Company or the Trust within the meaning of
the Securities Act, from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof, to which the Company, any such
director or officer, the Trust or any such Trustee, or any such controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Preliminary Offering Materials or the Offering Materials, or in
any amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the 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 Company or any Trustee by or on behalf of the Remarketing Agent
specifically for inclusion therein and described in a letter from the
Remarketing Agent to the Company, and shall reimburse the Company and any such
director or officer, the Trust or any such Trustee or any such controlling
person on a quarterly basis for any legal or other expenses reasonably incurred
by the Company, or any such director or officer, the Trust or any such Trustee
or any such controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred. The foregoing indemnity agreement is in addition to
any liability which the Remarketing Agent may otherwise have to the Company, or
any such director or officer, the Trust or any such Trustee or any such
controlling person.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party pursuant to this Section 7 shall not
relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 7. If any such claim or action shall be
brought against an indemnified party, and it shall notify the
<PAGE>
23
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
any indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) such indemnified party shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified party
to employ separate counsel or (iii) the indemnifying party has failed to assume
the defense of such action and employ counsel reasonably satisfactory to the
indemnified party, in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such indemnified
parties, which firm shall be designated in writing by the Remarketing Agent, if
the indemnified parties under this Section 7 consist of the Remarketing Agent or
any of its controlling persons, or by the Company, if the indemnified parties
under this Section 7 consist of the Company. any of its directors, officers, the
Trust or any Trustee or their respective controlling persons. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 7 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or 7(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Trust on the one hand and the Remarketing Agent
on the other from such offering or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Trust on the one hand and the
Remarketing Agent on the other with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Trust on the one hand and the Remarketing Agent
on the other with respect to such offering shall be deemed to be
<PAGE>
24
in the same proportion as the total liquidation or principal amount of the
Remarketed Securities minus the fee paid to the Remarketing Agent pursuant to
Section 4(a) of this Agreement, on the one hand, and the total fees received by
the Remarketing Agent pursuant to Section 4(a), on the other hand, bear to the
total liquidation or principal amount of the Remarketed Securities. The relative
fault shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company and the Trust, on the one
hand, or the Remarketing Agent, on the other hand, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Trust and the Remarketing
Agent agree that it would not be just and equitable if contributions pursuant to
this Section 7(d) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 7(d) shall be deemed to include, for
purposes of this Section 7(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7(d), the
Remarketing Agent shall not be required to contribute any amount in excess of
the amount by which the fees received by it under Section 4 exceed the amount of
any damages which the Remarketing Agent has otherwise paid or become liable to
pay by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11 of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. Resignation and Removal of Remarketing Agent. The Remarketing
Agent may resign and be discharged from its duties and obligations hereunder,
and the Company may remove the Remarketing Agent, by giving 60 days' prior
written notice, in the case of a resignation, to the Company, the Depositary,
the Property Trustee and the Indenture Trustee and, in the case of a removal,
such removed Remarketing Agent, the Depositary, the Property Trustee and the
Indenture Trustee; provided, however, that (i) the Company may not remove the
Remarketing Agent unless (A) the Remarketing Agent becomes involved as debtor in
a bankruptcy, insolvency or similar proceeding, (B) the Remarketing Agent shall
not be among the 15 underwriters with the largest volume underwritten in
dollars, on a lead or co-managed basis, of U.S. domestic debt securities during
the twelve-month period ended as of the last calendar quarter preceding the
Remarketing Date or (C) the Remarketing Agent shall be subject to one or more
legal restrictions preventing the performance of its obligations hereunder and
(ii) no such resignation nor any such removal shall become effective until the
Company shall have appointed at least one nationally recognized broker-dealer as
successor Remarketing Agent and such successor Remarketing Agent shall have
entered into a remarketing agreement with the Company in which it shall have
agreed to conduct the Remarketing in accordance with the Remarketing Procedures.
In such case, the Company will use its commercially reasonable efforts to
appoint a successor Remarketing Agent and enter into such a remarketing
agreement with such person as soon as reasonably practicable; provided, however,
that the Company shall not be required to enter into a remarketing agreement
with a successor Remarketing Agent that is on terms substantially dissimilar
with the terms hereof and in any event on terms less favorable than those set
forth herein. The provisions of Sections 4 and 7 shall survive the resignation
or removal of the Remarketing Agent pursuant to this Agreement.
<PAGE>
25
9. Dealing in the Remarketed Securities. The Remarketing Agent is
not obligated to purchase any Remarketed Securities that would otherwise remain
unsold in a Remarketing. The Remarketing Agent may exercise any vote or join in
any action which any beneficial owner of Remarketed Securities may be entitled
to exercise or take pursuant to the Declaration or the Indenture with like
effect as if it did not act in any capacity hereunder. The Remarketing Agent,
in its individual capacity, either as principal or agent, may also engage in or
have an interest in any financial or other transaction with the Company as
freely as if it did not act in any capacity hereunder.
10. Remarketing Agent's Performance; Duty of Care. The duties and
obligations of the Remarketing Agent shall be determined solely by the express
provisions of this Agreement and the Declaration and the Indenture. No implied
covenants or obligations of or against the Remarketing Agent shall be read into
this Agreement, the Declaration or the Indenture. In the absence of bad faith
on the part of the Remarketing Agent, the Remarketing Agent may conclusively
rely upon any document furnished to it, which purports to conform to the
requirements of this Agreement, the Declaration or the Indenture as to the truth
of the statements expressed in any of such documents. The Remarketing Agent
shall be protected in acting upon any document or communication reasonably
believed by it to have been signed, presented or made by the proper party or
parties. The Remarketing Agent, acting under this Agreement, shall incur no
liability to the Company or to any holder of Remarketed Securities in its
individual capacity or as Remarketing Agent for any action or failure to act, on
its part in connection with a Remarketing or otherwise, except if such liability
is judicially determined to have resulted from the gross negligence or willful
misconduct on its part.
11. Termination. This Agreement shall terminate as to the
Remarketing Agent on the effective date of the resignation or removal of the
Remarketing Agent pursuant to Section 8. In addition, the obligations of the
Remarketing Agent hereunder may be terminated by it by notice given to the
Company or the Trust prior to 10:00 A.M., New York City time, on the Remarketing
Date if, prior to that time, any of the events described in Sections 6(e), (f),
(m), (n), (o) or (p) shall have occurred or if the Remarketing Agent shall
decline to perform its obligations under this Agreement for any reason permitted
hereunder.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Remarketing Agent, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax: 212-528-
8822), with a copy to Latham & Watkins, 633 W. Fifth Street, Los Angeles,
California, Attention: Bryant B. Edwards (Fax: 213-891-8763);
(b) if to the Company or the Trust, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth in
the Offering Materials, Attention: H. Wayne Snavely (Fax: 310-373-9955), with a
copy to Freshman, Marantz, Orlanski, Cooper &
<PAGE>
26
Klein, 9100 Wilshire Boulevard, Beverly Hills, California 90212, Attention:
Thomas J. Poletti (Fax: 310-274-8357).
Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof. The Company shall be entitled to act and rely
upon any request, consent, notice or agreement given or made on behalf of the
Remarketing Agent.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Remarketing Agent, the Company,
the Trust and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(A) the representations, warranties, indemnities and agreements of the Company
and the Trust contained in this Agreement shall also be deemed to be for the
benefit of the person or persons, if any, who control the Remarketing Agent
within the meaning of Section 15 of the Securities Act and (B) the indemnity
agreement of the Remarketing Agent contained in Section 7(b) of this Agreement
shall be deemed to be for the benefit of directors of the Company and the
Trustees and any person controlling the Company or the Trust within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Trust and the Remarketing Agent
contained in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall survive the Remarketing and shall remain in
full force and effect, regardless of any investigation made by or on behalf of
any of them or any person controlling any of them.
15. Definition of "Business Day" and "Subsidiary." For purposes of
this Agreement, "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Signature page follows]
<PAGE>
27
If the foregoing correctly sets forth the agreement between the Company,
the Trust and the Remarketing Agent, please indicate your acceptance in the
space provided for that purpose below.
Very truly yours,
Imperial Credit Industries, Inc.
By: /s/ H. Wayne Snavely
--------------------------------
Name: H. Wayne Snavely
Title: Chairman
Imperial Credit Capital Trust I
By: /s/ Kevin E. Villani
--------------------------------
Name: Kevin E. Villani
Title: Regular Trustee
Accepted:
Lehman Brothers Inc.
By: /s/ David J. Kim
--------------------------------
Name: David J. Kim
Title: Senior Vice President
<PAGE>
EXHIBIT 4.6
- -------------------------------------------------------------------------------
GUARANTEE AGREEMENT
IMPERIAL CREDIT CAPITAL TRUST I
DATED AS OF , 1997
------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of Trust
Indenture Act of Section of
1939, as amended Agreement
- ---------------- ----------
<S> <C>
310(a).................................................................4.1(a)
310(b)............................................................2.8; 4.1(c)
310(c)...........................................................Inapplicable
311(a).................................................................2.2(b)
311(b).................................................................2.2(b)
311(c)...........................................................Inapplicable
312(a)............................................................2.2(a);.2.9
312(b)............................................................2.2(b);.2.9
312(c)....................................................................2.9
313(a)....................................................................2.3
313(b)....................................................................2.3
313(c)....................................................................2.3
313(d)....................................................................2.3
314(a)....................................................................2.4
314(b)...........................................................Inapplicable
314(c)....................................................................2.5
314(d)...........................................................Inapplicable
314(e)....................................................................2.5
314(f)...........................................................Inapplicable
315(a).........................................................3.1(d); 3.2(a)
315(b).................................................................2.7(a)
315(c).................................................................3.1(c)
315(d).................................................................3.1(d)
316(a)............................................................2.6; 5.4(a)
316(b)....................................................................5.3
316(c)...........................................................Inapplicable
317(a)...................................................................2.10
317(b)...........................................................Inapplicable
318(a).................................................................2.1(b)
</TABLE>
- ------------------
/*/ This Cross-Reference Table does not constitute part of the Agreement and
shall not have any bearing upon the interpretation of any of its terms or
provisions.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
INTERPRETATION AND DEFINITIONS.................................. 1
SECTION 1.1 Interpretation and Definitions....................................... 1
ARTICLE 2
TRUST INDENTURE ACT....................................... 5
SECTION 2.1 Trust Indenture Act; Application..................................... 5
SECTION 2.2 Lists of Holders of Securities....................................... 5
SECTION 2.3 Reports by Guarantee Trustee......................................... 6
SECTION 2.4 Periodic Reports to Guarantee Trustee................................ 6
SECTION 2.5 Evidence of Compliance with Conditions Precedent..................... 6
SECTION 2.6 Guarantee Event of Default; Waiver................................... 6
SECTION 2.7 Guarantee Event of Default; Notice................................... 6
SECTION 2.8 Conflicting Interests................................................ 6
SECTION 2.9 Disclosure of Information............................................ 7
SECTION 2.10 Guarantee Trustee May File Proofs of Claim........................... 7
ARTICLE 3
POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE........................................ 7
SECTION 3.1 Powers and Duties of Guarantee Trustee............................... 7
SECTION 3.2 Certain Rights of Guarantee Trustee.................................. 9
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee................ 11
ARTICLE 4
GUARANTEE TRUSTEE........................................ 11
SECTION 4.1 Guarantee Trustee; Eligibility....................................... 11
SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustee............ 11
ARTICLE 5
GUARANTEE............................................ 12
SECTION 5.1 Guarantee............................................................ 12
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.2 Waiver of Notice and Demand.......................................... 12
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.......................................................... 14
SECTION 5.7 Independent Obligations.............................................. 15
ARTICLE 6
LIMITATION OF TRANSACTIONS; SUBORDINATION............................ 15
SECTION 6.1 Limitation of Transactions........................................... 15
SECTION 6.2 Ranking.............................................................. 15
ARTICLE 7
TERMINATION........................................... 16
SECTION 7.1 Termination.......................................................... 16
ARTICLE 8
INDEMNIFICATION......................................... 16
SECTION 8.1 Exculpation.......................................................... 16
SECTION 8.2 Indemnification...................................................... 16
ARTICLE 9
MISCELLANEOUS.......................................... 17
SECTION 9.1 Successors and Assigns............................................... 17
SECTION 9.2 Amendments........................................................... 17
SECTION 9.3 Notices.............................................................. 17
SECTION 9.4 Benefit.............................................................. 18
SECTION 9.5 Governing Law........................................................ 18
</TABLE>
-ii-
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Guarantee"), dated as of ______, 1997,
is executed and delivered by Imperial Credit Industries, Inc., a California
corporation (the "Guarantor"), and Chase Trust Company of California, as trustee
(the "Guarantee Trustee"), for the benefit of the Holders (as defined herein)
from time to time of the Securities (as defined herein) of Imperial Credit
Capital Trust I, a Delaware statutory business trust (the "Trust").
W I T N E S S E T H :
--------------------
WHEREAS, pursuant to the Declaration (as defined herein), the Trust
issued on June 9, 1997 $70,000,000 aggregate liquidation amount of remarketable
preferred securities, having a liquidation amount of $1,000 per security and
designated the Remarketed Par Securities, Series A, of the Trust (the "Series A
Securities") and exchanged certain of such Series A Securities for the Trust's
Remarketed Par Securities, Series B (the "Series B Securities"), the terms of
which are identical to those of the Series A Securities except for certain
restrictions on transferability, pursuant to an exchange offer consummated on
the date hereof, (the Series A Securities together with the Series B Securities,
the "Preferred Securities"), and $2,165,000 aggregate liquidation amount of
common securities, having an aggregate liquidation amount of $1,000 per security
and designated the Common Securities of the Trust (the "Common Securities" and,
together with the Preferred Securities, the "Securities");
WHEREAS, as incentive for the Holders to purchase the Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth in this Guarantee, to pay to the Holders of the Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein; and that if a Trust Enforcement Event (as defined
herein) has occurred and is continuing, the rights of holders of the Common
Securities to receive payments under the Common Securities Guarantee are
subordinated to the rights of Holders of Preferred Securities to receive
Guarantee Payments under this Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee for the benefit of
the Holders.
ARTICLE 1
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Interpretation and Definitions. In this Guarantee,
------------------------------
unless the context otherwise requires:
(a) capitalized terms used in this Guarantee 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 Guarantee has the same meaning
throughout;
(c) all references to "the Guarantee" or "this Guarantee" are to this
Guarantee as modified, supplemented or amended from time to time;
<PAGE>
2
(d) all references in this Guarantee to Articles, Sections and
Recitals are to Articles, Sections and Recitals of this Guarantee, unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee unless otherwise defined in this Guarantee or
unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa and
a reference to any masculine form of a term shall include the feminine form
of a term, as applicable.
(g) the following terms have the following meanings:
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" has the meaning specified in the Indenture.
"Common Securities" has the meaning specified in the Recitals hereto.
"Corporate Trust Office" means the office of the Guarantee Trustee at
which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Guarantee is located at 101 California Street, Suite #2725,
San Francisco, CA 94111.
"Covered Person" means a Holder or beneficial owner of Securities.
"Debentures" means the series of debentures to be issued by the
Guarantor, designated the Resettable Rate Debentures held by the Property
Trustee (as defined in the Declaration) of the Trust.
"Declaration" means the Amended and Restated Declaration of Trust,
dated as of June 9, 1997, as amended, modified or supplemented from time to
time, among the trustees of the Trust named therein, the Guarantor, as sponsor,
and the holders, from time to time, of undivided beneficial ownership interests
in the assets of the Trust.
"Guarantee Event of Default" means a default by the Guarantor on any
of its payment or other obligations under this Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Securities, to the extent not paid by
or on behalf of he Trust: (i) any accumulated and unpaid Distributions (as
defined in the Declaration) that are required to be paid on such Securities to
the extent the Trust has sufficient funds available therefor at the time, (ii)
the redemption price, including all accumulated and unpaid Distributions to the
date of redemption, with respect to any Securities called for redemption by the
Trust, to the extent the Trust shall have sufficient funds available therefor at
the time or (iii) upon a voluntary or
<PAGE>
3
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Debentures to the Holders in exchange for
Securities as provided in the Declaration), the lesser of (a) the aggregate of
the liquidation amount and all accumulated and unpaid Distributions on the
Securities to the date of payment, and (b) the amount of assets of the Trust
remaining available for distribution to Holders in liquidation of the Trust (in
either case, the "Liquidation Distribution").
"Guarantee Trustee" means Chase Trust Company of California, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee and thereafter means each such Successor
Guarantee Trustee.
"Holder" means a Person in whose name a certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Delaware Business Trust Act.
"Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, and any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Guarantee
Trustee.
"Indenture" means the Indenture, dated as of June 9, 1997, among the
Guarantor (the "Company") and Chase Trust Company of California, as trustee, and
any indenture supplemental thereto pursuant to which the Debentures are to be
issued to the Property Trustee (as defined in the Declaration) of the Trust.
"Majority in Liquidation Amount" means, except as provided in the
terms of the Preferred Securities or by the Trust Indenture Act, Holder(s) of
outstanding Securities, voting together as a single class, or, as the context
may require, Holders of outstanding Preferred 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 (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accumulated and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities of the relevant class.
"Officers' Certificate" means, with respect to any Person, a
certificate signed on behalf of such Person by two Authorized Officers (as
defined in the Declaration) of such Person. Any Officers' Certificate delivered
with respect to compliance with a condition or covenant provided for in this
Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer on behalf of such Person in
rendering the Officers' Certificate;
<PAGE>
4
(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 on behalf of such Person 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
acting on behalf of such Person, such condition or covenant has been
complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Securities" has the meaning specified in the Recitals
hereto.
"Redemption Price" has the meaning specified in the Declaration.
"Remarketing" means the operation of the procedures for remarketing
specified in Section 7.5 of the Declaration.
"Remarketing Settlement Date" means the Scheduled Remarketing
Settlement Date (as defined in the Declaration) on which purchases and sales of
Preferred Securities pursuant to a Remarketing are consummated.
"Responsible Officer" means, with respect to the Guarantee Trustee,
any officer within the Corporate Trust Office of the Guarantee Trustee,
including any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer or other officer of
the Corporate Trust Office of the Guarantee Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject."Securities" has the meaning
specified in the Recitals hereto.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Enforcement Event" in respect of the Securities means an
Indenture Event of Default (as defined in the Indenture) has occurred and is
continuing in respect of the Debentures.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
<PAGE>
5
ARTICLE 2
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application. (a) This Guarantee is
--------------------------------
subject to the provisions of the Trust Indenture Act that are required to be
part of this Guarantee and shall, to the extent applicable, be governed by such
provisions.
(b) If and to the extent that any provision of this Guarantee limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 2.2 Lists of Holders of Securities. (a) The Guarantor shall
------------------------------
provide the Guarantee Trustee (i), except while the Preferred Securities are
represented by one or more Global Securities, at least one Business Day prior to
the date for payment of Distributions, a list, in such form as the Guarantee
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders") as of the record date relating to the payment of
such Distributions, and (ii) at any other time, within 30 days of receipt by the
Guarantor of a written request from the Guarantee Trustee for a List of Holders
as of a date no more than 15 days before such List of Holders is given to the
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 Guarantee Trustee by the Guarantor.
The Guarantee Trustee shall preserve, in as current a form as is reasonably
practicable, all information contained in Lists of Holders given to it, provided
that the Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by Guarantee Trustee. Within 60 days after May
----------------------------
15 of each year (commencing with the year of the first anniversary of the
issuance of the Securities), the Guarantee Trustee shall provide to the Holders
of the 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 Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Guarantee Trustee. The Guarantor
-------------------------------------
shall provide to the Guarantee Trustee such documents, reports and information
as required by Section 314(a) (if any) of the Trust Indenture Act and the
compliance certificate required by Section 314(a) of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314(a) of the Trust
Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent. The
------------------------------------------------
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Guarantee that
relate to any of the matters set
<PAGE>
6
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 Guarantee Event of Default; Waiver. The Holders of a
----------------------------------
Majority in Liquidation Amount of the Securities may, by vote or written
consent, on behalf of the Holders of all of the Securities, waive any past
Guarantee Event of Default and its consequences. Upon such waiver, any such
Guarantee Event of Default shall cease to exist, and any Guarantee Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Guarantee, but no such waiver shall extend to any subsequent or other
default or Guarantee Event of Default or impair any right consequent thereon.
SECTION 2.7 Guarantee Event of Default; Notice. (a) The Guarantee
----------------------------------
Trustee shall, within 90 days after the occurrence of a Guarantee Event of
Default, transmit by mail, first class postage prepaid, to the Holders of the
Securities, notices of all Guarantee Events of Default actually known to a
Responsible Officer of the Guarantee Trustee, unless such defaults have been
cured before the giving of such notice; provided, that the Guarantee Trustee
shall be protected in withholding such notice if and so long as a Responsible
Officer of the Guarantee Trustee in good faith determines that the withholding
of such notice is in the interests of the Holders of the Securities.
(b) The Guarantee Trustee shall not be deemed to have knowledge of
any Guarantee Event of Default unless the Guarantee Trustee shall have received
written notice thereof or a Responsible Officer of the Guarantee Trustee charged
with the administration of the Declaration shall have obtained actual knowledge
thereof.
SECTION 2.8 Conflicting Interests. The Declaration shall be deemed
---------------------
to be specifically described in this Guarantee for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
SECTION 2.9 Disclosure of Information. The disclosure of information
-------------------------
as to the names and addresses of the Holders of the Securities in accordance
with Section 312 of the Trust Indenture Act, regardless of the source from which
such information was derived, shall not be deemed to be a violation of any
existing law, or any law hereafter enacted which does not specifically refer to
Section 312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.
SECTION 2.10 Guarantee Trustee May File Proofs of Claim. Upon the
------------------------------------------
occurrence of a Guarantee Event of Default, the Guarantee Trustee is hereby
authorized to (a) recover judgment, in its own name and as trustee of an express
trust, against the Guarantor for the whole amount of any Guarantee Payments
remaining unpaid and (b) file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have its claims and those of the
Holders of the Securities allowed in any judicial proceedings relative to the
Guarantor, its creditors or its property.
<PAGE>
7
ARTICLE 3
POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of Guarantee Trustee.
--------------------------------------
(a) This Guarantee shall be held by the Guarantee Trustee on behalf
of the Trust for the benefit of the Holders of the Securities, and the Guarantee
Trustee shall not transfer this Guarantee to any Person except a Holder of
Securities exercising his or her rights pursuant to Section 5.4(b) or to a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of
its appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee in and to this Guarantee shall automatically
vest in any Successor Guarantee Trustee, and such vesting and succession of
title shall be effective whether or not conveyance documents have been executed
and delivered pursuant to the appointment of such Successor Guarantee Trustee.
(b) If a Guarantee Event of Default actually known to a Responsible
Officer of the Guarantee Trustee has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee for the benefit of the Holders of the
Securities.
(c) The Guarantee Trustee, before the occurrence of any Guarantee
Event of Default and after the curing of all Guarantee Events of Default that
may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Guarantee, and no implied covenants shall be read
into this Guarantee against the Guarantee Trustee. In case a Guarantee Event of
Default has occurred (that has not been cured or waived pursuant to Section 2.6)
and is actually known to a Responsible Officer of the Guarantee Trustee, the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this 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 Guarantee shall be construed to relieve the
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 Guarantee Event of
Default and after the curing or waiving of all such Guarantee Events
of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee
shall be determined solely by the express provisions of this
Guarantee, and the Guarantee Trustee shall not be liable except
for the performance of such duties and obligations as are
specifically set forth in this Guarantee, and no
<PAGE>
8
implied covenants or obligations shall be read into this
Guarantee against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the 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 Guarantee Trustee and conforming to the requirements of this
Guarantee; but in the case of any such certificates or opinions
that by any provision hereof are specifically required to be
furnished to the Guarantee Trustee, the Guarantee Trustee shall
be under a duty to examine the same to determine whether or not
they conform to the requirements of this Guarantee;
(ii) the Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the
Guarantee Trustee, unless it shall be proved that the Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made;
(iii) the 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 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 Guarantee Trustee, or exercising any trust or power conferred
upon the Guarantee Trustee under this Guarantee; and
(iv) no provision of this Guarantee shall require the
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 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 Guarantee or if the Guarantee Trustee shall have
reasonable grounds for believing that an indemnity, reasonably
satisfactory to the Guarantee Trustee, against such risk or liability
is not reasonably assured to it under the terms of this Guarantee.
SECTION 3.2 Certain Rights of Guarantee Trustee. (a) Subject to the
-----------------------------------
provisions of Section 3.1:
(i) The 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;
<PAGE>
9
(ii) Any direction or act of the Guarantor contemplated by
this Guarantee shall be sufficiently evidenced by an Officers'
Certificate;
(iii) Whenever, in the administration of this Guarantee, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the 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 Guarantee Trustee shall have no duty to see to
any recording, filing or registration or any instrument (or any
rerecording, refiling or re-registration thereof);
(v) The Guarantee Trustee may consult with counsel, 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 Guarantee Trustee shall have the right at any
time to seek instructions concerning the administration of this
Guarantee from any court of competent jurisdiction;
(vi) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee at
the request or direction of any Holder, unless such Holder shall have
provided to the Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses and the expenses of
the 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 Guarantee Trustee; provided, that nothing contained
in this Section 3.2(a)(vi) shall be taken to relieve the Guarantee
Trustee, upon the occurrence of a Guarantee Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Guarantee;
(vii) The 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 Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(viii) The 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
Guarantee Trustee shall not be
<PAGE>
10
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 Guarantee Trustee or its
agents hereunder shall bind the Holders, and the signature of the
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 Guarantee Trustee to so act or
as to its compliance with any of the terms and provisions of this
Guarantee, both of which shall be conclusively evidenced by the
Guarantee Trustee's or its agent's taking such action; and
(x) Whenever in the administration of this Guarantee the
Guarantee Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (i) may request written instructions
from the Holders of a Majority in Liquidation Amount of the
Securities, (ii) may refrain from enforcing such remedy or right or
taking such other action until such written instructions are received,
and (iii) shall be protected in conclusively relying on or acting in
accordance with such written instructions.
(b) No provision of this Guarantee shall be deemed to impose any duty
or obligation on the 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 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 Guarantee Trustee
shall be construed to be a duty.
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee.
-----------------------------------------------------
The recitals contained in this Guarantee shall be taken as the statements of the
Guarantor, and the Guarantee Trustee does not assume any responsibility for
their correctness. The Guarantee Trustee makes no representations as to the
validity or sufficiency of this Guarantee.
ARTICLE 4
GUARANTEE TRUSTEE
SECTION 4.1 Guarantee Trustee; Eligibility.
------------------------------
(a) There shall be at all times a 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
<PAGE>
11
Columbia, or a corporation or other Person permitted by the Securities
and Exchange Commission to act as an institutional trustee under the
Trust Indenture Act, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least 50
million U.S. dollars ($50,000,000), and subject to supervision or
examination by federal, state, territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Guarantee
-------------------------------------------------
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed
or removed with or without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed in accordance with
Section 4.2(a) until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by such Successor
Guarantee Trustee and delivered to the Guarantor.
(c) The Guarantee Trustee appointed to office shall hold such office
until a Successor Guarantee Trustee shall have been appointed or until its
removal or resignation. The Guarantee Trustee may resign from office (without
need for prior or subsequent accounting) by an instrument in writing executed by
the Guarantee Trustee and delivered to the Guarantor, which resignation shall
not take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 30 days after
delivery to the Guarantor of an instrument of removal or resignation, the
removed or resigning Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Guarantee Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper, appoint
a Successor Guarantee Trustee.
<PAGE>
12
(e) No Guarantee Trustee shall be liable for the acts or omissions to
act of any Successor Guarantee Trustee.
(f) Upon termination of this Guarantee or removal or resignation of
the Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to
the Guarantee Trustee all amounts owing for fees and reimbursement of expenses
which have accrued to the date of such termination, removal or resignation.
ARTICLE 5
GUARANTEE
SECTION 5.1 Guarantee.
---------
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Trust), as and when due, regardless of any defense, right of set-off
or counterclaim that the Trust may have or assert. The Guarantor's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand.
---------------------------
The Guarantor hereby waives notice of acceptance of this Guarantee and
of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Trust or any other
Person before proceeding against the Guarantor, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected.
------------------------
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee shall be absolute and unconditional and shall remain in
full force and effect until the entire liquidation amount of all outstanding
Securities shall have been paid and such obligation shall in no way be affected
or impaired by reason of the happening from time to time of any event, including
without limitation, the following, whether or not with notice to, or the consent
of, the Guarantor:
(a) The release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Securities to be performed or
observed by the Trust;
<PAGE>
13
(b) The extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Securities or the extension
of time for the performance of any other obligation under, arising out of,
or in connection with the 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 or any change to the maturity date of the
Debentures permitted by the Indenture);
(c) Any failure, omission, delay or lack of diligence on the part of
the Property Trustee or the Holders to enforce, assert or exercise any
right, privilege, power or remedy conferred on the Property Trustee or the
Holders pursuant to the terms of the Securities, or any action on the part
of the Trust granting indulgence or extension of any kind;
(d) The voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the Trust
or any of the assets of the Trust;
(e) Any invalidity of, or defect or deficiency in, the Securities;
(f) The settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) Any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the
intent of this Section 5.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Guarantee Trustee or the Holders
to give notice to, or obtain consent of the Guarantor or any other Person with
respect to the happening of any of the foregoing.
No setoff, counterclaim, reduction or diminution of any obligation, or
any defense of any kind or nature that the Guarantor has or may have against any
Holder shall be available hereunder to the Guarantor against such Holder to
reduce the payments to it under this Guarantee.
SECTION 5.4 Rights of Holders.
-----------------
(a) The Holders of at least a Majority in Liquidation Amount of the
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of this
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under this Guarantee.
<PAGE>
14
(b) If the Guarantee Trustee fails to enforce this Guarantee, then any
Holder of Securities may, subject to the subordination provisions of Section
6.2, institute a legal proceeding directly against the Guarantor to enforce the
Guarantee Trustee's rights under this Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. In addition, if the Guarantor has failed to make a Guarantee Payment, a
Holder of Securities may, subject to the subordination provisions of Section
6.2, directly institute a proceeding against the Guarantor for enforcement of
the Guarantee for such payment to the Holder of the Securities of the principal
of or interest on the Debentures on or after the respective due dates specified
in the Debentures, and the amount of the payment will be based on the Holder's
pro rata share of the amount due and owing on all of the Securities. The
Guarantor hereby waives any right or remedy to require that any action on this
Guarantee be brought first against the Trust or any other person or entity
before proceeding directly against the Guarantor.
SECTION 5.5 Guarantee of Payment.
--------------------
This 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 of Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Guarantee, if at the time of any such payment,
any amounts are due and unpaid under this 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 Guarantee Trustee for the benefit of the Holders.
SECTION 5.7 Independent Obligations.
-----------------------
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Securities, and
that the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee notwithstanding the
occurrence of any event referred to in subsections 5.3(a) through 5.3(g),
inclusive, hereof.
<PAGE>
15
ARTICLE 6
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions.
--------------------------
So long as any Securities remain outstanding, if there shall have
occurred a Guarantee Event of Default or a Trust Enforcement Event, then the
Guarantor shall not, and shall not permit any subsidiary of the Guarantor, to
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, the Guarantor's capital
stock or (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities that rank junior to the
Debentures or make any guarantee payments with respect to any guarantee by the
Guarantor of the debt securities of any subsidiary of the Guarantor if such
guarantee ranks junior to the Debentures (other than (a) dividends or
distributions in common stock of the Guarantor, (b) payments under this
Guarantee and (c) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, and (d) purchases of common stock related to the issuance of
common stock or rights under any of the Company's benefit plans).
SECTION 6.2 Ranking.
-------
Until the Remarketing Settlement Date, the obligations of the
Guarantor under this Guarantee and the Debentures will be a general unsecured
obligation of the Guarantor and will rank on a parity with all of the
Indebtedness (as defined in the Indenture) of the Company, if any, that is not
subordinated to the Guarantee and senior to any Indebtedness of the Guarantor
that is subordinated to the Guarantee. Thereafter, the obligations of the
Guarantor under this Guarantee and the Debentures will be subordinate and junior
in right of payment to all Senior Debt (as defined in the Indenture) of the
Guarantor.
If a Trust Enforcement Event has occurred and is continuing under the
Declaration, the rights of the holders of the Common Securities to receive
Guarantee Payments hereunder shall be subordinated to the rights of the Holders
of the Preferred Securities to receive Guarantee Payments under this Guarantee.
ARTICLE 7
TERMINATION
SECTION 7.1 Termination.
-----------
This Guarantee shall terminate upon (i) full payment of the Redemption
Price of all Securities, (ii) upon the distribution of the Debentures to the
Holders of all the Securities or (iii) upon full payment of the amounts payable
in accordance with the Declaration upon
<PAGE>
16
liquidation of the Trust. Notwithstanding the foregoing, this Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder of Securities must restore payment of any sums paid under the
Securities or under this Guarantee.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1 Exculpation.
-----------
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage, liability, expense or claim incurred by reason of any act or omission
performed or omitted by such Indemnified Person in good faith in accordance with
this 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 Guarantee or by law, except that an Indemnified Person shall be liable for
any such loss, damage or claim incurred by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Securities might properly be paid.
SECTION 8.2 Indemnification.
---------------
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Guarantee.
<PAGE>
17
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Successors and Assigns.
----------------------
All guarantees and agreements contained in this Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Securities then
outstanding.
SECTION 9.2 Amendments.
----------
Except with respect to any changes that do not adversely affect the
rights of the Holders (in which case no consent of the Holders will be
required), this Guarantee may only be amended with the prior approval of the
Holders of at least a Majority in Liquidation Amount of the Securities. The
provisions of Section 12.2 of the Declaration with respect to meetings of, and
action by written consent of, the Holders of the Securities apply to the giving
of such approval.
SECTION 9.3 Notices.
-------
All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered by hand,
telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Guarantee Trustee, at the Guarantee Trustee's
mailing address set forth below (or such other address as the Guarantee
Trustee may give notice of to the Guarantor and the Holders of the
Securities):
Chase Trust Company of California
101 California Street, Suite #2725
San Francisco, CA 94111
Attention: Corporate Trust
Fax: (415) 693-8850
(b) If given to the Guarantor, at the Guarantor's mailing addresses
set forth below (or such other address as the Guarantor may give notice of
to the Guarantee Trustee and the Holders of the Securities):
<PAGE>
18
Imperial Credit Industries,Inc.
23550 Hawthorne Boulevard
Building One
Suite 110
Torrance, CA 90505
Attn: H. Wayne Snavely
Fax: (310) 373-9955
(c) If given to any Holder of Securities, at the address set forth on
the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 9.4 Benefit.
-------
This Guarantee is solely for the benefit of the Holders of the
Securities and, subject to Section 3.1(a), is not separately transferable from
the Securities.
SECTION 9.5 Governing Law.
-------------
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT
OF LAWS PRINCIPLES THEREOF.
<PAGE>
19
IN WITNESS WHEREOF, this Guarantee is executed as of the day and year
first above written.
IMPERIAL CREDIT INDUSTRIES, INC.,
as Guarantor
By:
--------------------------------
Name:
Title:
CHASE TRUST COMPANY OF CALIFORNIA,
as Guarantee Trustee
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
July 3, 1997
Imperial Credit Capital Trust I
c/o Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard, Bldg. 1, Suite 110
Torrance, CA 90505
Re: Imperial Credit Capital Trust I
-------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Imperial Credit Industries,
Inc., a California corporation (the "Company"), and Imperial Credit Capital
Trust I, 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, dated as of May 28, 1997 (the
"Certificate"), as filed in the office of the Secretary of State of the State of
Delaware (the "Secretary of State") on May 28, 1997;
(b) The Declaration of Trust of the Trust, dated as of May 28, 1997, between
the Company and the trustees of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on Form S-4,
including a preliminary prospectus (the "Prospectus"), relating to an offer to
<PAGE>
Imperial Credit Capital Trust I
c/o Imperial Credit Industries, Inc.
July 3, 1997
Page 2
exchange (the "Exchange Offer") up to $70,000,000 aggregate liquidation amount
of its New Par Securities, Series B ("New Par Securities"), for a like
liquidation amount of its Old Par Securities, Series A ("Old Par Securities"),
as filed by the Company, certain of its subsidiaries and the Trust with the
Securities and Exchange Commission on June 27, 1997;
(d) The Amended and Restated Declaration of Trust, dated as of June 9, 1997
among the Company and the trustees named therein, and the holders, from time to
time, of undivided beneficial interests in the assets of the Trust (the
"Declaration") filed as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated July 3, 1997,
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, and we have assumed that there exists no provision
in any document that we have not reviewed that bears upon or is inconsistent
with the opinions stated herein. 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 Declaration
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 Declaration and 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
<PAGE>
Imperial Credit Capital Trust I
c/o Imperial Credit Industries, Inc.
July 3, 1997
Page 3
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 New Par Security is to
be issued by the Trust (collectively, the "New Par Security Holders") of a New
Par Security Certificate for such New Par Security and the acceptance by the
Trust of the outstanding Old Par Security validly tendered for such New Par
Security pursuant to the Exchange Offer, all in accordance with the Declaration
and the Prospectus, and (vii) that the New Par Securities are issued and sold to
the New Par Security Holders in accordance with the Declaration and the
Prospectus. We have not participated in the preparation of the Prospectus 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.
Based upon the foregoing, and upon our examination of such questions of law
and statutes 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. (S) 3801,
-------
et seq.
- -- ---
2. The New Par Securities to be issued to the New Par Security Holders have
been duly authorized by the Declaration and will be duly and validly issued 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 New Par 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 New Par Security Holders may be
obligated, pursuant to the Declaration, to (i) provide indemnity and security in
connection with requests or directions to the Property Trustee under the
Declaration to exercise its rights and remedies under the Declaration, (ii)
provide indemnity and security in
<PAGE>
Imperial Credit Capital Trust I
c/o Imperial Credit Industries, Inc.
July 3, 1997
Page 4
connection with and pay taxes or governmental charges arising from transfers of
New Par Securities and the issuance of replacement New Par Security
Certificates, and (iii) undertake as a party litigant to pay costs in any suit
for the enforcement of any right or remedy under the Declaration or against the
Property Trustee under the Declaration, to the extent provided in the
Declaration.
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. We also consent to the reliance
by Freshman, Marantz, Orlanski, Cooper & Klein and Simpson Thacher & Bartlett as
to matters of Delaware law in connection with opinions to be rendered by it them
pursuant to the Exchange Offer. 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
WF/sem
<PAGE>
EXHIBIT 5.2
[LETTERHEAD OF FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN]
July 3, 1997
Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building One, Suite 110
Torrance, California 90505
Ladies and Gentlemen:
We have acted as counsel to Imperial Credit Industries, Inc., a California
corporation (the "Company"), Auto Marketing Network, Inc., a Florida
corporation, Imperial Business Credit, Inc., a California corporation, Imperial
Credit Advisors, Inc., a California corporation and Franchise Mortgage
Acceptance Company LLC, a California limited liability company (collectively
referred to herein as the "Subsidiary Guarantors") in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of the Registration Statement on Form S-4, filed with the
Commission today (as amended, the "Registration Statement"), of the Company,
Imperial Credit Capital Trust I, a Delaware statutory business trust (the
"Trust") and the Subsidiary Guarantors for registration under the Securities Act
of 1933, as amended, of $70,000,000 aggregate liquidation amount of the
Company's Resettable Rate Debentures, Series B (the "New Debentures") and the
Subsidiary Guarantors' guarantees in connection therewith (the "Guarantees"),
each issuable in connection with the exchange offer of New Debentures for the
Company's Resettable Rate Debentures, Series A (the "Old Debentures").
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the Indenture,
dated as of June 9, 1997 (the "Indenture"), among the Company, the Trust, the
Subsidiary Guarantors and the Chase Trust Company of California, as trustee (the
"Trustee"), pursuant to which the New Debentures will be issued, the form of the
New Debentures included as Exhibit 4.3 to the Registration Statement and such
corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, the Trust and the Subsidiary Guarantors, and
have made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
1
<PAGE>
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents.
As to all questions of fact material to this opinion that have not been
independently established, we have relied upon certificates or comparable
documents of officers and representatives of the Company, the Trust and the
Subsidiary Guarantors.
Based on the foregoing, and subject to the qualifications stated herein, we are
of the opinion that:
1. The New Debentures have been duly authorized by the Company and, when
executed on behalf of the Company, authenticated by the Trustee and
delivered in accordance with the terms of the Indenture and as contemplated
by the Registration Statement, will constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in
a proceeding at law or in equity).
2. (a) The Guarantees of the Subsidiary Guarantors, have been duly
authorized by each of the Subsidiary Guarantors and, when executed and
delivered by each of the Subsidiary Guarantors in accordance with the terms
of the Indenture and as contemplated by the Registration Statement, will
constitute valid and binding obligations of each of the Subsidiary
Guarantors, enforceable against each entity in accordance with their terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditor's rights and
remedies generally and subject, as to enforceability, to general principles
of equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
The opinions expressed herein are limited to the laws of the State of California
and the federal laws of the United States, and we express no opinion as to the
effect on the matters covered by this letter of the laws of any other
jurisdiction.
The opinions expressed herein are rendered solely for your benefit in connection
with the transactions described herein. Those opinions may not be used or
relied upon by any other person, nor may this letter or any copies thereof be
furnished to a third party, filed with a governmental agency, quoted, cited or
otherwise referred to without our Prior written consent, except that we hereby
consent to the use of this opinion as an exhibit to the Registration
2
<PAGE>
Statement. We further consent to the reference to our name under the caption
"Legal Matters" in the prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ Freshman, Marantz, Orlanski, Cooper & Klein
FRESHMAN, MARANTZ, ORLANSKI,
COOPER & KLEIN
3
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SIMPSON THACHER & BARTLETT]
July 3, 1997
Re: Offer to Exchange Remarketed Par
Securities, Series B for the Outstanding
Remarketed Par Securities, Series A
---------------------------------------
Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building One, Suite 110
Torrance, California 90505
Imperial Credit Capital Trust I
c/o Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building One, Suite 110
Torrance, California 90505
Ladies and Gentlemen:
We have acted as special tax counsel ("Tax Counsel") to Imperial Credit
Industries, Inc., a California corporation (the "Company"), and Imperial Credit
Capital Trust I, a statutory business trust organized under the Business Trust
Act of the State of Delaware (the "Trust"), in connection with the preparation
and filing by the Company and the Trust with the Securities and Exchange
Commission of a Registration Statement on Form S-4 (as amended, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), registering the exchange (referred to collectively herein as
the "Exchange") of: (i) up to $70,000,000 aggregate liquidation amount of
<PAGE>
SIMPSON THACHER & BARTLETT
-2- July 3, 1997
Remarketed Par Securities, Series B (the "New Par Securities"), which will have
been registered under the Securities Act pursuant to the Registration Statement,
for a like liquidation amount of the Trust's outstanding Remarketed Par
Securities, Series A (the "Old Par Securities"); (ii) all of the Company's
outstanding Resettable Rate Debentures, Series A (the "Old Debentures") for a
like aggregate principal amount of Resettable Rate Debentures, Series B (the
"New Debentures") which will have been registered under the Securities Act
pursuant to the Registration Statement; (iii) the Company's guarantee (which is
set forth in the Guarantee Agreement, dated June 9, 1997, between the Company
and Chase Trust Company of California, as trustee) of the payment of
distributions and payments upon liquidation or redemption of the Old Par
Securities (the "Old Guarantee") for a like guarantee (which will be set forth
in the new Guarantee Agreement between the Company and Chase Trust Company of
California, as trustee) of the New Par Securities (the "New Guarantee") which
will have been registered under the Securities Act pursuant to the Registration
Statement; and (iv) Auto Marketing Network, Inc., Imperial Business Credit,
Inc., Imperial Credit Advisors, Inc. and Franchise Mortgage Acceptance Company
LLC guarantees of the Old Debentures (the "Old Subsidiary Guarantees") for like
guarantees of the New Debentures (the "New Subsidiary Guarantees") which will
have been registered under the Securities Act pursuant to the Registration
Statement.
All capitalized terms used in this opinion letter and not otherwise
defined herein shall have the meaning ascribed to such terms in the Registration
Statement.
<PAGE>
SIMPSON THACHER & BARTLETT
-3- July 3, 1997
In delivering this opinion letter, we have reviewed and relied upon:
(i) the Registration Statement; (ii) the Indenture, dated June 9, 1997 between
the Company and Chase Trust Company of California, as trustee (the "Indenture");
(iii) forms of the Old Debentures and the New Debentures; (iv) the Amended and
Restated Declaration, dated June 9, 1997 between the Company, as Sponsor, Chase
Trust Company of California, as the Initial Property Trustee, Chase Manhattan
Bank Delaware, as the initial Delaware Trustee and the Regular Trustees named
therein (the "Declaration"); (v) the Old Guarantee and a form of the New
Guarantee; and (vi) forms of the Old Par Securities, the New Par Securities and
the Trust's common securities (the "Common Securities"). In addition, we have
relied upon certain other statements and representations contained in the
Company's letter of representation dated June 9, 1997. We also have examined
and relied upon originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and the Trust and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination of such material, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity to original documents of all copies of documents submitted to
us. In addition, we also have assumed that (i) the transactions related to the
original issuance of the Old Debentures, the Old Par Securities and the Common
Securities were consummated in accordance with the terms of the documents and
forms of documents
<PAGE>
SIMPSON THACHER & BARTLETT
-4- July 3, 1997
described herein and (ii) the Exchange will be consummated in accordance with
the terms of such documents and forms of such documents.
On the basis of the foregoing and assuming that the Trust was formed and
will be maintained in compliance with the terms of the Declaration, we hereby
confirm (i) our opinion set forth in the Registration Statement under the
caption "Certain United States Federal Income Tax Consequences" and (ii) that,
subject to the qualifications set forth therein, the discussion set forth in the
Registration Statement under such caption is an accurate summary of the United
States federal income tax matters described therein.
We express no opinion with respect to the transactions referred to
herein or in the Registration Statement other than as expressly set forth
herein. Moreover, we note that there is no authority directly on point dealing
with securities such as the Trust Securities or transactions of the type
described herein and that our opinion is not binding on the Internal Revenue
Service or the courts, either of which could take a contrary position.
Nevertheless, we believe that if challenged, the opinions we express herein
would be sustained by a court with jurisdiction in a properly presented case.
Our opinion is based upon the Code, the Treasury regulations promulgated
thereunder and other relevant authorities and law, all as in effect on the date
hereof. Consequently, future changes in the law may cause the tax treatment of
the transactions referred to herein to be materially different from that
described above.
We are admitted to practice law only in the State of New York and the
opinions we express herein are limited solely to matters governed by the federal
law of the United States.
<PAGE>
SIMPSON THACHER & BARTLETT
-5- July 3, 1997
We hereby consent to the use of this opinion for filing as Exhibit 8.1
to the Registration Statement and the use of our name in the Registration
Statement under the captions "Certain United States Federal Income Tax
Consequences" and "Legal Matters".
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Southern Pacific Thrift and Loan, a California corporation.
Imperial Business Credit, Inc., a California corporation.
Imperial Credit Advisors, Inc., a California corporation.
Franchise Mortgage Acceptance Company LLC, a California limited liability
company.
Auto Marketing Network, Inc., a Florida corporation.
Each of the aforementioned subsidiaries do business under its respective name.
<PAGE>
EXHIBIT 23.1A
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Imperial Credit Industries, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Summary Historical and Pro Forma Consolidated
Financial and Other Data," "Selected Consolidated Financial Data," and
"Experts" in the Registration Statement. Our report contains an explanatory
paragraph regarding the adoption of Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights."
KPMG Peat Marwick LLP
Los Angeles, California
July 2, 1997
<PAGE>
EXHIBIT 23.1B
CONSENT OF INDEPENDENT AUDITORS
The Board of Managers
Franchise Mortgage Acceptance Company LLC:
We consent to the inclusion of our report dated January 29, 1997, with respect
to the balance sheets of Franchise Mortgage Acceptance Company LLC as of
December 31, 1996 and 1995, and the related statements of operations, changes
in members' equity, and cash flows for the year ended December 31, 1996 and
for the period from June 30, 1995 (inception) through December 31, 1995, which
report appears in the Form S-4 of Imperial Credit Industries, Inc.
KPMG Peat Marwick LLP
Los Angeles, California
July 2, 1997
<PAGE>
_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM T-l
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________
CHASE TRUST COMPANY OF CALIFORNIA
(formerly Chemical Trust Company of California)
(Exact name of trustee as specified in its charter)
CALIFORNIA 94-2926573
(State of incorporation I.R.S. employer
if not a national bank) identification No.)
101 California Street, Suite #2725
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
___________________________
IMPERIAL CREDIT CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
CALIFORNIA
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
23550 Hawthorne Boulevard, Building 1, Suite 110
Torrance, California 90505
(Address of principal executive offices) (Zip Code)
___________________________
Remarketed Par Securities, Series A and Series B
(Title of the indenture securities)
___________________________________
<PAGE>
GENERAL
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.
Superintendent of Banks of the State of California,
235 Montgomery Street, San Francisco, California 94104-2980.
Board of Governors of the Federal Reserve System,
Washington, D.C. 20551
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES
a) Title of the securities outstanding under each such other indenture.
$20,174,000 9 3/4% Senior Notes due January 15, 2004 issued under
Indenture dated as of January 31, 1994.
$200,000,000 9 7/8% Series B Senior Notes due 2007 issued under
Indenture dated as of January 23, 1997.
b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310 (b) (1) of the
Act arises as a result of the trusteeship under any such other indenture,
including a statement as to how the indenture securities will rank as compared
with the securities issued under such other indenture.
The Trustee is not deemed to have a conflicting interest within the
meaning of Section 310 (b) (1) of the Act because the indenture securities
referenced in (a) above (the "Prior Securities") are not in default and the
indenture to be qualified and the indenture entered into in connection with the
Prior Securities are wholly unsecured and rank equally.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Incorporation of the Trustee as now in
effect, including the Restated Articles of Incorporation dated December 23, 1986
and the Certificates of Amendment dated March 26, 1992 and March 26, 1997 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 33-
55136, which is incorporated by reference).
2
<PAGE>
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (See Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-55136, which is incorporated by reference).
3. Authorization to exercise corporate trust powers (Contained in
Exhibit 2).
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-55136, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 21(b) of the Act
(See Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-55136, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Trust Company of California, a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Los Angeles and State of California, on the ___
day of June, 1997.
CHASE TRUST COMPANY OF CALIFORNIA
By /s/ Hans H Helley
------------------------
HANS H HELLEY
Assistant Vice President
3
<PAGE>
EXHIBIT 7. REPORT OF CONDITION OF THE TRUSTEE.
- --------------------------------------------------------------------------------
TRUST COMPANY
CONSOLIDATED REPORT OF CONDITION OF CHEMICAL TRUST COMPANY OF CALIFORNIA
------------------------------------
(Legal Title)
LOCATED AT SAN FRANCISCO SAN FRANCISCO CA 94111
----------------------------------------------------------------
(City) (County) (State) (Zip)
AS OF CLOSE OF BUSINESS ON MARCH 31, 1997 BANK NO. 1476
--------------- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS DOLLAR AMOUNT IN THOUSANDS
<TABLE>
<S> <C>
1. Cash and due from banks 11,768
2. U.S. Treasury securities 10,025
3. Obligations of other U.S. Government agencies and corporations
4. Obligations of States and political subdivisions
5. Other securities (including $ corporate stock
----------------
(a) Loans
(b) Less: Reserve for possible loan losses
(c) Loans (Net)
7. Bank Premises, furniture and fixtures and other assets representing bank
premises (including $ -0- capital leases) 120
-------
8. Real estate owned other than bank premises
9. Investments in subsidiaries not consolidated
10. Other assets (complete schedule on reverse) (including $ intangibles) 851
-----------
11. TOTAL ASSETS 22,764
LIABILITIES
12. Liabilities For borrowed money
13. Mortgage indebtedness (including $ capital leases)
----------------
14. Other liabilities (complete on schedule on reverse 2,941
15. TOTAL LIABILITIES 2,941
======
16. Capital notes and debentures
SHAREHOLDERS EQUITY
17. Preferred stock--
(Number shares outstanding ) Amount $
----------------
18. Common stock-- 10
(Number shares authorized 100) Amount $ 100
---
(Number shares outstanding 100) Amount $ 100
---
19. Surplus Amount $ 9,990
20. TOTAL CONTRIBUTED CAPITAL 10,000
21. Retained earnings and other capital reserves 9,823
22. TOTAL SHAREHOLDERS EQUITY 19,823
23. TOTAL LIABILITIES AND CAPITAL ACCOUNTS 22,764
======
</TABLE>
4
<PAGE>
MEMORANDA
1. Assets deposited with State Treasurer to qualify for exercise of fiduciary
powers (market value) 630
- --------------------------------------------------------------------------------
The undersigned, Francis J. Farrell, VP & Manager and C. Scott Boone, Senior
--------------------------------------------------------------
(Name and Title) (Name and Title)
Vice President
- --------------
of the above named trust company, each declares, for himself alone and not for
the other: I have a personal knowledge of the matters contained in this report
(including the reverse side hereof), and I believe that each statement in said
report is true. Each of the undersigned, for himself alone and not for the
other, certifies under penalty of perjury that the foregoing is true and
correct.
Executed on 4/22/97, at San Francisco, California
------- -------------
(Date) (City)
/s/ Francis J. Farrell /s/ C. Scott Boone
---------------------- ------------------
(Signature) (Signature)
SCHEDULE OF OTHER ASSETS
<TABLE>
<S> <C>
Accounts Receivable $326
Deferred Taxes 396
Other 129
----
Total (same as Item 10) $851
SCHEDULE OF OTHER LIABILITIES
Accrued Income Taxes $1,738
Accrued Expenses & A/P 47
Accrued Pension & Benefits 771
Accrued Incentive Expense 23
All Other Liabilities 362
------
Total (same as Item 14) $2,941
</TABLE>
5
<PAGE>
EXHIBIT 25.2
_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM T-l
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________
CHASE TRUST COMPANY OF CALIFORNIA
(formerly Chemical Trust Company of California)
(Exact name of trustee as specified in its charter)
CALIFORNIA 94-2926573
(State of incorporation I.R.S. employer
if not a national bank) identification No.)
101 California Street, Suite #2725
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
___________________________
IMPERIAL CREDIT INDUSTRIES, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 95-40544791
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
23550 Hawthorne Boulevard, Building 1, Suite 110
Torrance, California 90505
(Address of principal executive offices) (Zip Code)
___________________________
Resettable Rate Debentures, Series A and Series B
(Title of the indenture securities)
___________________________________
<PAGE>
GENERAL
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.
Superintendent of Banks of the State of California,
235 Montgomery Street, San Francisco, California 94104-2980.
Board of Governors of the Federal Reserve System,
Washington, D.C. 20551
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES
a) Title of the securities outstanding under each such other indenture.
$20,174,000 9 3/4% Senior Notes due January 15, 2004 issued under
Indenture dated as of January 31, 1994.
$200,000,000 9 7/8% Series B Senior Notes due 2007 issued under
Indenture dated as of January 23, 1997.
b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310 (b) (1) of the
Act arises as a result of the trusteeship under any such other indenture,
including a statement as to how the indenture securities will rank as compared
with the securities issued under such other indenture.
The Trustee is not deemed to have a conflicting interest within the
meaning of Section 310 (b) (1) of the Act because the indenture securities
referenced in (a) above (the "Prior Securities") are not in default and the
indenture to be qualified and the indenture entered into in connection with the
Prior Securities are wholly unsecured and rank equally.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Incorporation of the Trustee as now in
effect, including the Restated Articles of Incorporation dated December 23, 1986
and the Certificates of Amendment dated March 26, 1992 and March 26, 1997 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 33-
55136, which is incorporated by reference).
2
<PAGE>
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (See Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-55136, which is incorporated by reference).
3. Authorization to exercise corporate trust powers (Contained in
Exhibit 2).
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-55136, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 21(b) of the Act
(See Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-55136, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Trust Company of California, a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Los Angeles and State of California, on the ___
day of June, 1997.
CHASE TRUST COMPANY OF CALIFORNIA
By /s/ Hans H Helley
------------------------
HANS H HELLEY
Assistant Vice President
3
<PAGE>
EXHIBIT 7. REPORT OF CONDITION OF THE TRUSTEE.
- --------------------------------------------------------------------------------
TRUST COMPANY
CONSOLIDATED REPORT OF CONDITION OF CHEMICAL TRUST COMPANY OF CALIFORNIA
------------------------------------
(Legal Title)
LOCATED AT SAN FRANCISCO SAN FRANCISCO CA 94111
----------------------------------------------------------------
(City) (County) (State) (Zip)
AS OF CLOSE OF BUSINESS ON MARCH 31, 1997 BANK NO. 1476
-------------- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS DOLLAR AMOUNT IN THOUSANDS
<TABLE>
<S> <C>
1. Cash and due from banks 11,768
2. U.S. Treasury securities 10,025
3. Obligations of other U.S. Government agencies and corporations
4. Obligations of States and political subdivisions
5. Other securities (including $ corporate stock
----------------
(a) Loans
(b) Less: Reserve for possible loan losses
(c) Loans (Net)
7. Bank Premises, furniture and fixtures and other assets representing bank
premises (including $ -0- capital leases) 120
-------
8. Real estate owned other than bank premises
9. Investments in subsidiaries not consolidated
10. Other assets (complete schedule on reverse) (including $ intangibles) 851
-------------
11. TOTAL ASSETS 22,764
LIABILITIES
12. Liabilities For borrowed money
13. Mortgage indebtedness (including $ capital leases)
----------------
14. Other liabilities (complete on schedule on reverse 2,941
15. TOTAL LIABILITIES 2,941
======
16. Capital notes and debentures
SHAREHOLDERS EQUITY
17. Preferred stock--
(Number shares outstanding ) Amount $
----------------
18. Common stock-- 10
(Number shares authorized 100) Amount $ 100
---
(Number shares outstanding 100) Amount $ 100
---
19. Surplus Amount $ 9,990
20. TOTAL CONTRIBUTED CAPITAL 10,000
21. Retained earnings and other capital reserves 9,823
22. TOTAL SHAREHOLDERS EQUITY 19,823
23. TOTAL LIABILITIES AND CAPITAL ACCOUNTS 22,764
======
</TABLE>
4
<PAGE>
MEMORANDA
1. Assets deposited with State Treasurer to qualify for exercise of fiduciary
powers (market value) 630
- --------------------------------------------------------------------------------
The undersigned, Francis J. Farrell, VP & Manager and C. Scott Boone, Senior
--------------------------------------------------------------
(Name and Title) (Name and Title)
Vice President
- --------------
of the above named trust company, each declares, for himself alone and not for
the other: I have a personal knowledge of the matters contained in this report
(including the reverse side hereof), and I believe that each statement in said
report is true. Each of the undersigned, for himself alone and not for the
other, certifies under penalty of perjury that the foregoing is true and
correct.
Executed on 4/22/97, at San Francisco, California
------- -------------
(Date) (City)
/s/ Francis J. Farrell /s/ C. Scott Boone
---------------------- ------------------
(Signature) (Signature)
SCHEDULE OF OTHER ASSETS
<TABLE>
<S> <C>
Accounts Receivable $326
Deferred Taxes 396
Other 129
----
Total (same as Item 10) $851
SCHEDULE OF OTHER LIABILITIES
Accrued Income Taxes $1,738
Accrued Expenses & A/P 47
Accrued Pension & Benefits 771
Accrued Incentive Expense 23
All Other Liabilities 362
------
Total (same as Item 14) $2,941
</TABLE>
5
<PAGE>
EXHIBIT 25.3
_____________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM T-l
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________
CHASE TRUST COMPANY OF CALIFORNIA
(formerly Chemical Trust Company of California)
(Exact name of trustee as specified in its charter)
CALIFORNIA 94-2926573
(State of incorporation I.R.S. employer
if not a national bank) identification No.)
101 California Street, Suite #2725
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
___________________________
IMPERIAL CREDIT INDUSTRIES, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 95-4054791
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
23550 Hawthorne Boulevard, Building 1, Suite 110
Torrance, California 90505
(Address of principal executive offices) (Zip Code)
___________________________
Guarantee
(Title of the indenture securities)
___________________________________
<PAGE>
GENERAL
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.
Superintendent of Banks of the State of California,
235 Montgomery Street, San Francisco, California 94104-2980.
Board of Governors of the Federal Reserve System,
Washington, D.C. 20551
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES
a) Title of the securities outstanding under each such other indenture.
$20,174,000 9 3/4% Senior Notes due January 15, 2004 issued under
Indenture dated as of January 31, 1994.
$200,000,000 9 7/8% Series B Senior Notes due 2007 issued under
Indenture dated as of January 23, 1997.
b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310 (b) (1) of the
Act arises as a result of the trusteeship under any such other indenture,
including a statement as to how the indenture securities will rank as compared
with the securities issued under such other indenture.
The Trustee is not deemed to have a conflicting interest within the
meaning of Section 310 (b) (1) of the Act because the indenture securities
referenced in (a) above (the "Prior Securities") are not in default and the
indenture to be qualified and the indenture entered into in connection with the
Prior Securities are wholly unsecured and rank equally.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Incorporation of the Trustee as now in
effect, including the Restated Articles of Incorporation dated December 23, 1986
and the Certificates of Amendment dated March 26, 1992 and March 26, 1997 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 33-
55136, which is incorporated by reference).
2
<PAGE>
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (See Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-55136, which is incorporated by reference).
3. Authorization to exercise corporate trust powers (Contained in
Exhibit 2).
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-55136, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 21(b) of the Act
(See Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-55136, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Trust Company of California, a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Los Angeles and State of California, on the ___
day of June, 1997.
CHASE TRUST COMPANY OF CALIFORNIA
By /s/ Hans H Helley
------------------------
HANS H HELLEY
Assistant Vice President
3
<PAGE>
EXHIBIT 7. REPORT OF CONDITION OF THE TRUSTEE.
- --------------------------------------------------------------------------------
TRUST COMPANY
CONSOLIDATED REPORT OF CONDITION OF CHEMICAL TRUST COMPANY OF CALIFORNIA
------------------------------------
(Legal Title)
LOCATED AT SAN FRANCISCO SAN FRANCISCO CA 94111
----------------------------------------------------------------
(City) (County) (State) (Zip)
AS OF CLOSE OF BUSINESS ON MARCH 31, 1997 BANK NO. 1476
-------------- ----
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS DOLLAR AMOUNT IN THOUSANDS
<TABLE>
<S> <C>
1. Cash and due from banks 11,768
2. U.S. Treasury securities 10,025
3. Obligations of other U.S. Government agencies and corporations
4. Obligations of States and political subdivisions
5. Other securities (including $ corporate stock
----------------
(a) Loans
(b) Less: Reserve for possible loan losses
(c) Loans (Net)
7. Bank Premises, furniture and fixtures and other assets representing bank
premises (including $ -0- capital leases) 120
-------
8. Real estate owned other than bank premises
9. Investments in subsidiaries not consolidated
10. Other assets (complete schedule on reverse) (including $ intangibles) 851
-----------
11. TOTAL ASSETS 22,764
LIABILITIES
12. Liabilities For borrowed money
13. Mortgage indebtedness (including $ capital leases)
----------------
14. Other liabilities (complete on schedule on reverse 2,941
15. TOTAL LIABILITIES 2,941
======
16. Capital notes and debentures
SHAREHOLDERS EQUITY
17. Preferred stock--
(Number shares outstanding ) Amount $
----------------
18. Common stock-- 10
(Number shares authorized 100) Amount $ 100
---
(Number shares outstanding 100) Amount $ 100
---
19. Surplus Amount $ 9,990
20. TOTAL CONTRIBUTED CAPITAL 10,000
21. Retained earnings and other capital reserves 9,823
22. TOTAL SHAREHOLDERS EQUITY 19,823
23. TOTAL LIABILITIES AND CAPITAL ACCOUNTS 22,764
======
</TABLE>
4
<PAGE>
MEMORANDA
1. Assets deposited with State Treasurer to qualify for exercise of fiduciary
powers (market value) 630
- --------------------------------------------------------------------------------
The undersigned, Francis J. Farrell, VP & Manager and C. Scott Boone, Senior
--------------------------------------------------------------
(Name and Title) (Name and Title)
Vice President
- --------------
of the above named trust company, each declares, for himself alone and not for
the other: I have a personal knowledge of the matters contained in this report
(including the reverse side hereof), and I believe that each statement in said
report is true. Each of the undersigned, for himself alone and not for the
other, certifies under penalty of perjury that the foregoing is true and
correct.
Executed on 4/22/97, at San Francisco, California
------- -------------
(Date) (City)
/s/ Francis J. Farrell /s/ C. Scott Boone
---------------------- ------------------
(Signature) (Signature)
SCHEDULE OF OTHER ASSETS
<TABLE>
<S> <C>
Accounts Receivable $326
Deferred Taxes 396
Other 129
----
Total (same as Item 10) $851
SCHEDULE OF OTHER LIABILITIES
Accrued Income Taxes $1,738
Accrued Expenses & A/P 47
Accrued Pension & Benefits 771
Accrued Incentive Expense 23
All Other Liabilities 362
------
Total (same as Item 14) $2,941
</TABLE>
5
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO EXCHANGE ALL OUTSTANDING
REMARKETED PAR SECURITIES, SERIES A
FOR
REMARKETED PAR SECURITIES, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES AND EXCHANGE ACT OF 1933
OF
IMPERIAL CREDIT CAPITAL TRUST I
PURSUANT TO THE PROSPECTUS DATED _________ ___, 1997
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_____________ ____, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF
REMARKETED PAR SECURITIES, SERIES A (THE "OLD SECURITIES") MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- -------------------------------------------------------------------------------
DELIVERY TO: THE CHASE TRUST COMPANY OF CALIFORNIA, EXCHANGE AGENT
By Hand/Overnight Courier/By Mail: By Facsimile:
c/o The Chase Manhattan Bank (212) 638-7380
Attn: Mr. Carlos Estevez
55 Water Street Confirm by Telephone:
Second Floor, Room #234 (212) 638-0828
New York, New York 10041
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN AND THE PROSPECTUS (AS DEFINED) SHOULD BE
READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
By execution hereof, the undersigned acknowledges receipt of the
Prospectus, dated ________ ___, 1997 (as the same may be amended from time to
time, the "Prospectus") of Imperial Credit Capital Trust I, a Delaware statutory
business trust (the "Trust"), and this Letter of Transmittal and instructions
hereto (the "Letter of Transmittal"), which together constitute the Trust's
offer to the holders of the Old Securities (the "Holders") to exchange (the
"Exchange Offer") all of their outstanding Old Securities for an aggregate
liquidation amount of up to $70,000,000 of the Trust's Remarketed Par
Securities, Series B (the "New Securities") which have been registered under the
Securities Act of 1933, as amended, upon the terms and subject to the conditions
set forth in the Prospectus.
For each Old Security accepted for exchange, the Holder of such Old
Security will receive a New Security having a liquidation amount equal to that
of the surrendered Old Security. The New Securities will bear interest from the
most recent date to which interest has been paid on the Old Securities or, if no
interest has been paid on the Old Securities, June 9, 1997. Accordingly,
registered holders of New Securities on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest
1
<PAGE>
has been paid or, if no interest has been paid, from June 9, 1997. Old
Securities accepted for exchange will cease to accrue interest from and after
the date of consummation of the Exchange Offer. Holders whose Old Securities are
accepted for exchange will not receive any payment in respect of accrued
interest on such Old Securities otherwise payable on any interest payment date
the record date for which occurs on or after consummation of the Exchange Offer.
This Letter of Transmittal is to be completed by a Holder of Old
Securities, either if certificates are to be forwarded herewith, or if a tender
of certificates for Old Securities, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository Trust
Company (the "Book-Entry Transfer Facility") pursuant to the procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus.
Holders of Old Securities whose certificates are not immediately available, or
who are unable to deliver their certificates or confirmation of the book-entry
tender of their Old Securities into the Exchange Agent's account at the Book-
Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents
required by this Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Securities according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
The undersigned has completed the appropriate boxes below and has signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Trust the aggregate liquidation amount of Old
Securities indicated below. Subject to, and effective upon, the acceptance for
exchange of the Old Securities tendered hereby, the undersigned hereby sells,
assigns and transfers to, or to the order of, the Trust all right, title and
interest in and to such Old Securities as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Securities
tendered hereby and that the Trust will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Trust. The
undersigned hereby further represents that any New Securities acquired in
exchange for Old Securities tendered hereby will have been acquired in the
ordinary course of business of the person receiving such New Securities, whether
or not such person is the undersigned, that neither the Holder of such Old
Securities nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such New Securities and that
neither the Holder of such Old Securities nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended
(the "Act"), of the Registrants.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Securities issued pursuant to the Exchange Offer in
exchange for the Old Securities may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Registrants within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such Holders' business and such Holders have
no arrangement with any person to participate in a distribution of such New
Securities. However, the SEC has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the SEC would make a similar determination with respect to the Exchange Offer as
in other circumstances. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of New Securities and has no arrangement or understanding to
participate in a distribution of New Securities. If any Holder is an affiliate
of a Registrant, is engaged in or intends to engage in, or has any arrangement
or understanding with any person
2
<PAGE>
to participate in, a distribution of the New Securities to be acquired pursuant
to the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Securities for its own account pursuant to the Exchange
Offer, it represents that the Old Securities to be exchanged for the New
Securities were acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Securities; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Trust to be necessary or desirable to complete the sale,
assignment and transfer of the Old Securities tendered hereby. All authority
conferred or agreed to be conferred in this Letter of Transmittal and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Securities (and, if applicable,
substitute certificates representing Old Securities for any Old Securities not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Securities, please credit the account indicated below maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated in
the box entitled "Special Delivery Instructions" below, please send the New
Securities (and, if applicable, substitute certificates representing Old
Securities for any Old Securities not exchanged) to the undersigned at the
address shown below in the box entitled "Description of Old Securities."
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW.
This Letter of Transmittal is to be used by Holders if (i) certificates
representing Old Securities are to be physically delivered to the Exchange Agent
herewith by Holders, (ii) tender of Old Securities is to be made by book entry
transfer to the Exchange Agent's account at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in the Prospectus under the caption "The
Exchange Offer Procedures for Tendering Old Securities--Book-Entry Transfer" by
any financial institution that is a participant in DTC and whose name appears on
a security position listing as the owner of Old Securities (both Holders and
such DTC participants, acting on behalf of Holders, are referred to herein as
"Acting Holders"), unless an Agent's Message (as defined below) is delivered in
connection with such book-entry transfer, or (iii) tender of Old Securities is
to be made according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "Procedures for Tendering Old Securities Guaranteed
Delivery Procedures." DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
[_] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------------
Account Number with DTC:
---------------------------------------------------
Transaction Code Number.
---------------------------------------------------
If Holders desire to exchange Old Securities pursuant to the Exchange Offer
and (i) certificates representing such Old Securities are not immediately
available, (ii) time will not permit this Letter of Transmittal, certificates
representing such Old Securities or other required documents to reach the
Depositary on or prior to 5:00 p.m., New York City time, on the Expiration Date,
or (iii) the procedures for book-entry transfer (including delivery of an
Agent's Message) cannot be
3
<PAGE>
completed prior to the Expiration Date, such Holders may effect a tender and a
delivery of such Old Securities in accordance with the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer
Guaranteed Delivery Procedures." See Instruction 1 below.
[_] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
----------------------------------------------
Window Ticket No. (if any):
------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Eligible Institution that Guaranteed Delivery:
---------------------
If Delivered by Book-Entry Transfer:
Account Number with DTC:
----------------------------------------------
Transaction Code Number:
----------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Old Securities that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SECURITIES" BELOW AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED THE OLD SECURITIES AS SET FORTH IN SUCH BOX BELOW.
List below the Old Securities to which this Letter of Transmittal relates.
If the space provided below is inadequate, list the certificate numbers and
liquidation amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Old Securities will be accepted only in
liquidation amounts equal to $1,000 or integral multiples thereof.
4
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF OLD SECURITIES
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE LIQUIDATION
NAME(S) AND ADDRESS(ES) LIQUIDATION AMOUNT OF
OF HOLDER(S) (PLEASE CERTIFICATE AMOUNT OLD SECURITIES
FILL IN, IF BLANK) NUMBER(S)* REPRESENTED** TENDERED
- -------------------------------------------------------------------------------
----------- ------------- --------------
----------- ------------- --------------
----------- ------------- --------------
----------- ------------- --------------
----------- ------------- --------------
----------- ------------- --------------
----------- ------------- --------------
- -------------------------------------------------------------------------------
TOTAL LIQUIDATION AMOUNT
OF OLD SECURITIES ------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
* NEED TO BE COMPLETED BY HOLDERS TENDERING BY BOOK-ENTRY TRANSFER (SEE
BELOW).
** UNLESS OTHERWISE INDICATED IN THIS COLUMN, A HOLDER WILL BE DEEMED TO HAVE
TENDERED ALL OF THE OLD SECURITIES REPRESENTED BY THE OLD SECURITIES
INDICATED IN COLUMN 2. SEE INSTRUCTION 2.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD SECURITIES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER
REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE
EXCHANGE AGENT TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
IF A HOLDER IS TENDERING ANY OLD SECURITIES, THIS LETTER MUST BE SIGNED BY
THE REGISTERED HOLDER(S) AS THE NAME(S) APPEAR(S) ON THE CERTIFICATE(S) FOR THE
OLD SECURITIES OR BY ANY PERSON(S) AUTHORIZED TO BECOME A REGISTERED HOLDER(S)
BY ENDORSEMENTS AND DOCUMENTS TRANSMITTED HEREWITH. IF SIGNATURE IS BY A
TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, OFFICER OR OTHER PERSON ACTING IN A
FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH FULL TITLE. SEE
INSTRUCTION 3.
X
-------------------------------------------------------------------------------
X
-------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY)
DATE:
---------------------, ------
NAME(S):
------------------------------------------------------------------------
------------------------------------------------------------------------
(PLEASE PRINT)
CAPACITY:
-----------------------------------------------------------------------
ADDRESS:
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDING ZIP CODE)
AREA CODE AND TELEPHONE NO.:
----------------------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
(INCLUDING AREA CODE) OF FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
DATE:
---------------------, ------
- --------------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 3 AND 4) (SEE INSTRUCTIONS 2, 3 AND 4)
- ------------------------------------------------------- --------------------------------------------------------
<S> <C>
To be completed ONLY if certificates for Old To be completed ONLY if certificates for Old
Securities not exchanged and/or New Securities are to Securities not exchanged and/or New Securities are to
be issued in the name of and sent to someone other than be sent to someone other than the person or persons
the person or persons whose signature(s) appear(s) on whose signature(s) appear(s) on this Letter above or to
this Letter of Transmittal above, or if Old Securities such person or persons at an address other than shown
delivered by book-entry transfer which are not accepted in the box entitled "Description of Old Securities" on
for exchange are to be returned by credit to an account this Letter above.
maintained at the Book-Entry Transfer Facility other
than the account indicated above.
Issue: New Securities and/or Old Securities to: Deliver: New Securities and/or Old Securities to:
Name: Name:
-------------------------------------------------- --------------------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
Address: Address:
----------------------------------------------- -----------------------------------------------
(PLEASE PRINT) (PLEASE PRINT)
- ------------------------------------------------------- -------------------------------------------------------
ZIP CODE ZIP CODE
- ------------------------------------------------------- -------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN) (SEE SUBSTITUTE FORM W-9 HEREIN)
Credit unpurchased Old Securities by book-entry
transfer to the DTC account set forth below:
- -------------------------------------------------------
(DTC Account Number)
Name of Account Party:
- -------------------------------------------------------
PLEASE COMPLETE SUBSTITUTE
FORM W-9 HEREIN
SIGNATURE GUARANTEE
(SEE INSTRUCTION 3)
Certain Signatures Must be Guaranteed by an Eligible
Institution
- -------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- -------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
- --------------------------------------------------
(INCLUDING AREA CODE) OF FIRM)
- -------------------------------------------------------
(AUTHORIZED SIGNATURE)
- -------------------------------------------------------
(PRINTED NAME)
- -------------------------------------------------------
(TITLE)
Date:
----------------, -----
</TABLE>
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD SECURITIES; GUARANTEED
DELIVERY PROCEDURES.
This Letter of Transmittal is to be completed by Holders of Old Securities
either if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates for
all physically tendered Old Securities, or Book-Entry Confirmation, as the case
may be, as well as a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile hereof) and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at the address set
forth herein on or prior to the Expiration Date, or the tendering Holder must
comply with the guaranteed delivery procedures set forth below. Old Securities
tendered hereby must be in denominations of liquidation amount of $1,000 and any
integral multiple thereof.
Holders whose certificates for Old Securities are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old
Securities pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution (as defined in Instruction 3), (ii) on or prior to the Expiration
Date, the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Company
(by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the Holder of Old Securities and the amount of Old
Securities tendered stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Securities, or a Book-Entry
Confirmation, and any other documents required by the Letter of Transmittal will
be deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Securities, in proper form for
transfer, or Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter of Transmittal, are deposited by the Eligible
Institution within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD SECURITIES
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING
HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR
CONFIRMED BY THE EXCHANGE AGENT. IF OLD SECURITIES ARE SENT BY MAIL, IT IS
SUGGESTED THAT THE MAILING BE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, AND MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Securities evidenced by a submitted certificate
are to be tendered, the tendering Holder(s) should fill in the aggregate
liquidation amount of Old Securities to be tendered in the box above entitled
"Description of Old Securities--Liquidation Amount Tendered." A reissued
certificate representing the balance of non-tendered Old Securities will be sent
to such tendering Holder, unless otherwise provided in the appropriate box of
this Letter of Transmittal, promptly after the Expiration Date. All of the Old
Securities delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS,
GUARANTEE OF SIGNATURES.
8
<PAGE>
If this Letter of Transmittal is signed by the registered Holder of the Old
Securities tendered hereby, the signature must correspond exactly with the name
as written on the face of the certificates without any change whatsoever.
If any tendered Old Securities are owned of record by two or more joint
owners, all of such owners must sign this Letter of Transmittal.
If any tendered Old Securities are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this letter as there are different registrations of certificates.
When this Letter of Transmittal is signed by the registered Holder or
Holders of the Old Securities specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are required. If, however,
the New Securities are to be issued, or any untendered Old Securities are to be
reissued, to a person other than the registered Holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required. Signatures
on such certificate(s) must be guaranteed by an institution that is a member of
the Securities Transfer Agents Medallion Program (STAMP), the Stock Exchange
Medallion Program (SEMP) or the New York Stock Exchange Medallion Signature
Program (MSP) (an "Eligible Institution").
IF THIS LETTER IS SIGNED BY A PERSON OTHER THAN THE REGISTERED HOLDER OR
HOLDERS OF ANY CERTIFICATE(S) SPECIFIED HEREIN, SUCH CERTIFICATE(S) MUST BE
ENDORSED AND ACCOMPANIED BY APPROPRIATE BOND POWERS, IN EITHER CASE SIGNED
EXACTLY AS THE NAME OR NAMES OF THE REGISTERED HOLDER OR HOLDERS APPEAR(S) ON
THE CERTIFICATES AND SIGNATURES ON SUCH CERTIFICATE(S) MUST BE GUARANTEED BY AN
ELIGIBLE INSTITUTION.
If this Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
NO SIGNATURE GUARANTEE IS REQUIRED, PROVIDED THE OLD SECURITIES ARE
TENDERED: (i) BY A REGISTERED HOLDER OF OLD SECURITIES (WHICH TERM, FOR PURPOSES
OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER
FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER
OF SUCH OLD SECURITIES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE
INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS ON THIS LETTER, OR (ii) FOR THE
ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders of Old Securities should indicate in the applicable box
the name and address to which New Securities issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Old Securities not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification or social security number of the person named must
also be indicated. Holders tendering Old Securities by book-entry transfer may
request that Old Securities not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such Holder may designate hereon. If no
such instructions are given, such Old Securities not exchanged will be returned
to the name and address of the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering Holder whose Old
Securities are accepted for exchange must provide the Company (as payor) with
such Holder's correct Taxpayer Identification Number ("TIN") on the Substitute
Form W-9 attached hereto, which, in the case of a tendering Holder who is an
individual, is his or her social security number. If the Company is not provided
with the current TIN or an adequate basis for an exemption, such tendering
Holder may be
9
<PAGE>
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
delivery to such tendering Holder of New Securities may be subject to backup
withholding in an amount equal to 31% of all reportable payments made after the
exchange. If withholding results in an overpayment of taxes, a refund may be
obtained.
Exempt Holders of Old Securities (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering Holder of Old Securities must
provide its correct TIN by completing the Substitute Form W-9 attached hereto,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding, or (ii) the
Holder has not been notified by the Internal Revenue Service that such Holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the Holder that
such Holder is no longer subject to backup withholding. If the tendering Holder
of Old Securities is a nonresident alien or foreign entity not subject to backup
withholding, such Holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Securities are in more than one name or are not in the name of the actual
owner, such Holder should consult the W-9 Guidelines for information on which
TIN to report. If such Holder does not have a TIN, such Holder should consult
the W-9 Guidelines for instructions on applying for a TIN, check the box in Part
2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such Holder
has already applied for a TIN or that such Holder intends to apply for one in
the near future. If such Holder does not provide its TIN to the Company within
60 days, backup withholding will begin and will continue until such Holder
furnishes its TIN to the Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Securities to it or to its order pursuant to the Exchange Offer. If,
however, New Securities and/or substitute Old Securities not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered Holder of Old Securities tendered hereby, or if tendered Old
Securities are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Old Securities to the Company or to its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Securities specified in this Letter
of Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders of Old Securities, by execution of this Letter
of Transmittal, shall waive any right to receive notice of the acceptance of
their Old Securities for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Securities nor shall any of them incur any liability for failure to give any
such notice.
10
<PAGE>
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD SECURITIES.
Any Holder whose Old Securities have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
11. DEFINITIONS.
Capitalized terms used in this letter of transmittal and not otherwise
defined have the meanings given in the Prospectus.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
- --------------------------------------------------------------------------------
SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
PART 1--PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND CERTIFY --------------------------------
BY SIGNING AND DATING BELOW. SOCIAL SECURITY NUMBER
OR
--------------------------------
EMPLOYER IDENTIFICATION NUMBER
PART 2--CERTIFICATION--UNDER PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME) AND
(2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE
I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE
("IRS") THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR
THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
PART 3--
AWAITING TIN [_]
CERTIFICATE INSTRUCTIONS--YOU MUST CROSS OUT ITEM (2) IN PART 2 ABOVE IF YOU
HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE
OF UNDER-REPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER
BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU
RECEIVED ANOTHER NOTIFICATION FROM THE IRS STATING THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2).
SIGNATURE DATE
----------------------------------- --------------------------
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER
HAS NOT BEEN ISSUED TO ME, AND EITHER (a) I HAVE MAILED OR DELIVERED AN
APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE
INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE OR (b)
I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT
IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN 60 DAYS, 31 PERCENT
OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD UNTIL I
PROVIDE A NUMBER.
--------------------------------------- ---------------, ---------
SIGNATURE DATE
- --------------------------------------------------------------------------------
12
<PAGE>
THE DEPOSITARY FOR THE EXCHANGE OFFER IS:
THE CHASE TRUST COMPANY OF CALIFORNIA
By Hand/Overnight Courier/By Mail: By Facsimile:
c/o The Chase Manhattan Bank (212) 638-7380
Attn: Mr. Carlos Estevez
55 Water Street Confirm by Telephone:
Second Floor, Room #234 (212) 638-0828
New York, New York 10041
THE INFORMATION AGENT FOR THE EXCHANGE OFFER IS:
D.F. KING & CO., INC.
77 Water Street
20th Floor
New York, New York 10005
(800) 669-5550
13
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR THE
OFFER TO EXCHANGE
ALL OF ITS OUTSTANDING REMARKETED PAR SECURITIES, SERIES A
FOR
ITS REMARKETED PAR SECURITIES, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES AND EXCHANGE ACT OF 1933
BY
IMPERIAL CREDIT CAPITAL TRUST I
As set forth in the Prospectus dated ___________, 1997 (as the same may be
amended from time to time, the "Prospectus"), of Imperial Credit Capital Trust I
(the "Trust") under the caption "The Exchange Offer--Procedures for Tendering
Old Securities and--Guaranteed Delivery Procedures," and in the accompanying
Letter of Transmittal (the "Letter of Transmittal") and Instruction 1 thereto,
this form, or one substantially equivalent hereto, must be used to accept the
Company's offer (the "Exchange Offer") to exchange all of its outstanding
Remarketed Par Securities Series A (the "Old Securities") for a like liquidation
amount of the Trust's Remarketed Par Securities, Series B (the "New Securities")
which have been registered under the Securities Act of 1933, as amended,
pursuant to the Exchange Offer. If certificates for the Old Securities are not
immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach the Exchange Agent prior to the Expiration Date. Such form may be
delivered or transmitted by telegram, facsimile transmission, mail or hand
delivery to Chase Trust Company of California (the "Exchange Agent"). This form
may be delivered by an Eligible Institution by mail, facsimile or hand delivery
to the Exchange Agent as set forth below. All capitalized terms used herein but
not defined shall have the meanings ascribed to them in the Prospectus.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_______________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED OLD
SECURITIES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE CHASE TRUST COMPANY OF CALIFORNIA
By Hand/Overnight Courier/By Mail: By Facsimile:
c/o The Chase Manhattan Bank (212) 638-7380
Attn: Mr. Carlos Estevez
55 Water Street Confirm by Telephone:
Second Floor, Room #234 (212) 638-0828
New York, New York 10041
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Trust upon the terms and subject to
the conditions set forth in the Prospectus and Letter of Transmittal, receipt of
which is hereby acknowledged, the liquidation amount of Old Securities set forth
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering Old Securities
and--Guaranteed Delivery Procedures."
The undersigned understands that tenders of Old Securities will be accepted
only in liquidation amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Securities pursuant to the Exchange
Offer may only be withdrawn prior to the Expiration Date and in accordance with
the procedures set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal Rights."
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
Signature(s) of Registered Owner(s) or Address:
Authorized Signatory: ---------------------------
----------------- -----------------------------------
- -------------------------------------- -----------------------------------
- -------------------------------------- Area Code and Telephone No.:
Name(s) of Registered Holder(s): -------
------ -----------------------------------
- -------------------------------------- Total Liquidation Amount Represented
- -------------------------------------- by Book-Entry Old Note
Liquidation Amount of Old Securities Certificate(s):
Tendered*: --------------------
---------------------------- -----------------------------------
- -------------------------------------- If Old Securities will be delivered
Certificate No(s). of Old Securities by book-entry transfer at The
(if available): Depository Trust Company, please
provide the account number:
- --------------------------------------
- --------------------------------------
- -------------------------------------- DTC Account No.:
-------------------
Date:
---------------------------------
* Must be in denominations of liquidation amount of $1,000 and any integral
multiple thereof.
2
<PAGE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Securities exactly as their name(s) appear on certificates for
Old Securities or on a security position listing as the owner of Old Securities,
or by person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Capacity:
----------------------------------------------------------------
Address(es):
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
DO NOT SEND CERTIFICATES FOR OLD SECURITIES WITH THIS FORM. CERTIFICATES FOR OLD
SECURITIES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
company having an office or a correspondent in the United States hereby (i)
represents that each holder of Old Securities on whose behalf this tender is
being made "own(s)" the Old Securities tendered hereby within the meaning of
Rule 14e-14 under the Securities Exchange Act of 1934, as amended, (ii)
represents that such tender of Old Securities complies with such Rule 14e-14,
and (iii) guarantees that, within three (3) New York Stock Exchange trading days
from the date of this Notice of Guaranteed Delivery, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), together with
certificates representing the Old Securities tendered hereby in proper form or
transfer (or confirmation of the book-entry of such Old Securities into the
Depositary's account at a Book-Entry Facility, pursuant to the procedure for
book-entry set forth in the Prospectus under the caption "The Exchange Offer--
Procedures for Tendering Old Securities and--Book-Entry Transfer," and required
documents will be deposited by the undersigned with the Depositary.
Name of Authorized Signature
Firm:
Address: Name:
Title:
Area Code and Telephone No.: Date:
- --------------------------------------------------------------------------------
3
<PAGE>
EXHIBIT 99.3
EXCHANGE AGENT DEPOSITORY AGREEMENT
Dated:
Chase Trust Company of California
101 California Street, Suite #2725
San Francisco, CA 94111
Attn: Hank Helley, Assistant Vice President
Gentlemen:
Imperial Credit Capital Trust I (the "Purchaser") is offering to exchange upon
the terms and subject to the conditions set forth in that certain Exchange Offer
"the Offer", all of its outstanding Remarketed Par Securities, Series A (the
"Securities") for Remarketed Par Securities, Series B Exchange Date (the
"Exchange Date"). The Offer will expire at 5:00 P.M., New York City time, on
(date), unless such date is extended by the Purchaser (the "Exchange Offer
Expiration Date").
The Purchaser hereby agrees with you as follows:
1) Subject to the terms and conditions of this Agreement, you will act as
Depository in connection with the Offer, and in such capacity are authorized and
directed to accept tenders of Securities.
2) (a) Tenders of Securities may be made only as set forth in the
Exchange Offer and Securities shall be considered validly tendered to you only
if:
<PAGE>
(i) you receive prior to the Exchange Offer Expiration Date (x)
certificates for such Securities, (or a Confirmation (as defined in paragraph
(b) below) relating to such Securities) or an Agent's Message (as defined in
paragraph (b) below) relating thereto; or
(ii) you receive (x) a Notice of Guaranteed Delivery (as defined in
paragraph (b) below) relating to such Securities from an Eligible Institution
(as defined in paragraph (b) below) prior to the Exchange Offer Expiration Date
and (y) certificates for such Securities (or a Confirmation relating to such
Securities) or an Agent's Message relating thereto at or prior to 5:00 P.M., New
York City time, on the third New York Stock Exchange, Inc. (the "NYSE") trading
day after the date of execution of such Notice of Guaranteed Delivery; and
(iii) in the case of either clause (i) or (ii) above, a final
determination of the adequacy of the items received, as provided in Section 4
hereof, has been made by Purchaser.
(b) For the purpose of this Agreement: (i) a "Confirmation" shall be a
confirmation of book-entry transfer of Securities into your account at The
Depository Trust Company (hereinafter referred to as the "Book-Entry Transfer
Facility") to be established and maintained by you in accordance with Section 3
hereof; (ii) a "Notice of Guaranteed Delivery" shall be a notice of guaranteed
delivery substantially in the form attached as Exhibit C hereto or a telegram,
telex, facsimile transmission or letter substantially in such form, or if sent
by a Book-Entry Transfer Facility, a message transmitted through electronic
means in accordance with the usual procedures of such Book-Entry Transfer
Facility and the Depository, substantially in such form; provided, however, that
if such notice is sent by a Book-Entry Transfer Facility through electronic
means, it must state that such Book-Entry Transfer Facility has received an
express acknowledgment from the participant on whose behalf such notice is given
that such participant has received and agrees to become bound by the form of
such notice; (iii) an "Eligible Institution" shall be a member firm of a
national securities exchange registered with the Securities and Exchange
Commission or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States; and (iv) an "Agent's Message" shall be a message transmitted through
electronic means by a Book-Entry Transfer Facility, in accordance with the
normal procedures of such Book-Entry Transfer Facility and the Depository, to
and received by the Depository and forming part of a Confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the
Securities which are the subject of such Confirmation that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal, and
that the Purchaser may enforce such agreement against such participant. The
term Agent's Message shall also include any hard copy printout evidencing such
message generated by a computer terminal maintained at the Depository's office.
2
<PAGE>
(c) We acknowledge that in connection with the Offer you may enter into
agreements or arrangements with a Book-Entry Transfer Facility which, among
other things, provide that (i) delivery of an Agent's Message will satisfy the
terms of the Offer with respect to the Letter of Transmittal, (ii) such
agreements or arrangements are enforceable against the Purchaser by such Book-
Entry Transfer Facility or participants therein and (iii) you, as Depository,
are authorized to enter into such agreements or arrangements on behalf of the
Purchaser. Without limiting any other provision of this Agreement, you are
expressly authorized to enter into any such agreements or arrangements on behalf
of the Purchaser and to make any necessary representations or warranties in
connection thereunder, and any such agreement or arrangement shall be
enforceable against the Purchaser.
3) You shall take steps to establish and, subject to such establishments,
maintain an account at the Book-Entry Transfer Facility for book-entry transfers
of Securities, as set forth in the Exchange Exchange Offer, and you shall comply
with the provisions of Rule 17Ad-14 under the Securities Exchange Act of 1934,
as amended.
4) (a) You are authorized and directed to examine any certificate
representing Securities, Notice of Guaranteed Delivery Agent's Message or and
any other document required received by you to determine whether you believe any
tender may be defective. In the event you conclude that any Notice of
Guaranteed Delivery, Agent's Message or other document has been improperly
completed, executed or transmitted, any of the certificates for Securities is
not in proper form for transfer (as required by the aforesaid instructions) or
if some other irregularity in connection with the tender of Securities exists,
you are authorized subject to Section 4(b) hereof to advise the tendering
securityholder, or transmitting Book-Entry Transfer Facility, as the case may
be, of the existence of the irregularity, but you are not authorized to accept
any tender not in accordance with the terms and subject to the conditions set
forth in the Offer, or any other tender which you deem to be defective, unless
you shall have received from the Purchaser the tender was made by means of a
Confirmation containing an Agent's Message, a written notice, duly dated and
signed by an authorized officer of the Purchaser, indicating that any defect or
irregularity in such tender has been cured or waived and that such tender has
been accepted by the Purchaser.
(b) Promptly upon your concluding that any tender is defective, you
shall, after consultation with and on the written instructions of the Purchaser,
use reasonable efforts in accordance with your regular procedures to notify the
person tendering such Securities, or Book-Entry Transfer Facility transmitting
the Agent's Message, as the case may be, of such determination and, when
necessary, return the certificates involved to such person in the manner
described in Section 11 hereof. The Purchaser shall have full discretion to
determine whether any tender is complete and proper and shall have the absolute
right to reject any or all tenders of any particular Securities determined by it
not to be in proper form and to determine whether the acceptance of or payment
for such tenders may, in the opinion of counsel for the Purchaser, be unlawful;
it being specifically agreed that you shall have neither discretion nor
responsibility with
3
<PAGE>
respect to these determinations. To the extent permitted by applicable law, the
Purchaser also reserves the absolute right to waive any of the conditions of the
Offer or any defect or irregularity in the tender of any particular Securities.
The interpretation by the Purchaser of the terms and conditions of the Exchange
Offer, the Consent and Letter of Transmittal and the instructions thereto, a
Notice of Guaranteed Delivery or Consent and an Agent's Message (including
without limitation the determination of whether any tender is complete and
proper) shall be final and binding.
(c) You agree to maintain accurate records as to all Securities
tendered and received prior to or on the Exchange Offer Expiration Date.
5) You are authorized and directed to return to any person tendering
Securities, in the manner described in Section 11 hereof, any certificates
representing Securities tendered by such person but duly withdrawn pursuant to
the Exchange Offer. To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be received by you within the time period
specified for withdrawal in the Exchange Offer at your address set forth on the
back page of the Exchange Offer. Any notice of withdrawal must specify the name
of the person having deposited the Securities to be withdrawn, the amount of
Securities to be withdrawn and, if the certificates representing such Securities
have been delivered or otherwise identified to you, the name of the registered
holder(s) of such Securities as set forth in such certificates. If the
certificates have been delivered to you, then prior to the release of such
certificates the tendering securityholder must also submit the serial numbers
shown on the particular certificates evidencing such Securities and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution. You are authorized and directed to examine any notice of
withdrawal to determine whether you believe any such notice may be defective.
In the event you conclude that any such notice is defective you shall, after
consultation with and on the instructions of the Purchaser, use reasonable
efforts in accordance with your regular procedures to notify the person
delivering such notice of such determination. All questions as to the form and
validity (including time of receipt) of notices of withdrawal will be determined
by the Purchaser in its sole discretion, whose determination shall be final and
binding. Any Securities so withdrawn shall no longer be considered to be
properly tendered unless such Securities are re-tendered prior to the Expiration
Date pursuant to the Exchange Offer.
6) Subject to Sections 18 and 25 hereof, any amendment to or extension of
the Offer, as the Purchaser shall from time to time determine, shall be
effective upon notice to you from the Purchaser given prior to the time the
Offer would otherwise have expired, and shall be promptly confirmed by the
Purchaser in writing; provided that you may rely on and shall be authorized and
protected in acting or failing to act upon any such notice even if such notice
is not confirmed in writing or such confirmation conflicts with such notice. If
at any time the Offer shall be terminated as permitted by the terms thereof, the
Purchaser shall promptly notify you of such termination.
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7) At 5:00 P. M. New York City time, or as promptly as practicable
thereafter on each business day, or more frequently if reasonably requested as
to major tally figures, you shall advise each of the parties named below by
facsimile transmission or telephone as to, based upon your preliminary review
(and at all times subject to final determination by Purchaser), as of the close
of business on the preceding business day or the most recent practicable time
prior to such request, as the case may be: (i) the number of Securities duly
tendered on such day; (ii) the number of Securities duly tendered represented by
certificates physically held by you on such day; (iii) the number of Securities
represented by Notices of Guaranteed Delivery on such day; (iv) the number of
Securities withdrawn on such day; and (v) the cumulative totals of Securities in
categories (i) through (iv) above through 3:00 P. M., New York City time, on
such day:
(a) Mr. Irv Gubman, General Counsel, Imperial Credit Industries
Phone: 310-791-8040 Fax: 310-791-8230
(b) Mr. David Parsons, Senior Vice President, Lehman Brothers
Phone: 212-528-7581 Fax: 212-528-6154
You shall also furnish to each of the above-named persons a written report
confirming the above information which has been communicated orally on the day
following such oral communication. You shall furnish to the Dealer-Manager (as
defined in the Exchange Offer), the Information Agent (as defined in the
Exchange Offer) and the Purchaser, such reasonable information, to the extent
such information has been furnished to you, on the tendering securityholders as
may be requested from time to time.
You shall furnish to the Purchaser, upon request, master lists of Securities
tendered for purchase, including an A-to-Z list of the tendering
securityholders.
You are also authorized and directed to provide the persons listed above or any
other persons approved by the Purchaser with such other information relating to
the Securities, Exchange Offer, Agent's Messages, or Notices of Guaranteed
Delivery as the Purchaser may reasonably request from time to time.
8) Notices of Guaranteed Delivery, Agent's Messages, telegrams, telexes,
facsimile transmissions, notices and letters submitted to you pursuant to the
Offer shall be stamped by you to indicate the date and time of the receipt
thereof and these documents, or copies thereof, shall be preserved by you for a
reasonable time not to exceed one year or the term of this Agreement, whichever
is longer, and thereafter shall be delivered by you to the Purchaser.
Thereafter, any inquiries relating to or requests for any of the foregoing shall
be directed solely to the Purchaser and not the Depository.
9) At such time as you shall be notified by the Purchaser, you shall
request the transfer agent for the Securities to effect the transfer of all
Securities purchased
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pursuant to the Offer and to issue certificates for such Securities so
transferred or to cancel them, in accordance with written instructions from the
Purchaser, and upon your receipt thereof notify the Purchaser. The Purchaser
shall be responsible to arrange for delivery, if any, of the certificates.
10. (a) On or before January 31st of the year following the year in which
the Purchaser accepts Securities for payment, you will prepare and mail to each
tendering securityholder whose Securities were accepted, other than
securityholders who demonstrate their status as nonresident aliens in accordance
with United States Treasury Regulations ("Foreign Securityholders"), a Form
1099-B reporting the purchase of Securities as of the date such Securities are
accepted for payment. You will also prepare and file copies of such Forms 1099-
B by magnetic tape with the Internal Revenue Service in accordance with Treasury
Regulations on or before February 28th of the year following the year in which
the Securities are accepted for payment.
11) If, pursuant to the terms and conditions of the Offer, the Purchaser
has notified you that it does not accept certain of the Securities tendered or
purported to be tendered or a securityholder withdraws any tendered Securities,
you shall promptly return the deposited certificates for such Securities,
together with any other documents received, to the person who deposited the
same, without expense to such person. Certificates for such unpurchased
Securities shall be forwarded by you, at your option, by: (i) first class mail
(ii) registered mail or (iii) by overnight courier or delivery. If any such
Securities were tendered or purported to be tendered by means of a Confirmation
containing an Agent's Message, you shall notify the Book-Entry Transfer Facility
of the Purchaser's decision not to accept the Securities.
12) You shall take all reasonable action with respect to the Offer as may
from time to time be requested by the Purchaser, the Dealer-Manager or the
Information Agent. You are authorized to cooperate with and furnish information
to the Dealer-Manager, the Information Agent, any of their representatives or
any other organization (or its representatives) designated from time to time by
the Purchaser, in any manner reasonably requested by any of them in connection
with the Offer and tenders thereunder.
13) Any instructions given to you orally, as permitted by any provision of
this Agreement, shall be confirmed in writing by the Purchaser, the Dealer-
Manager or the Information Agent, as the case may be, as soon as practicable.
You shall not be liable or responsible and shall be fully authorized and
protected for acting, or failing to act, in accordance with any oral
instructions which do not conform with the written confirmation received in
accordance with this Section.
14) Whether or not any Securities are tendered or the Offer is
consummated, for your services as Depository hereunder we shall pay to you
compensation in accordance with the fee schedule attached as Schedule 1 hereto,
together with reimbursement for out-of-pocket expenses, including reasonable
fees and disbursements of your counsel.
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15) In the event any question or dispute arises with respect to the proper
interpretation of this Agreement or your duties hereunder or the rights of the
Purchaser or of any securityholders surrendering certificates for Securities
pursuant to the Offer, you shall not be required to act and shall not be held
liable or responsible for your refusal to act until the question or dispute has
been judicially settled (and you may, if you in your sole discretion deem it
advisable, but shall not be obligated to, file a suit in interpleader or for a
declaratory judgment for such purpose) by final judgment rendered by a court of
competent jurisdiction, binding on all securityholders and parties interested in
the matter which is no longer subject to review or appeal, or settled by a
written document in form and substance satisfactory to you and executed by the
Purchaser and each such securityholder and party. In addition, you may require
for such purpose, but shall not be obligated to require, the execution of such
written settlement by all the securityholders and all other parties that may
have an interest in the settlement.
16) As Depository hereunder you:
(a) shall have no duties or obligations other than those specifically set
forth herein or in Exhibits A, B, and C hereto, or as may subsequently be agreed
to in writing by you and the Purchaser;
(b) shall have no obligation to make payment for any tendered Securities
unless the Purchaser shall have provided the necessary federal or other
immediately available funds to pay in full amounts due and payable with respect
thereto;
(c) shall be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value, or genuineness of any
certificates or the Securities represented thereby deposited with you or
tendered through an Agent's Message hereunder and will not be required to and
will make no representations as to or be responsible for the validity,
sufficiency, value, or genuineness of the Offer;
(d) shall not be obligated to take any legal action hereunder; if,
however, you determine to take any legal action hereunder, and, where the taking
of such action might in your judgment subject or expose you to any expense or
liability, you shall not be required to act unless you shall have been furnished
with an indemnity satisfactory to you;
(e) may rely on and shall be authorized and protected in acting or failing
to act upon any certificate, instrument, opinion, notice, letter, telegram,
telex, facsimile transmission, Agent's Message or other document or security
delivered to you and believed by you to be genuine and to have been signed by
the proper party or parties;
(f) may rely on and shall be authorized and protected in acting upon the
written, telephonic, electronic and oral instructions, with respect to any
matter relating to your actions as Depository covered by this Agreement (or
supplementing or qualifying any such actions) of officers of the Purchaser;
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(g) may consult counsel satisfactory to you, and the advice of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered, or omitted by you hereunder in good faith and in
accordance with the advice of such counsel;
(h) shall not be called upon at any time to advise any person tendering or
considering tendering pursuant to the Offer as to the wisdom of making such
tender or as to the market value of any security tendered thereunder;
(i) may perform any of your duties hereunder either directly or by or
through agents or attorneys and you shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with reasonable
care by you hereunder;
(j) shall not be liable or responsible for any recital or statement
contained in the Offer or any other documents relating thereto;
(k) shall not be liable or responsible for any failure of the Purchaser to
comply with any of their respective obligations relating to the Offer, including
without limitation obligations under applicable securities laws;
(l) are not authorized, and shall have no obligation, to pay any brokers,
dealers, or soliciting fees to any person, including without limitation the
Dealer-Manager or Information Agent; and
(m) shall not be liable or responsible for any delay, failure,
malfunction, interruption or error in the transmission or receipt of
communications or messages through electronic means to or from a Book-Entry
Transfer Facility, or for the actions of any other person in connection with any
such message or communication.
17) The Purchaser covenants to indemnify and hold you and your officers,
directors, employees, agents, contractors, subsidiaries and affiliates harmless
from and against any loss, liability, damage or expense (including without
limitation any loss, liability, damage or expense incurred for submitting for
transfer Securities tendered without a signature guarantee pursuant to the
Letter of Transmittal, or in connection with any communication or message
transmitted or purported to be transmitted through electronic means to or from a
Book-Entry Transfer Facility, and the fees and expenses of counsel) incurred (a)
without gross negligence or bad faith or (b) as a result of your acting upon the
instructions of the Purchaser, Dealer-Manager or Information Agent, arising out
of or in connection with the Offer, this Agreement or the administration of your
duties hereunder, including without limitation the costs and expenses of
defending and appealing against any action, proceeding, suit or claim in the
premises. In no case shall the Purchaser be liable under this indemnity with
respect to any action, proceeding, suit or claim against you unless the
Purchaser shall be notified by you, by letter or by telex or facsimile
transmission confirmed by letter, of the written assertion of any action,
proceeding, suit or claim made or commenced against you, promptly after
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you shall have been served with the summons or other first legal process or have
received the first written insertion giving information as to the nature and
basis of the action, proceeding, suit or claim, but failure so to notify the
Purchaser shall not release the Purchaser of any liability which it may
otherwise have on account of this Agreement. The Purchaser shall be entitled to
participate at its own expense in the defense of any such action, proceeding,
suit or claim. Anything in this agreement to the contrary notwithstanding, in no
event shall you be liable for special, indirect or consequential loss or damage
of any kind whatsoever (including but not limited to lost profits), even if you
have been advised of the likelihood of such loss or damage and regardless of the
form of action.
18) Unless terminated earlier by the parties hereto, this Agreement shall
terminate upon (a) Purchaser's termination or withdrawal of the Offer, (b) if
Purchaser does not terminate or withdraw the Offer, the date which is three (3)
months after the later of (i) your sending of checks to tendering
securityholders in accordance with Section 9(a) hereof and (ii) your delivery of
certificates to the Purchaser in accordance with Section 9(b) hereof or (c) if
not terminated or withdrawn earlier, the date which is twelve (12) months after
the date of this Agreement. Upon any termination of this Agreement, you shall
promptly deliver to the Purchaser any certificates, funds or property then held
by you as Depository under this Agreement, and after such time any party
entitled to such certificates, funds or property shall look solely to the
Purchaser and not the Depository therefor, and all liability of the Depository
with respect thereto shall cease, provided, however, that the Depository, before
being required to make such delivery to the Purchaser, may at the expense of the
Purchaser cause to be published in a newspaper of general circulation in the
City of New York, or mail to each person who has tendered Securities but not
received payment, or both, notice that such certificates, funds or property
remain unclaimed and that after a date specified therein, which shall not be
less than 30 days from the date of publication or mailing, any unclaimed balance
of such certificates, funds or property will be delivered to the Purchaser.
Sections 14, 16 and 17 hereof shall survive any termination of this Agreement.
19) In the event that any claim of inconsistency between this Agreement
and the terms of the Offer arise, as they may from time to time be amended, the
terms of the Offer shall control, except with respect to the duties, liabilities
and rights, including without limitation compensation and indemnification, of
you as Depository, which shall be controlled by the terms of this Agreement.
20) If any provision of this Agreement shall be held illegal, invalid, or
unenforceable by any court, this Agreement shall be construed and enforced as if
such provision had not been contained herein and shall be deemed an Agreement
among us to the full extent permitted by applicable law.
21) Purchaser represents and warrants that (a) it is duly incorporated,
validly existing and in good standing under the laws of the State of California,
(b) the making and consummation of the Offer and the execution, delivery and
performance of all transactions contemplated thereby (including without
limitation this Agreement) have
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been duly authorized by all necessary corporate action and will not result in a
breach of or constitute a default under the certificate of incorporation or
bylaws of the Purchaser or any indenture, agreement or instrument to which it is
a party or is bound, (c) this Agreement has been duly executed and delivered by
the Purchaser and constitutes the legal, valid, binding and enforceable
obligation of the Purchaser, (d) the Offer will comply in all material respects
with all applicable requirements of law and (e) to the best of its knowledge,
there is no litigation pending or threatened as of the date hereof in connection
with the Offer.
22) Set forth in Schedule 2 hereto is a list of the names and specimen
signatures of the persons authorized to act for the Purchaser under this
Agreement. The Secretary of the Purchaser shall, from time to time, certify to
you the names and signatures of any other persons authorized to act for the
Purchaser under this Agreement.
23) Except as expressly set forth elsewhere in this Agreement, all
notices, instructions and communication under this Agreement shall be in
writing, shall be effective upon receipt and shall be addressed, if to the
Purchaser, to its address set forth beneath their signatures to this Agreement,
or, if to the Depository, to Chase Trust Company of California, Suite #2725, 101
California Street, San Francisco, CA 94111, Attention: Corporate Trust, or to
such other address as a party hereto shall notify the other parties.
24) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to conflict of laws
rules or principles, and shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto; provided that this Agreement may
not be assigned by any party without the prior written consent of all other
parties.
25) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
Please acknowledge receipt of this Letter, the Exchange Offer, the Consent and
Letter of Transmittal, and the Notice of Guaranteed Delivery, and confirm the
arrangements herein provided by signing and returning the enclosed copy hereof,
whereupon this Agreement and your acceptance of the terms and conditions herein
provided shall constitute a binding Agreement among us.
Very truly yours,
Imperial Credit Capital Trust I, Purchaser
By:_______________________________
Name: Mr. Irv Gubman
Title: Regular Trustee
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Address for notices:
--------------------
Imperial Credit Industries, Inc.
23550 Hawthorne Boulevard
Building 1, Suite #210
Torrance, CA 90505
Accepted as of the date
above first written:
CHEMICAL TRUST COMPANY OF CALIFORNIA
as DEPOSITORY
By: _______________________________
Name: Hans Helley
Title: Assistant Vice President
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CHEMICAL TRUST COMPANY OF CALIFORNIA
Exhibit A Exchange Offer
Exhibit B Notice of Guaranteed Delivery
Schedule 1 Schedule of Fees as Depository
Schedule 2 Specimen Signatures of the Purchaser
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SCHEDULE 1
Schedule of Fees
as
Depository
13
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SCHEDULE 2
(Company's Letterhead)
Name Position Specimen Signatures
- ---- -------- -------------------
14
