As filed with the Securities and Exchange Commission on December 8, 1997
Registration No. 333-40399
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT
NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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<S> <C>
TELEBANC FINANCIAL CORPORATION TELEBANC CAPITAL TRUST I
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
Delaware Delaware
(State of incorporation) (State of incorporation)
6712 6719
(Primary Standard Industrial Classification Code No.) (Primary Standard Industrial Classification Code No.)
13-3759196 applied for
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
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1111 North Highland Street
Arlington, VA 22201
(703) 247-3700
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
Aileen Lopez Pugh Aileen Lopez Pugh
TeleBanc Financial Corporation TeleBanc Capital Trust I
1111 North Highland Street 1111 North Highland Street
Arlington, VA 22201 Arlington, VA 22201
(703) 247-3700 (703) 247-3700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Stuart G. Stein, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-8575
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective.
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The registrants hereby amend this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
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PROSPECTUS
TELEBANC CAPITAL TRUST I
OFFER TO EXCHANGE ITS
11.00% CAPITAL SECURITIES, SERIES B
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11.00% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER ORIGINAL CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
TELEBANC FINANCIAL CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON JANUARY 20, 1997, UNLESS EXTENDED.
TeleBank Capital Trust I, a trust formed under the laws of the state of
Delaware (the "Trust"), hereby offers, upon the terms and subject to the
conditions set forth in this prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange up
to and including $10,000,000 aggregate Liquidation Amount of its 11.00% Capital
Securities, Series B (the "Exchange Capital Securities"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus constitutes a
part, for a like Liquidation Amount of its outstanding 11.00% Capital
Securities, Series A (the "Original Capital Securities"), of which $10,000,000
aggregate Liquidation Amount are issued and outstanding. Pursuant to the
Exchange Offer, TeleBanc Financial Corporation, a Delaware corporation (the
"Corporation" or "TeleBanc"), is also offering to exchange (i) its guarantee of
payments of cash distributions and payments on liquidation of the Trust or
redemption of the Exchange Capital Securities (the "Exchange Guarantee") for a
like guarantee in respect of the Original Capital Securities (the "Original
Guarantee") and (ii) $10,000,000 aggregate principal amount of its 11.00% Junior
Subordinated Deferrable Interest Debentures, Series B due June 1, 2027 (the
"Exchange Junior Subordinated Debentures") for a
(Continued on next page)
This Prospectus and the Letter of Transmittal are first being mailed to
all holders of Original Capital Securities on or about December 12, 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER ORIGINAL CAPITAL
SECURITIES IN THE EXCHANGE OFFER.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December ___, 1997
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(Continued from the previous page)
like aggregate principal amount of its 11.00% Junior Subordinated Deferrable
Interest Debentures, Series A due June 1, 2027 (the "Original Junior
Subordinated Debentures"), which Exchange Guarantee and Exchange Junior
Subordinated Debentures also have been registered under the Securities Act. The
Original Capital Securities, the Original Guarantee and the Original Junior
Subordinated Debentures are collectively referred to herein as the "Original
Securities" and the Exchange Capital Securities, the Exchange Guarantee and the
Exchange Junior Subordinated Debentures are collectively referred to herein as
the "Exchange Securities."
The terms of the Exchange Securities are identical in all material
respects to the respective terms of the Original Securities, except that (i) the
Exchange Securities have been registered under the Securities Act and therefore
will not be subject to certain restrictions on transfer applicable to the
Original Securities, (ii) the Exchange Capital Securities will not provide for
any increase in the Distribution rate thereon, and (iii) the Exchange Junior
Subordinated Debentures will not provide for any liquidated damages thereon. See
"Description of Exchange Securities" and "Description of Original Securities."
The Exchange Capital Securities are being offered for exchange in order to
satisfy certain obligations of the Corporation and the Trust under the
Registration Rights Agreement dated June 5, 1997 (the "Registration Rights
Agreement") among the Corporation, the Trust and Sandler O'Neill & Partners,
L.P. (the "Initial Purchaser"). In the event that the Exchange Offer is
consummated, any Original Capital Securities that remain outstanding after
consummation of the Exchange Offer and the Exchange Capital Securities issued in
the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain actions or exercised certain
rights under the Trust Agreement (as defined herein).
The Exchange Capital Securities and the Original Capital Securities
(together, the "Capital Securities") represent beneficial interests in the
assets of the Trust. The Corporation is the owner of all of the beneficial
interests represented by common securities of the Trust (the "Common
Securities," and together with the Capital Securities, the "Trust Securities").
Wilmington Trust Company is the Property Trustee (the "Property Trustee") of the
Trust. The Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in the Junior Subordinated Debentures. The
Exchange Junior Subordinated Debentures will mature on June 1, 2027 (the "Stated
Maturity Date"). The Exchange Capital Securities will have a preference over the
Common Securities under certain circumstances with respect to cash distributions
and amounts payable on liquidation, redemption or otherwise. See "Description of
Exchange Securities--Description of Exchange Capital Securities--Subordination
of Common Securities."
As used herein, (i) the "Indenture" means the Indenture, dated as of
June 9, 1997, as amended and supplemented from time to time, between the
Corporation and Wilmington Trust Company, as trustee (the "Debenture Trustee"),
relating to the Junior Subordinated Debentures, (ii) the "Trust Agreement" means
the Amended and Restated Declaration of Trust relating to the Trust among the
Corporation, as Sponsor, Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company, as Delaware Trustee (the "Delaware Trustee"), and the
Administrative Trustees named therein (collectively, with the Property Trustee
and Delaware Trustee, the "Issuer Trustees"), (iii) the "Guarantee" means the
Capital Securities Guarantee Agreement relating to the Original Capital
Securities between the Corporation and Wilmington Trust Company, as Guarantee
Trustee (the "Guarantee Trustee") and (iv) the "Common Guarantee" means the
Common Securities Guarantee Agreement relating to the Common Securities by the
Corporation. In addition, as the context may require, (i) "Junior Subordinated
Debentures" includes the Original Junior Subordinated Debentures and the
Exchange Junior Subordinated Debentures and (ii) "Guarantee" includes the
Original Guarantee and the Exchange Guarantee.
Holders of the Trust Securities will be entitled to receive cumulative
cash distributions arising from the payment of interest on the Exchange Junior
Subordinated Debentures, accumulating from June 9, 1997, and payable
semi-annually in arrears on June 1 and December 1 of each year, commencing
December 1, 1997, at the annual rate of 11.00% of the Liquidation Amount of
$1,000 per Trust Security
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("Distributions"). So long as no Debenture Event of Default has occurred and is
continuing, the Corporation has the right to defer payments of interest on the
Exchange Junior Subordinated Debentures for a period not exceeding 10
consecutive semi-annual periods with respect to each deferral period (each, an
"Extension Period"), provided that an Extension Period must end on an Interest
Payment Date and may not extend beyond the Stated Maturity Date. Distributions
to which holders of the Trust Securities are entitled during any such Extension
Period will accumulate additional Distributions thereon at the rate per annum of
11.00% thereof, compounded semi-annually from the relevant Distribution Date,
but not exceeding the interest rate then accruing on the Exchange Junior
Subordinated Debentures. The term "Distributions," as used herein, shall include
any such additional Distributions.
Upon the termination of any such Extension Period and the payment of
all amounts then due, the Corporation may elect to begin a new Extension Period,
subject to the requirements set forth herein. If and for so long as interest
payments on the Exchange Junior Subordinated Debentures are so deferred,
Distributions on the Trust Securities also will be deferred, and the Corporation
will not be permitted, subject to certain exceptions described herein, to
declare or pay any cash distributions with respect to the Corporation's capital
stock or to make any payment with respect to debt securities of the Corporation
that rank pari passu with or junior to the Exchange Junior Subordinated
Debentures. During an Extension Period, interest on the Exchange Junior
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Trust Securities are entitled will continue to
accumulate) at the rate of 11.00% per annum, compounded semi-annually, and
holders of Trust Securities will be required to include deferred interest income
in their gross income for U.S. federal income tax purposes prior to the receipt
of the cash attributable to such income. See "Description of Exchange
Securities--Description of Exchange Junior Subordinated Debentures--Option to
Extend Interest Payment Date" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The Corporation has, through the Guarantee, the Common Guarantee, the
Trust Agreement, the Junior Subordinated Debentures and the Indenture guaranteed
all of the Trust's obligations under the Trust Securities. See "Relationship
Among the Exchange Capital Securities, the Exchange Junior Subordinated
Debentures and the Exchange Guarantee--Full and Unconditional Guarantee." The
Exchange Guarantee and the Common Guarantee will guarantee payments of
Distributions and payments upon liquidation of the Trust or redemption of the
Trust Securities, but in each case only to the extent that the Trust has funds
legally available therefor and has failed to make such payments, as described
herein. See "Description of Exchange Securities--Description of Exchange
Guarantee." If the Corporation fails to make a required payment on the Exchange
Junior Subordinated Debentures, the Trust will not have sufficient funds to make
the related payments, including Distributions, on the Trust Securities. The
Exchange Guarantee and the Common Guarantee will not cover any such payment when
the Trust does not have sufficient funds legally available therefor. In such
event, a holder of Exchange Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights in respect of such
payment. See "Description of Exchange Securities--Description of Exchange Junior
Subordinated Debentures--Enforcement of Certain Rights by Holders of Exchange
Capital Securities." The obligations of the Corporation under the Exchange
Guarantee, the Common Guarantee, and the Exchange Junior Subordinated Debentures
will be unsecured and will rank subordinate and junior in right of payment to
all Senior Indebtedness (as defined in "Description of Exchange
Securities--Description of Exchange Junior Subordinated
Debentures--Subordination"). See "Risk Factors--Ranking of Subordinated
Obligations under the Exchange Guarantee and the Exchange Junior Subordinated
Debentures; Limitation on Source of Funds."
The Trust Securities will be subject to mandatory redemption in a Like
Amount, (i) in whole but not in part, on the Stated Maturity Date upon repayment
of the Exchange Junior Subordinated Debentures at a redemption price equal to
the principal amount of, plus accrued and unpaid interest on, the Exchange
Junior Subordinated Debentures (the "Maturity Redemption Price"), (ii) in whole
but not in part, at any time prior to June 1, 2007 (the "Initial Optional
Redemption Date"), contemporaneously with the optional prepayment of the
Exchange Junior Subordinated Debentures by the Corporation, upon the occurrence
and continuation of a Special Event at a redemption price equal to the Special
Event Prepayment Price (the "Special Event Redemption Price"), and (iii) in
whole or in part, on or after the Initial Optional Redemption Date,
contemporaneously with the optional prepayment by the Corporation of
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all or part of the Exchange Junior Subordinated Debentures, at a redemption
price equal to the Optional Prepayment Price (the "Optional Redemption Price").
Any of the Maturity Redemption Price, the Special Event Redemption Price and the
Optional Redemption Price may be referred to herein as the "Redemption Price."
See "Description of Exchange Securities--Description of Exchange Capital
Securities--Redemption."
Subject to the Corporation having received any required regulatory
approvals, the Exchange Junior Subordinated Debentures will be prepayable prior
to the Stated Maturity Date at the option of the Corporation (i) on or after the
Initial Optional Redemption Date, in whole or in part, at a price (the "Optional
Prepayment Price") equal to 105.500% of the principal amount thereof on the
Initial Optional Redemption Date, declining ratably on each June 1, thereafter
to 100% on or after June 1, 2017, plus accrued and unpaid interest thereon,
including Compounded Interest and Additional Sums, if any, to the date of
prepayment or (ii) at any time prior to the Initial Optional Redemption Date, in
whole but not in part, upon the occurrence and continuation of a Special Event,
at a prepayment price (the "Special Event Prepayment Price") equal to the
Make-Whole Amount. The "Make-Whole Amount" shall be equal to the greater of (a)
100% of the principal amount thereof or (b) the sum, as determined by a
Quotation Agent, of the present values of the remaining scheduled payments of
principal and interest on the Exchange Junior Subordinated Debentures,
discounted to the prepayment date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate plus, in
the case of each of clauses (a) and (b), accrued and unpaid interest thereon,
including Compounded Interest and Additional Sums, if any, to the date of
prepayment. Either of the Optional Prepayment Price or the Special Event
Prepayment Price may be referred to herein as the "Prepayment Price." See
"Description of Exchange Securities--Description of Exchange Junior Subordinated
Debentures--Optional Prepayment" and "--Special Event Prepayment."
The Corporation has the right at any time to terminate the Trust and,
after satisfaction of liabilities of creditors of the Trust as required by
applicable law, to cause a Like Amount of the Exchange Junior Subordinated
Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust, subject to (i) the Administrative Trustees having
received an opinion of counsel to the effect that such distribution will not
cause the holders of Exchange Capital Securities to recognize gain or loss for
federal income tax purposes and (ii) the receipt by the Corporation of any
required regulatory approvals. Unless the Exchange Junior Subordinated
Debentures are distributed to the holders of the Trust Securities, in the event
of a liquidation of the Trust as described herein, after satisfaction of
liabilities to creditors of the Trust as required by applicable law, the holders
of the Trust Securities generally will be entitled to receive a Liquidation
Amount of $1,000 per Trust Security plus accumulated and unpaid Distributions
thereon to the date of payment. See "Description of Exchange
Securities--Description of Exchange Capital Securities--Liquidation of the Trust
and Distribution of Exchange Junior Subordinated Debentures."
THE CAPITAL SECURITIES, INCLUDING THE EXCHANGE CAPITAL SECURITIES, MAY
BE TRANSFERRED ONLY IN A BLOCK HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN
$100,000 (100 CAPITAL SECURITIES). ANY TRANSFER OF EXCHANGE CAPITAL SECURITIES
IN A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO
BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED
NOT TO BE THE HOLDER OF SUCH EXCHANGE CAPITAL SECURITIES FOR ANY PURPOSE,
INCLUDING BUT NOT LIMITED TO THE RECEIPT OF DISTRIBUTIONS ON SUCH EXCHANGE
CAPITAL SECURITIES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST
WHATSOEVER IN SUCH EXCHANGE CAPITAL SECURITIES.
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The Trust is making the Exchange Offer of the Exchange Capital
Securities in reliance on the position of the staff of the Division of
Corporation Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither the Corporation nor the Trust
has sought its own interpretive letter and there can be no assurance that the
Staff of the Commission would make a similar determination with
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respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the Staff of the Commission, and
subject to the two immediately following sentences, the Corporation and the
Trust believe that Exchange Capital Securities issued pursuant to this Exchange
Offer in exchange for Original Capital 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 Exchange Capital
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 Exchange Capital Securities. However, any holder of
Original Capital Securities who is an "affiliate" of the Corporation or the
Trust or who intends to participate in the Exchange Offer for the purpose of
distributing Exchange Capital Securities, or any broker-dealer who purchased
Original Capital Securities from the Trust to resell pursuant to Rule 144A under
the Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (i) will not be able to rely on the interpretations of the Staff
of the Commission set forth in the above-mentioned interpretive letters, (ii)
will not be permitted or entitled to tender such Original Capital Securities in
the Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Original Capital Securities unless such sale is made pursuant
to an exemption from such requirements. In addition, as described herein, if any
broker-dealer holds Original Capital Securities acquired for its own account as
a result of market-making or other trading activities and exchanges such
Original Capital Securities for Exchange Capital Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such Exchange Capital
Securities.
Each holder of Original Capital Securities who wishes to exchange
Original Capital Securities for Exchange Capital Securities in the Exchange
Offer will be required to represent that (i) it is not an "affiliate" of the
Corporation or the Trust, (ii) any Exchange Capital 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 Exchange Capital 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 Exchange Capital Securities. In addition, the
Corporation and the Trust may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to the
Corporation and the Trust (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, as amended (the "Exchange Act")), on behalf of
whom such holder holds the Original Capital Securities to be exchanged in the
Exchange Offer. Each broker-dealer that receives Exchange Capital Securities for
its own account pursuant to the Exchange Offer must acknowledge that it acquired
the Original Capital 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 Exchange Capital 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
Commission in the interpretive letters referred to above, the Corporation and
the Trust believe that broker-dealers who acquired Original Capital 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 Exchange Capital Securities received
upon exchange of such Original Capital Securities (other than Original Capital
Securities which represent an unsold allotment from the initial sale of the
Original Capital Securities) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Capital Securities. Each broker-dealer that receives
Exchange Capital 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 Exchange Capital 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.
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 Exchange Capital
Securities received in exchange for Original Capital Securities acquired by such
broker-dealer as a result of market-making
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activities or other trading activities. The Trust and the Corporation have
agreed that, ending on the close of business on the 180th day following the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Exchange Capital Securities received in exchange for Original
Capital Securities pursuant to the Exchange Offer must notify the Corporation or
the Trust, or cause the Corporation or the Trust to be notified, on or prior to
the Expiration Date, that it is a Participating Broker-Dealer. Such notice may
be given in the space provided for that purpose in the Letter of Transmittal or
may be delivered to Wilmington Trust Company (the "Exchange Agent") at the
address set forth herein under "The Exchange Offer--Exchange Agent." Any
Participating Broker-Dealer who is an "affiliate" of the Corporation or the
Trust 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
Exchange Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders
Original Capital Securities pursuant to the Exchange Offer will be deemed to
have agreed, by execution of the Letter of Transmittal, that upon receipt of
notice from the Corporation or the Trust of the occurrence of any event or the
discovery of any fact that makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or that causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Corporation or the Trust has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
Participating Broker-Dealer, or the Corporation or the Trust has given notice
that the sale of the Exchange Capital Securities (or the Exchange Guarantee or
the Exchange Junior Subordinated Debentures, as applicable) may be resumed, as
the case may be. If the Corporation or the Trust gives such notice to suspend
the sale of the Exchange Capital Securities (or the Exchange Guarantee or the
Exchange Junior Subordinated Debentures, as applicable), it shall extend the
180-day period referred to above during which Participating Broker-Dealers are
entitled to use this Prospectus in connection with the resale of Exchange
Capital Securities by the number of days during the period from and including
the date of the giving of such notice to and including the date when
Participating Broker-Dealers shall have received copies of the amended or
supplemented Prospectus necessary to permit resales of the Exchange Capital
Securities or to and including the date on which the Corporation or the Trust
has given notice that the sale of Exchange Capital Securities (or the Exchange
Guarantee or the Exchange Junior Subordinated Debentures, as applicable) may be
resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited, if any,
secondary market, and no public market for the Original Capital Securities. The
Exchange Capital Securities will be a new issue of securities for which there
currently is no market. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Capital Securities. The
Corporation and the Trust currently do not intend to apply for listing of the
Exchange Capital Securities on any securities exchange or for quotation through
the Nasdaq Stock Market, Inc.
Any Original Capital 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
Trust Agreement (except for those rights which terminate upon consummation of
the Exchange Offer). Following consummation of the Exchange Offer, the holders
of Original Capital Securities will continue to be subject to all of the
existing restrictions upon transfer thereof and neither the Corporation 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 Original Capital Securities held by them. To the extent that Original
Capital Securities are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered Original Capital Securities could be
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adversely affected. See "Risk Factors--Consequences of a Failure to Exchange
Original Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE
OFFER.
Original Capital Securities may be tendered for exchange on or prior to
5:00 p.m., New York City time, on January 20, 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Corporation or 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 Original Capital 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 Original Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Corporation or the Trust and to the terms and provisions of
the Registration Rights Agreement. Original Capital Securities may be tendered
in whole or in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) or any integral multiple of $1,000 Liquidation
Amount (one Capital Security) in excess thereof. The Corporation has agreed to
pay all expenses of the Exchange Offer. See "The Exchange Offer--Fees and
Expenses." Holders of the Original Capital Securities whose Original Capital
Securities are accepted for exchange will not receive Distributions on such
Original Capital Securities and will be deemed to have waived the right to
receive any Distributions on such Original Capital Securities accumulated from
and after June 9, 1997. See "The Exchange Offer--Distributions on the Exchange
Capital Securities."
Neither the Corporation nor the Trust will receive any cash proceeds
from the issuance of the Exchange Capital Securities offered hereby. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
----------------------------
AVAILABLE INFORMATION
The Corporation is subject to certain informational requirements
pursuant to Section 13 of the Exchange Act and in accordance therewith, files
reports and other information with the Commission. Such reports and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. If available, such information also may be
7
<PAGE>
accessed through the Commission's electronic data gathering, analysis and
retrieval system ("EDGAR") via electronic means, including the Commission's home
page on the Internet (http://www.sec.gov). The Corporation's common stock is
traded over-the-counter.
No separate financial statements of the Trust have been included
herein. The Corporation and the Trust do not consider that such financial
statements would be material to holders of the Exchange Capital Securities
because the Trust is a newly-formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose to
engage in any activity other than holding as trust assets the Junior
Subordinated Debentures, issuing the Trust Securities and engaging in incidental
activities. See "TeleBanc Capital Trust I," "Description of Exchange
Securities--Description of Exchange Capital Securities," "Description of
Exchange Securities--Description of Exchange Junior Subordinated Debentures" and
"Description of Exchange Securities--Description of Exchange Guarantee." In
addition, the Corporation does not expect that the Trust will file reports,
proxy statements and other information under the Exchange Act with the
Commission.
This Prospectus constitutes a part of a registration statement on Form
S-4 (the "Registration Statement") filed by the Corporation and the Trust with
the Commission under the Securities Act. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, and
reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Corporation and the
Capital Securities. Any statements contained herein concerning the provisions of
any document are not necessarily complete, and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
INFORMATION DELIVERED AND INCORPORATED BY REFERENCE
A copy of the Corporation's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1996 and a copy of the Quarterly Report on Form 10-Q
of the Corporation for the quarter ended September 30, 1997 are included in this
Prospectus at Appendix I and Appendix II, respectively.
The following documents filed by the Corporation with the SEC under the
Exchange Act are hereby incorporated in this Prospectus by reference: (i) the
Annual Report on Form 10-K of TeleBanc for the year ended December 31, 1996;
(ii) TeleBanc's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; and (iii) TeleBanc's Current Reports
on Form 8-K as filed with the SEC on January 22, 1997 and March 13, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Reference is made to, and
this summary is qualified in its entirety by, the more detailed information and
financial statements, including the notes thereto, contained elsewhere in this
Prospectus and in documents incorporated by reference hereto.
TELEBANC FINANCIAL CORPORATION
TeleBanc Financial Corporation is the holding company parent of
TeleBank (sometimes referred to as "Bank"), a federally chartered, FDIC insured
savings bank headquartered in Arlington, Virginia, and TeleBanc Capital Markets,
Inc. ("TCM"), an investment adviser, fund manager and broker-dealer. The
Corporation was organized by its majority owner, MET Holdings Corporation ("MET
Holdings"), to become in March 1994 the direct holding company of the Bank,
which had been acquired by MET Holdings in 1989. At September 30, 1997, the
Corporation had total assets of $838.5 million, total deposits of $445.2 million
and stockholders' equity of $45.3 million.
The primary business of the Corporation is the business of the Bank.
The Bank's operating strategy seeks to minimize operating expenses through
efficient deposit gathering, borrowing and asset generation. The Bank offers
FDIC insured products to retail customers on a nationwide basis through the
Bank's branchless, direct marketing strategy. The Bank does not rely on a
traditional branch network but instead services customers almost exclusively by
telephone and mail, using cost savings to offer premium yields on deposit
products. The Bank's marketing strategy is based on a consumer products model,
and focuses on pursuing customers through brand building, target marketing,
national affinity programs and customer service. While the Bank utilizes various
target marketing techniques, including print and other media advertisements, the
Bank does not solicit deposits by telephone from persons who have not previously
contacted the Bank about its products. By utilizing a sophisticated client
tracking software program, the Bank can maintain a detailed data base of
incoming inquiries and process deposits with a small staff of well trained
telebankers.
8
<PAGE>
The Bank does not directly originate loans. Rather, the Bank's asset
acquisition strategy focuses on the purchase of pools of mortgages secured by
one- to four-family residences and mortgage-related securities. Among the
mortgage assets actively sought by the Bank are pools of whole loans which
typically are purchased at a discount as a result of non-standard
characteristics such as credit enhancements, mid-month payment dates and
documentation deficiencies. In purchasing such loans, the Bank views a portion
of the discount as being available to cover potential credit risks, thereby
reducing the level of reserves the Bank believes is required to provide for loan
losses. By purchasing rather than originating mortgage assets, the Bank is able
to eliminate the general and administrative expenses associated with the typical
loan origination function. The Bank also believes it is able to minimize credit
quality risks by purchasing a seasoned and geographically diverse portfolio.
Through TCM, the Corporation is involved in trading mortgage-backed
securities principally with other broker-dealers and government sponsored
enterprises, and in fund management. Other Corporation operations include recent
joint venture investments through the Bank in AGT Mortgage Services, LLC ("AGT
Mortgage") and AGT PRA, LLC ("AGT PRA"). AGT Mortgage is engaged in loan
servicing and loan workouts for troubled or defaulted loans. AGT PRA owns a
majority interest in Portfolio Recovery Associates, LLC, which acquires and
collects delinquent consumer debt obligations for its own portfolio.
The Corporation's executive offices and the Bank's home office are
located at 1111 North Highland Street, Arlington, Virginia 22201, telephone
(703) 247-3700.
TELEBANC CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law
pursuant to (i) the Trust Agreement and (ii) the filing of a certificate of
trust with the Delaware Secretary of State. The Trust's business and affairs are
conducted pursuant to the Trust Agreement by the Issuer Trustees: the Property
Trustee, the Delaware Trustee, and the three individual Administrative Trustees,
who are officers or other employees of the Corporation. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of the Trust Securities to acquire the Junior
Subordinated Debentures issued by the Corporation and (iii) engaging in only
those other activities necessary, advisable or incidental thereto, including the
Exchange Offer. Accordingly, the Junior Subordinated Debentures are the sole
assets of the Trust and payments under the Junior Subordinated Debentures are
the sole revenue of the Trust. All of the Common Securities are owned by the
Corporation.
THE EXCHANGE OFFER
The Exchange Offer................Up to and including $10,000,000 aggregate
Liquidation Amount of Exchange Capital
Securities are being offered in exchange for a
like aggregate Liquidation Amount of Original
Capital Securities. Original Capital
Securities may be tendered for exchange in
whole or in part in a Liquidation Amount of
$100,000 (100 Capital Securities) or any
integral multiple of $1,000 (one Capital
Security) in excess thereof. The Corporation
and the Trust are making the Exchange Offer in
order to satisfy their obligations under the
Registration Rights Agreement relating to the
Original Capital Securities. For a description
of the procedures for tendering Original
Capital Securities, see "The Exchange
Offer--Procedures for Tendering Original
Capital Securities."
9
<PAGE>
Expiration Date................. 5:00 p.m., New York City time, on _________,
1997 unless the Exchange Offer is extended by
the Corporation and the Trust (in which case
the Expiration Date will be the latest date
and time to which the Exchange Offer is
extended). See "The Exchange Offer--Terms of
the Exchange Offer."
Conditions to the Exchange
Offer.............................The Exchange Offer is subject to certain
conditions, which may be waived by the
Corporation and the Trust in their sole
discretion. The Exchange Offer is not
conditioned upon any minimum Liquidation
Amount of Original Capital Securities being
tendered. See "The Exchange Offer--Conditions
to the Exchange Offer."
Terms of the Exchange Offer.......The Corporation and the Trust reserve the
right in their sole and absolute discretion,
subject to applicable law, at any time and
from time to time, (i) to delay the acceptance
of the Original Capital Securities, (ii) to
terminate the Exchange Offer if certain
specified conditions have not been satisfied,
(iii) to extend the Expiration Date of the
Exchange Offer and retain all Original Capital
Securities tendered pursuant to the Exchange
Offer, subject, however, to the right of
holders of Original Capital Securities to
withdraw their tendered Original Capital
Securities, or (iv) to waive any condition or
otherwise amend the terms of the Exchange
Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal........................Rights Tenders of Original Capital Securities
may be withdrawn at any time on or prior to
the Expiration Date by delivering a written
notice of such withdrawal to the Exchange
Agent in conformity with certain procedures as
set forth herein under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering
Original Capital Securities.......Certain brokers, dealers, commercial banks,
trust companies and other nominees who hold
Original Capital Securities through The
Depository Trust Company ("DTC") must effect
tenders by book-entry transfer through DTC's
Automated Tender Offer Program ("ATOP").
Beneficial owners of Original Capital
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 Original
Capital Securities pursuant to the Exchange
Offer. Tendering holders of Original Capital
Securities that do not use ATOP must complete
and sign a Letter of Transmittal in accordance
with the instructions contained therein and
forward the same by mail, facsimile
transmission or hand delivery, together with
any other required documents, to the Exchange
Agent, either with the certificates of the
Original Capital Securities to be tendered or
in compliance with the specified procedures
for guaranteed delivery of Original Capital
Securities. Tendering holders of Original
Capital Securities that use ATOP will, by so
doing, acknowledge that they are bound by the
terms of the Letter of Transmittal. See "The
Exchange Offer--Procedures for Tendering
Original Capital Securities."
Letters of Transmittal and certificates
representing Original Capital Securities
should not be sent to the Corporation or
Trust. Such documents should only be sent to
the Exchange Agent.
10
<PAGE>
Resales of Exchange
Capital Securities................The Corporation and the Trust are making the
Exchange Offer in reliance on the position of
the Staff of the Commission as set forth in
certain interpretive letters addressed to
third parties in other transactions. However,
neither the Corporation nor the Trust has
sought its own interpretive letter and there
can be no assurance that the Staff 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 Commission, and subject to the two
immediately following sentences, the
Corporation and the Trust believe that
Exchange Capital Securities issued pursuant to
this Exchange Offer in exchange for Original
Capital 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 Exchange Capital 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 Exchange Capital
Securities. However, any holder of Original
Capital Securities who is an "affiliate" of
the Corporation or the Trust or who intends to
participate in the Exchange Offer for the
purpose of distributing the Exchange Capital
Securities, or any broker-dealer who purchased
the Original Capital Securities from the Trust
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act,
(i) will not be able to rely on the
interpretations of the Staff of the Commission
set forth in the above-mentioned interpretive
letters, (ii) will not be permitted or
entitled to tender such Original Capital
Securities in the Exchange Offer and (iii)
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale or
other transfer of such Original Capital
Securities unless such sale is made pursuant
to an exemption from such requirements. In
addition, as described herein, if any
broker-dealer holds Original Capital
Securities acquired for its own account as a
result of market-making or other trading
activities and exchanges such Original Capital
Securities for Exchange Capital Securities,
then such broker-dealer must deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales
of such Exchange Capital Securities.
Each holder of Original Capital Securities who
wishes to exchange Original Capital Securities
for Exchange Capital Securities in the
Exchange Offer will be required to represent
that (i) it is not an "affiliate" of the
Corporation or the Trust, (ii) any Exchange
Capital 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 Exchange Capital
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 Exchange Capital
Securities. Each broker-dealer that receives
Exchange Capital Securities for its own
account in exchange for
11
<PAGE>
Original Capital Securities, where such
Original Capital 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 Exchange Act in connection with any
resale of such Exchange Capital 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. Based on the position
taken by the Staff of the Commission in the
interpretive letters referred to above, the
Corporation and the Trust believe that
Participating Broker-Dealers who acquired
Original Capital Securities for their own
accounts as a result of market-making
activities or other trading activities may
fulfill their prospectus delivery requirements
with respect to the Exchange Capital
Securities received upon exchange of such
Original Capital Securities (other than
Original Capital Securities that represent an
unsold allotment from the initial sale of the
Original Capital Securities) with a prospectus
meeting the requirements of the Securities
Act, which may be the prospectus prepared for
an exchange offer so long as it contains a
description of the plan of distribution with
respect to the resale of such Exchange Capital
Securities. Accordingly, 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
Exchange Capital Securities received in
exchange for Original Capital Securities where
such Original Capital Securities were acquired
by such Participating Broker-Dealer for its
own account as a result of market-making or
other trading activities. Subject to certain
provisions set forth in the Registration
Rights Agreement and to the limitations
described herein under "The Exchange
Offer--Resales of Exchange Capital
Securities," the Corporation and the Trust
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 Exchange
Capital Securities for a period ending 180
days after the Expiration Date (subject to
extension under certain limited circumstances)
or, if earlier, when all such Exchange Capital
Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer
who is an "affiliate" of the Corporation or
the Trust 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 Exchange Capital Securities."
Exchange Agent....................The Exchange Agent with respect to the
Exchange Offer is Wilmington Trust Company.
The address, and telephone and facsimile
number of the Exchange Agent are set forth in
"The Exchange Offer--Exchange Agent" and in
the Letter of Transmittal.
Use of Proceeds...................Neither the Corporation nor the Trust will
receive any cash proceeds from the issuance of
the Exchange Capital Securities offered
hereby. See "Use of Proceeds."
12
<PAGE>
Federal Income Tax
Considerations....................The exchange of Original Capital Securities
for Exchange Capital Securities will not be a
taxable exchange for federal income tax
purposes, and holders should not recognize any
taxable gain or loss or any interest income as
a result of such exchange. See "Certain
Federal Income Tax Consequences--Exchange of
Capital Securities."
ERISA Considerations..............Holders of Original Capital Securities should
review the information set forth under "ERISA
Considerations" prior to tendering Original
Capital Securities in the Exchange Offer.
THE EXCHANGE CAPITAL SECURITIES
Securities Offered................Up to $10,000,000 aggregate Liquidation Amount
of Exchange Capital Securities (Liquidation
Amount $1,000 per Exchange Capital Security)
will have been registered under the Securities
Act. The Exchange Capital Securities will be
issued and the Original Capital Securities
were issued under the Trust Agreement. The
Exchange Capital Securities and any Original
Capital Securities that remain outstanding
after consummation of the Exchange Offer will
vote together as a single class for purposes
of determining whether holders of the
requisite percentage in outstanding
Liquidation Amount thereof have taken certain
actions or exercised certain rights under the
Trust Agreement. See "Description of Exchange
Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the
Trust Agreement." The terms of the Exchange
Capital Securities are identical in all
material respects to the terms of the Original
Capital Securities, except that the Exchange
Capital Securities have been registered under
the Securities Act, will not be subject to
certain restrictions on transfer applicable to
the Original Capital Securities and will not
provide for any increase in the Distribution
rate thereon. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer,"
"Description of Exchange Securities" and
"Description of Original Securities."
Distribution Dates................June 1 and December 1 of each year, commencing
June 1, 1998.
Extension Periods.................So long as no Debenture Event of Default has
occurred and is continuing, Distributions on
Exchange Capital Securities will be deferred
for the duration of any Extension Period
elected by the Corporation with respect to the
payment of interest on the Exchange Junior
Subordinated Debentures. No Extension Period
will exceed 10 consecutive semi-annual
periods, end on a date other than an Interest
Payment Date or extend beyond the Stated
Maturity Date. See "Description of Exchange
Securities--Description of Exchange Junior
Subordinated Debentures--Option to Extend
Interest Payment Date" and "Certain Federal
Income Tax Consequences--Interest Income and
Original Issue Discount."
Ranking...........................The Exchange Capital Securities will rank pari
passu, and payments thereon will be made pro
rata, with the Original Capital Securities and
the Common Securities except as described
under "Description of Exchange
Securities--Description of Exchange
13
<PAGE>
Capital Securities--Subordination of Common
Securities." The Exchange Junior Subordinated
Debentures will rank pari passu with the
Original Junior Subordinated Debentures and
all other junior subordinated debentures (if
any) issued by the Corporation (the "Other
Debentures"), which are issued and sold (if at
all) to other trusts to be established by the
Corporation (if any), in each case similar to
the Trust ("Other Trusts"), and will
constitute unsecured obligations of the
Corporation and will rank subordinate and
junior in right of payment to all Senior
Indebtedness to the extent and in the manner
set forth in the Indenture. See "Description
of Exchange Securities--Description of
Exchange Junior Subordinated Debentures." The
Exchange Guarantee will rank pari passu with
the Original Guarantee and all other
guarantees (if any) issued by the Corporation
with respect to capital securities (if any)
issued by Other Trusts ("Other Guarantees")
and will constitute an unsecured obligation of
the Corporation and will rank subordinate and
junior in right of payment to all Senior
Indebtedness to the extent and in the manner
set forth in the Guarantee Agreement. See
"Description of Exchange Securities --
Description of Exchange Guarantee." In
addition, because the Corporation is a holding
company, the Exchange Junior Subordinated
Debentures and the Exchange Guarantee will be
effectively subordinated to all existing and
future liabilities of the Corporation's
subsidiaries, including the Bank's deposit
liabilities. See "Description of Exchange
Securities-- Description of Exchange Junior
Subordinated Debentures--Subordination."
Redemption........................The Trust Securities are subject to mandatory
redemption in a Like Amount, (i) in whole but
not in part, on the Stated Maturity Date upon
repayment of the Exchange Junior Subordinated
Debentures, (ii) in whole but not in part, at
any time prior to June 1, 2007 (the "Initial
Optional Redemption Date"), contemporaneously
with the optional prepayment of the Exchange
Junior Subordinated Debentures by the
Corporation upon the occurrence and
continuation of a Special Event and (iii) in
whole or in part, on or after the Initial
Optional Redemption Date, contemporaneously
with the optional prepayment by the
Corporation of all or part of the Exchange
Junior Subordinated Debentures, in each case
at the applicable Redemption Price. See
"Description of Exchange Securities --
Description of Exchange Capital Securities --
Redemption" and "--Description of Exchange
Junior Subordinated Debentures -- Special
Event Prepayment."
Transfer Restrictions.............The Exchange Capital Securities will be
issued, and may be transferred, only in blocks
having a Liquidation Amount of not less than
$100,000 (100 Exchange Capital Securities).
See "Description of Exchange Securities --
Description of Exchange Capital Securities --
Restrictions on Transfer." Any such transfer
of Exchange Capital Securities in a block
having a Liquidation Amount of less than
$100,000 shall be deemed to be void and of no
legal effect whatsoever.
ERISA Considerations..............Prospective purchasers must carefully consider
the restrictions on purchase set forth under
"ERISA Considerations."
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<PAGE>
Absence of Market for the
Exchange Capital Securities.......The Exchange Capital Securities will be a new
issue of securities for which there currently
is no market. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the Exchange Capital
Securities. The Trust and the Corporation do
not intend to apply for listing of the
Exchange Capital Securities on any securities
exchange or for quotation through the Nasdaq
Stock Market, Inc. See "Plan of Distribution."
Risk Factors......................For a discussion of the considerations
relevant to an investment in the Capital
Securities or the exchange of Original Capital
Securities for Exchange Capital Securities,
see "Risk Factors."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below for the five-year ended
period ended December 31, 1996 have been derived from the consolidated financial
statements of the Corporation, and should be read in conjunction with the
Corporation's financial statements, including the related notes thereto and
discussion thereof, included in the Corporation`s 1996 Annual Report on Form
10-K, as amended, for the year ended December 31, 1996 and its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997. See "Appendices." The
selected financial data set forth below for the nine month periods ended
September 30, 1997 and 1996 have been derived from the unaudited consolidated
financial statements of the Corporation 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. The results
for these nine-month periods are not necessarily indicative of the results which
may be expected for any other interim or annual period. See "Available
Information." Financial and other data as of and for all periods prior to March
1994 represent the consolidated data of the Bank only.
SELECTED CONSOLIDATED FINANCIAL DATA--THE CORPORATION
<TABLE>
<CAPTION>
AT SEPT. 30, AT DECEMBER 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets $838,533 $ 647,965 $ 553,943 $ 427,292 $ 220,301 $229,374
Loans receivable, net............................. 495,311 351,821 248,492 154,742 100,859 93,605
Allowance for loan losses......................... 3,181 2,957 2,311 925 835 659
Investment securities (1)......................... 65,750 78,826 40,058 12,444 18,110 13,570
Mortgage-backed securities (1).................... 240,091 184,743 234,385 236,464 80,782 87,164
Deposits 445,241 390,486 306,500 212,411 113,132 130,100
FHLB advances..................................... 170,000 144,800 105,500 96,000 61,000 53,750
Securities sold under agreements to repurchase.... 122,408 57,581 93,905 79,613 29,642 29,642
Subordinated debt, net of original issue discount. 29,556 16,586 16,496 16,390 -- --
Stockholders' equity.............................. 45,260 24,658 21,565 17,028 12,378 10,715
AT OR FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income.............................. $ 42,933 $ 34,367 $ 45,800 $ 40,511 $ 22,208 $16,667 $ 19,425
Interest expense............................. 33,291 25,840 34,815 31,946 17,513 11,828 13,896
-------- -------- -------- -------- -------- -------- --------
Net interest income.......................... 9,642 8,527 10,985 8,565 4,695 4,839 5,529
Provision for loan losses.................... 671 744 919 1,722 492 211 972
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for loan
losses..................................... 8,971 7,783 10,066 6,843 4,203 4,628 4,557
Non-interest income.......................... 2,935 1,436 2,756 3,777 175 1,157 1,014
Non-interest expense......................... 6,896 7,344 9,075(2) 6,240 3,656 3,736 3,627
-------- -------- -------- -------- --------- -------- --------
Income before income taxes, minority interest
and cumulative change........................ 5,010 1,875 3,747 4,380 722 2,049 1,944
Income taxes................................. 1,682 528 1,195 1,660 182 842 857
Minority interest in subsidiary.............. (353) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before cumulative change.............. 2,975 1,347 2,552 2,720 540 1,207 1,087
Cumulative change............................ -- -- -- -- -- 170 --
-------- -------- -------- -------- -------- -------- --------
Net income................................... 2,975 1,347 2,552 2,720 540 1,377 1,087
Preferred stock dividends.................... 384 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income after preferred stock dividends... $ 2,591 $ 1,347 $ 2,552 $ 2,720 $ 540 $ 1,377 $ 1,087
======== ======== ======== ======== ======== ======== ========
Net income per common share:
Primary................................... $ 0.94 $ 0.63 $ 1.12 $ 1.33 $ 0.31 $ 1.06 $ 0.84
Fully Diluted............................. 0.93 0.63 1.09 1.33 0.31 1.06 0.84
</TABLE>
- ---------
(1) Includes securities available for sale, held to maturity, and held for sale.
(2) Includes a one time pre-tax charge of $1.7 million ($1.1 million after tax)
in connection with the recapitalization of the Savings Association Insurance
Fund ("SAIF").
16
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS:
Return on average assets..................... 0.43% 0.53%(1) 0.61%(1) 0.53% 0.17% 0.61% 0.45%
Return on average stockholders' equity....... 8.89 14.65(1) 16.50 (1) 14.10 3.17 11.79 10.51
Interest rate spread......................... 1.53 1.92 1.84 1.72 1.51 2.21 2.32
Net interest margin.......................... 1.61 2.01 1.94 1.88 1.62 2.37 2.42
General and administrative expenses to
total assets.............................. 0.99 1.08(1) 1.03(1) 1.00 0.82 1.36 1.04
Stockholders' equity to total assets......... 5.40 3.84 3.81 3.89 3.99 5.62 4.67
ASSET QUALITY DATA:
Non-performing loans......................... $11,071(2) $ 8,949(2)$10,250(2) $ 5,153 $ 2,066 $ 2,554 $ 4,060
Allowance for loan losses to non-performing 28.73% 29.31% 28.85% 44.85% 44.77% 32.69% 16.23%
loans
Non-performing assets........................ $11,578(2) $10,074(2)$11,550(2)$ 6,156 $ 2,951 $ 3,995 $ 5,588
Non-performing assets to total assets........ 1.38% 1.62% 1.78% 1.11% 0.70% 1.70% 2.40%
TELEBANK CAPITAL RATIOS:
Tangible capital............................. 6.15% 5.07% 5.07% 5.36% 6.35% 5.38% 4.32%
Core capital................................. 6.15 5.07 5.08 5.31 6.27 5.39 4.42
Tier 1 risk-based............................ 12.62 9.82 9.69 11.08 15.48 14.09 11.57
Total risk-based............................. 13.37 10.50 10.40 11.74 15.96 14.75 11.99
OTHER DATA:
Deposit accounts............................. 19,402 16,728 16,506 12,919 8,564 2,932 3,568
Full-time equivalent employees............... 60 35 39 30 29 18 17
Assets per employee.......................... $ 13,976 $ 17,758 $16,614 $ 18,465 $ 14,734 $ 12,239 $ 13,493
Tangible book value per share................ 14.27 11.33 11.85 10.32 8.08 9.09 7.61
</TABLE>
- ---------
(1) Excludes the one time pre-tax charge of $1.7 million ($1.1 million after
tax) to recapitalize the SAIF. Giving effect to the charge, return on
average assets, return on average stockholders' equity, and general and
administrative expenses to total assets for the year ended 1996 was 0.42%,
11.46%, and 1.29%, respectively, and for the nine months ended September
30, 1996 was 0.29%, 8.06%, and 1.44%, respectively.
(2) Year-end 1996 non-performing assets increased by $5.5 million or 93.3%
over non-performing assets at year end 1995. Approximately 51% of this
increase is attributed to the acquisition of one- to four-family mortgage
loans that were either non-performing or in bankruptcy at the time of
purchase. As of December 31, 1996 and September 30, 1997, assets that were
either non-performing or in bankruptcy at the time of purchase accounted
for $2.8 million or 24.7% and $3.0 million or 26.0%, respectively, of
total non-performing assets.
RISK FACTORS
Prospective investors should consider carefully, in addition to the
other information contained in this Prospectus, the following factors in
connection with the Exchange Offer and the Exchange Capital Securities offered
hereby. This Prospectus contains certain forward-looking statements and
information relating to the Corporation that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The words "believes," "expects," "may," "will," "should,"
"projected," "contemplates" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, as they relate to the Corporation
or the Corporation's management, are intended to identify forward-looking
statements. See, e.g., "Summary--TeleBanc Financial Corporation" and "TeleBanc
Financial Corporation" Such statements reflect the current views of the
Corporation with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Prospectus. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results covered in
such forward-looking statements. Other factors, such as the general state of the
economy, could also cause actual results to vary materially from the future
results covered in such forward-looking statements. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected, or by other comparable
terminology. The Corporation does not intend to update these forward-looking
statements.
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RANKING OF SUBORDINATED OBLIGATIONS UNDER THE EXCHANGE GUARANTEE AND THE
EXCHANGE JUNIOR SUBORDINATED DEBENTURES; LIMITATIONS ON SOURCE OF FUNDS
The obligations of the Corporation under the Exchange Guarantee issued
by the Corporation for the benefit of the holders of Exchange Capital
Securities, as well as under the Exchange Junior Subordinated Debentures, are
unsecured and rank subordinate and junior in right of payment to all Senior
Indebtedness to the extent and in the manner set forth in the Exchange Guarantee
and the Indenture, respectively. No payment may be made of the principal of, or
premium, if any, or interest on the Exchange Junior Subordinated Debentures, or
in respect of any redemption, retirement, purchase or other acquisition of any
of the Exchange Junior Subordinated Debentures, at any time when (i) there shall
have occurred and be continuing a default in any payment in respect of any
Senior Indebtedness, or there has been an acceleration of the maturity thereof
because of a default, or (ii) in the event of the acceleration of the maturity
of the Exchange Junior Subordinated Debentures, until payment has been made on
all Senior Indebtedness. At September 30, 1997, the Corporation had $29.6
million face amount of Senior Indebtedness outstanding. In addition to
outstanding Senior Indebtedness, the Corporation also had outstanding at
September 30, 1997 $16.2 million face amount of 4.0% cumulative preferred stock.
The terms of the Senior Indebtedness and the cumulative preferred stock include
various covenants and other restrictions, including significant financial
penalties, upon default of payment of interest or dividends, as applicable.
Under such a default circumstance, these restrictions may have a material impact
on the ability of the Corporation to satisfy its obligations with respect to the
Capital Securities. At September 30, 1997, the annual interest expense to
service the Senior Indebtedness was $3.3 million and the annual dividend
requirement on the cumulative preferred stock was $648,000.
As a holding company, the Corporation's operations are conducted
primarily by its subsidiaries, TeleBank and TCM. Presently, dividends from the
Bank are the primary source of funds for the Corporation. There are regulatory
limitations on the payment of dividends to the Corporation from the Bank, and
federally chartered, FDIC insured savings banks generally are required to
provide their Regional Director of the Office of Thrift Supervision (the "OTS")
with no less than 30 days notice of any proposed dividend. At September 30,
1997, the Bank had approximately $14.1 million available under OTS regulations
for payment of dividends to the Corporation. However, the OTS can prohibit
payment of any or all such dividends under certain circumstances, including if
such payment would constitute an unsafe or unsound banking practice. In addition
to restrictions on the payment of dividends, the Bank is subject to restrictions
imposed by federal law on extensions of credit to, and certain other
transactions with, the Corporation and certain other affiliates, and on
investments in stock or other securities. Such restrictions prevent the Bank
from lending to the Corporation and such other affiliates unless the loans are
secured by various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in amount as to
the Corporation and each of such other affiliates to 10% of the Bank's capital
and surplus and as to the Corporation and all of such other affiliates to an
aggregate of 20% of the Bank's capital and surplus.
Under terms of the indentures pursuant to which the Senior Indebtedness
was issued, the Corporation presently is required to maintain, on an
unconsolidated basis, liquid assets in an amount equal to or greater than $3.3
million, which represents 100% of the aggregate annual interest expense on the
Senior Indebtedness.
Further, as a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Exchange Capital Securities to benefit indirectly from such
distribution) is subject to the prior claims of creditors of that subsidiary
(including depositors, in the case of the Bank), except to the extent that the
Corporation may itself be recognized as a creditor of that subsidiary. At
September 30, 1997, the subsidiaries of the Corporation had total liabilities
(excluding liabilities owed to the Corporation) of $737.9 million. Accordingly,
the Exchange Junior Subordinated Debentures effectively will be subordinated to
all existing and future liabilities of the Corporation's subsidiaries (including
the Bank's deposit liabilities, which aggregated $457.2 million at September 30,
1997) and holders of Exchange Junior Subordinated Debentures should look only to
the assets of the Corporation for payments on the Exchange Junior Subordinated
Debentures. The Exchange Guarantee will constitute an unsecured
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<PAGE>
obligation of the Corporation and will rank subordinate and junior in right of
payment to all Senior Indebtedness in the same manner as the Exchange Junior
Subordinated Debentures.
None of the Indenture, the Exchange Guarantee or the Trust Agreement
places any limitation on the amount of secured or unsecured debt, including
Senior Indebtedness, that may be incurred by the Corporation or any of its
subsidiaries. See "Description of Exchange Securities--Description of Exchange
Junior Subordinated Debentures--General," "--Subordination" and "Description of
Exchange Securities--Description of Exchange Guarantee--Status of the Exchange
Guarantee."
The ability of the Trust to pay amounts due on the Exchange Capital
Securities is solely dependent upon the Corporation making payments on the
Exchange Junior Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
So long as no Debenture Event of Default has occurred and is
continuing, the Corporation has the right under the Indenture to defer payments
of interest on the Exchange Junior Subordinated Debentures for a period not
exceeding 10 consecutive semi-annual periods with respect to each Extension
Period, provided that an Extension Period must end on an Interest Payment Date
and may not extend beyond the Stated Maturity Date. As a consequence of any such
deferral, semi-annual Distributions on the Trust Securities will be deferred
from the relevant payment date for such Distributions during any such Extension
Period (and the amount of Distributions to which holders of the Trust Securities
are entitled will accumulate additional Distributions thereon at the rate of
11.00% per annum, compounded semi-annually, but not exceeding the interest rate
then accruing on the Exchange Junior Subordinated Debentures). During an
Extension Period, the Corporation generally will be prohibited from (i)
declaring or paying dividends on the Corporation's capital stock, (ii) making
any payments of principal, premium, if any, or interest on, or repaying,
repurchasing or redeeming any debt securities ranking pari passu with or junior
in right of payment to the Exchange Junior Subordinated Debentures or (iii)
making any guarantee payments with respect to debt securities of any subsidiary
of the Corporation if such guarantee ranks pari passu with or junior in right of
payment to the Exchange Junior Subordinated Debentures, subject to certain
exceptions. See "Description of Exchange Securities--Description of Exchange
Capital Securities--Distributions."
Before the end of an Extension Period, the Corporation may further
extend such Extension Period, provided that such extension does not cause such
Extension Period to exceed 10 consecutive semi-annual periods, end on a date
other than an Interest Payment Date or extend beyond the Stated Maturity Date.
Upon the termination of any Extension Period and the payment of all interest
then accrued and unpaid on the Exchange Junior Subordinated Debentures (together
with interest thereon at the annual rate of 11.00%, compounded semi-annually, to
the extent permitted by applicable law), the Corporation may begin a new
Extension Period, subject to the above requirements. There is no limitation on
the number of times that the Corporation may begin an Extension Period. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Distributions" and "--Description of Exchange Junior Subordinated
Debentures--Option to Extend Interest Payment Date."
The Corporation has no plan to exercise its right to defer payments of
interest on the Exchange Junior Subordinated Debentures. However, should the
Corporation exercise its right to defer payments of interest on the Junior
Subordinated Debentures, each holder of Trust Securities will be required to
accrue income (as original issue discount ("OID")) in respect of the deferred
stated interest allocable to its Trust Securities for U.S. federal income tax
purposes, which will be allocated but not distributed to holders of Trust
Securities. As a result, each holder of Capital Securities will recognize income
for U.S. federal income tax purposes in advance of the receipt of cash and will
not receive the cash related to such income from the Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions thereafter. See "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount" and "--Sales of Capital Securities."
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<PAGE>
If the Corporation exercises its right to defer payments of interest on
the Exchange Junior Subordinated Debentures, the market price of the Exchange
Capital Securities is likely to be affected. A holder that disposes of its
Exchange Capital Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continues to hold its
Exchange Capital Securities. In addition, the mere existence of the
Corporation's right to defer payments of interest on the Exchange Junior
Subordinated Debentures may cause the market price of the Exchange Capital
Securities to be more volatile than the market prices of other securities on
which OID accrues and that are not subject to such deferrals.
SPECIAL EVENT REDEMPTION
If a Special Event, including a Tax Event or a Regulatory Capital Event
(in each case as defined under "Description of Exchange Securities--Description
of Exchange Junior Subordinated Debentures--Special Event Prepayment"), occurs
before June 1, 2007, the Corporation will have the right to prepay the Exchange
Junior Subordinated Debentures in whole, but not in part, at the Special Event
Prepayment Price within 90 days following the occurrence of such Special Event
and therefore cause a mandatory redemption of the Trust Securities at the
Special Event Redemption Price. The exercise of such right is subject to the
Corporation having received any required regulatory approvals. See "Description
of Exchange Securities--Description of Exchange Capital Securities--Redemption."
PROPOSED TAX LEGISLATION
The Taxpayer Relief Act of 1997, enacted on August 5, 1997, did not
contain certain provisions of President Clinton's Fiscal 1998 Budget Proposal
that would, among other things, have denied an issuer a deduction for U.S.
federal income tax purposes for the payment of interest on instruments with
characteristics similar to the Junior Subordinated Debentures. There can be no
assurances, however, that the proposed legislation, if enacted, or similar
legislation enacted after the date hereof would not adversely affect the tax
treatment of the Junior Subordinated Debentures, resulting in a Tax Event, which
would permit the Corporation, upon the receipt of any required regulatory
approval, to cause a redemption of the Trust Securities at the Special Event
Redemption Price by electing to prepay the Junior Subordinated Debentures at the
Special Event Prepayment Price. See "Description of Capital Securities --
Redemption" and "Description of Junior Subordinated Debentures -- Special Event
Prepayment." See also "Certain Federal Income Tax Consequences -- Proposed Tax
Legislation."
PROPOSED LEGISLATIVE ELIMINATION OF THE THRIFT CHARTER
Legislation which would generally require federally chartered savings
banks, such as TeleBank, to convert to a national or state bank charter has been
proposed in Congress. In addition, such legislation would require that all
savings and loan holdings companies, such as the Corporation, convert to bank
holding companies. It is uncertain if and to what extent existing powers of
savings banks, such as TeleBank, and savings and loan holding companies, such as
the Corporation, would be "grandfathered." No assurance can be given whether
such legislation will be passed, and, if passed, the form in which it would be
passed and the effect such legislation might have on the Corporation and/or
TeleBank. In addition, if, as a result of enactment of such legislation,
TeleBank is required to convert to a national or state bank charter and the
Corporation is subjected to a regulatory framework similar to that for bank
holding companies, it is possible that the Corporation could become subject to
the holding company level capital adequacy guidelines of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") or similar
guidelines (collectively, the "Holding Company Capital Rules"). If bank
regulatory counsel experienced in such matters delivers to the Corporation and
the Trust its opinion that the Corporation is subject to the Holding Company
Capital Rules and that the Corporation is not entitled to treat the Capital
Securities as Tier 1 capital (or its then equivalent) under the Holding Company
Capital Rules, then the Corporation would be permitted to cause a redemption of
the Capital Securities at the Special Event Redemption Price by electing to
prepay the Junior Subordinated Debentures at the Special Event Prepayment Price.
See "Description of Exchange Capital Securities -- Redemption" and "Description
of Exchange Junior Subordinated Debentures -- Special Event Prepayment."
LIQUIDATION DISTRIBUTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The Corporation will have the right to terminate the Trust and, after
satisfaction of liabilities of creditors of the Trust as required by applicable
law, to cause the Exchange Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust. Under current
U.S. federal income tax law, a distribution of Exchange Junior Subordinated
Debentures upon the dissolution of the Trust would not be a taxable event to
holders of the Exchange Capital Securities. Upon the occurrence of a Special
Event, however, a dissolution of the Trust in which holders of the Exchange
Capital Securities receive cash would be a taxable event to such holders. See
"Certain Federal Income Tax Considerations--Receipt of Exchange Junior
Subordinated Debentures or Cash Upon Liquidation of the Trust."
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<PAGE>
POSSIBLE ADVERSE EFFECT ON MARKET PRICES
There can be no assurance as to the market prices for Exchange Capital
Securities or the Exchange Junior Subordinated Debentures that may be
distributed in exchange for Exchange Capital Securities if a termination of the
Trust were to occur. Accordingly, the Exchange Capital Securities or the
Exchange Junior Subordinated Debentures may trade at a discount from the price
that the investor paid to purchase the Exchange Capital Securities offered
hereby. Because holders of Exchange Capital Securities may receive Exchange
Junior Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Exchange Junior
Subordinated Debentures, prospective purchasers of Exchange Capital Securities
are also making an investment decision with regard to the Exchange Junior
Subordinated Debentures and should carefully review all the information
regarding the Exchange Junior Subordinated Debentures contained herein. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Liquidation of the Trust and Distribution of Exchange Junior
Subordinated Debentures" and "--Description of Exchange Junior Subordinated
Debentures."
RIGHTS UNDER THE EXCHANGE GUARANTEE
The Exchange Guarantee guarantees to the holders of the Exchange
Capital Securities the following payments, to the extent not paid by or on
behalf of the Trust: (i) any accumulated and unpaid Distributions required to be
paid on the Exchange Capital Securities, to the extent that the Trust has funds
legally available therefor at such time, (ii) the applicable Redemption Price
with respect to the Exchange Capital Securities called for redemption, to the
extent that the Trust has funds legally available therefor at such time and
(iii) upon a voluntary or involuntary termination, winding up or liquidation of
the Trust (unless the Exchange Junior Subordinated Debentures are distributed to
holders of the Exchange Capital Securities), the lesser of (a) the aggregate of
the Liquidation Amount and all accumulated and unpaid Distributions to the date
of payment, to the extent that the Trust has funds legally available therefor at
such time and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Exchange Capital Securities at such time, after
the satisfaction of liabilities to creditors of the Trust as provided by
applicable law.
The holders of a majority in aggregate Liquidation Amount of the
Exchange Capital 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 Exchange Guarantee or to direct the exercise of any trust
power conferred upon the Guarantee Trustee under the Exchange Guarantee. Any
holder of the Exchange Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person or entity. If the Corporation defaults on
its obligation to pay amounts payable under the Exchange Junior Subordinated
Debentures, the Trust would not have sufficient funds for the payment of
Distributions or amounts payable on redemption of the Exchange Capital
Securities or otherwise, and, in such event, holders of the Exchange Capital
Securities would not be able to rely upon the Exchange Guarantee for payment of
such amounts. Instead, if a Debenture Event of Default has occurred and is
continuing and such event is attributable to the failure of the Corporation to
pay the principal of (or premium, if any) or interest (including Additional Sums
and Compounded Interest, if any) or Liquidated Damages, if any, on the Exchange
Junior Subordinated Debentures when such payment is due and payable, then a
holder of Exchange Capital Securities may institute a legal proceeding directly
against the Corporation for enforcement of payment to such holder of the
principal of (or premium, if any) or interest (including Additional Sums and
Compounded Interest, if any) or Liquidated Damages, if any, on such Exchange
Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Exchange Capital Securities of such holder (a "Direct
Action"). Notwithstanding any payments made to a holder of Exchange Capital
Securities by the Corporation in connection with a Direct Action, the
Corporation shall remain obligated to pay the principal of (and premium, if any)
and interest (including Additional Sums and Compounded Interest, if any) and
Liquidated Damages, if any, on the Exchange Junior Subordinated Debentures, and
the rights of the Corporation shall be subrogated to the rights of the holder of
such Exchange Capital Securities with respect to payments on the Exchange
Capital Securities to the extent of any payments made by the
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<PAGE>
Corporation to such holder in any Direct Action. Except as described herein,
holders of Exchange Capital Securities will not be able to exercise directly any
other remedy available to the holders of the Exchange Junior Subordinated
Debentures or to assert directly any other rights in respect of the Exchange
Junior Subordinated Debentures. See "Description of Exchange
Securities--Description of Exchange Junior Subordinated Debentures--Enforcement
of Certain Rights by Holders of Exchange Capital Securities," "--Debenture
Events of Default" and "Description of Exchange Securities--Description of
Exchange Guarantee." The Trust Agreement provides that each holder of Exchange
Capital Securities by acceptance thereof agrees to the provisions of the
Indenture and the Exchange Guarantee. Wilmington Trust Company will act as
Guarantee Trustee under the Exchange Guarantee and will hold the Exchange
Guarantee for the benefit of the holders of the Exchange Capital Securities.
Wilmington Trust Company also acts as Property Trustee under the Trust Agreement
and as Debenture Trustee under the Indenture.
LIMITED VOTING RIGHTS
Holders of Exchange Capital Securities generally will have voting
rights relating only to the modification of the Exchange Capital Securities and
the exercise of the Trust's rights as holder of Exchange Junior Subordinated
Debentures. Holders of Exchange Capital Securities will not be entitled to vote
to appoint, remove or replace, or to increase or decrease the number of, the
Issuer Trustees, which voting rights are vested exclusively in the holder of the
Common Securities except upon the occurrence of certain events described herein.
The Property Trustee, the Administrative Trustees and the Corporation may amend
the Trust Agreement without the consent of holders of Exchange Capital
Securities to ensure that the Trust will be classified for United States federal
income tax purposes as a grantor trust. Holders of Exchange Capital Securities
will have no voting rights with respect to any matters submitted to a vote of
the Corporation's stockholders. See "Description of Exchange
Securities--Description of Exchange Capital Securities--Voting Rights; Amendment
of the Trust Agreement" and "--Removal of Issuer Trustees."
TRADING CHARACTERISTICS OF THE EXCHANGE CAPITAL SECURITIES
The Exchange Capital Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with respect to the
underlying Exchange Junior Subordinated Debentures. A holder who uses the
accrual method of accounting for tax purposes (and a cash method holder, if the
Exchange Junior Subordinated Debentures are deemed to have been issued with OID)
and who disposes of its Exchange Capital Securities between record dates for
payments of Distributions thereon will be required to include accrued but unpaid
interest on the Exchange Junior Subordinated Debentures through the date of
disposition in income as ordinary income (i.e., interest or, possibly, OID), and
to add such amount to its adjusted tax basis in its share of the underlying
Exchange Junior Subordinated Debentures deemed disposed of. If the selling price
is less than the holder's adjusted tax basis (which will include all accrued but
unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for U.S. federal income tax purposes. See "Certain Federal Income Tax
Considerations -- Interest Income and Original Issue Discount" and " --Sales of
Exchange Capital Securities."
CONSEQUENCES OF A FAILURE TO EXCHANGE ORIGINAL CAPITAL SECURITIES
The Original Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain other conditions and restrictions.
Original Capital Securities that remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of
Original Capital Securities that remain outstanding will not be entitled to any
rights to have such Original Capital Securities registered under the Securities
Act or to any similar rights under the Registration Rights Agreement (subject to
certain limited exceptions). The Corporation and the Trust do not intend to
register under the Securities Act any Original Capital Securities that remain
outstanding after consummation of the
22
<PAGE>
Exchange Offer (subject to such limited exceptions, if applicable). To the
extent that Original Capital Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Original Capital
Securities could be adversely affected.
The Exchange Capital Securities and any Original Capital Securities
that remain outstanding after consummation of the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement. See
"Description of Exchange Securities--Description of Exchange Capital
Securities--Voting Rights; Amendment of the Trust Agreement."
ABSENCE OF PUBLIC MARKET AND RESTRICTIONS ON RESALE
The Original Capital Securities were issued to, and the Corporation
believes such securities are currently owned by, a relatively small number of
beneficial owners. The Original Capital Securities have not been registered
under the Securities Act and will be subject to restrictions on transferability
if they are not exchanged for the Exchange Capital Securities. Although the
Exchange Capital Securities may be resold or otherwise transferred by the
holders (who are not affiliates of the Corporation or the Trust) without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market.
Capital Securities may be transferred by the holders thereof only in blocks
having a Liquidation Amount of not less than $100,000 (100 Capital Securities).
In addition, any market-making activity, if it should develop, will be subject
to the limits imposed by the Securities Act and the Exchange Act and may be
limited during the Exchange Offer. Accordingly, no assurance can be given that
an active public or other market will develop for the Capital Securities, or as
to the liquidity of or the trading market for the Capital Securities. If an
active public market does not develop, the market price and liquidity of the
Exchange Capital Securities may be adversely affected.
If a public trading market develops for the Exchange Capital
Securities, future trading prices will depend on many factors, including, among
other things, prevailing interest rates, the financial condition of the
Corporation and the market for similar securities. Depending on these and other
factors, the Exchange Capital Securities may trade at a discount.
Notwithstanding the registration of the Exchange Capital Securities in
the Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of
the Securities Act) of the Corporation or the Trust may publicly offer for sale
or resell the Exchange Capital Securities only in compliance with the provisions
of Rule 144 under the Securities Act.
Each broker-dealer that receives Exchange Capital Securities for its
own account in exchange for Original Capital Securities, where such Original
Capital 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 Exchange Capital
Securities. See "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
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<PAGE>
Subject to conditions set forth under "The Exchange Offer--Conditions
to the Exchange Offer," issuance of the Exchange Capital Securities in exchange
for Original Capital Securities pursuant to the Exchange Offer will be made only
after a timely receipt by the Trust of (i) a book-entry confirmation evidencing
the tender of such Original Capital Securities through ATOP or (ii) certificates
representing such Original Capital Securities, a properly completed and duly
executed Letter of Transmittal, with any required signature guarantees, and all
other required documents. See "The Exchange Offer--Acceptance for Exchange and
Issuance of Exchange Capital Securities" and "--Procedures for Tendering
Original Capital Securities." Therefore, holders of the Original Capital
Securities desiring to tender such Original Capital Securities in exchange for
Exchange Capital Securities should allow sufficient time to ensure timely
delivery. Neither the Corporation nor the Trust is under any duty to give
notification of defects or irregularities with respect to the tenders of
Original Capital Securities for exchange.
LEGISLATIVE AND GENERAL REGULATORY DEVELOPMENTS
The Corporation is subject to federal regulatory oversight as a savings
and loan holding company by the OTS. The Bank is subject to extensive regulation
by the OTS as its primary federal regulator and also to regulation as to certain
matters by the FDIC. The OTS and the FDIC have adopted numerous regulations and
undertaken other regulatory initiatives, and further regulations and initiatives
may be adopted. Future legislation or regulatory developments could have an
adverse effect on the Bank.
As discussed above under "Proposed Legislative Elimination of the
Thrift Charter," if legislation with respect to the development of a common
charter is enacted, the Bank may be required to convert its federal savings bank
charter to either a new federal type of bank charter or to a state depository
institution charter. Future legislation also may result in the Corporation
becoming regulated at the holding company level by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") rather than by the OTS.
Regulation by the Federal Reserve Board could subject the Corporation to capital
requirements that are not currently applicable to the Corporation as a holding
company under OTS regulation and may result in statutory limitations on the type
of business activities in which the Corporation may engaged at the holding
company level, which business activities currently are not restricted. The
Corporation is unable to predict whether such legislation will be enacted.
SOURCES OF FUNDS FOR CASH DIVIDENDS
The Corporation has traditionally invested substantially all of its
liquid assets in the Bank. The Corporation's liquidity and ability to pay
dividends to its shareholders is primarily derived from and dependent on the
ability of the Bank to pay dividends to the Corporation. Under current OTS
regulations, because the Bank meets the OTS capital requirements it may pay out
the higher of 100% of net income to date over the calendar year and 50% of
surplus capital existing at the beginning of the calendar year, or 75% of its
net income over the most recent four-quarter period, without regulatory
supervisory approval. In general, the Bank pays dividends to the Corporation
only to the extent that funds are needed to cover operating expenses and
dividends paid to shareholders. At September 30, 1997, the Bank had
approximately $20.6 million in excess capital over the OTS risk-based
requirement, one half of which would be available for declaration of dividends
to the Corporation. The OTS regulations permit the OTS to prohibit capital
distributions under certain circumstances.
TELEBANC FINANCIAL CORPORATION
TeleBanc Financial Corporation is the holding company parent of
TeleBank, a federally chartered, FDIC insured savings bank headquartered in
Arlington, Virginia, and TCM, an investment adviser, fund manager and
broker-dealer. The Corporation was organized by its majority owner, MET
Holdings, to become in March 1994 the direct holding company of the Bank, which
had been acquired by MET Holdings in 1989. At September 30, 1997, the
Corporation had total assets of $838.5 million, total deposits of $445.2 million
and stockholders' equity of $45.3 million.
The primary business of the Corporation is the business of the Bank.
Through TCM, the Corporation also is involved in trading mortgage-backed
securities principally with other broker-dealers
24
<PAGE>
and government sponsored enterprises, and fund management. Other Corporation
operations included recent joint venture investments through the Bank in AGT
Mortgage and AGT PRA. AGT Mortgage is engaged in loan servicing and loan
workouts for troubled or defaulted loans. AGT PRA owns a majority interest in
Portfolio Recovery Associates, LLC, which acquires and collects delinquent
consumer debt obligations for its own portfolio.
For more information regarding the Corporation's business, property,
legal proceedings, and management's discussion and analysis of financial
condition and results of operations, see the Corporation's Annual Report on Form
10-K, as amended, for the year ended December 31, 1996, and its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997, both of which are set
forth in "Appendices."
The Corporation's executive offices and the Bank's home office are
located at 1111 North Highland Street, Arlington, Virginia 22201, telephone
(703) 247-3700.
TELEBANC CAPITAL TRUST I
The Trust is a statutory business trust formed under Delaware law upon
the filing of a certificate of trust with the Delaware Secretary of State. The
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) using the proceeds from the sale of Trust Securities to acquire
the Junior Subordinated Debentures and (iii) engaging in only those other
activities necessary, advisable or incidental thereto, such as registering the
transfer of the Trust Securities and the Exchange Offer. Accordingly, the Junior
Subordinated Debentures are the sole assets of the Trust, and payments under the
Junior Subordinated Debentures are the sole revenues of the Trust. All of the
Common Securities are owned by the Corporation. The Common Securities rank pari
passu, and payments are and will be made thereon pro rata, with the Exchange
Capital Securities, except that if there is an Event of Default under the Trust
Agreement resulting from a Debenture Event of Default, the rights of the
Corporation as holder of the Common Securities to payments in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Exchange Capital Securities.
See "Description of Exchange Capital Securities--Subordination of Common
Securities." The Corporation acquired Common Securities in a Liquidation Amount
equal to at least 3% of the total capital of the Trust. The Trust has a term of
approximately 31 years, but may terminate earlier as provided in the Trust
Agreement. The Trust's business and affairs are conducted by the Issuer
Trustees, each appointed by the Corporation as holder of the Common Securities.
The Issuer Trustees for the Trust are Wilmington Trust Company, as the Property
Trustee, Wilmington Trust Company, as the Delaware Trustee and three individual
Administrative Trustees who are officers or other employees of the Corporation.
Wilmington Trust Company also acts as guarantee trustee under the Guarantee and
as debenture trustee under the Indenture. See "Description of Exchange
Securities--Description of Exchange Guarantee" and "--Description of Exchange
Junior Subordinated Debentures."
The holder of the Common Securities or, if an Event of Default under
the Trust Agreement has occurred and is continuing, the holders of not less than
a majority in Liquidation Amount of the Capital Securities, are entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee. In
no event will the holders of the Exchange Capital Securities have the right to
vote to appoint, remove or replace the Administrative Trustees; such voting
rights will be vested exclusively in the holder of the Common Securities. The
duties and obligations of each Issuer Trustee are governed by the Trust
Agreement. The Corporation, as issuer of the Exchange Junior Subordinated
Debentures, has and will continue pay all fees, expenses, debts and obligations
(other than the payment of principal, interest and premium, if any, on the Trust
Securities) related to the Trust and the offering of the Exchange Capital
Securities and has and will continue pay, directly or indirectly, all ongoing
costs, expenses and liabilities (other than the payment of principal, interest
and premium, if any, on the Trust Securities) of the Trust.
The principal executive office of the Trust is c/o TeleBanc Financial
Corporation, 1111 North Highland Street, Arlington, Virginia 22201, telephone
(703) 247-3700.
USE OF PROCEEDS
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<PAGE>
Neither the Corporation nor the Trust will receive any cash proceeds
from the issuance of the Exchange Capital Securities and the Exchange Guarantee
offered hereby. In consideration for issuing the Exchange Capital Securities in
exchange for Original Capital Securities as described in this Prospectus, the
Trust will receive Original Capital Securities in like Liquidation Amount. The
Original Capital Securities surrendered in exchange for the Exchange Capital
Securities will be retired and canceled.
The proceeds to the Trust (without giving effect to expenses of the
offering payable by the Corporation) from the offering of the Original Capital
Securities was $10,000,000. All of the proceeds from the sale of the Original
Capital Securities were invested by the Trust in the Original Junior
Subordinated Debentures. The Corporation's net proceeds of approximately $9.6
million from the sale of the Original Junior Subordinated Debentures were added
to the general funds of the Corporation and were and may be used for general
corporate purposes, including, without limitation, contributions to the Bank to
fund its operations, the creation and expansion of financial service and product
offerings, such as insurance, financing the acquisition of other banking and
financial service companies, and the redemption of a portion of the
Corporation's outstanding debt. Initially, the net proceeds were used to make
investments in short-term securities. From time to time, the Corporation
investigates and holds discussions and negotiations in connection with possible
transactions with other financial institutions and holding companies thereof. As
of the date of this Prospectus, the Corporation has not entered into any
agreements or definitive understandings with respect to any such acquisitions or
any other material transactions of the type referred to above.
26
<PAGE>
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth the ratios of earnings to combined fixed
charges of the Corporation on a consolidated basis for the respective periods
indicated.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Combined Fixed Charges:
Excluding interest on deposits................... 1.32x 1.18x 1.28x 1.29x 1.09x 1.50x 1.33x
Including interest on deposits................... 1.14x 1.07x 1.11x 1.14x 1.04x 1.17x 1.14x
</TABLE>
For purposes of computing the ratios of earnings to combined fixed
charges, earnings represent net income (loss) before extraordinary items and
cumulative effect of changes in accounting principles plus applicable income
taxes and fixed charges. Fixed charges, excluding interest on deposits, include
gross interest expense (other than on deposits) and the proportion deemed
representative of the interest factor of rent expense, net of income from
subleases. Fixed charges, including gross interest on deposits, include all
interest expense and the proportion deemed representative of the interest factor
of rent expense, net of income from subleases.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust is treated as a subsidiary
of the Corporation and, accordingly, the accounts of the Trust are included in
the consolidated financial statements of the Corporation. The Exchange Capital
Securities are shown in the consolidated balance sheets of the Corporation, as
"Corporation-Obligated Mandatorily Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated Debentures of the Corporation," and
appropriate disclosures about the Exchange Capital Securities, the Exchange
Guarantee and the Exchange Junior Subordinated Debentures are included in the
notes to the consolidated financial statements of the Corporation. For financial
reporting purposes, the Corporation records Distributions payable on the
Exchange Capital Securities as a minority interest expense in its consolidated
statements of income.
27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Corporation as
of September 30, 1997. Consummation of the Exchange Offer will have no effect on
such capitalization. This data should be read in conjunction with the
consolidated financial statements of the Corporation, including the related
notes thereto and discussion thereof.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
(IN THOUSANDS)
<S> <C>
Long-term debt:
9.5% Senior Subordinated Debt..................................... $12,902
11.5% Subordinated Debt........................................... 16,654
-------
Total long-term debt.......................................... 29,556
-------
Corporation-Obligated Mandatory Redeemable Capital Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures
of the Corporation (1)............................................ 9,602
Stockholders' equity:
4% Cumulative Preferred Stock, $0.01 par value, 500,000 shares
authorized--
Series A, 18,850 issued and outstanding....................... --
Series B, 4,050 issued and outstanding........................ --
Series C, 7,000 issued and outstanding........................ --
Common Stock, $0.01 par value; 3,500,000 shares authorized (2)
2,211,961 shares issued and outstanding....................... 22
Additional paid-in capital........................................ 31,392
Retained earnings................................................. 10,496
Net unrealized gain on available for sale securities.............. 3,350
-------
Total stockholders' equity.................................... 45,260
-------
Total capitalization..................................... $84,418
=======
</TABLE>
- ---------
(1) As described herein, the sole assets of the Trust, which is a subsidiary
of the Corporation, will be $10,310,000 aggregate principal amount of the
11.00% Junior Subordinated Debentures, which will mature on June 1, 2027.
The Corporation will own all of the Common Securities issued by the
Trust.
(2) In May 1997, the Corporation amended its articles of incorporation to
increase the number of authorized shares of Common Stock to 8,500,000.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Original Capital Securities, the
Corporation and the Trust entered into the Registration Rights Agreement with
the Initial Purchaser, pursuant to which the Corporation and the Trust agreed to
file and use commercially reasonable efforts to cause to become effective with
the Commission a registration statement relating to the exchange of the Original
Capital Securities for capital securities with terms identical in all material
respects to the terms of the Original Capital Securities. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations
of the Corporation and the Trust under the Registration Rights Agreement. The
form and terms of the Exchange Capital Securities are the same as the form and
terms of the Original Capital Securities except that the Exchange Capital
Securities have been registered under the Securities Act and will not be subject
to certain restrictions on
28
<PAGE>
transfer applicable to the Original Capital Securities, and will not provide for
any increase in the Distribution rate thereon. In that regard, the Original
Capital Securities provide that, if the Trust has not exchanged Exchange Capital
Securities for all Original Capital Securities validly tendered by the 40th day
after the date on which the registration statement is declared effective, the
Distribution rate borne by the Original Capital Securities will increase by .25%
per annum for the period from the occurrence of such event until the Exchange
Offer has been consummated. Upon consummation of the Exchange Offer, holders of
Original Capital Securities will not be entitled to any increase in the
Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Original Capital Securities" and
"Description of Original Securities."
The Exchange Offer is not being made to, nor will the Trust accept
tenders for exchange from, holders of Original Capital Securities in any
jurisdiction in which the Exchange Offer or the acceptance thereof would not be
in compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect
to the Exchange Offer means any person in whose name the Original Capital
Securities are registered on the books of the Trust or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Original Capital Securities are held of record by DTC who desires
to deliver such Original Capital Security by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Corporation will exchange as soon
as practicable after the date hereof, the Original Guarantee for the Exchange
Guarantee and the Original Junior Subordinated Debentures, in an amount
corresponding to the Original Capital Securities accepted for exchange, for a
like aggregate principal amount of the Exchange Junior Subordinated Debentures.
The Exchange Guarantee and the Exchange Junior Subordinated Debentures have been
registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to and including $10,000,000 aggregate Liquidation Amount of
Exchange Capital Securities for a like aggregate Liquidation Amount of Original
Capital Securities properly tendered on or prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described herein. The Trust
will issue, promptly after the Expiration Date, an aggregate Liquidation Amount
of up to $10,000,000 of Exchange Capital Securities in exchange for a like
principal amount of outstanding Original Capital Securities tendered and
accepted in connection with the Exchange Offer. Holders may tender their
Original Capital Securities in whole or in part in a Liquidation Amount of not
less than $100,000 (100 Original Capital Securities) or any integral multiple of
$1,000 Liquidation Amount (one Capital Security) in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation
Amount of Original Capital Securities being tendered. As of the date of this
Prospectus, $10,000,000 aggregate Liquidation Amount of the Original Capital
Securities is outstanding.
Holders of Original Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Original Capital
Securities that are not tendered for or are tendered but not accepted in
connection with the Exchange Offer will remain outstanding and be entitled to
the benefits of the Trust Agreement, but will not be entitled to any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors--Consequences of a Failure to Exchange
Original Capital Securities" and "Description of Original Securities."
29
<PAGE>
If any tendered Original Capital Securities are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Original
Capital Securities will be returned, without expense, to the tendering holder
thereof promptly after the Expiration Date.
Holders who tender Original Capital Securities in connection with the
Exchange Offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal, transfer taxes with
respect to the exchange of Original Capital Securities in connection with the
Exchange Offer. The Corporation will pay all charges and expenses, other than
certain applicable taxes described herein, in connection with the Exchange
Offer. See "--Fees and Expenses."
NEITHER THE CORPORATION, THE BOARD OF DIRECTORS OF THE CORPORATION NOR
ANY ISSUER TRUSTEE OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF ORIGINAL
CAPITAL SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN
ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. EACH
HOLDER OF ORIGINAL CAPITAL SECURITIES MUST DECIDE WHETHER TO TENDER PURSUANT TO
THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF ORIGINAL CAPITAL
SECURITIES TO TENDER BASED ON SUCH HOLDER'S OWN FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE, EXTENSIONS, AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
January 20, 1998 unless the Exchange Offer is extended by the Corporation or the
Trust (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended).
The Corporation and the Trust expressly reserve the right in their sole
and absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Original Capital Securities for
exchange, (ii) to terminate the Exchange Offer (whether or not any Original
Capital Securities have theretofore been accepted for exchange) if the Trust
determines, in its sole and absolute discretion, that any of the events or
conditions referred to under "--Conditions to the Exchange Offer" have occurred
or exist or have not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Original Capital Securities tendered pursuant to
the Exchange Offer, subject, however, to the right of holders of Original
Capital Securities to withdraw their tendered Original Capital Securities as
described under "--Withdrawal Rights," and (iv) to waive any condition or
otherwise amend the terms of the Exchange Offer in any respect. If the Exchange
Offer is amended in a manner determined by the Corporation and the Trust to
constitute a material change, or if the Corporation and the Trust waive a
material condition of the Exchange Offer, the Corporation and the Trust will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the holders of the Original Capital Securities, and the
Corporation and the Trust will extend the Exchange Offer to the extent required
by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will
be followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
Business Day after the previously scheduled Expiration Date. Without limiting
the manner in which the Corporation and the Trust may choose to make any public
announcement and subject to applicable laws, the Corporation and the Trust shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
30
<PAGE>
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, Exchange Capital
Securities for Original Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of Exchange Capital Securities in exchange for
Original Capital Securities tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
(i) the book-entry confirmation described below under "--Procedures for
Tendering Original Capital Securities--Book-Entry Transfer" or (ii) certificates
representing such Original Capital Securities, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by the Letter of
Transmittal.
Subject to the terms and conditions of the Exchange Offer, the Trust
will be deemed to have accepted for exchange, and thereby exchanged, Original
Capital Securities validly tendered and not withdrawn as, if and when the Trust
gives oral or written notice to the Exchange Agent (any such oral notice to be
promptly confirmed in writing) of the Trust's acceptance of such Original
Capital Securities for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Trust for the purpose of receiving tenders of
book-entry confirmations or certificates representing Original Capital
Securities, Letters of Transmittal and related documents, and as agent for
tendering holders for the purpose of receiving book-entry confirmations or
certificates representing Original Capital Securities, Letters of Transmittal
and related documents and transmitting Exchange Capital Securities to validly
tendered holders. Such exchange will be made promptly after the Expiration Date.
If for any reason whatsoever, acceptance for exchange or the exchange of any
Original Capital Securities tendered pursuant to the Exchange Offer is delayed
(whether before or after the Trust's acceptance for exchange of Original Capital
Securities) or the Trust extends the Exchange Offer or is unable to accept for
exchange or exchange Original Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to the Trust's rights set forth herein,
the Exchange Agent may, nevertheless, on behalf of the Trust and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Original Capital Securities and
such Original Capital Securities may not be withdrawn except to the extent
tendering holders are entitled to withdrawal rights as described under
"--Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Original Capital
Securities will warrant and agree that it has full power and authority to
tender, exchange, sell, assign and transfer Original Capital Securities, that
the Trust will acquire good, marketable and unencumbered title to the tendered
Original Capital Securities, free and clear of all liens, restrictions, charges
and encumbrances, and the Original Capital Securities tendered for exchange are
not subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional documents
deemed by the Trust or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment, and transfer of the Original Capital
Securities tendered pursuant to the Exchange Offer. Tendering holders of
Original Capital Securities that use ATOP will, by doing so, acknowledge that
they are bound by the terms of the Letter of Transmittal.
PROCEDURES FOR TENDERING ORIGINAL CAPITAL SECURITIES
Valid Tender
Except as set forth herein, in order for Original Capital Securities
to be validly tendered pursuant to the Exchange Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must be received by the
Exchange Agent at its address set forth under "--Exchange Agent," and either (i)
tendered Original Capital Securities must be received by the Exchange Agent, or
(ii) such Original Capital Securities must be tendered pursuant to the
procedures for book-entry transfer set forth herein and a book-entry
confirmation must be received by the Exchange Agent, in each case on or prior to
the Expiration Date, or (iii) the guaranteed delivery procedures set forth
herein must be complied with.
31
<PAGE>
If less than all of the Original Capital Securities are tendered, a
tendering holder should fill in the amount of Original Capital Securities being
tendered in the appropriate box on the Letter of Transmittal or so indicate in
an Agent's Message in lieu of the Letter of Transmittal. The entire amount of
Original Capital Securities delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF THE BOOK-ENTRY CONFIRMATIONS OR CERTIFICATES,
THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND
SOLE RISK OF THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED
MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY
SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Book-Entry Transfer
For purposes of the Exchange Offer, the Exchange Agent will establish
an account with respect to the Original Capital Securities at DTC within two
Business Days after the date of this Prospectus. Any tendering financial
institution that is a participant in DTC's book-entry transfer facility system
must make a book-entry delivery of the Original Capital Securities by causing
DTC to transfer such Original Capital Securities into the Exchange Agent's
account at DTC in accordance with DTC's ATOP procedures for transfers. Such
holder of Original Capital Securities using ATOP should transmit its acceptance
to DTC on or prior to the Expiration Date (or comply with the guaranteed
delivery procedures set forth below). DTC will verify such acceptance, execute a
book-entry transfer of the tendered Original Capital Securities into the
Exchange Agent's account at DTC and then send to the Exchange Agent confirmation
of such book-entry transfer, including an agent's message confirming that DTC
has received an express acknowledgment from such holder that such holder has
received and agrees to be bound by the Letter of Transmittal and that the Trust
and the Corporation may enforce the Letter of Transmittal against such holder (a
"book-entry confirmation").
A beneficial owner of Original Capital Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial owner wishes to participate in the Exchange Offer.
Certificates
If the tender is not made through ATOP, certificates representing
Original Capital Securities, as well as the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other required documents required by the Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
under "--Exchange Agent" on or prior to the Expiration Date in order for such
tender to be effective (or the guaranteed delivery procedure set forth herein
must be complied with).
If less than all of the Original Capital Securities are tendered, a
tendering holder should fill in the amount of Original Capital Securities being
tendered in the appropriate box on the Letter of Transmittal. The entire amount
of Original Capital Securities delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Signature Guarantees
Certificates for the Original Capital Securities need not be endorsed
and signature guarantees on the Letter of Transmittal are unnecessary unless (i)
a certificate for the Original Capital Securities is registered in a name other
than that of the person surrendering the certificate or (ii) such holder
completes the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in the Letter of Transmittal. In the case of (i) or (ii) above,
such certificates for Original Capital Securities must be duly endorsed or
accompanied by a properly executed bond power, with the endorsement or signature
on the
32
<PAGE>
bond power and on the Letter of Transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (a) a bank; (b) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (c) a credit union; (d) a national securities exchange,
registered securities association or clearing agency; or (e) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
Delivery
The method of delivery of the book-entry confirmation or certificates
representing tendered Original Capital Securities, the Letter of Transmittal,
and all other required documents is at the option and sole risk of the tendering
holder, and delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, registered mail, return receipt
requested, properly insured, or an overnight delivery service is recommended. In
all cases, sufficient time should be allowed to ensure timely delivery.
Notwithstanding any other provision hereof, the delivery of Exchange
Capital Securities in exchange for Original Capital Securities tendered and
accepted for exchange pursuant to the Exchange Offer will in all cases be made
only after timely receipt by the Exchange Agent of (i) a book-entry confirmation
with respect to such Original Capital Securities or (ii) certificates
representing Original Capital Securities and a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), together with any
required signature guarantees and any other documents required by the Letter of
Transmittal. Accordingly, the delivery of Exchange Capital Securities might not
be made to all tendering holders at the same time, and will depend upon when
book-entry confirmations with respect to Original Capital Securities or
certificates representing Original Capital Securities and other required
documents are received by the Exchange Agent.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Guaranteed Delivery
If a holder desires to tender Original Capital Securities pursuant to
the Exchange Offer and the certificates for such Original Capital Securities are
not immediately available or time will not permit all required documents to
reach the Exchange Agent on or prior to the Expiration Date, or the procedure
for book-entry transfer cannot be completed on a timely basis, such Original
Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed notice to the Exchange
Agent guaranteeing delivery to the Exchange Agent of either certificates
representing Original Capital Securities or a book-entry confirmation in
compliance with the requirements set forth herein (the "Notice of Guaranteed
Delivery"), substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided herein, on or prior to Expiration
Date; and
(iii) a book-entry confirmation or the certificates representing all
tendered Original Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, are, in any case, received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such Notice of Guaranteed Delivery.
33
<PAGE>
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
The Trust's acceptance for exchange of Original Capital Securities
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering holder and the Trust upon the terms and
subject to the conditions of the Exchange Offer.
Determination of Validity
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Original
Capital Securities will be determined by the Corporation and the Trust, in their
sole discretion, whose determination shall be final and binding on all parties.
The Corporation and the Trust reserve the absolute right, in their sole and
absolute discretion, to reject any and all tenders determined by them not to be
in proper form or the acceptance of which, or exchange for, may, in the opinion
of counsel to the Corporation and the Trust, be unlawful. The Corporation and
the Trust also reserve the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer as set forth under "--Conditions to
the Exchange Offer" or any condition or irregularity in any tender of Original
Capital Securities of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
The interpretation by the Corporation and the Trust of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Original Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. None of the Corporation,
the Trust, any affiliates or assigns of the Corporation or the Trust, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the
Corporation and the Trust, proper evidence satisfactory to the Corporation and
the Trust, in their sole discretion, of such person's authority to so act must
be submitted.
RESALES OF EXCHANGE CAPITAL SECURITIES
The Trust is making the Exchange Offer for the Exchange Capital
Securities in reliance on the position of the Staff of the Commission as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Corporation nor the Trust sought its own
interpretive letter and there can be no assurance that the Staff 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 Commission, and subject to the two
immediately following sentences, the Corporation and the Trust believe that
Exchange Capital Securities issued pursuant to this Exchange Offer in exchange
for Original Capital 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 Exchange Capital
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 Exchange Capital Securities. However, any holder of
Original Capital Securities who is an "affiliate" of the Corporation or the
Trust or who intends to participate in the Exchange Offer for the purpose of
distributing Exchange Capital Securities, or any broker-dealer who purchased
Original Capital Securities from the Trust to resell pursuant to Rule 144A or
any other available exemption under the Securities Act, (i) will not be able to
rely on the interpretations of the Staff of the Commission set forth in the
above-
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mentioned interpretive letters, (ii) will not be permitted or entitled to tender
such Original Capital Securities in the Exchange Offer and (iii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any sale or other transfer of such Original Capital
Securities unless such sale is made pursuant to an exemption from such
requirements. In addition, as described herein, if any broker-dealer holds
Original Capital Securities acquired for its own account as a result of
market-making or other trading activities and exchanges such Original Capital
Securities for Exchange Capital Securities, then such broker-dealer must deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resales of such Exchange Capital Securities.
Each holder of Original Capital Securities who wishes to exchange
Original Capital Securities for Exchange Capital Securities in the Exchange
Offer will be required to represent that (i) it is not an "affiliate" of the
Corporation or the Trust, (ii) any Exchange Capital 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 Exchange Capital 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 Exchange Capital Securities. In addition, the
Corporation and the Trust may require such holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to the
Corporation and the Trust (or an agent thereof) in writing information as to the
number of "beneficial owners" (within the meaning of Rule 13d-3 under the
Exchange Act) on behalf of whom such holder holds the Original Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives Exchange Capital Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Original Capital 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
Exchange Capital 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 Commission in the interpretive
letters referred to above, the Corporation and the Trust believe that
Participating Broker-Dealers who acquired Original Capital Securities for their
own accounts as a result of market-making activities or other trading activities
may fulfill their prospectus delivery requirements with respect to the Exchange
Capital Securities received upon exchange of such Original Capital Securities
(other than Original Capital Securities which represent an unsold allotment from
the initial sale of the Original Capital Securities) with a prospectus meeting
the requirements of the Securities Act, which may be the prospectus prepared for
an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Capital Securities.
Accordingly, this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer during the period referred to
below in connection with resales of Exchange Capital Securities received in
exchange for Original Capital Securities where such Original Capital Securities
were acquired by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Corporation and
the Trust 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 Exchange Capital Securities for a period ending 180 days
after the Expiration Date (subject to extension under certain limited
circumstances described herein) or, if earlier, when all such Exchange Capital
Securities have been disposed of by such Participating Broker-Dealer. See "Plan
of Distribution." However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of Exchange Capital Securities received
in exchange for Original Capital Securities pursuant to the Exchange Offer must
notify the Corporation or the Trust, or cause the Corporation or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at its
address set forth herein under "--Exchange Agent." Any Participating
Broker-Dealer who is an "affiliate" of the Corporation or the Trust 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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In that regard, each Participating Broker-Dealer who surrenders
Original Capital Securities pursuant to the Exchange Offer will be deemed to
have agreed, by execution of the Letter of Transmittal, that upon receipt of
notice from the Corporation or the Trust of the occurrence of any event or the
discovery of (i) any fact that makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or (ii) any fact
that causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading, or (iii) of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of Exchange
Capital Securities (or the Exchange Guarantee or the Exchange Junior
Subordinated Debentures, as applicable) pursuant to this Prospectus until the
Corporation or the Trust has amended or supplemented this Prospectus to correct
such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer, or the Corporation
or the Trust has given notice that the sale of the Exchange Capital Securities
(or the Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be. If the Corporation or the Trust
gives such notice to suspend the sale of the Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable), it shall extend the 180-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in connection
with the resale of Exchange Capital Securities by the number of days during the
period from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the Exchange
Capital Securities or to and including the date on which the Corporation or the
Trust has given notice that the sale of Exchange Capital Securities (or the
Exchange Guarantee or the Exchange Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Original Capital
Securities may be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "--Exchange Agent" on or prior
to the Expiration Date. Any such notice of withdrawal must specify the name of
the person who tendered the Original Capital Securities to be withdrawn, the
aggregate principal amount of Original Capital Securities to be withdrawn, and
(if certificates for such Original Capital Securities have been tendered) the
name of the registered holder of the Original Capital Securities as set forth on
the such certificates if different from that of the person who tendered such
Original Capital Securities. If certificates representing Original Capital
Securities have been delivered or otherwise identified to the Exchange Agent,
then prior to the physical release of such certificates, the tendering holder
must submit the serial numbers shown on the particular certificates to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Original Capital Securities tendered
for the account of an Eligible Institution. If Original Capital Securities have
been tendered pursuant to the procedures for book-entry transfer set forth in
"--Procedures for Tendering Original Capital Securities--Book-Entry Transfer,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Original Capital Securities. Withdrawals
of tenders of Original Capital Securities may not be rescinded. Original Capital
Securities properly withdrawn will not be deemed validly tendered for purposes
of the Exchange Offer, but may be retendered at any subsequent time on or prior
to the Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Original Capital Securities."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Trust, in its
sole discretion, whose determination shall be final and binding on all parties.
None of the Corporation, the Trust, any affiliates or assigns of the Corporation
or the Trust, the Exchange Agent or any other person shall be under any duty to
give any notification of any irregularities in any notice of withdrawal or incur
any liability for failure to give any such notification.
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Any Original Capital Securities that have been tendered but are withdrawn will
be returned to the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON THE EXCHANGE CAPITAL SECURITIES
Holders of Original Capital Securities whose Original Capital
Securities are accepted for exchange will not receive Distributions on such
Original Capital Securities and will be deemed to have waived the right to
receive any Distributions on such Original Capital Securities accumulated from
and including June 9, 1997. Accordingly, upon issuance, holders of Exchange
Capital Securities (as of the record date) for the payment of Distributions on
June 1, 1998 will be entitled to receive Distributions accumulated from and
after June 9, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Corporation and the Trust will not be
required to accept for exchange, or to exchange, any Original Capital Securities
for any Exchange Capital Securities, and, as described herein, may terminate the
Exchange Offer (whether or not any Original Capital Securities have theretofore
been accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(i) there shall occur a change in the current interpretation by the
Staff of the Commission that permits the Exchange Capital Securities issued
pursuant to the Exchange Offer in exchange for Original Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof (other
than broker-dealers and any such holder that is an "affiliate" of the
Corporation or the Trust 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 Exchange Capital Securities are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in the
distribution of such Exchange Capital Securities; or
(ii) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of Corporation or the Trust, would reasonably be
expected to impair its ability to proceed with the Exchange Offer; or
(iii) a stop order shall have been issued by the Commission or any
state securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of the
Corporation or the Trust, threatened for that purpose, or any governmental
approval has not been obtained, which approval the Corporation or the Trust
shall, in its sole discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby; or
(iv) the Corporation determines in good faith (i) that there is a
reasonable likelihood that, or a material uncertainty exists as to whether,
consummation of the Exchange Offer would result in an adverse tax consequence to
the Trust or the Corporation and (ii) that such condition exists on the 240th
day following the Closing Date.
If the Corporation or the Trust determine in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, it may, subject to applicable law, terminate the
Exchange Offer (whether or not any Original Capital Securities have theretofore
been accepted for exchange) or may waive any such condition or otherwise amend
the terms of the Exchange Offer in any respect. If such waiver or amendment
constitutes a material change to the Exchange Offer, the Corporation or the
Trust will promptly disclose such waiver or amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Original
Capital Securities and will extend the Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act.
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EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent as follows:
BY HAND, OVERNIGHT DELIVERY, REGISTERED OR CERTIFIED MAIL:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Department
Confirm by Telephone: (302) 651-1000
Facsimile Transmissions: (302) 651-8882
(ELIGIBLE INSTITUTIONS ONLY)
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Corporation has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Corporation will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Original Capital Securities,
and in handling or tendering for their customers.
Holders who tender their Original Capital Securities for exchange will
not be obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Capital Securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Original Capital
Securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of Original Capital Securities in connection with the Exchange
Offer, then 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 with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
Neither the Corporation nor the Trust will make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a form of which is
available upon request to the Corporation. See "Incorporation of Certain
Documents by Reference." In addition, the information set forth above concerning
certain interpretations of and positions taken by the Staff of the Commission is
not intended to constitute legal advice, and prospective investors should
consult their own legal advisors with respect to such matters.
DESCRIPTION OF EXCHANGE SECURITIES
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
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Pursuant to the terms of the Trust Agreement, the Issuer Trustees on
behalf of the Trust will issue the Exchange Capital Securities. The Exchange
Capital Securities will represent beneficial interests in the Trust and the
holders thereof will be entitled to a preference over the Common Securities in
certain circumstances with respect to Distributions and amounts payable on
redemption of the Trust Securities or liquidation of the Trust. See
"--Subordination of Common Securities." The Trust Agreement has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of certain provisions of the Exchange Capital Securities, the
Common Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement, including the definitions therein of certain terms.
GENERAL
The Exchange Capital Securities will be limited to $10,000,000
aggregate Liquidation Amount at any one time outstanding. The Exchange Capital
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Common Securities except as described under "--Subordination of Common
Securities." Legal title to the Exchange Junior Subordinated Debentures will be
held by the Property Trustee on behalf of the Trust in trust for the benefit of
the holders of the Trust Securities. The Exchange Guarantee will not guarantee
payment of Distributions or amounts payable on redemption of the Exchange
Capital Securities or liquidation of the Trust when the Trust does not have
funds legally available for such payments. See "--Description of Exchange
Guarantee."
DISTRIBUTIONS
Distributions on the Exchange Capital Securities will be cumulative,
will accumulate from June 9, 1997, the date of original issuances and will be
payable semi-annually in arrears on June 1 and December 1 of each year,
commencing June 1, 1998, at the annual rate of 11.00% of the Liquidation Amount
to the holders of the Exchange Capital Securities on the relevant record dates.
The record dates will be the 15th day of the month preceding the month in which
the relevant Distribution Date falls. The first Distribution Date for the
Exchange Capital Securities will be June 1, 1998. The amount of Distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months and, for any period of less than a full calendar month, the number
of days elapsed in such month. In the event that any date on which Distributions
are payable on the Exchange Capital Securities is not a Business Day, payment of
the Distributions payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect to
any such delay), except that if such next succeeding Business Day falls in the
next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date (each date on which Distributions are payable in accordance with
the foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in New York,
New York, Wilmington, Delaware, or Arlington, Virginia are authorized or
required by law or executive order to remain closed.
So long as no Debenture Event of Default has occurred and is
continuing, the Corporation has the right under the Indenture to elect to defer
the payment of interest on the Exchange Junior Subordinated Debentures 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
shall end on a date other than an Interest Payment Date or extend beyond the
Stated Maturity Date. Upon any such election, semi-annual Distributions on the
Trust Securities will be deferred by the Trust during such Extension Period.
Distributions to which holders of the Trust Securities are entitled during any
such Extension Period will accumulate additional Distributions thereon at the
rate per annum of 11.00% thereof, compounded semi-annually from the relevant
Distribution Date, but not exceeding the interest rate then accruing on the
Exchange Junior Subordinated Debentures. The term "Distributions," as previously
defined, includes any such additional Distributions.
Prior to the termination of any such Extension Period, the Corporation
may further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods, to end
on a date other than an Interest Payment Date or to extend
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beyond the Stated Maturity Date. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest Payment Date, the
Corporation 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 Corporation must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of any
such Extension Period (or an extension thereof) at least five Business Days
prior to the earlier of (i) the date the Distributions on the Exchange Capital
Securities would have been payable except for the election to begin such
Extension Period and (ii) the date the Trust is required to give notice to any
automated quotation system or to holders of such Exchange Capital Securities of
the record date or the date such Distributions are payable, but in any event not
less than five Business Days prior to such record date. There is no limitation
on the number of times that the Corporation may elect to begin an Extension
Period. See "--Description of Exchange Junior Subordinated Debentures--Option to
Extend Interest Payment Date" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of the Corporation's capital stock,
(ii) make any payment of principal of, premium, if any, or interest on or repay,
repurchase or redeem any debt securities of the Corporation (including Other
Debentures) that rank pari passu with or junior in right of payment to the
Exchange Junior Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Corporation of the debt securities of any
subsidiary of the Corporation (including Other Guarantees) if such guarantee
ranks pari passu with or junior in right of payment to the Exchange Junior
Subordinated Debentures (other than (a) dividends or distributions in shares of,
or options, warrants or rights to subscribe for or purchase shares of, common
stock of the Corporation, (b) any declaration of a dividend in connection with
the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Exchange Guarantee, (d) the
purchase of fractional shares resulting from a reclassification of the
Corporation's capital stock,(e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged
and (f) purchases of common stock related to the issuance of common stock or
rights under any of the Corporation's benefit or compensation plans for its
directors, officers or employees or any of the Corporation's dividend
reinvestment plans).
The Corporation has no current intention to exercise its option to
defer payments of interest on the Exchange Junior Subordinated Debentures.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust has invested the proceeds from the issuance and
sale of the Trust Securities. See "--Description of Exchange Junior Subordinated
Debentures--General." After the Exchange Offer, if the Corporation does not make
interest payments on the Exchange Junior Subordinated Debentures, the Property
Trustee will not have funds available to pay Distributions on the Exchange
Capital Securities. The payment of Distributions (if and to the extent the Trust
has funds legally available for the payment of such Distributions) will be
guaranteed by the Corporation on a limited basis as set forth herein under
"--Description of Exchange Guarantee."
REDEMPTION
Upon the repayment on the Stated Maturity Date or prepayment in whole
or in part prior to the Stated Maturity Date of the Exchange Junior Subordinated
Debentures (other than following the distribution of the Exchange Junior
Subordinated Debentures to the holders of the Trust Securities), the proceeds
from such repayment or prepayment shall be applied by the Property Trustee to
redeem a Like Amount of the Trust Securities, upon not less than 30 nor more
than 60 days' notice of a date of redemption (the "Redemption Date"), at the
applicable Redemption Price, which shall be equal to (i) in the case of the
repayment of the Exchange Junior Subordinated Debentures on the Stated Maturity
Date, the Maturity Redemption Price (equal to the principal of, and accrued and
unpaid interest on, the Exchange Junior Subordinated Debentures), (ii) in the
case of the optional prepayment of the Exchange Junior
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Subordinated Debentures before the Initial Optional Redemption Date upon the
occurrence and continuation of a Special Event, the Special Event Redemption
Price (equal to the Special Event Prepayment Price in respect of the Exchange
Junior Subordinated Debentures) and (iii) in the case of the optional prepayment
of the Exchange Junior Subordinated Debentures on or after the Initial Optional
Redemption Date, the Optional Redemption Price (equal to the Optional Prepayment
Price in respect of the Exchange Junior Subordinated Debentures). See
"--Description of Exchange Junior Subordinated Debentures--Optional Prepayment"
and "--Special Event Prepayment." If less than all of the Exchange Junior
Subordinated Debentures are to be prepaid on a Redemption Date, then the
proceeds of such prepayment shall be allocated pro rata to the Trust Securities.
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Exchange Junior Subordinated Debentures to be paid in accordance with
their terms and (ii) with respect to a distribution of Exchange Junior
Subordinated Debentures upon the liquidation of the Trust, Exchange Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Exchange Junior
Subordinated Debentures are distributed.
The Corporation will have the option to prepay the Exchange Junior
Subordinated Debentures, (i) in whole or in part, on or after the Initial
Optional Redemption Date, at the applicable Optional Prepayment Price and (ii)
in whole but not in part, at any time prior to the Initial Optional Redemption
Date, upon the occurrence of a Special Event, at the Special Event Prepayment
Price, in each case subject to the receipt of any required regulatory approval.
See "--Description of Exchange Junior Subordinated Debentures--Optional
Prepayment" and "--Special Event Prepayment."
LIQUIDATION OF THE TRUST AND DISTRIBUTION OF EXCHANGE JUNIOR SUBORDINATED
DEBENTURES
The Corporation will have the right at any time to terminate the Trust
and, after satisfaction of liabilities to creditors of the Trust as required by
applicable law, to cause the Exchange Junior Subordinated Debentures to be
distributed to the holders of the Trust Securities in liquidation of the Trust.
Such right is subject to (i) the Administrative Trustees having received an
opinion of counsel to the effect that such distribution will not cause the
holders of Exchange Capital Securities to recognize gain or loss for federal
income tax purposes and (ii) the Corporation having received any required
regulatory approval.
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Corporation;
(ii) the distribution of a Like Amount of the Exchange Junior Subordinated
Debentures to the holders of the Trust Securities, if the Corporation, as
Sponsor, has given written direction to the Property Trustee to terminate the
Trust (which direction is optional and, except as described above, wholly within
the discretion of the Corporation, as Sponsor); (iii) redemption of all of the
Trust Securities as described under "--Redemption;" (iv) expiration of the term
of the Trust; and (v) the entry of an order for the dissolution of the Trust by
a court of competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Trust Securities a Like Amount of the Exchange Junior
Subordinated Debentures, unless such distribution is determined by the Property
Trustee not to be practicable, in which event such holders will be entitled to
receive out of the assets of the Trust legally available for distribution to
holders, after satisfaction of liabilities to creditors of the Trust as provided
by applicable law, an amount equal to the aggregate of the Liquidation Amount
plus accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If such Liquidation Distribution
can be paid only in part because the Trust has insufficient assets legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Trust Securities shall be paid on a
pro rata basis, except that if a Debenture Event of Default has occurred and is
continuing, the Exchange Capital Securities shall have a priority over the
Common Securities. See "--Subordination of
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Common Securities." If an early termination occurs, the Exchange Junior
Subordinated Debentures will be subject to optional prepayment, in whole or in
part, on or after the Initial Optional Redemption Date, unless such termination
relates to the circumstances described in clause (v) above, in which case the
Junior Subordinated Debentures will be subject to optional prepayment, in whole
but not in part, on or after the Initial Optional Redemption Date.
After the liquidation date is fixed for any distribution of Exchange
Junior Subordinated Debentures to holders of the Trust Securities, (i) the Trust
Securities will no longer be deemed to be outstanding, (ii) DTC or its nominee,
will receive, in respect of each Global Capital Security held by it, a
registered global certificate representing the Exchange Junior Subordinated
Debentures to be delivered upon such distribution and (iii) any certificates
representing Trust Securities not held by DTC or its nominee will be deemed to
represent Exchange Junior Subordinated Debentures having a principal amount
equal to the Liquidation Amount of such Trust Securities, and bearing accrued
and unpaid interest in an amount equal to the accumulated and unpaid
Distributions on such Trust Securities until such certificates are presented to
the Administrative Trustees or their agent for cancellation, whereupon the
Corporation will issue to such holder, and the Debenture Trustee will
authenticate, a certificate representing such Exchange Junior Subordinated
Debentures.
There can be no assurance as to the market prices for the Exchange
Capital Securities or the Exchange Junior Subordinated Debentures that may be
distributed in exchange for the Trust Securities if a dissolution and
liquidation of the Trust were to occur. Accordingly, the Exchange Capital
Securities that an investor may purchase, or the Exchange Junior Subordinated
Debentures that the investor may receive on dissolution and liquidation of the
Trust, may trade at a discount to the price that the investor paid to purchase
the Exchange Capital Securities offered hereby.
REDEMPTION PROCEDURES
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the Exchange Junior Subordinated Debentures. Any redemption of
Trust Securities shall be made and the applicable Redemption Price shall be
payable on the Redemption Date only to the extent that the Trust has funds
legally available for the payment of such applicable Redemption Price. See
"--Subordination of Common Securities."
If the Trust gives a notice of redemption for the Exchange Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Exchange Capital
Securities held in global form by DTC or its nominees, the Property Trustee will
deposit or cause the Paying Agent to deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price. See "--Form, Denomination,
Book-Entry Procedures and Transfer." With respect to the Exchange Capital
Securities held in certificated form, the Property Trustee, to the extent funds
are legally available, will irrevocably deposit with the Paying Agent for the
Exchange Capital Securities funds sufficient to pay the applicable Redemption
Price and will give the Paying Agent irrevocable instructions and authority to
pay the applicable Redemption Price to the holders thereof upon surrender of
their certificates evidencing the Exchange Capital Securities. See "--Payment
and Paying Agency." Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date shall be payable to the holders of such Exchange
Capital Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of the holders of the
Exchange Capital Securities called for redemption will cease, except the right
of the holders of such Exchange Capital Securities to receive the applicable
Redemption Price, but without interest on such Redemption Price, and such
Exchange Capital Securities will cease to be outstanding. In the event that any
Redemption Date of Exchange Capital Securities is not a Business Day, then the
applicable Redemption Price payable on such date will be paid on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that, if such next succeeding Business Day
falls in the next calendar year, such payment shall be made on the immediately
preceding Business Day . In the event that payment of the applicable Redemption
Price is improperly withheld or refused and not paid either by the Trust or by
the
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Corporation pursuant to the Exchange Guarantee as described under "--Description
of Exchange Guarantee," (i) Distributions on Exchange Capital Securities will
continue to accumulate at the then-applicable rate, from the Redemption Date
originally established by the Trust to the date such applicable Redemption Price
is actually paid and (ii) the actual payment date will be the Redemption Date
for purposes of calculating the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Corporation or its subsidiaries may at any time and
from time to time purchase outstanding Exchange Capital Securities by tender, in
the open market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days prior to the Redemption Date to each holder of Trust Securities at
its registered address. Unless the Corporation defaults in payment of the
applicable Redemption Price on, or in the repayment of, the Exchange Junior
Subordinated Debentures, on and after the Redemption Date, Distributions will
cease to accrue on the Trust Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Trust
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any Distribution
Date or Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or applicable Redemption Price
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all of the outstanding Exchange Capital Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
applicable Redemption Price the full amount of such Redemption Price, shall have
been made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Exchange Capital Securities then due and payable.
In the case of any Event of Default under the Trust Agreement, the
Corporation as holder of the Common Securities will be deemed to have waived any
right to act with respect to such Event of Default until the effect of such
Event of Default shall have been cured, waived or otherwise eliminated. Until
any such Event of Default has been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the holders of the Capital
Securities and not on behalf of the Corporation as holder of the Common
Securities, and only the holders of the Capital Securities will have the right
to direct the Property Trustee to act on their behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "--Description of
Exchange Junior Subordinated Debentures--Debenture Events of Default")
constitutes an "Event of Default" under the Trust Agreement.
Within 10 Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Exchange Capital
Securities, the Administrative Trustees and the Corporation, as Sponsor, unless
such Event of Default shall have been cured or waived. The Corporation, as
Sponsor, and the Administrative Trustees are required to file annually with the
Property Trustee a certificate as to whether or not they are in compliance with
all the conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Exchange Capital Securities shall have a preference over the Common Securities
as described under "--Liquidation of the Trust and Distribution of Exchange
Junior Subordinated Debentures" and "--Subordination of Common Securities."
REMOVAL OF ISSUER TRUSTEES
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Unless a Debenture Event of Default shall have occurred and be
continuing, any Issuer Trustee may be removed at any time by the holder of the
Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed at such
time by the holders of a majority in Liquidation Amount of the outstanding
Capital Securities. In no event will the holders of the Exchange Capital
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Corporation as the holder of the Common Securities. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless a Debenture Event of Default shall have occurred and be
continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust's property may at any time be located, the Property Trustee shall
have power to appoint one or more persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of such Trust's property, or to
act as separate trustee of any such property, in either case with such powers as
may be provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary or
desirable, subject to the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
Trust Agreement, provided such Person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except as described herein or as otherwise described under "--Liquidation of the
Trust and Distribution of Exchange Junior Subordinated Debentures." The Trust
may, at the request of the Corporation, as Sponsor, with the consent of the
Administrative Trustees but without the consent of the holders of the Exchange
Capital Securities, merge with or into, consolidate, amalgamate, or be replaced
by or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to a trust organized as such under the laws of any
state; provided, that (i) such successor entity either (a) expressly assumes all
of the obligations of the Trust with respect to the Trust Securities or (b)
substitutes for the Trust Securities other securities having substantially the
same terms as the Trust Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Trust Securities rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) the Corporation expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee with
respect to the Exchange Junior Subordinated Debentures, (iii) the Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Trust Securities are then listed or quoted, if any,
(iv) if the Exchange Capital Securities (including any Successor Securities) are
rated by any nationally recognized statistical rating organization prior to such
transaction, such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the Exchange Capital Securities (including any
Successor Securities) or, if the Exchange Junior Subordinated Debentures are so
rated, the Exchange Junior Subordinated Debentures, to be downgraded by any such
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect,
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(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 Corporation has received an opinion from independent
counsel to the Trust experienced in such matters to the effect that (a) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not adversely affect the rights, preferences and privileges of the holders
of the Trust Securities (including any Successor Securities) in any material
respect (other than any dilution of such holders' interests in the new entity)
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and (viii) the
Corporation 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 Exchange Guarantee and the Common Guarantee. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100% in
Liquidation Amount of the Trust Securities, consolidate, amalgamate, merge with
or into, or be replaced by or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it, if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided herein and under "--Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "--Description of Exchange
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Exchange Capital Securities will have no
voting rights.
The Trust Agreement may be amended from time to time by the
Corporation, the Property Trustee and the Administrative Trustees, without the
consent of the holders of the Trust Securities (i) to cure any ambiguity,
correct or supplement any provision in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, which shall
not be inconsistent with the other provisions of the Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as shall be necessary to ensure that the Trust will be classified for U.S.
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that the Trust will not be required to
register as an "investment company" under the Investment Company Act or (iii) to
modify, eliminate or add any provisions of the Trust Agreement to such extent as
shall be necessary to enable the Trust or the Corporation to conduct an Exchange
Offer in the manner contemplated by the Registration Rights Agreement, provided,
however, that in each case, such action shall not adversely affect in any
material respect the interests of the holders of the Trust Securities. Any
amendments of the Trust Agreement pursuant to the foregoing shall become
effective when notice thereof is given to the holders of the Trust Securities.
The Trust Agreement may be amended by the Issuer Trustees and the Corporation
(i) with the consent of holders representing a majority (based upon Liquidation
Amount) of the outstanding Trust Securities and (ii) upon receipt by the Issuer
Trustees of an opinion of counsel experienced in such matters to the effect that
such amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not affect the Trust's status as a grantor
trust for U.S. federal income tax purposes or the Trust's exemption from status
as an "investment company" under the Investment Company Act, provided that,
without the consent of each holder of Trust Securities, the Trust Agreement may
not be amended to (i) change the amount or timing of any Distribution on the
Trust Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Trust Securities as of a specified date or
(ii) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date. The Exchange Capital
Securities and any Original Capital Securities that remain outstanding after
consummation of the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement.
So long as any Exchange Junior Subordinated Debentures are held by the
Property Trustee, the Issuer Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee, or execute any trust or power conferred on the Debenture
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Trustee with respect to the Exchange Junior Subordinated Debentures, (ii) waive
certain past defaults under the Indenture, (iii) exercise any right to rescind
or annul a declaration of acceleration of the maturity of the principal of the
Exchange Junior Subordinated Debentures or (iv) consent to any amendment,
modification or termination of the Indenture or the Exchange Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of a majority in Liquidation Amount
of all outstanding Capital Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Exchange Junior
Subordinated Debentures affected thereby, no such consent shall be given by the
Property Trustee without the prior approval of each holder of the Exchange
Capital Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Exchange Capital
Securities except by subsequent vote of such holders. The Property Trustee shall
notify each holder of Exchange Capital Securities of any notice of default it
receives with respect to the Exchange Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of such holders of the Exchange
Capital Securities, prior to taking any of the foregoing actions, the Issuer
Trustees shall obtain an opinion of counsel experienced in such matters to the
effect that the Trust will continue to be classified as a grantor trust, and not
as an association taxable as a corporation, for U.S. federal income tax purposes
on account of such action.
Any required approval of holders of Exchange Capital Securities may be
given at a meeting of such holders convened for such purpose or pursuant to
written consent. The Property Trustee will cause a notice of any meeting at
which holders of Exchange Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each holder of record of Exchange Capital Securities in the manner
set forth in the Trust Agreement.
No vote or consent of the holders of Exchange Capital Securities will
be required for the Trust to redeem and cancel the Exchange Capital Securities
in accordance with the Trust Agreement.
Notwithstanding that holders of the Exchange Capital Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Exchange Capital Securities that are owned by the Corporation or any
affiliate of the Corporation shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
The Exchange Capital Securities initially will be represented by one or
more Exchange Capital Securities in registered, global form (collectively, the
"Global Capital Securities"). The Global Capital Securities will be deposited
upon issuance with the Property Trustee as custodian for DTC, in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described herein.
In the event that Exchange Capital Securities are issued in
certificated form, the Exchange Capital Securities will be in blocks having a
Liquidation Amount of not less than $100,000 (100 Exchange Capital Securities)
and may be transferred or exchanged on in such blocks in the manner described
herein.
Except as set forth herein, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee and only in amounts that would not cause a
holder to own less than 100 Exchange Capital Securities. Beneficial interests in
the Global Capital Securities may not be exchanged for Exchange Capital
Securities in certificated form except in the limited circumstances described
herein. See "--Exchange of Book-Entry Capital Securities for Certificated
Capital Securities."
DEPOSITORY PROCEDURES
DTC has advised the Trust and the Corporation that DTC is a
limited-purpose trust company organized under the laws of the state of New York,
a member of the Federal Reserve System, a "clearing
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corporation" within the meaning of the Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Corporation that, pursuant to
procedures established by it, (i) upon deposit of the Global Capital Securities,
DTC will credit the accounts of Participants designated by the Initial Purchaser
with portions of the principal amount of the Global Capital Securities and (ii)
ownership of such interests in the Global Capital Securities will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Capital Securities).
Investors in the Global Capital Securities may hold their interests
therein directly through DTC if they are Participants, or indirectly through
organizations that are Participants. All interests in a Global Capital Security
will be subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in certificated form
of securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Capital Security to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Capital Security to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Exchange Capital Securities, see
"--Exchange of Book-Entry Capital Securities for Certificated Capital
Securities."
EXCEPT AS DESCRIBED HEREIN, OWNERS OF INTERESTS IN THE GLOBAL CAPITAL
SECURITIES WILL NOT HAVE EXCHANGE CAPITAL SECURITIES REGISTERED IN THEIR NAMES,
WILL NOT RECEIVE PHYSICAL DELIVERY OF EXCHANGE CAPITAL SECURITIES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS
THEREOF UNDER THE TRUST AGREEMENT FOR ANY PURPOSE.
Payments in respect of the Global Capital Security registered in the
name of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the Exchange Capital Securities, including the Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to, or payments made on account of, beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Trust and the Corporation that its current practice, upon receipt of
any payment in respect of securities such as the Exchange Capital Securities, is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in
Liquidation Amount of beneficial interests in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive payment
on such payment date. Payments by the Participants and the Indirect Participants
to the beneficial owners of Exchange Capital
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Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Property Trustee, the Trust or the
Corporation. None of the Trust, the Corporation or the Property Trustee will be
liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Exchange Capital Securities, and the Trust, the
Corporation and the Property Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Secondary market trading activity in interests in the Global Capital
Securities will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its Participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will settle in same-day funds.
DTC has advised the Trust and the Corporation that it will take any
action permitted to be taken by a holder of Exchange Capital Securities
(including, without limitation, the presentation of Exchange Capital Securities
for exchange as described herein) only at the direction of one or more
Participants to whose account with DTC interests in the Global Capital
Securities are credited and only in respect of such portion of the aggregate
Liquidation Amount of the Exchange Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Trust Agreement, DTC reserves the right to
exchange the Global Capital Securities for legended Exchange Capital Securities
in certificated form and to distribute such Exchange Capital Securities to its
Participants.
So long as DTC or its nominee is the registered owner of the Global
Capital Securities, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Exchange Capital Securities represented by the
Global Capital Security for all purposes under the Trust Agreement.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Capital Securities among Participants in
DTC, it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Trust, the Corporation or the Property Trustee will have any responsibility for
the performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing its operations.
The information in this section concerning DTC and its book-entry
system has been obtained from sources that the Trust and the Corporation believe
to be reliable, but neither the Trust nor the Corporation takes responsibility
for the accuracy thereof.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES
A Global Capital Security is exchangeable for Exchange Capital
Securities in registered certificated form if (i) DTC (a) notifies the Trust
that it is unwilling or unable to continue as Depository for the Global Capital
Security or (b) has ceased to be a clearing agency registered under the Exchange
Act, and the Trust thereupon fails to appoint a successor Depository within 90
days, (ii) the Trust in its sole discretion elects to cause the issuance of the
Exchange Capital Securities in certificated form or (iii) there shall have
occurred and be continuing an Event of Default or any event which after notice
or lapse of time or both would be an Event of Default under the Trust Agreement.
In addition, beneficial interests in a Global Capital Security may be exchanged
by or on behalf of DTC for certificated Exchange Capital Securities upon request
by DTC, but only upon at least 20 days' prior written notice given to the
Property Trustee in accordance with DTC's customary procedures. In all cases,
certificated Exchange Capital Securities delivered in exchange for any Global
Capital Security or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the Depository (in accordance with its customary procedures).
PAYMENT AND PAYING AGENCY
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Payments in respect of the Exchange Capital Securities held in global
form shall be made to the Depository, which shall credit the relevant accounts
at the Depository on the applicable Distribution Dates or in respect of the
Exchange Capital Securities that are not held by the Depository, such payments
shall be made by check mailed to the address of the holder entitled thereto as
such address shall appear on the register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and shall include any co-paying agent
chosen by the Property Trustee that is acceptable to the Administrative Trustees
and the Corporation. The Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee, the Administrative
Trustees and the Corporation. In the event that the Property Trustee shall no
longer be the Paying Agent, the Administrative Trustees shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Corporation) to act as Paying Agent.
RESTRICTIONS ON TRANSFER
The Exchange Capital Securities will be issued, and may be transferred,
only in blocks having a Liquidation Amount of not less than $100,000 (100
Exchange Capital Securities) and multiples of $1,000 in excess thereof. Any
attempted sale, transfer or other disposition of Exchange Capital Securities in
a block having a Liquidation Amount of less than $100,000 shall be deemed to be
void and of no legal effect whatsoever. Any such transferee shall be deemed not
to be the holder of such Exchange Capital Securities for any purpose, including
but not limited to the receipt of Distributions on such Exchange Capital
Securities, and such transferee shall be deemed to have no interest whatsoever
in such Exchange Capital Securities.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Exchange Capital Securities.
Registration of transfers of the Exchange Capital Securities will be
effected without charge by or on behalf of the Trust, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Trust will not be required to register or cause to be
registered the transfer of the Exchange Capital Securities after they have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance
of an Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, during the existence of an
Event of Default, must exercise the same degree of care and skill as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs. Subject to this provision, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Agreement at
the request of any holder of Trust Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby. If no Event of Default has occurred and is continuing and the Property
Trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the Trust Agreement or is unsure of the application of
any provision of the Trust Agreement, and the matter is not one on which holders
of the Exchange Capital Securities or the Common Securities are entitled under
the Trust Agreement to vote, then the Property Trustee shall take such action as
is directed by the Corporation and, if not so directed, shall take such action
as it deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith, negligence
or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that (i) the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act, (ii) the Trust will be classified as a grantor trust for
United States federal income tax purposes and (iii) the Exchange Junior
Subordinated Debentures will be treated as indebtedness of the Corporation for
United States federal income tax purposes. In this
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connection, the Corporation and the Administrative Trustees are authorized to
take any action, not inconsistent with applicable law or the Trust Agreement,
that the Administrative Trustees determine in their discretion to be necessary
or desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Trust Securities.
The Trust Agreement provides that (i) holders of the Trust Securities
have no preemptive or similar rights to subscribe for any additional Trust
Securities, and (ii) the issuance of Exchange Capital Securities and the
issuance of Common Securities are not subject to preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge
any of its assets.
DESCRIPTION OF EXCHANGE JUNIOR SUBORDINATED DEBENTURES
The Original Junior Subordinated Debentures were issued and the
Exchange Junior Subordinated Debentures will be issued under the Indenture. The
Indenture has been qualified under the Trust Indenture Act. This summary of
certain terms and provisions of the Exchange Junior Subordinated Debentures and
the Indenture does not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, some of which are not otherwise defined herein,
are qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act.
GENERAL
Concurrently with the issuance of the Original Capital Securities, the
Trust invested the proceeds thereof, together with the consideration paid by the
Corporation for the Common Securities, in Original Junior Subordinated
Debentures issued by the Corporation. The Exchange Junior Subordinated
Debentures, similarly to the Original Junior Subordinated Debentures, will bear
interest at the annual rate of 11.00% of the principal amount thereof, payable
semi-annually in arrears on June 1 and December 1 of each year (each, an
"Interest Payment Date"), commencing June 1, 1998, to the person in whose name
each Exchange Junior Subordinated Debenture is registered, subject to certain
exceptions, at the close of business on the 15th day of the month preceding the
month in which the relevant payment date falls. It is anticipated that, until
the liquidation, if any, of the Trust, each Exchange Junior Subordinated
Debenture will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Trust Securities. The amount of interest payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the Exchange
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), with the same force and effect as if made on such date. Accrued interest
that is not paid on the applicable Interest Payment Date will bear additional
interest on the amount thereof (to the extent permitted by law) at the rate per
annum of 11.00% thereof, compounded semi-annually. The term "interest," as used
herein, shall include semi-annual interest payments, interest on semi-annual
interest payments not paid on the applicable Interest Payment Date and
Additional Sums, as applicable.
The Exchange Junior Subordinated Debentures will be issued pursuant to
the Indenture. The Exchange Junior Subordinated Debentures will mature on June
1, 2027 (the "Stated Maturity Date").
The Exchange Junior Subordinated Debentures will be unsecured and will
rank pari passu with the Original Junior Subordinated Debentures and all Other
Debentures and subordinate and junior in right of payment to all Senior
Indebtedness to the extent and in the manner set forth in the Indenture. See
"--Subordination." At September 30, 1997 the Corporation had $29.6 million face
amount of Senior Indebtedness outstanding. In addition to outstanding Senior
Indebtedness, the Corporation also had outstanding at September 30, 1997 $16.2
million face amount of 4.0% cumulative preferred stock. The terms of the Senior
Indebtedness and the cumulative preferred stock include various covenants and
other
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restrictions, including significant financial penalties, upon default of payment
of interest or dividends, as applicable. Under such a default circumstance,
these restrictions may have a material impact on the ability of the Corporation
to satisfy its obligations with respect to the Capital Securities. At September
30, 1997, the annual interest expense to service the Senior Indebtedness was
$3.3 million and the annual dividend requirement on the cumulative preferred
stock was $648,000.
As a holding company, the Corporation's operations are conducted
primarily by its subsidiaries, TeleBank and TCM. Presently, dividends from the
Bank are the primary source of funds for the Corporation. There are regulatory
limitations on the payment of dividends to the Corporation from the Bank, and
federally chartered, FDIC insured savings banks generally are required to
provide their Regional Director of the OTS with no less than 30 days notice of
any proposed dividend. At September 30, 1997 the Bank had approximately $14.1
million available under OTS regulations for payment of dividends to the
Corporation. However, the OTS can prohibit payment of any or all such dividends
under certain circumstances, including if such payment would constitute an
unsafe or unsound banking practice. In addition to restrictions on the payment
of dividends, the Bank is subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Corporation
and certain other affiliates, and on investments in stock or other securities.
Such restrictions prevent the Bank from lending to the Corporation and such
other affiliates unless the loans are secured by various types of collateral.
Further, such secured loans, other transactions and investments by the Bank are
generally limited in amount as to the Corporation and each of such other
affiliates to 10% of the Bank's capital and surplus and as to the Corporation
and all of such other affiliates to an aggregate of 20% of the Bank's capital
and surplus.
Under terms of the indentures pursuant to which the Senior Indebtedness
was issued, the Corporation presently is required to maintain, on an
unconsolidated basis, liquid assets in an amount equal to or greater than $3.3
million, which represents 100% of the aggregate annual interest expense on the
Senior Indebtedness.
Further, as a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution)
is subject to the prior claims of creditors of such subsidiary (including
depositors in the Bank), except to the extent that the Corporation may itself be
recognized as a creditor of that subsidiary. Therefore, the Exchange Junior
Subordinated Debentures effectively will be subordinated to all existing and
future liabilities of the Corporation's subsidiaries (including deposit
liabilities of the Bank). As a result, holders of Exchange Junior Subordinated
Debentures should look only to the assets of the Corporation for payments on the
Exchange Junior Subordinated Debentures. At September 30, 1997, the
Corporation's subsidiaries had total liabilities (excluding liabilities owed to
the Corporation) of $457.2 million.
The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Corporation or any subsidiary, including Senior
Indebtedness. See "--Subordination." The Corporation expects from time to time
that it will incur additional indebtedness constituting Senior Indebtedness and
that its subsidiaries will incur additional liabilities.
FORM, REGISTRATION AND TRANSFER
If the Exchange Junior Subordinated Debentures are distributed to the
holders of the Trust Securities, the Exchange Junior Subordinated Debentures may
be represented by one or more global certificates registered in the name of Cede
& Co., as the nominee of DTC. The depository arrangements for such Exchange
Junior Subordinated Debentures are expected to be substantially similar to those
in effect for the Exchange Capital Securities. For a description of DTC and the
terms of the depository arrangements relating to payments, transfers, voting
rights, redemptions and other notices and other matters, see "--Description of
Exchange Capital Securities--Form, Denomination, Book-Entry Procedures and
Transfer."
PAYMENT AND PAYING AGENTS
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Payment of principal of (and premium, if any) and interest on Exchange
Junior Subordinated Debentures will be made at the office of the Debenture
Trustee in Wilmington, Delaware or at the office of such Paying Agent or Paying
Agents as the Corporation may designate from time to time, except that at the
option of the Corporation payment of any interest may be made, except in the
case of Exchange Junior Subordinated Debentures in global form, (i) by check
mailed to the address of the Person entitled thereto as such address shall
appear in the register for Exchange Junior Subordinated Debentures or (ii) by
transfer to an account maintained by the Person entitled thereto as specified in
such register, provided that proper transfer instructions have been received by
the relevant Record Date. Payment of any interest on any Exchange Junior
Subordinated Debenture will be made to the Person in whose name such Exchange
Junior Subordinated Debenture is registered at the close of business on the
Record Date for such interest, except in the case of defaulted interest. The
Corporation may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent; provided, however, the Corporation will at all
times be required to maintain a Paying Agent in each place of payment for the
Exchange Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Corporation in trust, for the payment of the principal of (and
premium, if any) or interest on any Exchange Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable shall, at the request of the Corporation, be
repaid to the Corporation and the holder of such Exchange Junior Subordinated
Debenture shall thereafter look, as a general unsecured creditor, only to the
Corporation for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is
continuing, the Corporation has the right under the Indenture to defer the
payment of interest on the Exchange Junior Subordinated Debentures at any time
and 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
shall end on a date other than an Interest Payment Date or extend beyond the
Stated Maturity Date. At the end of such Extension Period, the Corporation must
pay all interest then accrued and unpaid (together with interest thereon at the
annual rate of 11.00%, compounded semi-annually, to the extent permitted by
applicable law ("Compounded Interest")). During an Extension Period, interest
will continue to accrue and holders of Exchange Junior Subordinated Debentures
(or holders of the Trust Securities while Trust Securities are outstanding) will
be required to accrue such deferred interest income for U.S. federal income tax
purposes prior to the receipt of cash attributable to such income. See "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Corporation may not (i) declare
or pay any dividends or distributions on, or redeem, purchase, acquire, or make
a liquidation payment with respect to, any of the Corporation's capital stock,
(ii) make any payment of principal of, premium, if any, or interest on or repay,
repurchase or redeem any debt securities of the Corporation (including any Other
Debentures) that rank pari passu with or junior in right of payment to the
Exchange Junior Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Corporation of the debt securities of any
subsidiary of the Corporation (including any Other Guarantees) if such guarantee
ranks pari passu with or junior in right of payment to the Exchange Junior
Subordinated Debentures (other than (a) dividends or distributions in shares of,
or options, warrants or rights to subscribe for or purchase shares of, common
stock of the Corporation, (b) any declaration of a dividend in connection with
the implementation of a stockholders' rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Exchange Guarantee, (d) the
purchase of fractional shares resulting from a reclassification of the
Corporation's capital stock, (e) the purchase of fractional interests in shares
of the Corporation's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged
and (f) purchases of common stock of the Corporation related to the issuance of
such common stock or rights under any of the Corporation's benefit plans for its
directors, officers or employees or any of the Corporation's dividend
reinvestment plans).
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Prior to the termination of any such Extension Period, the Corporation
may further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods, end on
a date other than an Interest Payment Date or extend beyond the Stated Maturity
Date. Upon the termination of any such Extension Period and the payment of all
amounts then due on any Interest Payment Date, the Corporation 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 Corporation must give the Property Trustee, the Administrative Trustees and
the Debenture Trustee notice of its election of any Extension Period (or an
extension thereof) at least five Business Days prior to the earlier of (i) the
date the Distributions on the Trust Securities would have been payable except
for the election to begin or extend such Extension Period or (ii) the date the
Trust is required to give notice to any automated quotation system or to holders
of Exchange Capital Securities of the record date or the date such Distributions
are payable, but in any event not less than five Business Days prior to such
record date. The Debenture Trustee shall give notice of the Corporation's
election to begin or extend a new Extension Period to the holders of the
Exchange Capital Securities. There is no limitation on the number of times that
the Corporation may elect to begin an Extension Period.
OPTIONAL PREPAYMENT
The Exchange Junior Subordinated Debentures will be prepayable, in
whole or in part, at the option of the Corporation on or after the Initial
Optional Redemption Date, subject to the Corporation having received any
required regulatory approvals, at a prepayment price (as previously defined, the
"Optional Prepayment Price") equal to the percentage of the outstanding
principal amount of the Exchange Junior Subordinated Debentures specified below,
plus, in each case, accrued and unpaid interest thereon, including Compounded
Interest and Additional Sums, if any, to the date of prepayment if prepaid
during the 12-month period beginning June 1 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2007 105.500%
2008 104.950%
2009 104.440%
2010 103.850%
2011 103.300%
2012 102.750%
2013 102.200%
2014 101.650%
2015 101.100%
2016 100.550%
2017 and thereafter.................................. 100.0%
SPECIAL EVENT PREPAYMENT
Prior to the Initial Optional Repayment Date, if a Special Event shall
occur and be continuing, the Corporation may, at its option and subject to
receipt of any required regulatory approvals, prepay the Exchange Junior
Subordinated Debentures in whole (but not in part) at any time within 90 days of
the occurrence of such Special Event, at a prepayment price (the "Special Event
Prepayment Price") equal to the Make-Whole Amount. The "Make-Whole Amount" shall
be equal to the greater of (x) 100% of the principal amount thereof or (y) the
sum, as determined by a Quotation Agent (as defined herein), of the present
values of the remaining scheduled payments of principal and interest on the
Exchange Junior Subordinated Debentures, discounted to the prepayment date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Adjusted Treasury Rate, plus,
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in the case of each of clauses (x) and (y), accrued and unpaid interest thereon,
including Compounded Interest and Additional Sums, if any, to the date of
prepayment.
A "Special Event" means a Tax Event or a Regulatory Capital Event, as
the case may be.
A "Tax Event" means the receipt by the Trust and the Corporation of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after June 9, 1997, there is
more than an insubstantial risk that (i) the Trust is, or will be within 90 days
of the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Exchange Junior Subordinated
Debentures, (ii) interest payable by the Corporation on the Exchange Junior
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Corporation, in whole or in part, for U.S.
federal income tax purposes or (iii) the Trust is, or will be within 90 days of
the date of such opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
A "Regulatory Capital Event" means the receipt by the Corporation and
the Trust of an opinion of independent bank regulatory counsel experienced in
such matters to the effect that the Corporation is subject to the Holding
Company Capital Rules and is not entitled to treat the Capital Securities as
Tier 1 capital (or its then equivalent) thereunder; provided, however, that the
distribution of the Exchange Junior Subordinated Debentures in connection with
the liquidation of the Trust by the Corporation shall not in and of itself
constitute a Regulatory Capital Event unless such liquidation shall have
occurred in connection with a Tax Event.
"Adjusted Treasury Rate" means, with respect to any prepayment date,
the rate per annum equal to (i) the yield, under the heading which represents
the average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15 (519)" or any successor
publication which is published weekly by the Federal Reserve Board and which
establishes yields on actively traded United States Treasury securities adjusted
to constant maturity under the caption "Treasury Constant Maturities," for the
maturity corresponding to the Remaining Life (if no maturity is within three
months before or after the maturity corresponding to the Remaining Life, yields
for the two published maturities most closely corresponding to the Remaining
Life shall be determined, and the Adjusted 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 Price for such prepayment date, in each case calculated on
the third Business Day preceding the prepayment date, plus in each case (a)
4.100% if such prepayment date occurs on or prior to June 1, 1998 and (b) 3.550%
in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the Remaining
Life of the Exchange Junior Subordinated Debentures 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 of the Exchange Junior Subordinated Debentures, provided that if
no United States Treasury security has a maturity which is within a period from
three months before to three months after the Remaining Life, the two most
closely corresponding United States Treasury securities shall be used as the
Comparable Treasury Issue, and the Adjusted Treasury Rate shall be interpolated
or extrapolated on a straight-line basis, rounding to the nearest month, using
such securities.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Corporation. "Reference Treasury Dealer" means a nationally-recognized U.S.
government securities dealer in New York, New York selected by the Corporation.
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"Comparable Treasury Price" means, with respect to any prepayment date,
(i) the average of three Reference Treasury Dealer Quotations for such
prepayment date, after excluding the highest and lowest Reference Treasury
Dealer Quotations, or (ii) if the Debenture Trustee obtains fewer than five
Reference Treasury Dealer Quotations, the average of all such Reference Treasury
Dealer Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
"Remaining Life" means the term of the Exchange Junior Subordinated
Debentures from the prepayment date to the Stated Maturity Date.
Notice of any prepayment will be mailed not less than 30 days but not
more than 60 days before the prepayment date to each holder of Exchange Junior
Subordinated Debentures to be prepaid at its registered address. Unless the
Corporation defaults in payment of the Prepayment Price, on and after the
prepayment date interest ceases to accrue on such Exchange Junior Subordinated
Debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Corporation will pay as
additional amounts on the Exchange Junior Subordinated Debentures such amounts
as shall be necessary in order that the amount of Distributions then due and
payable by the Trust on the outstanding Trust Securities shall not be reduced as
a result of any additional taxes, duties and other governmental charges to which
the Trust has become subject as a result of a Tax Event ("Additional Sums").
CERTAIN COVENANTS OF THE CORPORATION
The Corporation will also covenant that it will not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock,
(ii) make any payment of principal of, premium, if any, or interest on or repay,
repurchase or redeem any debt securities of the Corporation (including Other
Debentures) that rank pari passu with or junior in right of payment to the
Exchange Junior Subordinated Debentures or (iii) make any guarantee payments
with respect to any guarantee by the Corporation of the debt securities of any
subsidiary of the Corporation (including under other Guarantee) if such
guarantee ranks pari passu with or junior in right of payment to the Exchange
Junior Subordinated Debentures (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, common stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Exchange
Guarantee, (d) the purchase of fractional shares resulting from a
reclassification of the Corporation's capital stock, (e) the purchase of
fractional interests in shares of the Corporation's capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged and (f) purchases of common stock of the
Corporation related to the issuance of such common stock or rights under any of
the Corporation's benefit plans for its directors, officers or employees or any
of the Corporation's dividend reinvestment plans), if at such time (1) there
shall have occurred any event of which the Corporation has actual knowledge that
(A) is, or, with the giving of notice or the lapse of time, or both, would
constitute, a Debenture Event of Default and (B) in respect of which the
Corporation shall not have taken reasonable steps to cure, (2) if such Exchange
Junior Subordinated Debentures are held by the Trust, the Corporation shall be
in default with respect to its payment obligations under the Exchange Guarantee
or (3) the Corporation shall have given notice of its election of its right to
commence an Extension Period as provided in the Indenture and such Extension
Period, or any extension thereof, shall have commenced and be continuing.
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So long as the Trust Securities remain outstanding, the Corporation
also will covenant (i) to maintain 100% direct or indirect ownership of the
Common Securities, provided, however, that any permitted successor of the
Corporation under the Indenture may succeed to the Corporation's ownership of
such Common Securities, (ii) to use commercially reasonable efforts to cause the
Trust (a) to remain a business trust, except in connection with the distribution
of Exchange Junior Subordinated Debentures to the holders of Trust Securities in
liquidation of the Trust, the prepayment of all the Trust Securities of the
Trust, or certain mergers, consolidations or amalgamations, each as permitted by
the Trust Agreement, and (b) to otherwise continue to be classified as a grantor
trust for U.S. federal income tax purposes, and (iii) not to cause, as sponsor
of the Trust, or to permit, as Holder of the Common Securities, the dissolution,
winding-up or termination of the Trust, except in connection with a distribution
of the Exchange Junior Subordinated Debentures as provided in the Trust
Agreement and in connection with certain mergers, consolidations or
amalgamations.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may,
without the consent of the holders of Exchange Junior Subordinated Debentures,
amend, waive or supplement the Indenture for specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies, or enabling
the Corporation and the Trust to conduct an Exchange Offer as contemplated by
the Registration Rights Agreement, provided that any such action does not
materially adversely affect the interest of the holders of Exchange Junior
Subordinated Debentures, and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Corporation and the Debenture Trustee, with the consent of the
holders of a majority in principal amount of Exchange Junior Subordinated
Debentures, to modify the Indenture in a manner affecting the rights of the
holders of Exchange Junior Subordinated Debentures; provided that no such
modification may, without the consent of the holders of each outstanding
Exchange Junior Subordinated Debenture so affected, (i) change the Stated
Maturity Date, or reduce the principal amount of the Exchange Junior
Subordinated Debentures or reduce the amount payable on redemption thereof or
reduce the rate or extend the time of payment of interest thereon except
pursuant to the Corporation's right under the Indenture to defer the payment of
interest as provided therein (see "--Option to Extend Interest Payment Date"),
or change any of the prepayment provisions or make the principal of, or interest
or premium on, the Exchange Junior Subordinated Debentures payable in any coin
or currency other than that provided in the Exchange Junior Subordinated
Debentures, or impair or affect the right of any holder of Exchange Junior
Subordinated Debentures to institute suit for the payment thereof, or (ii)
reduce the percentage of principal amount of Exchange Junior Subordinated
Debentures, the holders of which are required to consent to any such
modification of the Indenture.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Exchange Junior Subordinated Debentures constitutes a
"Debenture Event of Default" (whatever the reason for such Debenture Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure for 30 days to pay any interest (including Compounded
Interest and Additional Sums, if any) or Liquidated Damages, if any, on the
Exchange Junior Subordinated Debentures or any Other Debentures, when due
(subject to the deferral of any due date in the case of an Extension Period
in respect of the Junior Subordinated Debentures or Other Debentures, as
the case may be); or
(ii) failure to pay any principal or premium, if any, on the Exchange
Junior Subordinated Debentures or any Other Debentures when due whether at
maturity, upon prepayment, by declaration of acceleration of maturity or
otherwise; or
(iii) failure to observe or perform any other agreement or covenant
contained in the Indenture for 90 days after written notice to the
Corporation from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of Exchange Junior Subordinated
Debentures; or
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(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of
the Exchange Junior Subordinated Debentures have, subject to certain exceptions,
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Debenture Trustee. The Debenture Trustee or the
holders of not less than 25% in aggregate outstanding principal amount of the
Exchange Junior Subordinated Debentures may declare the principal due and
payable immediately upon a Debenture Event of Default. The holders of a majority
in aggregate outstanding principal amount of the Exchange Junior Subordinated
Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of the Exchange Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of
the Exchange Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Exchange Junior Subordinated Debentures, waive any past
default, except a default in the payment of principal thereof (or premium, if
any) or interest thereon (unless such default has been cured and a sum
sufficient to pay all matured installments of interest (and premium, if any) and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee), or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Exchange Junior Subordinated Debenture.
The Indenture requires the annual filing by the Corporation with the
Debenture Trustee of a certificate as to the absence of certain defaults under
the Indenture.
The Indenture provides that the Debenture Trustee may withhold notice
of a Debenture Event of Default from the holders of the Exchange Junior
Subordinated Debentures if the Debenture Trustee considers it in the interest of
such holders to do so.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF EXCHANGE CAPITAL SECURITIES
If a Debenture Event of Default shall have occurred and be continuing
and shall be attributable to the failure of the Corporation to pay the principal
of (or premium, if any), or interest (including Compounded Interest and
Additional Sums, if any) or Liquidated Damages, if any, on the Exchange Junior
Subordinated Debentures on the due date, a holder of Exchange Capital Securities
may institute a Direct Action. The Corporation may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior written
consent of the holders of all of the Exchange Capital Securities.
Notwithstanding any payments made to a holder of Exchange Capital Securities by
the Corporation in connection with a Direct Action, the Corporation shall remain
obligated to pay the principal of (and premium, if any) and interest (including
Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any,
on the Exchange Junior Subordinated Debentures, and the Corporation shall be
subrogated to the rights of the holder of such Exchange Capital Securities with
respect to payments on the Exchange Capital Securities to the extent of any
payments made by the Corporation to such holder in any Direct Action.
The holders of the Exchange Capital Securities will not be able to
exercise directly any remedies, other than those set forth in the preceding
paragraph, available to the holders of the Exchange Junior Subordinated
Debentures unless there shall have been an Event of Default under the Trust
Agreement. See "--Description of Exchange Capital Securities --Events of
Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Corporation shall not consolidate with
or merge into any other Person or convey, transfer or lease its properties as an
entirety or substantially as an entirety to any
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Person, and no Person shall consolidate with or merge into the Corporation or
convey, transfer or lease its properties as an entirety or substantially as an
entirety to the Corporation, unless: (i) in case the Corporation consolidates
with or merges into another Person or conveys or transfers its properties
substantially as an entirety to any Person, the successor Person is organized
under the laws of the United States or any state or the District of Columbia,
and such successor Person expressly assumes the Corporation's obligations on the
Exchange Junior Subordinated Debentures; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
occurred and be continuing; and (iii) certain other conditions as prescribed in
the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Exchange Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Corporation that may adversely
affect holders of the Exchange Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Exchange
Junior Subordinated Debentures not previously delivered to the Debenture Trustee
for cancellation (i) have become due and payable or (ii) will become due and
payable at maturity or called for prepayment within one year, and the
Corporation deposits or causes to be deposited with the Debenture Trustee funds,
in trust, for the purpose and in an amount sufficient to pay and discharge the
entire indebtedness on the Exchange Junior Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation, for the
principal (and premium, if any) and interest to the date of the deposit or to
the Stated Maturity Date, as the case may be, then the Indenture will cease to
be of further effect (except as to the Corporation's obligations to pay all
other sums due pursuant to the Indenture and to provide the officers'
certificates and opinions of counsel described therein), and the Corporation
will be deemed to have satisfied and discharged the Indenture.
SUBORDINATION
In the Indenture, the Corporation has covenanted and agreed that the
payment by the Corporation of the principal of, premium, if any, and interest
(including Compounded Interest and Additional Sums, if any) on all Exchange
Junior Subordinated Debentures issued thereunder will be subordinate and junior
in right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness must be paid in full before the holders of Exchange Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of the Exchange Junior
Subordinated Debentures, the holders of all Senior Indebtedness outstanding at
the time of such acceleration will first be entitled to receive payment in full
of such Senior Indebtedness before the holders of the Exchange Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the Exchange Junior Subordinated Debentures.
No payments on account of principal (or premium, if any) or interest,
if any, in respect of the Exchange Junior Subordinated Debentures may be made if
there shall have occurred and be continuing a default in any payment with
respect to Senior Indebtedness, or an event of default with respect to any
Senior Indebtedness resulting in the acceleration of the maturity thereof, or if
any judicial proceeding shall be pending with respect to any such default.
"Indebtedness" shall mean (i) every obligation of the Corporation for
money borrowed; (ii) every obligation of the Corporation evidenced by bonds,
debentures, notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or businesses; (iii)
every reimbursement obligation of the Corporation with respect to letters of
credit, banker's acceptances or similar facilities issued for the account of the
Corporation; (iv) every obligation of the
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Corporation issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities arising in
the ordinary course of business); (v) every capital lease obligation of the
Corporation; (vi) all indebtedness of the Corporation whether incurred on or
prior to the date of the Indenture or thereafter incurred, for claims in respect
of derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; and
(vii) every obligation of the type referred to in clauses (i) through (vi) of
another Person and all dividends of another Person the payment of which, in
either case, the Corporation has guaranteed or is responsible or liable for,
directly or indirectly, as obligor or otherwise.
"Indebtedness Ranking on a Parity with the Exchange Junior Subordinated
Debentures" shall mean (i) Indebtedness, whether outstanding on the date of
execution of the Indenture or thereafter created, assumed or incurred, to the
extent such indebtedness specifically by its terms ranks pari passu with and not
prior to the Exchange Junior Subordinated Debentures in the right of payment
upon the happening of the dissolution or winding-up or liquidation or
reorganization of the Corporation and (ii) all other debt securities, and
guarantees in respect of those debt securities, issued to any other trust, or a
trustee of such trust, partnership or other entity affiliated with the
Corporation that is a financing vehicle of the Corporation (a "financing
entity") in connection with the issuance by such financing entity of equity
securities or other securities guaranteed by the Corporation pursuant to an
instrument that ranks pari passu with or junior in right of payment to the
Guarantee. The securing of any Indebtedness, otherwise constituting Indebtedness
Ranking on a Parity with the Exchange Junior Subordinated Debentures, shall not
be deemed to prevent such Indebtedness from constituting Indebtedness Ranking on
a Parity with the Exchange Junior Subordinated Debentures.
"Indebtedness Ranking Junior to the Exchange Junior Subordinated
Debentures" shall mean any Indebtedness, whether outstanding on the date of
execution of the Indenture or thereafter created, assumed or incurred, to the
extent such indebtedness by its terms ranks junior to and not pari passu with or
prior to the Exchange Junior Subordinated Debentures (and any other Indebtedness
Ranking on a Parity with the Exchange Junior Subordinated Debentures) in right
of payment upon the happening of the dissolution or winding-up or liquidation or
reorganization of the Corporation. The securing of any Indebtedness, otherwise
constituting Indebtedness Ranking Junior to the Exchange Junior Subordinated
Debentures, shall not be deemed to prevent such Indebtedness from constituting
Indebtedness Ranking Junior to the Exchange Junior Subordinated Debentures.
"Senior Indebtedness" shall mean all Indebtedness, whether outstanding
on the date of execution of the Indenture or thereafter created, assumed or
incurred, except Indebtedness Ranking on a Parity with the Exchange Junior
Subordinated Debentures or Indebtedness Ranking Junior to the Exchange Junior
Subordinated Debentures, and any deferrals, renewals or extensions of such
Senior Indebtedness.
At September 30, 1997, the Corporation had $29.6 million face amount of
Senior Indebtedness outstanding. In addition to outstanding Senior Indebtedness,
the Corporation also had outstanding at September 30, 1997 $16.2 million face
amount of 4.0% cumulative preferred stock. The terms of the Senior Indebtedness
and the cumulative preferred stock include various covenants and other
restrictions, including significant financial penalties upon default of payment
of interest or dividends, as applicable. Under such a default circumstance,
these restrictions may have a material impact on the ability of the Corporation
to satisfy its obligations with respect to the Capital Securities. At September
30, 1997, the annual interest expense to service the Senior Indebtedness was
$3.3 million and the annual dividend requirement on the cumulative preferred
stock was $648,000.
As a holding company, the Corporation's operations are conducted
primarily by its subsidiaries, TeleBank and TCM. Presently, dividends from the
Bank are the primary source of funds for the Corporation. There are regulatory
limitations on the payment of dividends to the Corporation from the Bank, and
federally chartered, FDIC insured savings banks generally are required to
provide their Regional Director of the OTS with no less than 30 days notice of
any proposed dividend. At September 30, 1997, the Bank had approximately $14.1
million available under OTS regulations for payment of dividends to the
Corporation. However, the OTS can prohibit payment of any or all such dividends
under certain circumstances, including if such payment would constitute an
unsafe or unsound banking practice.
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In addition to restrictions on the payment of dividends, the Bank is subject to
restrictions imposed by federal law on extensions of credit to, and certain
other transactions with, the Corporation and certain other affiliates, and on
investments in stock or other securities. Such restrictions prevent the Bank
from lending to the Corporation and such other affiliates unless the loans are
secured by various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in amount as to
the Corporation and each of such other affiliates to 10% of the Bank's capital
and surplus and as to the Corporation and all of such other affiliates to an
aggregate of 20% of the Bank's capital and surplus.
Under terms of the indentures pursuant to which the Senior Indebtedness
was issued, the Corporation presently is required to maintain, on an
unconsolidated basis, liquid assets in an amount equal to or greater than $3.3
million, which represents 100% of the aggregate annual interest expense on the
Senior Indebtedness.
Further, as a holding company, the right of the Corporation to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise (and thus the ability of
holders of the Capital Securities to benefit indirectly from such distribution)
is subject to the prior claims of creditors of such subsidiary (including
depositors in the Bank), except to the extent that the Corporation may itself be
recognized as a creditor of that subsidiary. Therefore, the Exchange Junior
Subordinated Debentures effectively will be subordinated to all existing and
future liabilities of the Corporation's subsidiaries (including deposit
liabilities of the Bank). As a result, holders of Exchange Junior Subordinated
Debentures should look only to the assets of the Corporation for payments on the
Exchange Junior Subordinated Debentures. At September 30, 1997, the
Corporation's subsidiaries had total liabilities (excluding liabilities owed to
the Corporation) of $457.2 million.
The Indenture does not limit the amount of secured or unsecured debt,
including Senior Indebtedness, that may be incurred by the Corporation or any of
its subsidiaries. See "--Subordination." The Corporation expects from time to
time that it will incur additional indebtedness constituting Senior Indebtedness
and that its subsidiaries will incur additional liabilities.
RESTRICTIONS ON TRANSFER
The Exchange Junior Subordinated Debentures will be issued, and may be
transferred, only in blocks having an aggregate principal amount of not less
than $100,000 (100 Exchange Junior Subordinated Debentures) and multiples of
$1,000 in excess thereof. Any such transfer of Exchange Junior Subordinated
Debentures in a block having an aggregate principal amount of less than $100,000
shall be deemed to be void and of no legal effect whatsoever. Any such
transferee shall be deemed not to be the holder of such Exchange Junior
Subordinated Debentures for any purpose, including but not limited to the
receipt of payments on such Exchange Junior Subordinated Debentures, and such
transferee shall be deemed to have no interest whatsoever in such Exchange
Junior Subordinated Debentures.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Following the Exchange Offer and the qualification of the Indenture
under the Trust Indenture Act, the Debenture Trustee shall have and be subject
to all the duties and responsibilities specified with respect to an indenture
trustee under the Trust Indenture Act. Subject to such provisions, the Debenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Exchange Junior Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Debenture
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Debenture
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
GOVERNING LAW
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The Indenture and the Exchange Junior Subordinated Debentures will be
governed by and construed in accordance with the laws of the state of New York.
DESCRIPTION OF EXCHANGE GUARANTEE
The Exchange Guarantee will be executed and delivered by the
Corporation concurrently with the issuance by the Trust of the Exchange Capital
Securities for the benefit of the holders from time to time of the Exchange
Capital Securities. The terms of the Exchange Guarantee are identical in all
material respects to the terms of the Original Guarantee. Wilmington Trust
Company will act as Guarantee Trustee under the Exchange Guarantee. The Exchange
Guarantee has been qualified under the Trust Indenture Act. This summary of
certain provisions of the Exchange 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 Exchange Guarantee, including the definitions therein of
certain terms, and the Trust Indenture Act. The Guarantee Trustee will hold the
Exchange Guarantee for the benefit of the holders of the Exchange Capital
Securities.
STATUS OF ORIGINAL GUARANTEE
If not all the Original Capital Securities are exchanged for Exchange
Capital Securities in the Exchange Offer, the Original Guarantee will not
terminate, but will continue to guarantee the obligations of the Corporation for
the benefit of the holders of Original Securities. The Original Guarantee will
terminate upon full payment of the applicable Redemption Price of the Original
Capital Securities, upon full payment of the Liquidation Amount payable upon
liquidation of the Trust or upon distribution of Original Junior Subordinated
Debentures to the holders of the Original Capital Securities. The Original
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Original Capital Securities must restore
payment of any sums paid under the Original Capital Securities or the Original
Guarantee.
GENERAL
The Corporation will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments to the holders of
the Exchange Capital Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Trust may have or assert other than
the defense of payment. The following payments with respect to the Exchange
Capital Securities, to the extent not paid by or on behalf of the Trust (the
"Guarantee Payments"), will be subject to the Exchange Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Exchange Capital
Securities, to the extent that the Trust has funds legally available therefor at
such time, (ii) the applicable Redemption Price with respect to the Exchange
Capital Securities called for redemption, to the extent that the Trust has funds
legally available therefor at such time, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust (other than in
connection with the distribution of the Exchange Junior Subordinated Debentures
to holders of the Exchange Capital Securities or the redemption of all Exchange
Capital Securities), the lesser of (a) the Liquidation Distribution, to the
extent the Trust has funds legally available therefor at the time, and (b) the
amount of assets of the Trust remaining available for distribution to holders of
Exchange Capital Securities after satisfaction of liabilities to creditors of
the Trust as required by applicable law. The Corporation's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Corporation to the holders of the Exchange Capital Securities or by causing
the Trust to pay such amounts to such holders.
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The Corporation will, through the Exchange Guarantee, the Trust
Agreement, the Exchange Junior Subordinated Debentures and the Indenture, taken
together, fully, irrevocably and unconditionally guarantee all of the Trust's
obligations under the Exchange Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the Trust's obligations under the Exchange Capital Securities. See
"Relationship Among the Exchange Capital Securities, the Exchange Junior
Subordinated Debentures and the Exchange Guarantee."
STATUS OF THE EXCHANGE GUARANTEE
The Exchange Guarantee will constitute an unsecured obligation of the
Corporation and will rank subordinate and junior in right of payment to all
Senior Indebtedness in the same manner as the Exchange Junior Subordinated
Debentures. See "Description of Exchange Junior Subordinated Debentures -
Subordination." In addition, because the Corporation is a holding company, the
right of the Corporation to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise is
subject to the prior claims of creditors of such subsidiary (including
depositors in the Bank), except to the extent the Corporation may itself be
recognized as a creditor of such subsidiary. Accordingly, the Corporation's
obligations under the Exchange Guarantee effectively will be subordinated to all
existing and future liabilities of the Corporation's present and future
subsidiaries (including deposit liabilities of the Bank). As a result, claimants
should look only to the assets of the Corporation for payment under the Exchange
Guarantee. See "Description of Exchange Junior Subordinated Debentures --
General." The Exchange Guarantee will rank pari passu with all Other Guarantees
issued by the Corporation (if any) issued by Other Trusts.
The Exchange Guarantee does not limit the amount of secured or
unsecured debt, including Senior Indebtedness, that may be incurred by the
Corporation or any of it's subsidiaries. The Corporation expects from time to
time that it will incur additional indebtedness constituting Senior Indebtedness
and that it's subsidiaries will incur additional liabilities.
The Exchange Guarantee will constitute a guarantee of payment and not
of collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Corporation to enforce its rights under the Exchange
Guarantee without first instituting a legal proceeding against any other person
or entity). The Exchange Guarantee will be held for the benefit of the holders
of the Exchange Capital Securities. The Exchange 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 to the holders of the Exchange Capital
Securities of the Exchange Junior Subordinated Debentures.
EVENTS OF DEFAULT
An event of default under the Exchange Guarantee will occur upon the
failure of the Corporation to perform any of its payment or other obligations
thereunder, provided, however, that except with respect to a default in payment
of any Guarantee Payment, the Corporation shall have received notice of default
and shall not have cured such default within 60 days after receipt of such
notice.
The holders of not less than a majority in Liquidation Amount of the
Exchange Capital Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Exchange Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Exchange
Guarantee. Any holder of the Exchange Capital Securities may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Exchange Guarantee without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity.
The Corporation, as guarantor, will be required to file annually with
the Guarantee Trustee a certificate as to whether or not the Corporation is in
compliance with all the conditions and covenants applicable to it under the
Exchange Guarantee.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of the Exchange Capital Securities (in which case
no consent will be required), the Exchange Guarantee may
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not be amended without the prior approval of the holders of a majority of the
Liquidation Amount of such outstanding Exchange Capital Securities. The manner
of obtaining any such approval will be as set forth under "--Description of
Exchange Capital Securities--Voting Rights; Amendment of the Trust Agreement."
All guarantees and agreements contained in the Exchange Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Corporation
and shall inure to the benefit of the holders of the Exchange Capital Securities
then outstanding.
TERMINATION OF THE EXCHANGE GUARANTEE
The Exchange Guarantee will terminate and be of no further force and
effect upon full payment of the applicable Redemption Price of the Exchange
Capital Securities, upon full payment of the Liquidation Amount payable upon
liquidation of the Trust or upon distribution of Exchange Junior Subordinated
Debentures to the holders of the Exchange Capital Securities. The Exchange
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Exchange Capital Securities must restore
payment of any sums paid under the Exchange Capital Securities or the Exchange
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Corporation in performance of the Exchange Guarantee, will
undertake to perform only such duties as are specifically set forth in the
Exchange Guarantee and, in case a default with respect to the Exchange Guarantee
has occurred, 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 will be under
no obligation to exercise any of the powers vested in it by the Exchange
Guarantee at the request of any holder of the Exchange Capital Securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
GOVERNING LAW
The Exchange Guarantee will be governed by and construed in accordance
with the laws of the State of New York.
DESCRIPTION OF ORIGINAL SECURITIES
The terms of the Original Securities are identical in all materials
respects to the Exchange Securities, except that (i) the Original Securities
have not been registered under the Securities Act, are subject to certain
restrictions on transfer and are entitled to certain rights under the applicable
Registration Rights Agreement (which rights will terminate upon consummation of
the Exchange Offer, except under limited circumstances), (ii) the Exchange
Capital Securities will not provide for any increase in the Distribution rate
thereon and (iii) the Exchange Junior Subordinated Debentures will not provide
for any liquidated damages thereon. The Original Securities provide that, if a
registration statement relating to the Exchange Offer has not been declared
effective by December 6, 1997, then liquidated damages will accrue at the rate
of 0.25% per annum on the principal amount of the Original Junior Subordinated
Debentures and Distributions will accrue at the rate of 0.25% per annum on the
Liquidation Amount of the Original Capital Securities, for the period from the
occurrence of such event until such time as such registration statement has been
filed or declared effective, as the case may be. In addition, the Original
Capital Securities provide that, if the Trust has not exchanged Exchange Capital
Securities for all Original Capital Securities validly tendered by the 45th day
after the date on which the registration statement is declared effective, the
Distribution rate borne by the Original Capital Securities will increase by
0.25% per annum for the period from the occurrence of such event until such time
as the Exchange Offer has been consummated. The Exchange Securities are not, and
upon consummation of the Exchange Offer, the Original Securities will not be,
entitled to any such additional interest or Distributions. Accordingly, holders
of Original Capital Securities should review the information set forth under
"Risk Factors--Consequences of a Failure to Exchange Original Capital
Securities" and "Description of Exchange Securities."
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RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES, THE EXCHANGE
JUNIOR SUBORDINATED DEBENTURES AND THE EXCHANGE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Exchange Capital
Securities (to the extent the Trust has funds legally available for the payment
of such Distributions) will be irrevocably guaranteed by the Corporation as and
to the extent set forth under "Description of Exchange Securities--Description
of Exchange Guarantee." Taken together, the Corporation's obligations under the
Exchange Junior Subordinated Debentures, the Indenture, the Trust Agreement and
the Exchange Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Exchange Capital Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Exchange Capital Securities. If and to the extent
that the Corporation does not make the required payments on the Exchange Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the Exchange Capital Securities.
The Exchange Guarantee will not cover any such payment when the Trust does not
have sufficient funds legally available therefor. In such event, the remedy of a
holder of Exchange Capital Securities is to institute a Direct Action. The
obligations of the Corporation under the Exchange Guarantee will be subordinate
and junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the Exchange Junior Subordinated Debentures, such payments will be sufficient to
cover Distributions and other payments due on the Exchange Capital Securities,
primarily because: (i) the aggregate principal amount or Prepayment Price of the
Exchange Junior Subordinated Debentures will be equal to the sum of the
aggregate Liquidation Amount or Redemption Price, as applicable, of the Trust
Securities; (ii) the interest rate and interest and other payment dates on the
Exchange Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) the
Corporation, as Sponsor, shall pay for all and any costs, expenses and
liabilities of the Trust except the Trust's obligations to holders of Trust
Securities under the Trust Agreement; and (iv) the Trust Agreement further
provides that the Trust is not authorized to engage in any activity that is not
consistent with the limited purposes thereof.
ENFORCEMENT RIGHTS OF HOLDERS OF EXCHANGE CAPITAL SECURITIES
A holder of any Exchange Capital Security may institute a legal
proceeding directly against the Corporation to enforce its rights under the
Exchange Guarantee without first instituting a legal proceeding against the
Guarantee Trustee, the Trust or any other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Trust Agreement. However, in
the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the Indenture provide that no payments may be
made in respect of the Exchange Junior Subordinated Debentures until such Senior
Indebtedness has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Exchange Junior
Subordinated Debentures would constitute an Event of Default under the Trust
Agreement.
LIMITED PURPOSE OF THE TRUST
The Exchange Capital Securities will represent beneficial interests in
the Trust, and the Trust exists for the sole purpose of issuing and selling the
Trust Securities, using the proceeds from the sale of the Trust Securities to
acquire the Original Junior Subordinated Debentures, exchanging the Original
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Capital Securities and the Original Junior Subordinated Debentures in the
Exchange Offer, and engaging in only those other activities necessary, advisable
or incidental thereto.
RIGHTS UPON TERMINATION
Unless the Exchange Junior Subordinated Debentures are distributed to
holders of the Exchange Capital Securities, upon any voluntary or involuntary
termination, winding-up or liquidation of the Trust, after satisfaction of the
liabilities of creditors of the Trust as required by applicable law, the holders
of the Exchange Capital Securities will be entitled to receive, out of assets
held by the Trust, the Liquidation Distribution in cash. See "Description of
Exchange Securities--Description of Exchange Capital Securities--Liquidation of
the Trust and Distribution of Exchange Junior Subordinated Debentures." Upon any
voluntary or involuntary liquidation or bankruptcy of the Corporation, the
Property Trustee, as holder of the Exchange Junior Subordinated Debentures,
would be a subordinated creditor of the Corporation, subordinated in right of
payment to all Senior Indebtedness as set forth in the Indenture, but entitled
to receive payment in full of principal (and premium, if any) and interest,
before any stockholders of the Corporation receive payments or distributions.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain of the material United States
federal income tax consequences associated with the exchange of Original Capital
Securities for Exchange Capital Securities and with the ownership and
disposition of Capital Securities held as capital assets by a holder who
purchased Original Capital Securities upon initial issuance. It does not purport
to deal with all aspects of U.S. federal income taxation that might be relevant
to particular holders in light of their personal investment circumstances or
status, nor does it discuss the U.S. federal income tax consequences to certain
types of holders subject to special treatment under the U.S. federal income tax
laws, such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, United States Alien Holders engaged in a U.S. trade or
business or persons that will hold the Capital Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Capital
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Capital Securities. This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations thereunder and the administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. Hogan & Hartson L.L.P. ("Tax Counsel")
has reviewed this summary and is of the opinion that, to the extent that it
constitutes matters of law or purports to describe certain provisions of the
U.S. federal income tax laws, it is a correct summary in all material respects
of the matters discussed herein.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Original Capital Securities for Exchange Capital
Securities should not be a taxable event to holders for U.S. federal income tax
purposes. The exchange of Original Capital Securities for Exchange Capital
Securities pursuant to the Exchange Offer should not be treated as an "exchange"
for U.S. federal income tax purposes because the Exchange Capital Securities
should not be considered to differ materially in kind or extent from the
Original Capital Securities and because the exchange will occur by operation of
the terms of the Original Capital Securities. Accordingly, the Exchange Capital
Securities should have the same issue price as the Original Capital Securities,
and a holder should have the same adjusted tax basis and holding period in the
Exchange Capital Securities immediately after the exchange as the holder had in
the Original Capital Securities immediately before the exchange.
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CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Corporation intends to take the position that the Junior
Subordinated Debentures will be classified for U.S. federal income tax purposes
as indebtedness of the Corporation. The Corporation, the Trust and the holders
of the Capital Securities (by acceptance of a beneficial interest in a Capital
Security) will agree to treat the Junior Subordinated Debentures as indebtedness
of the Corporation and the Capital Securities as evidence of a beneficial
ownership interest in the Junior Subordinated Debentures for all U.S. federal
income tax purposes. No assurance can be given, however, that such position will
not be challenged by the Internal Revenue Service (the "IRS") or, if challenged,
that such a challenge will not be successful. The remainder of this discussion
assumes that the Junior Subordinated Debentures will be classified as
indebtedness of the Corporation for U.S. federal income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Original Capital Securities, Tax
Counsel rendered its opinion generally to the effect that, under then-current
law and assuming full compliance with the terms of the Trust Agreement and the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be classified for U.S.
federal income tax purposes as a grantor trust and not as an association taxable
as a corporation. Accordingly, for U.S. federal income tax purposes, each holder
of Capital Securities generally will be considered the owner of an undivided
interest in the Junior Subordinated Debentures, and each holder will be required
to include in its gross income any interest (or OID accrued) with respect to its
allocable share of those Junior Subordinated Debentures.
An opinion of Tax Counsel is not binding on the IRS or the courts. No
rulings have been or are expected to be sought from the IRS with respect to any
of the transactions described herein and no assurance can be given that the IRS
will not take contrary positions. Moreover, no assurance can be given that the
opinion expressed herein will not be challenged by the IRS or, if challenged,
that such a challenge would not be successful.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations (the "Treasury Regulations")
applicable to debt instruments issued on or after August 13, 1996, a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Corporation
believes that the likelihood of its exercising its option to defer payments of
interest is "remote" since exercising that option would, among other things,
prevent the Corporation from declaring dividends on any class of its equity
securities. Accordingly, the Corporation intends to take the position that the
Junior Subordinated Debentures will not be considered to be issued with OID and,
accordingly, stated interest on the Junior Subordinated Debentures generally
will be taxable to a holder as ordinary income at the time it is paid or accrued
in accordance with such holder's method of tax accounting.
Under the Treasury Regulations, if the Corporation were to exercise its
option to defer payments of interest, the Junior Subordinated Debentures would
at that time be treated as issued with OID, and all stated interest on the
Junior Subordinated Debentures would thereafter be treated as OID as long as the
Junior Subordinated Debentures remain outstanding. In such event, all of a
holder's taxable interest income with respect to the Junior Subordinated
Debentures would thereafter be accounted for on an economic accrual basis
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income. Consequently, a
holder of Capital Securities would be required to include in gross income OID
even though the Corporation would not make actual cash payments during an
Extension Period. Moreover, under the Treasury Regulations, if the option to
defer the payment of interest was determined not to be "remote," the Junior
Subordinated Debentures would be treated as having been originally issued with
OID. In such event, all of a holder's taxable interest income with respect to
the Junior Subordinated Debentures would be accounted for on an economic accrual
basis regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
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The Treasury Regulations have not yet been addressed in any rulings or
other interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation described herein.
Because income on the Capital Securities will constitute interest or
OID, corporate holders of the Capital Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Capital Securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
The Corporation will have the right at any time to liquidate the Trust
and cause the Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities. Under current law, such a distribution, for U.S. federal
income tax purposes, would be treated as a nontaxable event to each holder, and
each holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to such holder's aggregate tax basis in its Capital Securities.
A holder's holding period in the Junior Subordinated Debentures so received in
liquidation of the Trust would include the period during which the Capital
Securities were held by such holder. If, however, the Trust were characterized
for U.S. federal income tax purposes as an association taxable as a corporation
at the time of its dissolution, the distribution of the Junior Subordinated
Debentures may constitute a taxable event to holders of Capital Securities and a
holder's holding period in Junior Subordinated Debentures would begin on the
date such Junior Subordinated Debentures were received.
Under certain circumstances described herein (see "Description of
Exchange Securities--Description of Exchange Capital Securities"), the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Capital Securities.
Under current law, such a redemption would, for U.S. federal income tax
purposes, constitute a taxable disposition of the redeemed Capital Securities,
and a holder could recognize gain or loss as if it sold such redeemed Capital
Securities for cash. See "--Sales of Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities (including a redemption of the
Capital Securities either on the Stated Maturity Date or upon an optional
redemption of the Junior Subordinated Debentures by the Corporation) will
recognize gain or loss equal to the difference between its adjusted tax basis in
Capital Securities and the amount realized on the sale of such Capital
Securities (other than with respect to accrued and unpaid interest which has not
yet been included in income, which will be treated as ordinary income). A
holder's adjusted tax basis in the Capital Securities generally will be its
initial purchase price increased by OID (if any) previously includible in such
holder's gross income to the date of disposition and decreased by payments (if
any) received on the Capital Securities in respect of OID. Such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Capital Securities have been held for more than one
year. On August 5, 1997, legislation was enacted which, among other things,
reduces to 20% the maximum rate of tax on long-term capital gains on most
capital assets held by an individual for more than 18 months. Gain on most
capital assets held by an individual more than one year and up to 18 months is
subject to tax at a maximum rate of 28%.
The Capital Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Junior Subordinated Debentures. A holder who uses the accrual method of
accounting for tax purposes (and a cash method holder, if the Junior
Subordinated Debentures are deemed to have been issued with OID) who disposes of
his Capital Securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., interest or, if applicable, OID), and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include all accrued but unpaid interest)
a holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for U.S. federal
income tax purposes.
PROPOSED TAX LEGISLATION
The Taxpayer Relief Act of 1997, enacted on August 5, 1997, did not
contain certain provisions of President Clinton's Fiscal 1998 Budget Proposal
that would, among other things, have denied an issuer a deduction for United
States federal income tax purposes for the payment of interest on instruments
with characteristics similar to the Junior Subordinated Debentures. There can be
no assurances, however, that the proposed legislation, if enacted, or similar
legislation enacted after the date hereof would not adversely affect the tax
treatment of the Junior Subordinated Debentures, resulting in a Tax Event. The
occurrence of a Tax Event may result in the redemption of the Junior
Subordinated Debentures for cash, in which event the holders of the Capital
Securities would receive cash in redemption of their Capital Securities. See
"Description of Capital Securities -- Redemption" and "Description of Junior
Subordinated Debentures -- Special Event Prepayment."
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UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for U.S. federal income tax purposes.
A "U.S. Holder" is a holder of Capital Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for federal income tax purposes, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, or (iii) a trust or estate
the income of which is includible in its gross income for federal income tax
purposes without regard to its source. For taxable years beginning after
December 31, 1996 (or for taxable years ending after August 20, 1996, if the
trustee so elects), a trust is a U.S. Holder if, and only if, (a) a court within
the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States trustees have the
authority to control all substantial decisions of the trust.
Under present U.S. federal income tax laws: (i) payments by the Trust
or any of its paying agents to any holder of a Capital Security who or which is
a United States Alien Holder will not be subject to U.S. federal withholding
tax; provided that, (a) the beneficial owner of the Capital Security does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Corporation entitled to vote, (b) the beneficial
owner of the Capital Security is not a controlled foreign corporation that is
related to the Corporation through stock ownership, and (c) either (1) the
beneficial owner of the Capital Security certifies to the Trust or its agent,
under penalties of perjury, that it is not a U.S. holder and provides its name
and address or (2) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution"), and holds the Capital Security in such
capacity, certifies to the Trust or its agent, under penalties of perjury, that
such statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof; and (ii) a United States Alien Holder of
a Capital Security will not be subject to U.S. federal withholding tax on any
gain realized upon the sale or other disposition of a Capital Security.
Regulations recently issued by the IRS, which will be effective for
payments made after December 31, 1998 (subject to certain transition rules),
make modifications to the certification procedures applicable to United States
Alien Holders. In general, these regulations unify certification procedures and
forms and clarify and modify reliance standards. A United States Alien Holder
should consult with its own advisor regarding the effect of the new Treasury
Regulations.
As discussed above, changes in legislation affecting the U.S. federal
income tax treatment of the Junior Subordinated Debentures are possible, and
could adversely affect the ability of the Corporation to deduct the interest
payable on the Junior Subordinated Debentures. Moreover, any such legislation
could adversely affect United States Alien Holders by characterizing income
derived from the Junior Subordinated Debentures as dividends, generally subject
to a 30% income tax (on a withholding basis) when paid to a United States Alien
Holder, rather than as interest which, as discussed above, is generally exempt
from income tax in the hands of a United States Alien Holder.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Capital Securities will be reported to holders
on Form 1099, which forms should be mailed to holders of Capital Securities by
January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's U.S. federal income tax, provided the required
information is provided to the IRS.
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THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF ORIGINAL CAPITAL
SECURITIES FOR EXCHANGE CAPITAL SECURITIES AND OF THE OWNERSHIP AND DISPOSITION
OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Each of the Corporation (the obligor with respect to the Exchange
Junior Subordinated Debentures held by the Trust), and its affiliates and the
Property Trustee may be considered a "party in interest" (within the meaning of
ERISA) or a "disqualified person" (within the meaning of Section 4975 of the
Code) with respect to many Plans. The purchase and/or holding of Exchange
Capital Securities by a Plan with respect to which the Corporation, the Property
Trustee or any affiliate is a service provider (or otherwise is a party in
interest or a disqualified person) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such Exchange
Capital Securities are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an
exemption for certain transactions determined by an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for certain
transactions involving insurance company pooled separate accounts), PTCE 95-60
(an exemption for transactions involving certain insurance company general
accounts) or PTCE 96-23 (an exemption for certain transactions determined by an
in-house asset manager). In addition, a Plan fiduciary considering the purchase
of Exchange Capital Securities should be aware that the assets of the Trust may
be considered "plan assets" for ERISA purposes. In such event, the Property
Trustee, as well as any other persons exercising discretion with respect to the
Exchange Junior Subordinated Debentures, may become fiduciaries, parties in
interest or disqualified persons with respect to investing Plans. In order to
avoid certain prohibited transactions under ERISA and the Code that could
thereby result, each investing Plan, by purchasing the Exchange Capital
Securities, will be deemed to have directed the Trust to invest in the Exchange
Junior Subordinated Debentures and to have consented to the appointment of the
Property Trustee. In this regard, it should be noted that, in an Event of
Default, the Corporation may not remove the Property Trustee without the
approval of a majority of the holders of the Exchange Capital Securities.
A Plan fiduciary should consider whether the purchase of Exchange
Capital Securities could result in a delegation of fiduciary authority to the
Property Trustee, and, if so, whether such a delegation of authority is
permissible under the Plan's governing instrument or any investment management
agreement with the Plan.
THE SALE OF INVESTMENTS TO PLANS IS IN NO RESPECT A REPRESENTATION BY
THE TRUST, THE CORPORATION, THE PROPERTY TRUSTEE, THE INITIAL PURCHASER OR ANY
OTHER PERSON ASSOCIATED WITH THE SALE OF THE EXCHANGE CAPITAL SECURITIES THAT
SUCH SECURITIES MEET RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY
PLANS GENERALLY OR ANY PARTICULAR PLAN, OR THAT SUCH SECURITIES ARE OTHERWISE
APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN. ANY PURCHASER PROPOSING
TO ACQUIRE EXCHANGE CAPITAL SECURITIES WITH ASSETS OF ANY PLAN SHOULD CONSULT
WITH ITS COUNSEL.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Capital 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 Exchange Capital 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 Exchange Capital
Securities received in exchange for Original Capital Securities where such
Original Capital Securities were acquired by such
69
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broker-dealer as a result of market-making activities or other trading
activities. The Trust and the Corporation have agreed that, starting on the
Expiration Date and ending on the close of business on the 180th day following
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, for a period of 180 days after the Expiration Date, all dealers
effecting transactions in the Exchange Securities may be required to deliver a
prospectus.
The Trust and the Corporation will not receive any proceeds from any
sale of Exchange Capital Securities by broker-dealers. Exchange Capital
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 Exchange Capital 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 at 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 and/or the purchasers of any such Exchange Capital Securities. Any
broker-dealer that resells Exchange Capital 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 Exchange Capital Securities may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
of any such resale of Exchange Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. 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.
For a period of 180 days after the Expiration Date, the Trust and the
Corporation 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 Trust and the Corporation have
agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Capital Securities) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Exchange Capital Securities (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
VALIDITY OF EXCHANGE SECURITIES
The validity of the Exchange Capital Securities, the Exchange Guarantee
and the Exchange Junior Subordinated Debentures will be passed upon for the
Corporation by Hogan & Hartson L.L.P., Washington, D.C. Certain matters of
Delaware law relating to the validity of the Exchange Capital Securities will be
passed upon on behalf of the Trust by Morris, James, Hitchens & Williams,
special Delaware counsel to the Trust. Certain matters relating to U.S. federal
income tax considerations will be passed upon for the Corporation by Hogan &
Hartson L.L.P., Washington, D.C.
<PAGE>
APPENDICES
APPENDIX I
Annual Report of the Corporation on Form 10-K, as amended, for the Year Ended
December 31, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 33-76930
TELEBANC FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3759196
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 NORTH HIGHLAND STREET, ARLINGTON, VIRGINIA 22201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 247-3700.
Securities registered pursuant to Section 12(b) of the Act:
(Not applicable)
Securities registered pursuant to Section 12(g) of the Act:
(Not applicable)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
Based upon the closing price of the registrant's common stock as of
March 20, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant is $10.4 million.*
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:
Class: Common Stock, par value $.01 per share.
Outstanding at March 20, 1997: 2,211,961 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
PART I AND II:
Annual report to shareholders for the fiscal year ended December 31,
1996.
PART III:
Portions of the definitive proxy statement for the 1996 Annual Meeting
of Shareholders.
* Solely for purposes of this calculation, all executive officers and
directors of the registrant, Employee Stock Ownership Plan and all
shareholders reporting beneficial ownership of more than 5% of the
registrant's common stock are considered to be affiliates. This reference
to affiliate status is not necessarily a conclusive determination for other
purposes.
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PART I
ITEM 1. BUSINESS
GENERAL
TeleBanc Financial Corporation (the "Company" or "TeleBanc"), with
headquarters in Arlington, Virginia, had total assets of $647.9 million at the
end of 1996. The primary business of TeleBanc is that of TeleBank (the "Bank")
formerly known as Metropolitan Bank for Savings, F.S.B., whose deposit accounts
are insured by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC"). The Company was organized by its then
majority stockholder, MET Holdings Corporation ("MET Holdings"), to become, in
March 1994, the parent savings and loan holding company for the Bank. All
references to the Company include the business of the Bank. Financial and other
data as of and for all periods prior to March 1994 represent the consolidated
data of the Bank only.
The Company's revenues are derived principally from interest income on
loans, mortgage-backed and related securities, and interest and dividends on
investment securities and interest-bearing deposits. The Company's principal
expenses are interest expense on deposits and borrowings and operating expenses,
such as compensation and employee benefits. The Company's revenues also may be
offset by losses on hedging transactions and other trading account losses as
part of the Company's asset/liability management strategies. Funds for these
activities are provided by deposits, borrowings, principal repayments on
outstanding loans and mortgage-backed and related securities, and sales of
investment securities held for trading. At December 31, 1996, 81.44% of the
Company's total assets were comprised of one- to four-family mortgage loans and
mortgage-backed and related securities.
During the second quarter of 1996, the Bank through its wholly owned
subsidiary TeleBanc Servicing Corporation ("TSC") funded 50% of the capital
commitment for a new entity, AGT Mortgage Services, LLC ("AGT"). AGT services
performing loans and workouts for troubled or defaulted loans for a fee. The
Bank also provided in the second quarter of 1996, 50% of the capital commitment
for an additional new entity, AGT PRA, LLC ("AGT PRA"). The primary business of
AGT PRA is its investment in Portfolio Recovery Associates, LLC ("PRA"). PRA
acquires and collects delinquent consumer debt obligations for its own
portfolio.
On February 28, 1997, the Company consummated the sale of $29.9 million
of units in the form of convertible preferred stock, senior subordinated notes
and warrants and the purchase of the assets of Arbor Capital Partners,
Inc.("Arbor"), a registered investment advisor, funds manager and broker-dealer.
MET Holdings, TeleBanc's majority shareholder, owns a majority of Arbor.
The $29.9 million in units were sold to investment partnerships managed
by Conning & Company, General American Life Insurance Company, CIBC WG Argosy
Merchant Fund 2, LLC, The Progressive Corporation, and The Northwestern Mutual
Life Insurance Company. Representatives from the Conning partnerships and the
CIBC Merchant Fund will serve on the Board. The units consist of $13.7 million
in 9.5% senior subordinated notes with 198,088 detachable warrants, $16.2
million in 4.0% convertible preferred stock, and rights to 205,563 contingent
warrants.
Also as part of the sale of units, the Arbor asset acquisition was
structured as a tax free issuance of 162,461 shares of TeleBanc common stock and
a $500,000 cash payment for the Arbor assets. An independent appraisal valued
the assets to be acquired from Arbor at $3.1 million. Consistent with TeleBanc's
charter, the number of shares issued to Arbor as consideration was limited to 5%
of total market value of outstanding TeleBanc stock at the time of acquisition.
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MARKET AREA AND COMPETITION
From its office in Arlington, Virginia, the Company has a customer base
in all 50 states and the District of Columbia. As a result of the Company's
direct marketing strategy for deposits and reliance upon the secondary market to
purchase mortgage loans and mortgage-backed and related securities, the Company
competes on a nationwide basis for deposits and investments in residential
mortgage products. Generally, the Company faces substantial competition for
deposits from thrifts, commercial banks, credit unions, and other institutions
providing retail investment opportunities. The ability of the Company to attract
and retain deposits depends on its ability to provide an investment opportunity
meeting the requirements of investors as to rate of return, liquidity, risk and
other factors, as well as on the perception of depositors as to the convenience
and quality of its services. Competition in residential mortgage investing comes
primarily from commercial banks, thrift institutions, and purchasers of mortgage
products in the secondary market. The Company competes for residential mortgage
investments principally on the basis of bid price and for loans on the basis of
interest rate, fees it charges, and loan types offered.
LENDING ACTIVITIES
GENERAL. The Company's lending activities consist primarily of the
purchases of whole loans and mortgage-backed and related securities rather than
the production and origination of loans, which entails greater overhead
expenses, commonly found in a traditional thrift or community bank.
LOAN PORTFOLIO COMPOSITION. The Company's net loans receivable totaled
$351.8 million at December 31, 1996, or 54.3% of total assets at that date. At
December 31, 1996, $359.6 million, or 97.6% of the total loan portfolio,
consisted of one- to four-family residential mortgage loans. Prior to 1990, the
Company originated a limited number of loans for the purchase or construction of
multifamily and commercial real estate. However, in the three years ended
December 31, 1996, as part of the Company's general operating strategy, and to
risks associated with multifamily and commercial real estate lending and
prevailing economic conditions, the Company has substantially reduced its
originations and purchases of such loans. At December 31, 1996, multifamily and
commercial and mixed use real estate loans amounted to $6.7 million, or 1.8%, of
the Company's total loan portfolio. The Company's loan portfolio also includes
lease financing at December 31, 1993 and 1992. These loans represent lease
financing assumed by the Company in 1991 upon the default of a commercial loan
to an automobile leasing company which was 33% owned by the Bank's subsidiary,
ARLO Service Corporation ("ARLO"). Currently, the Company originates consumer
loans to a very limited extent, and only as an accommodation to deposit and loan
customers. Such loans, which consist primarily of home equity lines of credit
and loans secured by savings deposits, amounted to $1.5 million, or 0.4% of the
Company's total loan portfolio at December 31, 1996.
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The following table sets forth information concerning the Company's
loan portfolio in dollar amounts and in percentages, by type of loan.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 % 1995 % 1994 %
--------- ------- -------- ------ --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family fixed-rate............................ $ 142,211 38.59% $105,750 39.91% $ 67,449 42.54%
One- to four-family adjustable-rate....................... 217,352 58.97 148,928 56.20 79,701 50.27
Multifamily............................................... 1,516 0.41 1,286 0.49 1,114 0.70
Commercial real estate.................................... 4,017 1.09 4,553 1.72 4,385 2.77
Mixed use real estate..................................... 1,180 0.32 1,792 0.68 1,953 1.23
Land...................................................... 781 0.21 384 0.14 387 0.24
Construction.............................................. -- -- -- -- -- --
--------- ------- -------- ------ --------- -------
Total real estate loans................................... 367,057 99.59 262,693 99.14 154,989 97.75
--------- ------- -------- ------ --------- -------
Consumer and other loans:
Lease financing........................................... -- -- -- -- -- --
Home equity lines of credit and second mortgage loans..... 1,208 0.33 2,202 0.83 3,395 2.14
Other (1)................................................. 305 0.08 79 0.03 168 0.11
--------- ------- -------- ------ --------- -------
Total consumer and other loans............................ 1,513 0.41 2,281 0.86 3,563 2.25
--------- ------- -------- ------ --------- -------
Total loans............................................... $ 368,570 100.00% $264,974 100.00% $ 158,552 100.00%
========= ======= ======== ====== ========= =======
Deduct:
Non accrual/cost recovery ................................ (182) -- --
--
Deferred loan fees........................................ (42) (42) (50)
Deferred discounts on loans............................... (13,750) (14,129) (2,835)
Allowance for loan losses................................. (2,957) (2,311) (925)
------------- --------- --------
Total........................................................ (16,749) (16,482) (3,810)
------------- --------- --------
Loans receivable, net........................................ $ 351,821 $248,492 $154,742
============= ========= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
1993 % 1992 %
--------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family fixed-rate............................ $ 44,450 43.06% $ 40,659 41.88%
One- to four-family adjustable-rate....................... 50,708 49.14 47,529 48.97
Multifamily............................................... 932 0.90 945 0.97
Commercial real estate.................................... 5,912 5.73 5,937 6.12
Mixed use real estate..................................... -- -- -- --
Land...................................................... 16 0.02 46 0.05
Construction.............................................. -- -- 190 0.20
--------- ------ --------- ------
Total real estate loans................................... 102,018 98.85 95,306 98.19
--------- ------ --------- ------
Consumer and other loans:
Lease financing........................................... 17 0.02 121 0.12
Home equity lines of credit and second mortgage loans..... 1,007 0.98 1,396 1.44
Other (1)................................................. 151 0.15 242 0.25
--------- ------ --------- ------
Total consumer and other loans............................ 1,175 1.15 1,759 1.81
--------- ------ --------- ------
Total loans............................................... $ 103,193 100.00% $ 97,065 100.00%
========= ====== ========= ======
Deduct:
Non accrual/cost recovery ................................ -- --
--
Deferred loan fees........................................ (68) (96)
Deferred discounts on loans............................... (1,431) (2,705)
Allowance for loan losses................................. (835) (659)
--------- --------
Total........................................................ (2,334) (3,460)
--------- --------
Loans receivable, net........................................ $ 100,859 $93,605
========= =======
</TABLE>
(1) Includes primarily loans secured by deposit accounts in the Bank, and to a
lesser extent, unsecured consumer credit.
AI-4
<PAGE>
MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at December 31, 1996 regarding the dollar amount of loans maturing
in the Company's portfolio, including scheduled repayments of principal, based
on contractual terms to maturity. Demand loans, loans having no stated schedule
of repayments and no stated maturity, and overdrafts are reported as due within
one year. The table below does not include any estimate of prepayments, which
may significantly shorten the average life of a loan and may cause the Company's
actual repayment experience to differ from that shown below.
<TABLE>
<CAPTION>
DUE IN ONE DUE IN ONE DUE AFTER
YEAR OR LESS TO FIVE YEARS FIVE YEARS TOTAL
------------ ------------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family fixed-rate........... $ 1,746 $ 2,285 $ 138,180 $ 142,211
One- to four-family adjustable-rate...... 615 1,769 214,968 217,352
Multifamily.............................. -- 1,152 364 1,516
Mixed use................................ -- 349 831 1,180
Commercial real estate................... 359 1,022 2,636 4,017
Land..................................... -- 400 381 781
Consumer and other loans:
Home equity lines of credit and
second mortgage loans.................. -- 251 957 1,208
Other ................................... -- 305 -- 305
Total.................................. $ 2,720 $ 7,533 $ 358,317 $ 368,570
========= ========= ========== ===========
</TABLE>
The following table sets forth as of December 31, 1996 the dollar
amount of the loans maturing subsequent to December 31, 1997 allocated between
those with fixed interest rates and those with adjustable interest rates.
<TABLE>
<CAPTION>
FIXED RATES ADJUSTABLE RATES TOTAL
----------- ---------------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family........................................ $140,465 $ 216,737 $ 357,202
Multifamily................................................ 1,180 336 1,516
Mixed use.................................................. 1,180 -- 1,180
Commercial real estate..................................... 280 3,378 3,658
Land....................................................... 400 381 781
Consumer and other loans:
Home equity lines of credit and second
mortgage loans........................................... 592 616 1,208
Other...................................................... 305 -- 305
---------- ---------- -----------
Total.................................................... $ 144,402 $ 221,448 $ 365,850
=========== =========== ===========
</TABLE>
Scheduled contractual principal repayments of loans may not reflect the
actual life of such assets. The average life of loans may be substantially less
than their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Company the right to declare a conventional
loan immediately due and payable in the event, among other things, that the
borrower sells the property. The average life of mortgage loans tends to
increase, however, when current mortgage loan market rates are substantially
higher than rates on existing mortgage loans and, conversely, decreases when
rates on existing mortgage loans are substantially higher than current mortgage
loan market rates.
ORIGINATION, PURCHASE AND SALE OF LOANS. Consistent with the Company's
strategy of minimizing operating expenses, the Company emphasizes the purchase
of loans rather than direct
AI-5
<PAGE>
originations. The Company purchased $183.1 million, $145.9 million, $85.4
million, $33.4 million, and $21.1 million of loans during the years ended
December 31, 1996, 1995, 1994, 1993, and 1992, respectively. The Company's
mortgage loan originations totaled $462,000, $2.7 million, $4.3 million, $1.8
million and $4.3 million in the years ended December 31, 1996, 1995, 1994, 1993,
and 1992 respectively.
Approximately 55.3% of the loans in the Company's portfolio are
serviced by other lenders other than AGT for which the Company pays a fee
ranging from a minimum of 25 basis points of the principal balance of the loan
per annum to a maximum of $12 per month per loan. The institutions servicing
loans for the Company, among other things, collect and remit loan payments,
maintain escrow accounts, inspect properties and administer foreclosures when
necessary.
The Company sells whole loans to institutional investors and,
accordingly, is a Federal National Mortgage Association ("FNMA") seller/servicer
and a Federal Home Loan Mortgage Corporation ("FHLMC") servicer. The bulk of
loans sold has consisted of long-term, fixed-rate mortgage loans sold to FNMA.
The Company generally sells such loans with servicing retained.
The following table shows loan origination, purchase, sale and
repayment activity of the Company during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total loans receivable at beginning of period.............................. $ 248,492 $ 154,742 $ 100,859
Loans purchased:
Real estate loans:
One- to four-family variable rate....................................... 128,171 98,065 41,684
One- to four-family fixed rate.......................................... 53,915 47,845 40,155
Multi-Family ........................................................... 1,000 -- --
Mixed-used.............................................................. -- -- 1,953
Commercial real estate.................................................. -- -- 109
Consumer and other loans................................................ -- -- 1,797
----------- ----------- -----------
Total loans purchased................................................. 183,086 145,910 85,698
Loans originated:
Real estate loans:
One- to four-family variable rate....................................... -- -- 1,764
One- to four-family fixed rate.......................................... 25 80 1,267
Commercial real estate.................................................. -- -- 1,148
Land ................................................................... 400 -- --
Home equity lines of credit and second mortgage loans...................... 37 2,644 75
----------- ----------- -----------
Total loans originated................................................ 462 2,724 4,254
----------- ----------- -----------
Total loans purchased and originated.................................. 183,548 148,634 89,952
Loans sold................................................................. 18,829 6,192 --
Loans securitized.......................................................... 8,275 2,794 --
Loan repayments............................................................ 50,221 32,755 34,343
----------- ----------- -----------
Total loans sold, securitized, and repaid............................... 77,325 41,741 34,343
Net change - TBFC ESOP Note Receivable .................................... 65 -- --
Net change in deferred discounts and loan fees............................. 379 11,286 1,386
Net transfers to REO ...................................................... 1,513 471 250
Net provision for loan losses.............................................. 646 1,386 90
Cost Recovery/Contra Assets ............................................... 41 -- --
Other loan debits/HELOC advances .......................................... 250 -- --
----------- ----------- -----------
Increase (decrease) in total loans receivable.............................. 103,329 93,750 53,883
----------- ----------- -----------
Net loans receivable at end of period...................................... $ 351,821 $ 248,492 $ 154,742
=========== =========== ===========
</TABLE>
The Company's loan purchases during 1996 increased $37.2 million from
fiscal year 1995 as the Company continued to expand the Bank's operations.
During fiscal 1996 and 1995 the Company's loan purchases involved purchases of
whole loans in the secondary market, principally
AI-6
<PAGE>
from private investors. The Company's loan purchases during fiscal year 1996
included purchases of 35 pools with approximately 1,253 loans and minimal loan
originations consistent with the Company's operating strategy. The Company's
loan purchases during fiscal year 1995 included purchases of 26 pools with
approximately 1,200 loans and minimal loan originations consistent with the
Company's operating strategy. The Company's loan purchases during 1994 increased
$52.0 million from fiscal year 1993 as the Company invested the proceeds from
the initial public offering and expanded the Bank's operations.
ONE-TO-FOUR FAMILY RESIDENTIAL LENDING. The Company originates both
fixed- and adjustable-rate one- to four-family mortgage loans in accordance with
FNMA and FHLMC underwriting guidelines for terms up to 30 years. In 1996, the
Company originated $25,000 of loans secured by one- to four-family residential
properties, excluding home equity lines of credit. The Company will make one- to
four-family mortgage loans with up to a 95% loan-to-value ratio if private
mortgage insurance is obtained on the portion of the principal amount in excess
of 80% of the appraised value.
MULTIFAMILY AND COMMERCIAL REAL ESTATE LENDING. Since 1990, the Company
has not actively pursued multifamily and commercial real estate lending or loans
secured by undeveloped land, and has substantially reduced originations of such
loans. As of December 31, 1996, multifamily, mixed use, commercial real estate
and land loans amounted to $7.5 million, or 2.03% of the Company's total loan
portfolio.
CONSUMER AND OTHER LENDING. The Company does not emphasize consumer or
other loans, but from time to time, originates such loans as an accommodation to
its customers or purchases such loans as part of larger loan packages. Such
lending primarily includes home equity lines of credit and loans secured by
savings deposits. During 1996, the Company originated $37,000 in consumer loans
and $305,000 in other loans. At December 31, 1996, consumer and other loans
totaled $305,000, or 0.08% of the Company's total loan portfolio. At December
31, 1996, total outstanding home equity lines of credit and second mortgage
loans amounted to $1.2 million, or 0.33% of the Company's total loan portfolio.
CRA LENDING ACTIVITIES. The Bank participates in various community
development programs in an effort to meet its responsibilities under the CRA. In
connection with the organization of TeleBanc in 1994, the Bank agreed with the
Office of Thrift Supervision ("OTS") to make a minimum investment of $250,000 in
a local community development corporation for the purpose of financing low and
moderate income housing. In 1995, the OTS lifted the aforementioned requirement
and the Bank has now committed to invest up to $500,000 in an investment tax
credit fund that qualifies for CRA purposes.
In 1995, the federal financial regulatory agencies promulgated a final
rule revising the regulations that implement the CRA. The revised regulations
outline special evaluations for wholesale institutions. The Bank believes that
it meets the definition of a wholesale institution and that it serves the credit
needs of the entire nation. The Bank will submit a request to the OTS to be
designated as a wholesale institution in 1997.
AI-7
<PAGE>
MORTGAGE-BACKED AND RELATED SECURITIES, AND SECONDARY MARKET ACTIVITIES
The Company maintains a significant portion of mortgage-backed
securities, primarily in the form of privately insured mortgage pass-through
securities, as well as Government National Mortgage Association ("GNMA"), FNMA,
and FHLMC participation certificates, and securities issued by other nonagency
organizations. GNMA certificates are guaranteed as to principal and interest by
the full faith and credit of the United States, while FNMA and FHLMC
certificates are each guaranteed by their respective agencies. Mortgage-backed
securities generally entitle the Company to receive a pro rata portion of the
cash flows from an identified pool of mortgages. The Company has also invested
in collateralized mortgage obligations ("CMOs") which are securities issued by
special purpose entities generally collateralized by pools of mortgage-backed
securities. The cash flows from such pools are segmented and paid in accordance
with a predetermined priority to various classes of securities issued by the
entity. The Company's CMOs are senior tranches collateralized by federal agency
securities or whole loans. The primary issuers of the Company's CMOs at December
31, 1996 include Residential Mortgage Acceptance Corp. and Federal Deposit
Insurance Corporation.......In the fourth quarter of 1995, the Company
reclassified the entire held-to-maturity mortgage-backed security portfolio to
available-for-sale. The following table sets forth the activity in the Company's
mortgage-backed securities held-to-maturity portfolio during the periods
indicated.
AI-8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage-backed and related securities at beginning
of period (not including available for sale)............... $ 221,005 $ 77,387
Purchases:
Pass-through securities............................. 55,110 129,462
CMOs..................................................... 5,235 --
FNMA..................................................... -- 5,767
GNMA..................................................... -- 19,243
FHLMC.................................................... -- 18,823
Acquired in exchange for loans............................. (10,465) --
Sales (1).................................................. (18,813) (896)
Repayments................................................. (39,155) (28,781)
Transfer to held for sale.................................. (212,917) --
--------- ----------
Mortgage-backed and related securities at
end of period (not including available for sale)............. $ -- $ 221,005
========== ===========
</TABLE>
The following table sets forth the activity in the Company's
mortgage-back securities available for sale portfolio during the period
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage-backed and related securities at beginning
of period ................................................. $ 234,835 $ 15,459
Purchases:
Pass-through securities............................... 109,600 13,183
CMOs..................................................... 30,053 --
FNMA..................................................... 12,102 2,634
GNMA..................................................... 30,687 --
FHLMC.................................................... 14,194 12,810
Transfer from held to maturity............................. -- 212,917
Sales (1).................................................. (185,703) (15,755)
Repayments................................................. (61,805) (6,024)
Transfer to trading........................................ -- (1,650)
Provision for losses on securities............................ (22) --
Mark to market ............................................... 826 811
FASB 122 servicing ........................................... (24) --
------------ -----------
Mortgage-backed and related securities at
end of period ............................................... $ 184,743 $ 234,835
============ ===========
</TABLE>
- ------------------------
(1) Includes mortgage-backed securities on which call options have been
exercised.
AI-9
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, and current yields for the Company's portfolio of mortgage-backed
securities at December 31, 1996:
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTALS
BALANCE WEIGHTED BALANCE WEIGHTED BALANCE WEIGHTED BALANCE WEIGHTED
DUE YIELD DUE YIELD DUE YIELD DUE YIELD
--------- ------ -------- ----- --------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Private issuer $ 4,116 7.01% $ 8,337 9.10% $134,157 8.81% $146,610 8.78%
Collateralized mortgage obligations -- -- 368 6.26 25,358 7.55 25,726 7.56
Agencies -- -- -- -- 12,407 8.11 12,407 8.11
--------- ------ -------- ----- --------- ------ -------- ------
$ 4,116 7.01% $ 8,705 8.98% $171,922 8.57% $184,743 8.56%
========= ===== ======== ===== ======== ====== ======== =====
</TABLE>
<PAGE>
In May 1996, the Company formed AGT, a 50% owned subsidiary which
services loans for both the Bank and third parties. The Company entered into a
loan servicing agreement with AGT on May 1, 1996 whereby AGT is paid a fee of $8
to $100 per loan per month depending upon the type of loan and whether it is
performing or non-performing. AGT also receives a fee in its capacity as Master
Servicer for the Company's subserviced portfolio and is reimbursed for any
direct collection expenses including attorney fees, repair costs, etc. During
the eight months ended December 31, 1996, the Company paid AGT a total of
$297,029 in servicing fees and reimbursed the subsidiary for $215,326 in direct
collection expenses.
Most of the loans sold by the Company are sold on a servicing retained
basis. Servicing includes collecting and remitting loan payments, holding escrow
funds for the payment of real estate taxes, contacting delinquent mortgagors, in
some cases advancing to the investor interest when the mortgage is delinquent,
supervising foreclosures in the event of unremedied defaults and generally
administering the loans. Under loan servicing contracts, the Company receives
servicing fees that are withheld from the monthly payments made to investors.
The Company's aggregate loan servicing fees amounted to $790,000, $126,000, and
$61,000 in 1996, 1995, and 1994, respectively.
The following table sets forth information regarding the Company's loan
servicing portfolio at the dates shown.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- -------------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
----------- ---------- ----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans owned and serviced by
the Company....................... $ 164,745 44.7% $ 161,625 61.0% $ 57,491 36.3%
Loans owned by the Company
and serviced by others............ 203,853 55.3 103,349 39.0 101,061 63.7
----------- -------- ----------- ------ ------- ------
Total loans owned by the
Company......................... $ 368,598 100.0% $ 264,974 100.0% $ 158,552 100.0%
=========== ======= =========== ====== =========== ======
Loans serviced for others............ $ 45,856 $ 18,196 $ 9,513
</TABLE>
NON-PERFORMING, DELINQUENT AND OTHER PROBLEM ASSETS
GENERAL. It is management's policy to monitor continually its loan
portfolio to anticipate and address potential and actual delinquencies.
Valuations are periodically performed by management and an allowance for losses
on REO is established by a charge to operations if the fair value of the
property has changed.
NONPERFORMING/UNDERPERFORMING ASSETS. Nonperforming and underperforming
assets consist of loans on which interest is no longer accrued, loans which have
been restructured in order to allow the borrower the ability to maintain control
of the collateral, real estate acquired by foreclosure, real estate upon which
deeds in lieu of foreclosure have been accepted and real estate owned which has
been classified as in-substance foreclosure. Restructured loans and real estate
owned have been written down to estimated fair value, based upon estimates of
cash flow expected from the underlying collateral and appropriately discounted.
AI-10
<PAGE>
The following table sets forth information with respect the Company's
non-accrual loans, REO and In Substance Foreclosures ("ISF"), and troubled debt
restructuring ("TDRs") at the dates indicated. As of December 31, 1993, the
Company no longer classifies ISF loans as REO, which resulted in a decrease in
REO of $2.2 million at that date as compared to prior periods.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate loans:
One- to four-family................ $ 8,979 $ 4,526 $ 1,296 $ 1,570 $ 3,074
Commercial real estate............. 1,217 261 702 902 866
Land............................... -- -- -- -- --
Construction....................... -- -- -- -- --
Home equity lines of credit and
second mortgage loans.............. 54 136 41 47 --
Other................................ -- -- 27 35 120
----------- ----------- ----------- ----------- -----------
Total................................... $ 10,250 $ 4,923 $ 2,066 $ 2,554 $ 4,060
=========== =========== =========== =========== ===========
Accruing loans which are contractu-
ally past due 90 days or more:
Real estate loans:
One- to four-family................ $ -- $ 230 $ -- $ -- $ --
----------- ----------- ----------- ----------- -----------
Total................................... $ -- $ 230 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Total of non-accrual and 90 days
past due loans......................... $ 10,250 $ 5,153 $ 2,066 $ 2,554 $ 4,060
=========== =========== =========== =========== ===========
REO:
One- to four-family.................. $ 1,300 $ 421 $ 98 $ 194 $ 417
Commercial real estate............... -- -- 206 665 529
Land................................. -- 582 581 582 582
----------- ----------- ----------- ----------- -----------
1,300 1,003 885 1,441 1,528
Loss allowance for REO............... (65) (213) (92) (221) (162)
------------ ------------ ----------- ----------- -----------
Total REO, net..................... 1,235 790 793 1,220 1,366
----------- ----------- ----------- ----------- -----------
Total non-performing assets, net........ $ 11,485 $ 5,943 $ 2,859 3,774 $ 5,426
=========== =========== =========== =========== ===========
Total non-performing assets, net,
as a percentage of total assets...... 1.83% 1.07% 0.7% 1.7% 2.4%
============ =========== ============ =========== ===========
Total loss allowance as a percentage
of total non-performing assets,
gross................................ 26.3% 39.53% 34.45% 26.43% 14.69%
============ =========== =========== =========== ===========
TDRs .................................. $ 435 $ 365 $ 688 $ 413 $ 454
============ =========== =========== =========== ===========
</TABLE>
During 1996, non-performing assets increased by $5.5 million or 93.3%.
This increase is attributed to the acquisition of $8.2 million of one-to-four
family mortgage loans that were either non-performing or in bankruptcy at the
time of purchase. The Company acquired these loans at a discount of $1.53
million or 18.6% in order to offset the potential risk. As of December 31, 1996,
assets that were either non-performing or in bankruptcy at the time of purchase
accounted for $2.8 million or 24.7% of total non-performing loans. The remainder
of the growth in non-performing assets is attributed to the overall growth in
the Company's loan portfolio during the year. The Company also uses a stringent
policy for non-accrual loans whereby these loans remain in non-accrual status
until all arrears have been paid and the borrower has demonstrated the ability
to make timely payments. In addition, non-performing loans that were originated
prior to the Bank's acquisition by MET Holdings totaled $1.5 million or 12.9% of
total non-performing assets as of December 31, 1996.
During the years ended December 31, 1996, 1995, 1994, and 1993,
interest income of approximately $789,000, $365,000, $113,000, and $46,000,
respectively, would have been recorded on non-accruing loans had they been
performing in accordance with their terms. No interest on non-accruing loans was
included in income during the years ended December 31, 1996, 1995, 1994,
AI-11
<PAGE>
and 1993. TDRs are loans to which the Company has granted certain concessions in
light of the borrower's financial difficulty. The objective of the Company in
granting these concessions, through a modification of terms, is to maximize the
recovery of its investment. This modification of terms may include reduction in
stated rate, extension of maturity at a more favorable rate, and/or reduction of
accrued interest. TDRs with concessions totaled approximately $ 435,000,
$365,000, $688,000 and $413,000 at December 31, 1996, 1995, 1994 and 1993,
respectively. TDRs continue to be closely monitored by the Company due to their
inherent risk characteristics. Interest income recorded on TDRs in 1996, 1995,
1994 and 1993 was approximately $28,000, $45,000, $9,000 and $50,000,
respectively.
Loans which are not classified as non-accrual, past due 90 days or more
or TDRs, but where known information about possible credit problems of borrowers
caused management to have serious doubts as to the ability of the borrowers to
comply with present loan repayment terms and may result in disclosure as
non-accrual, past due 90 days or more or TDRs are considered potential problem
loans. At December 31, 1996, loans still accruing interest, but identified by
management as potential problem loans aggregated $2.4 million. The majority of
these loans, identified as "special mention" loans, includes a $2.1 million pool
of single family, non-performing, performing in accordance with a bankruptcy
plan.
ALLOWANCE FOR LOAN LOSSES. In originating and purchasing loans, the
Company recognizes that credit losses will be experienced and that the risk of
loss will vary with, among other things, the type of loan, the creditworthiness
of the borrower over the term of the loan, general economic conditions, and in
the case of a secured loan, the quality of the security for the loan. It is
management's policy to maintain an adequate allowance for loan losses based on,
among other things, the Company's and the industry's historical loan loss
experience, evaluation of economic conditions, and regular reviews of
delinquencies and loan portfolio quality. The Company increases its allowance
for loan losses by charging provisions for possible loan losses against the
Company's income.
The Company's methodology for establishing the allowance for loan
losses takes into consideration probable losses that have been identified in
connection with specific loans as well as losses in the loan portfolio that have
not been identified but can be expected to occur. General allowances are
established by management and approved by the Board of Directors. These
allowances are reviewed monthly based on an assessment of risk in the Company's
loan portfolio as a whole taking into consideration the composition and quality
of the portfolio, delinquency trends, current charge-off and loss experience,
the state of the real estate market and general economic conditions. Additional
provisions for losses on loans may be made in order to bring the allowance to a
level deemed adequate. Additionally, the Company's internal audit consultants
have established an independent internal loan review program which is followed
by bank personnel.
In general, the Company adds provisions to its allowance for loan
losses in amounts equal to 0.20% of on-to-four family mortgages, 0.50% for home
equity lines of credit and second trusts, 1.0% of multifamily and mixed use real
estate loans and 2.0% of commercial and land loans. During 1996, the Company
recorded a $624,000 net increase in the allowance for loan losses in relation to
the $103.4 million increase in the loan portfolio. Of this increase in the
allowance for loan losses, 84.4% of the amount related to the general valuation
allowance ("GVA").
During 1996, the Company purchased $53.2 million of one-to-four family
mortgage loans which had additional credit enhancement available to offset any
potential losses. Two pools of loans totaling $33.5 million had a credit reserve
equal to 2.3% of the unpaid principal balance at the time of purchase available
to offset any losses. One pool totaling $11.7 million has an indemnification
whereby the seller must repurchase any loan that becomes more than four payments
past due at any time during the life of the loan. The final pool of loans
totaling $8.0 million had a credit reserve equal to approximately 10% of the
unpaid principal balance at the time of acquisition. Since the available credit
enhancement associated with these loans exceeds the expected potential losses,
no additional reserves were recorded for them during the year.
AI-12
<PAGE>
Information regarding movements in the provision for loan losses during
the five year period ending December 31, 1996 is incorporated herein by
reference to the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Earnings Performance --
Provision for Loan and Security Losses" included in this Form 10-K.
The following table sets forth at December 31, 1996 the aggregate
carrying value of the Company's assets classified as substandard, doubtful,
loss, and special mention according to type.
<TABLE>
<CAPTION>
TOTAL SPECIAL
SUBSTANDARD DOUBTFUL LOSS CLASSIFIED MENTION
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans:
One- to four-family.................. $ 8,979 $ -- $ 439 $ 9,418 $ 2,138
Commercial real estate............... 1,217 -- 135 1,352 251
Land................................. -- -- -- -- --
Home equity lines of credit and
second mortgage.................... 54 -- 5 59 --
----------- -------- ---------- ----------- ---------
Total loans............................. $ 10,250 $ -- $ 579 $ 10,829 $ 2,389
=========== ======== ========== =========== ==========
REO:
One- to four-family.................. $ 1,235 $ -- $ 65 $ 1,300 $ --
----------- -------- ---------- ----------- ---------
Total REO............................... 1,235 -- 65 1,300 --
----------- -------- ---------- ----------- ---------
Total................................... $ 11,485 $ -- $ 644 $ 12,129 $ 2,389
=========== ======== ========== =========== ==========
</TABLE>
As a result of the declines in regional real estate market values and
the significant losses experienced by many financial institutions, there has
been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
the institution by the FDIC, OTS, and other state and federal regulators.
Although the Company believes it has established its existing allowances for
losses in accordance with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing the Company's loan portfolio, will
not request the Company to increase its allowance for losses, thereby negatively
affecting the Company's financial condition and earnings.
AI-13
<PAGE>
The following table allocates the allowance for loan losses by loan
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any other category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
------------------------ ------------------------- -------------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ------------- --------- -------------- --------- ------------- ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family..... $ 2,529 97.55% $ 1,939 96.11% $ 603 92.81% $ 468 92.20%
Multifamily............. 15 0.41 13 0.49 11 0.70 9 0.90
Commercial real estate.. 373 1.09 281 1.72 273 2.77 329 5.73
Mixed use............... 12 0.32 18 0.68 -- 1.23 -- --
Land.................... 8 0.21 8 0.14 8 0.24 1 0.02
Construction............ -- -- -- -- -- -- -- --
Lease financing........... -- -- -- -- -- -- 3 0.02
Home equity lines of
credit and second
mortgage loans.......... 20 0.42 28 0.83 16 2.14 5 0.98
Other consumer............ -- -- 24 0.03 14 0.11 20 0.15
--------- ------- --------- -------- -------- ------- --------- -------
Total allowance for
loan losses............. $ 2,957 100.00% $ 2,311 100.00% $ 925 100.00% $ 835 100.00%
========= ======== ========= ======== ======== ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1992
----------------------------
PERCENT OF
LOANS IN EACH
CATEGORY TO
AMOUNT TOTAL LOANS
--------- ----------------
<S> <C> <C>
Real estate loans:
One- to four-family..... $ 404 90.85%
Multifamily............. 8 0.97
Commercial real estate.. 214 6.12
Mixed use............... -- --
Land.................... 2 0.05
Construction............ -- 0.20
Lease financing........... 18 0.12
Home equity lines of
credit and second
mortgage loans.......... 12 1.44
Other consumer............ 1 0.25
--------- --------
Total allowance for
loan losses............. $ 659 100.00%
========= ========
</TABLE>
AI-14
<PAGE>
Included in the above amounts are specific reserves totaling $579,000,
$392,000, $201,000, $240,000, and $260,000, at December 31, 1996, 1995, 1994,
1993, and 1992, respectively, related to loans classified as loss.
REO. REO is initially recorded at estimated fair value less selling
costs. Fair value is defined as the estimated amount in cash or cash-equivalent
value of other consideration that a real estate parcel would yield in a current
sale between a willing buyer and a willing seller. Subsequent to foreclosure,
REO is periodically evaluated by management and an allowance for loss is
established if the estimated fair value of the property, less estimated costs to
sell, declines.
As of December 31, 1996, all of the Company's REO consisted of
one-to-four family real estate.
INVESTMENT SECURITIES
The following table sets forth the cost basis and fair value of the
Company's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1996 1995 1994
------------------------- ----------------------- -------------------------
COST FAIR COST FAIR COST FAIR
BASIS VALUE BASIS VALUE BASIS VALUE
------- ------- ------- ------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
Held to maturity:
Corporate debt................. $ -- $ -- $ -- $ -- $ 1,896 $ 1,901
Margin Account ................. 18 18 -- -- -- --
Other investments.............. 1 1 -- -- -- --
Available for sale:
Municipal bonds................ 7,325 7,507 12,360 12,712 10,460 9,722
Corporate debt................. 22,525 23,569 22,850 23,987 823 826
Obligations of U.S.
government agencies.......... 31,139 31,272 3,359 3,359 -- --
Certificate of Deposits ....... 499 499 -- -- -- --
------- ------- ------- ------- ------- ---------
Subtotal............................ 61,505 62,866 38,569 40,058 13,179 12,449
Securities purchased under
agreements to resell........... 1,730 1,730 -- -- 1,181 1,181
Equity securities:
Stock in FHLB Atlanta.......... 7,300 7,300 5,275 5,275 4,900 4,900
Stock in FHLMC ................ 5,000 4,988 -- -- -- --
Stock in FNMA ................. 8,000 8,232 -- -- -- --
Other Corporate Stock ......... 1,011 1,011 -- -- -- --
--------- --------- --------- -------- -------- ---------
Total.......................... $ 84,546 $ 86,127 $ 43,844 $ 45,333 $ 19,260 $ 18,530
========= ========= ========= ======== ======== =========
</TABLE>
AI-15
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, and current yields for the Company's investment portfolio of debt
securities at December 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
------------------- ------------------- --------------------- -----------------
BALANCE WEIGHTED BALANCE WEIGHTED BALANCE WEIGHTED BALANCE WEIGHTED
DUE YIELD DUE YIELD DUE YIELD DUE YIELD
------------------ -------- --------- --------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal bonds (a) $ -- -- $ 568 7.42% $ 3,587 7.60% $ 3,351 11.30%
Corporate debt -- -- 1,990 7.17 7,497 6.95 14,083 7.34
Certificates of Deposit -- -- 499 6.92 -- -- -- --
Obligations of U.S. Government Agencies -- -- 989 7.17 -- -- 30,283 6.09
Securities purchased under agreements to resell 1,748 6.19 -- -- -- -- -- --
Equities -- -- -- -- -- -- 14,231 7.31
--------- --------- ------ --------- --------- ------- -------- --------
$ 1,748 6.19% $ 4,046 7.17% $ 11,084 7.16% $61,948 6.94%
========= ======== ======= ========= ========= ======= ======= ========
</TABLE>
TOTALS
----------------------
BALANCE WEIGHTED
DUE YIELD
-------- --------
(DOLLARS IN THOUSANDS)
Municipal bonds (a) $ 7,506 6.01%
Corporate debt 23,570 7.20
Certificates of Deposit 499 6.92
Obligations of U.S. Government Agencies 31,272 6.12
Securities purchased under agreements to resell 1,748 6.25
Equities 14,231 7.55
-------- --------
$ 78,826 6.70%
======== ========
(a) Yields on tax exempt obligations are computed on a tax equivalent basis.
AI-16
<PAGE>
Deposits and Other Sources of Funds
In 1996, the Bank introduced an Automatic Teller Machine Card ("ATM") associated
with its money market accounts.
Deposits in the Bank as of December 31, 1996 were represented by the
various programs described below:
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
TERM CATEGORY BALANCE DEPOSITS
---- -------- ------- --------
(In thousands)
<S> <C> <C> <C>
None Checking Accounts $ 309 0.08%
None Money Market Accounts 109,835 28.13%
None Passbook Accounts 1,758 0.45%
Certificates of Deposit
3-month Fixed-Term, Fixed-Rate 1,210 0.31%
6-month Fixed-Term, Fixed-Rate 6,408 1.64%
12-month Fixed-Term, Fixed-Rate 39,402 10.09%
18-month Fixed-Term, Fixed-Rate 7,181 1.84%
2-year Fixed-Term, Fixed-Rate 41,443 10.61%
30-month Fixed-Term, Fixed-Rate 46,294 11.86%
3-year Fixed-Term, Fixed-Rate 20,985 5.37%
4-year Fixed-Term, Fixed-Rate 717 0.18%
5-year Fixed-Term, Fixed-Rate 107,289 27.48%
7-year Fixed-Term, Fixed-Rate 4,658 1.19%
10-year Fixed-Term, Fixed-Rate 2,997 0.77%
----------- -----
Total $ 390,486 100.00%
=========== =======
</TABLE>
AI-17
<PAGE>
The following table sets forth the change in dollar amount of deposits
in the various types of accounts offered by the Company between the dates
indicated:
<TABLE>
<CAPTION>
BALANCE BALANCE
AT PERCENTAGE AT PERCENTAGE
DECEMBER 31, OF INCREASE DECEMBER 31, OF INCREASE
ACCOUNTS 1996 DEPOSIT (DECREASE) 1995 DEPOSITS (DECREASE)
-------- ---- ------- ---------- ---- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook.............................. $ 1,758 .45% $ (262) $ 2,020 0.66% $ (680)
Money market.......................... 109,835 28.13 34,103 75,732 24.71 65,342
Checking.............................. 309 .08 (1,439) 1,748 0.57 1,449
Certificates of deposit............... 278,584 71.34 51,584 227,000 74.06 27,978
------- ----- ------ --------- -------- ---------
Total............................ $ 390,486 100.00% $ 83,986 $306,500 100.00% $ 94,089
======= ====== ====== ======== ====== =========
</TABLE>
BALANCE
AT PERCENTAGE
DECEMBER 31, OF
ACCOUNTS 1994 DEPOSITS
-------- ---- --------
(Dollars in thousands)
Passbook.............................. $ 2,700 1.27%
Money market.......................... 10,390 4.89
Checking.............................. 299 0.14
Certificates of deposit............... 199,022 93.70
--------- -------
Total............................ $ 212,411 100.00%
========= ======
AI-18
<PAGE>
The following table sets forth certificates of deposit and money market
accounts in the Company classified by rates at the dates indicated.
AT DECEMBER 31,
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS)
0 - 1.99%..................... $ 5,235 $ -- $ --
2 - 3.99%..................... 148 -- 1,844
4 - 5.99%..................... 210,481 141,750 65,533
6 - 7.99%..................... 170,056 158,375 106,915
8 - 9.99%..................... 1,709 1,817 22,549
10 - 11.99%................... 790 790 2,181
----------- ----------- -----------
388,419 $ 302,732 $ 199,022
=========== =========== ===========
The following table indicates the amount of the Company's certificates
of deposit of $100,000 or more by time remaining until maturity as of December
31, 1996.
CERTIFICATES
OF DEPOSIT
(IN THOUSANDS)
Three months or less........................................ $ 2,144
Three through six months.................................... 6,901
Six through twelve months................................... 4,791
Over twelve months.......................................... 12,366
----------
Total....................................................... $ 26,202
==========
BORROWINGS
Although deposits are the Company's primary source of funds, the Company
also utilizes borrowings from the FHLB of Atlanta and securities sold under
agreements to repurchase as alternative funding sources As a member of the FHLB
System, which, among other things, functions in a reserve credit capacity for
savings institutions, the Company is required to own capital stock in the FHLB
of Atlanta and is authorized to apply for advances on the security of such stock
and certain of its home mortgages and other assets (principally securities which
are obligations of, or guaranteed by, the United States of America) provided
certain creditworthiness standards have been met. See "Regulation."
As of December 31, 1996 the Company had outstanding advances of $144.8
million from the FHLB of Atlanta at interest rates ranging from 5.33% to 6.95%
and at a weighted average rate of 5.94%.
AI-19
<PAGE>
The Company also borrows funds by entering into sales of securities
under agreements to repurchase the same securities with nationally recognized
investment banking firms. The securities are held in custody by the investment
banking firms with which the Company enters into the repurchase agreement.
Reverse repurchase agreements are treated as borrowings by the Company and are
secured by designated fixed and variable rate securities. The proceeds of these
transactions are used to meet cash flow or asset/liability matching needs of the
Company. The following table sets forth certain information regarding reverse
repurchase agreements for the dates indicated:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average balance during the year...................... $ 68,920 $ 97,692 $ 45,759
Weighted average interest rate during the year................ 5.77% 6.29% 4.92%
Maximum month-end balance during the year..................... $ 97,416 $ 119,507 $ 79,613
Mortgage-backed securities underlying
the agreements as of the end of the year:
Carrying value, including accrued interest................. 22,856 103,590 93,608
Estimated market value........................................ 22,804 103,891 89,224
Agencies
Carrying value, including accrued interest................. 38,562 10,499 30,794
Estimated market value..................................... 38,621 10,594 29,441
</TABLE>
AI-20
<PAGE>
The following table sets forth information regarding the weighted
average interest rates and the highest and average month end balances of the
Company's borrowings.
<TABLE>
<CAPTION>
AT OR AT OR
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------------------------- -------------------------------------------------------
WEIGHTED MAXIMUM WEIGHTED AVERAGE WEIGHTED MAXIMUM WEIGHTED AVERAGE
ENDING AVERAGE AMOUNT AT AVERAGE WEIGHTED ENDING AVERAGE AMOUNT AT AVERAGE WEIGHTED
CATEGORY BALANCE RATE MONTH-END BALANCE AVERAGE RATE BALANCE RATE MONTH-END BALANCE AVERAGE RATE
- -------- -------- -------- --------- --------- ------------ -------- -------- --------- ------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advances from the FHLB
of Atlanta...........$144,800 5.94% $154,500 $120,633 5.91% $ 105,500 5.87% $ 106,800 $104,110 6.06%
Securities sold under
agreement to
repurchase $ 57,581 5.69% $ 97,416 68,920 5.77% $ 93,905 6.06% $ 119,507 $ 97,692 6.29%
</TABLE>
AT OR
FOR THE YEAR ENDED
DECEMBER 31, 1994
-------------------------------------------------------
WEIGHTED MAXIMUM WEIGHTED AVERAGE
ENDING AVERAGE AMOUNT AT AVERAGE WEIGHTED
CATEGORY BALANCE RATE MONTH-END BALANCE AVERAGE RATE
- -------- ------- -------- ---------- --------- ------------
Advances from the FHLB
of Atlanta........... $96,000 5.36% $ 112,000 $82,358 4.64%
Securities sold under
agreement to
repurchase $79,613 5.81% $ 79,613 $45,759 4.92%
AI-21
<PAGE>
PROPERTIES
During 1996, the Bank operated from the Company's headquarters located
at 1111 North Highland Street, Arlington, Virginia 22201 and from an office that
it subleases from Arbor Capital Partners, Inc., a subsidiary of MET Holdings
("Arbor Capital"), in New York for approximately $58,000 per year.
SUBSIDIARIES
During the second quarter of 1996, the Bank through its wholly owned
subsidiary TeleBanc Servicing Corporation ("TSC") funded 50% of the capital
commitment for a new entity, AGT Mortgage Services, LLC ("AGT"). AGT services
performing loans and workouts for troubled or defaulted loans for a fee. The
Bank also provided in the second quarter of 1996, 50% of the capital commitment
for an additional new entity, AGT PRA, LLC ("AGT PRA"). The primary business of
AGT PRA is its investment in Portfolio Recovery Associates, LLC ("PRA"). PRA
acquires and collects delinquent consumer debt obligations for its own
portfolio.
EMPLOYEES
At December 31, 1996, the Company had approximately 40 full-time
employees. Management considers its relations with its employees to be
excellent. The Bank's employees are not represented by any collective bargaining
group.
REGULATION
GENERAL
The Company, as a savings and loan holding company, and the Bank, as a
federally chartered savings bank, are subject to extensive regulation,
supervision and examination by the OTS as their primary federal regulator. The
Bank also is subject to regulation, supervision and examination by the Federal
Deposit Insurance Corporation (the "FDIC") and as to certain matters by the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
See "Management's Discussion and Analysis" and "Notes to Consolidated Financial
Statements" as to the impact of certain laws, rules and regulations on the
operations of the Company and the Bank. Set forth below is a description of
certain recent regulatory developments.
In September 1996, legislation (the "1996 legislation") was enacted to
address the undercapitalization of the SAIF, of which the Bank is a member. As a
result of the 1996 legislation, the FDIC imposed a one-time special assessment
of 0.657% on deposits insured by the SAIF as of March 31, 1995. The Bank
incurred a one-time charge of $1.7 million (before taxes) to pay for the special
assessment based upon its level of SAIF deposits as of March 31, 1995. After the
SAIF was deemed to be recapitalized, the Bank's deposit insurance premiums to
the SAIF were reduced as of September 30, 1996. The Bank expects that its future
deposit insurance premiums will continue to be lower than the premiums it paid
prior to the recapitalization.
The 1996 legislation also contemplates the merger of the SAIF with the
Bank Insurance Fund (the "BIF"), which generally insures deposits in national
and state-chartered banks. The combined deposit insurance fund, which will be
formed no earlier than January 1, 1999, will insure deposits at all FDIC insured
depository institutions. As a condition to the combined insurance fund, however,
no insured depository institution can be chartered as a savings association. The
Secretary of the Treasury is required to report to the Congress no later than
March 31, 1997 with respect to the development of a common charter for all
insured depository institutions. If legislation with respect to the development
of a common charter is enacted, the Bank may be required to convert its federal
AI-22
<PAGE>
charter to either a new federal type of bank charter or state depository
institution charter. Future legislation also may result in the Company becoming
g regulated as a bank holding company by the Federal Reserve Board rather than a
savings and loan holding company regulated by the OTS. Regulation by the Federal
Reserve Board could subject the Company to capital requirements that are not
currently applicable to the Company as a holding company under OTS regulation
and may result in statutory limitations on the type of business activities in
which the Company may engage at the holding company level, which business
activities currently are not restricted. The Company and the Bank are unable to
predict whether such legislation will be enacted.
The 1996 legislation also contained several provision that could impact
operations of the Bank, including augmenting the Bank's commercial lending
authority by 10% of assets, provided that any loans in excess of 10% are used
for small business loans. Furthermore, the qualified thrift lender test that the
Bank must comply with was liberalized to provide that small business, credit
card and student loans can be included without any limit, and that the Bank can
qualify as a qualified thrift lender by meeting either the test set forth in the
Home Owners' Loan Act or under the definition of a domestic building and loan
association as defined under the Internal Revenue Code of 1086, as amended (the
"IRC").
Separate legislation was enacted in 1996, and is effective for tax
years beginning after December 31, 1995, repealing the thrift bad debt
provisions of Section 593 of the IRC under which qualified savings institutions
calculated their bad debt deduction for federal income tax purposes. As a
result, the Bank will no longer be able to use the "reserve method" for
computing its bad debt deduction and will be allowed to deduct only those bad
debts actually incurred during the taxable year. The bad debt provisions of this
legislation also require thrifts to recapture and pay tax on bad debt reserves
accumulated since 1987 over a six year period, beginning with a thrift's first
taxable year beginning after December 31, 1995. This recapture is suspended for
up to two years, however, if the thrift meets a residential loan origination
test. The legislation exempted from recapture $(264,000) in pre-1988 bad debt
deductions taken by the Bank and will defer up to two years the recapture of an
additional $549,000, subject to the Bank's compliance with the new home mortgage
residential loan origination test.
During 1996, the OTS continued its comprehensive review of its
regulations to eliminate duplicative, unduly burdensome and unnecessary
regulations concerning lending and investments, corporate governance,
subsidiaries and equity investments, conflicts of interest and usurpation of
corporate opportunity. The OTS's revised lending and investments regulation
generally imposes general safety and soundness standards, and also provides that
commercial loans made by a service corporation of a savings association will be
exempted from an institution's overall 10% limit on commercial loans. Such
regulations now allow an institution to use its own cost-of-funds index in
structuring adjustable rate mortgages, and eliminate percentage of assets
limitations on credit card lending.
The OTS's revised subsidiaries and equity investment regulation
consolidated all OTS regulations that apply to various types of subsidiaries of
federal associations and updates the list of pre-approved service corporation
activities with additional activities that the OTS has deemed to be reasonable
related to the activities of federal savings institutions. The revised corporate
governance regulation is intended to prove greater flexibility with respect to
corporate governance of federal savings institutions, such as the Bank.
The OTS also converted its policy statement on conflicts of interest to
a regulation that is intended to be based upon common law principles of "duty of
loyalty" and "duty of care." The new conflicts regulation provides that
directors, officers, employees, person having the power to control the
management or policies of savings associations, and other persons who owe
fiduciary duties to savings associations, and other persons who owe fiduciary
duties to savings institutions will be prohibited from advance their own
personal or business interests, or those of others, at the expense of the
institutions they serve, The "appearance of a conflict of interest" standard was
removed from the scope of the revised rule. The OTS also clarified that "persons
having the power to control
AI-23
<PAGE>
management or policies of savings associations" includes holding companies such
as the Company. The OTS corporate opportunity regulations and policy statements
also were eliminated and replaced with a standard similar to common law
standards governing usurpation of corporate opportunity. Significantly under the
revised regulation, transfers of a line of business within a holding company
structure will not be deemed to be a usurpation of corporate opportunity if an
institution receives fair market consideration for a line of business
transferred to its holding company or its affiliates. In such transactions, the
OTS will generally defer to decisions made by a holding company, subject to
compliance with Sections 23A or 23B of the Federal Reserve Act and general
safety and soundness principles.
ITEM 2. PROPERTIES
Reference is made to the information set forth under the caption
"Properties" under Item 1. Business of this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to its business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of TeleBanc stockholders during the
fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information as to the principal market on which the Company's common
stock is traded, the Company's dividend policy and the high and low bid
quotations or sales prices, as applicable, for each calendar quarter since the
Company's initial public offering is incorporated herein by reference to the
section titled "Company Information" in the 1996 Annual Report to Stockholders.
The approximate number of holders of record of the Company's common stock at
December 31, 1996 was less than 200.
ITEM 6. SELECTED FINANCIAL DATA
Selected consolidated financial data for the five years ended December
31, 1996 included in the section titled "Selected Financial Data" in the 1996
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the section so titled in the 1996 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Certain of the information required by this Item is incorporated by
reference to the sections titled "Consolidated Statements of Financial
Condition," "Consolidated Statements of Operations," "Consolidated Statements of
Stockholders' Equity," "Consolidated Statements of Cash Flows" and
AI-24
<PAGE>
"Notes to Consolidated Financial Statements" in the 1996 Annual Report to
Stockholders. The independent auditors' report of Arthur Andersen LLP with
respect to the Company's consolidated statements of financial condition at
December 31, 1996 and 1995 and the consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
1996 and 1995 is filed as Exhibit 99 and is incorporated herein by reference.
The independent auditors' report of KPMG Peat Marwick LLP with respect to the
Company's consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 1994 is filed as Exhibit 99 and
is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9 is not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G of the Form 10-K, such information
shall be filed as an amendment no later than 120 days from December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G of the Form 10-K, such
information shall be filed as an amendment no later than 120 days from December
31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G of the Form 10-K, such
information shall be filed as an amendment no later than 120 days from December
31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G of the Form 10-K, such
information shall be filed as an amendment no later than 120 days from December
31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of registrant
and its subsidiary and report of independent auditors are included in Item 8
hereof.
Report of Independent Auditors.
Consolidated Statements of Financial Condition - December 31, 1996 and
1995.
Consolidated Statements of Operations - Years Ended December 31, 1996,
1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(a)(3) The following exhibits are either filed with this Report or are
incorporated herein by reference:
3.1(a) Amended and Restated Certificate of Incorporation of the
Company.*
3.1(b) Certificate of Designation.***
3.2 Bylaws of the Company.****
4.1 Specimen certificate of shares of Common Stock.**
10.1 1994 Stock Option Plan.**
10.2 Tax Allocation Agreement, dated April 7, 1994, between the
Bank and the Company.*
10.3 Unit Purchase Agreement, dated as of February 19, 1997, among
the Company and the Purchasers identified therein. ***
10.4 Amended and Restated Acquisition Agreement, dated as of
February 19, 1997, among the Company, Arbor Capital Partners,
Inc., MET Holdings Corporation, and William M. Daugherty. ***
11 Statement regarding computation of per share earnings.****
13 1996 Annual Report to Stockholders.****
AI-25
<PAGE>
21 Subsidiaries of the Registrant.****
23.1 Consent of Arthur Andersen LLP and KPMG Peat Marwick LLP.****
27 Financial Data Schedule.
99.1 Independent auditor's report of Arthur Andersen LLP.****
99.2 Independent auditor's report of KPMG Peat Marwick.****
99.3 Definitive proxy statement for the 1997 Annual Meeting of
Stockholders.*****
(b) The Registrant did not file any Current Reports on Form 8-K during
the fourth quarter of its fiscal year ended December 31, 1996.
(c) Exhibits to this Form 10-K/A are attached.
(d) Not applicable.
- ------------------
* Incorporated by reference to pre-effective Amendment No. 1 to the
Company's registration statement on Form S-1 (File No. 33-76930) filed
with the SEC on May 3, 1994.
** Incorporated by reference to the Company's registration statement on
Form S-1 (File No. 33-76930) filed with the SEC on March 25, 1994.
*** Incorporated by reference from the Company's Current Report on Form
8-K, as filed with the SEC on March 17, 1997.
**** Exhibit was filed as part of the Company's Report on Form 10-K, as
filed with the SEC on March 31, 1997.
***** Exhibit was filed as part of the Company's Report on Form 10-K/A, as
filed with the SEC on April 24, 1997.
AI-26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 30th day of
March, 1996.
TELEBANC FINANCIAL CORPORATION
Registrant
By: /s/ Mitchell H. Caplan
--------------------------
Mitchell H. Caplan
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 30, 1996.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ David A. Smilow Chairman of the Board & CEO
- ----------------------------- (principal executive officer)
David A. Smilow
/s/ Mitchell H. Caplan President, Vice Chairman
- ----------------------------- and Director
Mitchell H. Caplan
/s/ Aileen Lopez Pugh Executive Vice President and
- ----------------------------- Chief Financial Officer/Treasurer
Aileen Lopez Pugh (principal financial and accounting officer)
/s/ David DeCamp Director
- -----------------------------
David DeCamp
/s/ Arlen W. Gelbard Director
- -----------------------------
Arlen W. Gelbard
/s/ Dean C. Kehler Director
- -----------------------------
Dean C. Kehler
/s/ Steven F. Piaker Director
- -----------------------------
Steven F. Piaker
/s/ Mark Rollinson Director
- -----------------------------
Mark Rollinson
</TABLE>
AI-27
<PAGE>
INDEX TO FINANCIALS
Report of Independent Auditors.
Consolidated Statements of Financial Condition - December 31, 1996 and
1995.
Consolidated Statements of Operations - Years Ended December 31, 1996,
1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
AI-28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
----------- ------- -------------
<S> <C>
3.1(a) Amended and Restated Certificate of Incorporation of the Company.*
3.1(b) Certificate of Designation***
3.2 Bylaws of the Company.
4.1 Specimen certificate of shares of Common Stock.**
10.1 1994 Stock Option Plan.**
10.2 Tax Allocation Agreement, dated April 7, 1994, between the Bank and
the Company.*
10.3 Unit Purchase Agreement, dated as of February 19, 1997, among the
Company and the Purchasers identified therein. ***
10.4 Amended and Restated Acquisition Agreement, dated as of February 19,
1997, among the Company, Arbor Capital Partners, Inc., MET Holdings,
Inc., and William M. Daugherty. ***
11 Statement regarding computation of per share earnings.
13 1996 Annual Report to Stockholders, portions of which have been
incorporated by reference into this Form 10-K.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP and KPMG Peat Marwick LLP.
27 Financial Data Schedule.
99.1 Independent auditor's report of Arthur Andersen LLP.****
99.2 Independent auditor's report of KPMG Peat Marwick.****
99.3 Definitive proxy statement for the 1997 Annual Meeting of
Stockholders.*****
(b) The Registrant did not file any Current Reports on Form 8-K during
the fourth quarter of its fiscal year ended December 31, 1996.
(c) Exhibits to this Form 10-K/A are attached.
(d) Not applicable.
- ------------------
* Incorporated by reference to pre-effective Amendment No. 1 to the
Company's registration statement on Form S-1 (File No. 33-76930) filed
with the SEC on May 3, 1994.
** Incorporated by reference to the Company's registration statement on
Form S-1 (File No. 33-76930) filed with the SEC on March 25, 1994.
*** Incorporated by reference from the Company's Current Report on Form
8-K, as filed with the SEC on March 17, 1997.
**** Exhibit was filed as part of the Company's Report on Form 10-K, as
filed with the SEC on March 31, 1997.
***** Exhibit was filed as part of the Company's Report on Form 10-K/A, as
filed with the SEC on April 24, 1997.
</TABLE>
AI-29
<PAGE>
BYLAWS
OF
TELEBANC FINANCIAL CORPORATION
1. OFFICES.
1.1. REGISTERED OFFICE.
The initial registered office of the Corporation shall be in
Wilmington, Delaware, and the initial registered agent in charge thereof shall
be Corporation Service Company.
1.2. OTHER OFFICES.
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine or as may be necessary or useful in connection with the
business of the Corporation.
2. MEETINGS OF STOCKHOLDERS.
2.1. PLACE OF MEETINGS.
All meetings of the stockholders shall be held at such place as may
be fixed from time to time by the Board of Directors, the Chairman of the Board,
or the President and stated in the notice of meeting or in a duly executed
waiver of notice thereof.
2.2. ANNUAL MEETINGS.
The Corporation shall hold annual meetings of stockholders on the
first Wednesday in May at 11 a.m. or at such other date and time as shall be
designated from time to time by the Board of Directors, the Chairman of the
Board or the President at which stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
2.3. SPECIAL MEETINGS.
Special meetings of the stockholders for any purpose, unless
otherwise prescribed by statute, may be called only as provided in the
Corporation's Certificate of Incorporation, as amended from time to time (the
"Certificate of Incorporation"). Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
AI-30
<PAGE>
2.4. NOTICE OF MEETINGS.
Notice of any meeting of stockholders, stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 days nor more than 60 days before the date of the meeting (except to the
extent that such notice is waived or is not required as provided in the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law")). Such notice shall be given in accordance with, and shall be deemed
effective as set forth in, Section 222 (or any successor section) of the
Delaware General Corporation Law.
2.5. WAIVERS OF NOTICE.
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the Corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (a) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (b) of consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the stockholder objects to considering the matter at
the beginning of the meeting.
2.6. BUSINESS AT ANNUAL MEETING.
At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors or (c) otherwise properly brought
before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation no later than the date designated
for receipt of stockholders' proposals in a prior public disclosure made by the
Corporation. If there has been no such prior public disclosure, then to be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the annual meeting; provided, however, that in the
event that less than 70 days' notice of the date of the annual meeting is given
to stockholders or prior public disclosure of the date of the meeting is made,
notice by the stockholder to be timely must be so
AI-31
<PAGE>
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, (d) any material
interest of the stockholder in such business and (e) the same information
required by clauses (b), (c) and (d) above with respect to any other stockholder
that, to the knowledge of the stockholder proposing such business, supports such
proposal. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.6. The Chairman of the Board shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before the meeting in accordance with the provisions of
this Section 2.6, and if the Chairman of the Board should so determine, the
Chairman of the Board shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
2.7. LIST OF STOCKHOLDERS.
After the record date for a meeting of stockholders has been fixed,
at least 10 days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to vote
at the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place in the city where the meeting is
to be held, which place is to be specified in the notice of the meeting, or at
the place where the meeting is to be held. Such list also shall, for the
duration of the meeting, be produced and kept open to the examination of any
stockholder who is present at the time and place of the meeting.
2.8. STOCK LEDGER.
The stock ledger of the Corporation shall be the only evidence as
to who are the stockholders entitled to examine the list required by Section 2.7
above or to vote in person or by proxy at any meeting of stockholders.
AI-32
<PAGE>
2.9. QUORUM AT MEETINGS.
Stockholders may take action on a matter at a meeting only if a
quorum exists with respect to that matter. Except as otherwise provided by
statute or by the Certificate of Incorporation, the holders of a majority of the
stock issued and outstanding and entitled to vote at the meeting, and who are
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. Once a share is
represented for any purpose at a meeting (other than solely to object (a) to
holding the meeting or transacting business at the meeting or (b) to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice), it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for the adjourned meeting.
The holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present, may adjourn such meeting from time to time. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
2.10. VOTING AND PROXIES.
Unless otherwise provided in the Delaware General Corporation Law
or in the Certificate of Incorporation, and subject to the other provisions of
these Bylaws, each stockholder shall be entitled to one vote on each matter, in
person or by proxy, for each share of the Corporation's capital stock that has
voting power and that is held by such stockholder and such number of votes,
including multiple or fractional votes, as may be provided by resolution of the
Board of Directors for each share of serial preferred stock entitled to vote
thereat held by such stockholder. Proxies solicited on behalf of the Board of
Directors shall be voted as directed by the stockholder or, in the absence of
such direction, as determined by a majority of the Board of Directors. No proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed appointment of proxy shall be
irrevocable if the appointment form states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
2.11. REQUIRED VOTE.
If a quorum exists, any matter brought before any meeting of
stockholders (other than the election of directors) shall be decided by the
affirmative vote of the majority of the votes cast on the matter, unless the
Certificate of Incorporation or the Delaware General Corporation Law or these
Bylaws requires a greater number
AI-33
<PAGE>
of affirmative votes (in which case such different requirement shall apply).
Directors shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election (provided a quorum exists), and the election of
directors need not be by written ballot. The Board of Directors, in its
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
2.12. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders, and may not be effected by any consent in writing by such
stockholders, unless such written consent is unanimous, and the writing or
writings are delivered to the Corporation for inclusion in the Minute Book of
the Corporation.
2.13. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS.
If shares or other securities having voting power stand of record in
the names of two or more persons, whether fiduciaries, members of a partnership,
joint tenants, tenants in common, tenants by the entirety or otherwise, or if
two or more persons have the same fiduciary relationship respecting the same
shares, unless the secretary of the Corporation is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one votes, his or her act
binds all; (b) if more than one vote, the act of the majority so voting binds
all; (c) if more than one vote, but the vote is evenly split on any particular
matter, each fraction may vote the securities in question proportionally, or any
person voting the shares, or a beneficiary, if any, may apply to the Court of
Chancery of the State of Delaware or such other court as may have jurisdiction
to appoint an additional person to act with the persons so voting the shares,
which shall then be voted as determined by a majority of such persons and the
person appointed by the Court. If the instrument so filed shows that any such
tenancy is held in unequal interests, a majority or even-split for the purposes
of this Section 2.13 shall be a majority or even-split in interest.
2.14. VOTING OF SHARES BY CERTAIN HOLDERS.
Shares standing in the name of another corporation may be voted by
any officer, agent or proxy as the bylaws of such corporation may prescribe, or
in the absence of such provision, as the board of directors of such corporation
may determine. Shares held by an administrator, executor, guardian or
conservator may be voted by him or her, but no trustee shall be entitled to vote
shares held by such trustee without a transfer of such shares into his or her
name. Shares standing in the name of a receiver may be voted by such receiver,
and shares held
AI-34
<PAGE>
by or under the control of a receiver may be voted by such receiver without the
transfer into his or her name if authority so to do is contained in an
appropriate order of the court or other public authority by which such receiver
was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer by the pledgor on the books of the Corporation
such stockholder has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his or her proxy, may represent such stock and vote
thereon.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
2.15. INSPECTORS OF ELECTION.
In advance of any meeting of stockholders, the Chairman of the Board
or the President shall appoint one or more inspectors of election and any
substitute inspectors to act at the meeting or any adjournment thereof. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his or her ability. The
inspectors shall determine the number of shares of stock outstanding and the
voting power of each, the shares of stock represented at the meeting, the
existence of a quorum, the validity and effect of proxies and ballots, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, certify their determination of the number of
shares represented at the meeting, and their count of all votes and ballots, and
do such acts as are proper to conduct the election or vote with fairness to all
stockholders. The inspectors may appoint and retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors. On
request of the person presiding at the meeting, the inspectors shall make a
report in writing of any challenge, question or matter determined by them and
execute a certificate of any fact found by them.
3. DIRECTORS.
3.1. POWERS.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, subject to any
limitation set
AI-35
<PAGE>
forth in the Certificate of Incorporation, these Bylaws or agreements among
stockholders which are otherwise lawful.
3.2. NUMBER AND ELECTION.
The number of directors which shall constitute the whole board
shall not be fewer than six nor more than nine. Within the limits above
specified, the number of directors shall be determined by resolution of the
Board of Directors. Directors shall be elected only by stockholders at annual
meetings of stockholders, other than the initial board of directors and except
as provided in Section 3.3 hereof in the case of vacancies and newly created
directorships. Each director elected shall hold office for the term for which
such director is elected and until such director's successor is elected and
qualified or until such director's earlier resignation or removal.
3.3. VACANCIES.
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors shall be filled, for the
unexpired term, by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified or until such director's earlier
death, resignation or removal.
3.4. CLASSES; TERMS OF OFFICE.
Unless otherwise provided in the Certificate of Incorporation, the
Board of Directors shall divide the directors into three classes; and, when the
number of directors is changed, shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
however, that no decrease in the number of directors shall affect the term of
any director then in office. At each annual meeting of stockholders, directors
elected to succeed those whose terms are expiring shall be elected for a term of
office expiring at the annual meeting of stockholders held in the third year
following their election and until their respective successors are elected and
qualified, or until such director's earlier death, resignation or removal.
3.5. NOMINATION OF DIRECTORS.
Nominations of persons for election to the Board of Directors may
be made by the Board of Directors, or by any stockholder of the Corporation
entitled to vote for the election of directors at the annual meeting who
complies with the notice procedures set forth in this Section 3.5. Nominations
by stockholders shall be made pursuant to timely notice in writing to the
Secretary. To be timely, a stockholder's
AI-36
<PAGE>
notice shall be received at the principal executive offices of the Corporation
no later than the date designated for receipt of stockholders' proposals in a
prior public disclosure made by the Corporation. If there has been no such prior
public disclosure, then to be timely, a stockholder's nomination must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the annual
meeting; provided, however, that in the event that less than 70 days' notice of
the date of the meeting is given to stockholders or prior public disclosure of
the date of the meeting is made, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving notice (i) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such nomination, and (ii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 3.5. The Chairman of the Board shall,
if the facts warrant, determine and declare to the annual meeting that a
nomination was not made in accordance with the provisions of this Section 3.5,
and if the Chairman of the Board should so determine, the Chairman of the Board
shall so declare to the meeting and the defective nomination shall be
disregarded.
3.6. MEETINGS.
(a) REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
AI-37
<PAGE>
(b) SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, President or any two directors on one day's notice to
each director, either personally or by telephone, express delivery service (so
that the scheduled delivery date of the notice is at least one day in advance of
the meeting), telegram or facsimile transmission, and on five days' notice by
mail (effective upon deposit of such notice in the mail). The notice need not
describe the purpose of a special meeting.
(c) TELEPHONE MEETINGS.
Members of the Board of Directors may participate in a meeting of
the Board of Directors by means of conference telephone or similar
communications equipment by means of which all participating directors can
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
(d) ACTION WITHOUT MEETING.
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the Board of
Directors consent thereto in writing, and the writing or writings are delivered
to the Corporation for inclusion in the Minute Book of the Corporation.
(e) WAIVER OF NOTICE OF MEETING; PRESUMPTION OF
ASSENT.
A director may waive any notice required by statute, the
Certificate of Incorporation or these Bylaws before or after the date and time
stated in the notice. Except as set forth below, the waiver must be in writing,
signed by the director entitled to the notice, and delivered to the Corporation
for inclusion in the Minute Book of the Corporation. Notwithstanding the
foregoing, a director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to action taken at the
meeting. A director who is present at a meeting is presumed to have assented to
any action taken unless such director enters a dissent or abstention in the
minutes of the meeting or files a written dissent to such action no later than
five days after such director receives a copy of the minutes of the meeting,
provided that the right to dissent shall not apply to a director who votes in
favor of such action.
AI-38
<PAGE>
(f) QUORUM AND VOTE AT MEETINGS.
At all meetings of the Board of Directors, a quorum of the Board of
Directors consists of a majority of the total number of directors prescribed
pursuant to Section 3.2 hereof (or, if no number is prescribed, the number in
office immediately before the meeting begins). The vote of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation or by these Bylaws. In the
absence of a quorum for any meeting of the Board of Directors, a majority of the
directors present thereat may adjourn such meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.7. COMPENSATION OF DIRECTORS.
The Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their reasonable expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a reasonable fixed sum for actual attendance at each meeting of the Board of
Directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.8. INTERESTED DIRECTORS.
No contract or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are counted for such
purpose if: (a) the material facts as to his or her or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (b) the material facts as to his or her or their
relationship or interest and as to the contract or transaction are disclosed to
or are known by the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (c) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified by the board of directors, a committee
thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a
AI-39
<PAGE>
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
3.9. RESIGNATION.
Any director may resign at any time by sending a written notice of
such resignation to the Chairman of the Board or the President of the
Corporation. Unless otherwise specified therein such resignation shall take
effect upon receipt thereof by the Chairman of the Board or the President. More
than three consecutive absences from regular meetings of the Board of Directors,
unless excused by resolution of the Board of Directors, shall automatically
constitute a resignation, effective when such resignation is accepted by the
Board of Directors.
4. COMMITTEES.
4.1. CREATION OF COMMITTEES.
The Board of Directors may by resolution create one or more
committees and appoint members of the Board of Directors to serve on them. Each
committee may have one or more members, who serve at the pleasure of the Board
of Directors. The Board of Directors shall establish an Audit Committee and a
Stock Option Committee, composed in each case only of directors who are not
employees of the Corporation or any subsidiary thereof. The creation of a
committee and appointment of members to it shall be approved by a majority of
all the directors in office when the action is taken, whether or not a quorum.
The designation of any committee pursuant to this Article 4 and the delegation
of authority thereto shall not operate to relieve the Board of Directors, or any
director, of any responsibility imposed by law or regulation. The same rules
that govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors apply to committees and
their members as well.
4.3. EXECUTIVE COMMITTEE.
The Board of Directors may by resolution designate the chief
executive officer and two or more other directors to constitute an Executive
Committee. The chairman of the Executive Committee shall be designated by the
Board of Directors. The Executive Committee may fix its own rules of procedure
which shall not be inconsistent with these Bylaws. It shall keep regular minutes
of its proceedings and report the same to the full Board of Directors for its
information at the meeting thereof held next after the proceedings shall have
taken place. Subject to Section 4.4 below, each member of the Executive
Committee shall hold office until the next annual regular meeting of the Board
of Directors following his or her designation and until his or her successor is
designated as a member of the Executive Committee.
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4.2. EXECUTIVE COMMITTEE AUTHORITY.
The Executive Committee, when the Board of Directors is not in
session, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it, except to the extent, if any, that such powers and authority
shall be limited by the resolution appointing the Executive Committee; and
except also that the Executive Committee shall not have the power or authority
of the Board of Directors with reference to amending the Certificate of
Incorporation; adopting an agreement of merger or consolidation; recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets; recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution; amending the
Bylaws of the Corporation; filling a vacancy or creating a new directorship; or
approving a transaction in which any member of the such committee, directly or
indirectly, has any material beneficial interest; and unless the resolution or
Bylaws expressly so provide, the Executive Committee shall not have the power or
authority to declare a dividend or to authorize the issuance of stock or
securities convertible into or exercisable for stock.
4.4. RESIGNATION AND REMOVAL.
Any member of the Executive Committee may be removed at any
time with or without cause by resolution adopted by a majority of the full Board
of Directors. Any member of the Executive Committee may resign from the
Executive Committee at any time by giving written notice to the Chairman of the
Board or the President of the Corporation. Unless otherwise specified therein,
such resignation shall take effect upon receipt. The acceptance of such
resignation shall not be necessary to make it effective.
5. OFFICERS.
5.1. POSITIONS.
The officers of the Corporation shall be a Chairman of the Board, a
President, and a Secretary, and such other officers as the Board of Directors
(or an officer authorized by the Board of Directors) from time to time may
appoint, including one or more Vice Chairmen, Executive Vice Presidents, Vice
Presidents, Assistant Secretaries and Assistant Treasurers. Each such officer
shall exercise such powers and perform such duties as shall be set forth below
and such other powers and duties as from time to time may be specified by the
Board of Directors or by any officer(s) authorized by the Board of Directors to
prescribe the duties of such other officers. Any number of offices may be held
by the same person.
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5.2. POWERS.
(a) Each officer shall have, in addition to the duties and powers
set forth herein, such duties and powers as are commonly incident to such
officer's office and such additional duties and powers as the Board of Directors
may from time to time authorize.
(b) Powers of attorney, proxies, waivers of notice of meetings,
consents and other instruments relating to securities or partnership interests
owned by the Corporation may be executed in the name of and on behalf of the
Corporation by the Chairman of the Board, the President or any Vice President,
and any such officer may, in the name of and on behalf of the Corporation, take
all such action as any such officer may deem advisable to vote in person or by
proxy at any meeting of security holders of any corporation in which the
Corporation may own securities, or at any meeting of any partnership in which
the Corporation owns an interest at any such meeting, shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities or partnership interest and which, as the owner thereof, the
Corporation might have possessed and exercised, if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
5.3. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall (when present) preside at all
meetings of the Board of Directors and stockholders, and shall ensure that all
orders and resolutions of the Board of Directors and stockholders are carried
into effect. The Chairman of the Board may execute bonds, mortgages and other
contracts, under the seal of the Corporation, if required, except where required
or permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
5.4. PRESIDENT.
The President of the Corporation shall be the chief executive
officer, unless the Board of Directors designates the Chairman of the Board as
the chief executive officer. The President shall have overall responsibility and
authority for management of the operations of the Corporation, subject to the
authority of the Board of Directors and the Chairman of the Board. The President
may execute bonds, mortgages and other contracts, under the seal of the
Corporation, if required, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
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5.5. VICE PRESIDENT.
Any Vice President shall have such duties and powers as shall be
set forth in these Bylaws or as shall be designated from time to time by the
Board of Directors or by the Chairman of the Board or President. In the absence
of the President or in the event of the President's inability or refusal to act,
the Vice President (or in the event there be more than one Vice President, the
Vice Presidents in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting shall have all the powers of, and be subject to all the
restrictions upon, the President. Any Vice President may execute bonds,
mortgages and other documents under the seal of the Corporation, except where
required or permitted by law to be otherwise executed and except where the
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
5.5. SECRETARY.
The Secretary shall have responsibility for preparation of minutes
of meetings of the Board of Directors and of the stockholders and for
authenticating records of the Corporation. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors. The Secretary or an Assistant Secretary also may attest all
instruments signed by any other officer of the Corporation.
5.6. ASSISTANT SECRETARY.
The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary.
5.7. TREASURER.
The Treasurer shall have responsibility for the custody of the
corporate funds and securities and shall see to it that full and accurate
accounts of receipts and disbursements are kept in books belonging to the
Corporation. The Treasurer shall render to the Chairman of the Board, the
President, the Vice President, and the Board of Directors, upon request, an
account of all financial transactions and of the financial condition of the
Corporation.
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5.8. ASSISTANT TREASURER.
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
5.9. TERM OF OFFICE.
The officers of the Corporation shall hold office until their
successors are chosen and qualified or until their death, earlier resignation or
removal. Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors. Any officer may resign at any time upon written
notice to the Corporation. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the Board of Directors. Any officer may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
6. CAPITAL STOCK.
6.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES.
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates, and upon request every holder
of uncertificated shares, shall be entitled to have a certificate (representing
the number of shares registered in certificate form) signed in the name of the
Corporation by the Chairman of the Board, the President, or any Vice President,
and by the Treasurer, Secretary or any Assistant Treasurer or Assistant
Secretary. Any or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar whose signature or facsimile
signature appears on a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
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6.2. LOST CERTIFICATES.
The Chairman of the Board, the President, or any Vice President may
direct a new certificate of stock to be issued in place of any certificate
theretofore issued by the Corporation and alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
that the certificate of stock has been lost, stolen or destroyed. When
authorizing such issuance of a new certificate, such officer may, as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's legal representative, to
advertise the same in such manner as such officer shall require and/or to give
the Corporation a bond, in such sum as such officer may direct as indemnity
against any claim that may be made against the Corporation on account of the
certificate alleged to have been lost, stolen or destroyed or on account of the
issuance of such new certificate or uncertificated shares.
6.3. RECORD DATE.
(a) ACTIONS BY STOCKHOLDERS.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders (or to take any
other action), the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and shall not be less than 10 nor more than 60
days before the meeting or action requiring a determination of stockholders.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting, unless the Board of Directors fixes a new record date.
If no record date is fixed by the Board of Directors, the record
date shall be at the close of business on the day next preceding the day on
which notice is given, or if notice is not required or is waived, at the close
of business on the day next preceding the day on which the meeting is held or
such other action is taken, except that (if no record date is established by the
Board of Directors) the record date for determining stockholders entitled to
consent to corporate action without a meeting is the first date on which a
stockholder delivers a signed written consent to the Corporation for inclusion
in the Minute Book of the Corporation.
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(b) PAYMENTS.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
(c) STOCKHOLDERS OF RECORD.
The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends,
to receive notifications, to vote as such owner, and to exercise all the rights
and powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by law.
7. INSURANCE.
The Corporation may purchase and maintain insurance on behalf of
any person who 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, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
against liability asserted against or incurred by such person in such capacity
or arising from such person's status as such (whether or not the Corporation
would have the power to indemnify such person against the same liability).
8. INDEMNIFICATION.
8.1. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN RIGHT OF THE
CORPORATION.
(a) The Corporation shall indemnify any 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, and any appeal therein, whether civil,
criminal, administrative, arbitrative, or investigative (other than an action by
or in right of the Corporation)
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by reason of the fact that such person is or was a director, officer, trustee,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, trustee, employee, or agent of another
corporation, association, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, and any
appeal therein, if such person acted in good faith and in a manner which such
person 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 that such conduct was unlawful. The termination of
any action, suit or proceeding, and any appeal therein, by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person 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 reasonable cause to believe that such conduct
was unlawful.
8.2. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION.
(a) The Corporation shall indemnify any 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 by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director, officer, trustee, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, association, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Corporation. No such
indemnification shall be made against expenses in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation or against amounts paid in settlement unless and only to the extent
that there is a determination (as set forth in Section 8.3 hereof) 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 or
amounts paid in settlement.
8.3. AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article 8 shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of
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the director, officer, employee or agent is proper in the circumstances because
such person or persons have met the applicable standard of conduct set forth in
Sections 8.1 and 8.2 hereof and, if applicable, is fairly and reasonably
entitled to indemnity as set forth in Section 8.2, as the case may be. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by a majority of the stockholders entitled to vote
generally in the election of directors. To the extent, however, that a director,
officer, trustee, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith, without the necessity of
authorization in the specific case. No director, officer, trustee, employee or
agent of the Corporation shall be entitled to indemnification in connection with
any action, suit or proceeding voluntarily initiated by such person unless the
action, suit or proceeding was authorized by a majority of the entire Board of
Directors.
8.4. GOOD FAITH DEFINED.
For purposes of any determination under Section 8.3 hereof, a
person shall be deemed to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his or her conduct was unlawful, if his or her
action is based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him or her by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 8.4 shall mean
any other corporation or any association, partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The provisions
of this Section 8.4 shall not be deemed to be exclusive or to limit in any way
the circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Sections 8.1 or 8.2 hereof, as the case may
be.
8.5. INDEMNIFICATION BY A COURT.
Notwithstanding any contrary determination in the specific case
under Section 8.3, and notwithstanding the absence of any determination
thereunder, any
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director, officer, trustee, employee or agent may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under Sections 8.1 and 8.2 above. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he or she has met the applicable standards of
conduct set forth in Sections 8.1 and 8.2 above, as the case may be. Notice of
any application for indemnification pursuant to this Section 8.5 shall be given
to the Corporation promptly upon the filing of such application. Notwithstanding
any of the foregoing, unless otherwise required by law, no director, officer,
trustee, employee or agent of the Corporation shall be entitled to
indemnification in connection with any action, suit or proceeding voluntarily
initiated by such person unless the action, suit or proceeding was authorized by
a majority of the entire Board of Directors.
8.6. ADVANCEMENT OF EXPENSES.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director, officer, employee or agent in advance of the final
disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to indemnification
from the Corporation as authorized in this Article 8.
8.7. CONTRACT, NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION.
The indemnification provided by this Article 8 shall be deemed to
be a contract between the Corporation and each director, officer, employee and
agent who serves in such capacity at any time while this Article 8 is in effect,
and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts. Further, the
indemnification and advancement of expenses provided by this Article 8 shall not
be deemed exclusive of any other rights to which those seeking indemnification
and advancement of expenses may be entitled under any certificate of
incorporation, bylaw, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that, subject to the limitation in Section
8.3 hereof concerning voluntary initiation of actions, suits or proceedings,
indemnification of the persons specified in Sections 8.1 and 8.2 hereof shall be
made to the fullest extent permitted by law. The provisions of this Article 8
shall not be deemed to preclude the indemnification of any person who is not
specified in Sections 8.1 or 8.2 of this Article 8 but whom the Corporation has
the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The
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indemnification and advancement of expenses provided by, or granted pursuant to,
this Article 8 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, trustee,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
8.8. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE 8.
For purposes of this Article 8, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, association, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article 8 with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
9. NOTICES.
9.1. NOTICES.
Whenever written notice is required by law, the Certificate of
Incorporation or these Bylaws to be given to any director, member of a committee
or stockholder, such notice may be given by mail, addressed to such director,
member of a committee or stockholder, at his or her address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram, telex
or telecopy.
9.2. WAIVERS OF NOTICE.
Whenever any notice is required by law, the Certificate of
Incorporation or these bylaws to be given to any director, member of a committee
or stockholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting with the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders,
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directors, or members of a committee of directors need be specified in any other
waiver of notice unless so required by the Certificate of Incorporation or these
Bylaws.
10. GENERAL PROVISIONS.
10.1. INSPECTION OF BOOKS AND RECORDS.
Any stockholder, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent shall be the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing which authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the Corporation at its registered office or at its principal place of business.
10.2. DIVIDENDS.
The Board of Directors may declare dividends upon the capital stock
of the Corporation, subject to the provisions of the Certificate of
Incorporation and the laws of the State of Delaware, and such dividends may be
paid in cash, in property, or in shares of capital stock of the Corporation.
Subject to the Delaware General Corporation Law, such dividends may be paid
either out of surplus, out of the net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
10.3. RESERVES.
The Board of Directors may set apart, out of the funds of the
Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
10.4. EXECUTION OF INSTRUMENTS.
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
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10.5. FISCAL YEAR.
The fiscal year of the Corporation shall begin on January 1 and end
on December 31.
10.6. SEAL.
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
11. AMENDMENTS TO BYLAWS.
The Board of Directors may from time to time adopt, amend and
repeal these Bylaws. Such action by the Board of Directors shall require the
affirmative vote of at least a majority of the directors then in office. If
stockholders are entitled to vote with respect thereto to amend or repeal Bylaws
adopted by the Board of Directors as may be provided in the Certificate of
Incorporation or by law, then the affirmative vote of 66-2/3% of the total
number of votes of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the amendment or repeal of
Bylaws by the stockholders of the Corporation. Any amendments to Sections 3.2,
3.4 and 3.5 of the Corporation's Bylaws shall require the affirmative vote of
the stockholders set forth in the preceding sentence.
* * * * *
The foregoing Bylaws were adopted by the Board of Directors on
March 23, 1994.
/s/ David Smilow
---------------------------
Chairman of the Board
Attested:
/s/ Elizabeth Felix
- -------------------
Secretary
These Bylaws reflect amendments adopted in February 1997
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TELEBANC FINANCIAL CORPORATION
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995
---- ----
PRIMARY
<S> <C> <C>
Net income for primary income per common share $ 2,600 $ 2,720
Weighted average number of common shares outstanding
during the year 2,049,500 2,049,500
Add common equivalent shares 264,864 219
----------- -----------
Weighted average number of shares used in calculating
primary income per share 2,316,616 2,049,719
Primary income per common share $ 1.12 $ 1.33
FULLY DILUTED
Net income for fully diluted net income per share $ 2,552 $ 2,720
Weighted average number of shares used in calculating
of primary income per share 2,314,364 2,049,719
Add (deduct) incremental shares representing:
Shares issuable upon exercise of stock options included
in primary calculation above (264,864) (219)
Shares issuable upon exercise of stock options based on
year-end market price 290,954 19,097
----------- -----------
Weighted average number of shares used in calculating
fully diluted income per share 2,340,454 2,068,597
Fully diluted income per common share $ 1.09 $ 1.31
</TABLE>
AI-53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
TeleBanc Financial Corporation ("TeleBanc" or the "Company") was organized
by its majority stockholder, MET Holdings Corporation, to become, in March 1994,
the parent savings and loan holding company for TeleBank ("the Bank"), a
federally chartered savings bank. All references to the Company include the
business of the Bank. Financial and other data as of and for all periods prior
to March 1994 represent the consolidated data of the Bank only. Prior to March
1996, the Bank was formerly known as Metropolitan Bank for Savings, F.S.B.
During the second quarter of 1994, TeleBanc completed its initial public
offering, raising $4.6 million through the sale of common stock and an
additional $17.3 million through the issuance of subordinated notes with
warrants. Since completion of the offering, the Company has emphasized growth of
the Bank through careful leveraging of the proceeds. At December 31, 1996,
TeleBanc reported total assets of $648.0 million, total deposits of $390.5
million, and stockholders' equity of $24.7 million, compared to $553.9 million,
$306.5 million, and $21.6 million, respectively, at December 31, 1995.
Since 1989, the Bank has been developing an operating strategy that seeks
to minimize general and administrative expenses through more efficient deposit
gathering, borrowing, and asset generation. From its headquarters in Arlington,
Virginia, the Company attracts primarily low transaction deposit accounts such
as certificates of deposit and money market accounts by advertising and
conducting public relation campaigns in select markets. Unlike traditional
financial institutions, the Company pursues a "branchless" marketing strategy
and thus interacts with its customers primarily through the Company's toll free
telephone number and mail. Company representatives utilize a sophisticated
computer software system to market and process deposits, build a customer
database for future products and provide quality service. Other funding sources
for the Company include borrowings from the Federal Home Loan Bank of Atlanta
("FHLB"), securities sold under agreements to repurchase, and subordinated debt.
The Company's asset acquisition strategy is focused on investing in
one-to-four unit, single-family mortgages and mortgage backed securities
purchased in the secondary market rather than to originate loans. The Company
seeks to manage interest rate risk through matching the maturities of its
deposit solicitations and borrowings as compared with its asset purchases and
the use of certain hedging techniques in order to operate profitably in various
interest rate environments.
On February 28, 1997, the Company consummated the sale of $29.9 million of
units in the form of convertible preferred stock, senior subordinated notes and
warrants and the purchase of the assets of Arbor Capital Partners, Inc.
("Arbor"), a registered investment advisor, funds manager and broker-dealer. MET
Holdings, TeleBanc's majority shareholder, owns a majority of Arbor.
The $29.9 million in units were sold to investment partnerships managed by
Conning & Company, CIBC WG Argosy Merchant Fund 2, LLC, the Progressive
Corporation, and The Northwestern Mutual Life Insurance Company. Representatives
from the Conning partnerships and the CIBC Merchant Fund will serve on the
Board. The units consist of $13.7 million in 9.5% senior subordinated notes with
198,088 detachable warrants, $16.2 million in 4.0% convertible preferred stock,
and rights to 205,563 contingent warrants.
Also in connection with the sale of units, the Arbor asset acquisition was
structured as a tax free issuance of 162,461 shares of TeleBanc common stock and
a $500,000 cash payment for the Arbor assets. An independent appraisal valued
the assets to be acquired from Arbor at $3.1 million. Consistent with TeleBanc's
charter, the number of shares issued to Arbor as consideration is limited to 5%
of total market value of outstanding TeleBanc stock at the time of acquisition.
The following financial review presents management's analysis of the
consolidated financial condition and results of operations of TeleBanc, and
should be read together with the consolidated financial statements and
accompanying notes.
INTEREST RATE SENSITIVITY MANAGEMENT
The Company actively monitors the sensitivity of its assets and liabilities
to various interest rate environments due to repricing in future time periods.
Effective interest rate sensitivity management seeks to ensure that net interest
income is protected from the impact of changes in interest rates.
The Company's strategies are intended to stabilize the Company's net
interest rate spread under a variety of changes in interest rates. In an effort
to manage growth effectively, the Company undertook a slow, yet steady path to
leverage the initial
AI-54
<PAGE>
public offering proceeds and invest in interest-earning assets. It is
management's intent to leverage the $29.9 million private placement proceeds and
invest in interest-earning assets in a path similar to that of the initial
public offering. This growth was funded by raising deposits and incurring debt,
including FHLB advances and securities sold under agreements to repurchase
("reverse repos"). The Company's deposit gathering strategy tends to rely on
higher yielding money market accounts and certificates of deposit accumulated
through the Bank's branchless banking telephone and mail operations, rather than
relying on higher overhead products such as extensive branch networks and
transaction accounts (i.e., checking accounts). Similarly, the Company tends to
invest its funds in assets purchased in the secondary market rather than
incurring overhead for extensive loan origination operations. As a result, the
Company's interest rate spread may be lower than that of traditional financial
institutions. By seeking to match closely the maturities of its
interest-sensitive assets and liabilities, the Company believes it can maintain
relatively consistent interest rate spreads and mitigate much of the interest
rate risk associated with such assets and liabilities.
The Company utilizes hedging techniques to reduce its overall interest rate
risk exposure over a one-to-seven year period. Management's hedging practices
are directed towards the following risks: interest rate sensitivity gap between
the amount of interest-earning assets and the amount of interest-bearing
liabilities, loan prepayments and premature withdrawal of deposits. A policy
adopted by the Company's Board of Directors prohibits management from
speculative purchases or sales of futures, options, stripped mortgage-backed
securities and other mortgage derivative products.
Interest rate swaps, caps, floors, collars and financial options are used
to manage interest rate exposure by hedging certain assets and liabilities, and
are not used for speculative purposes. The Company's interest rate spread was
1.84%, 1.72%, and 1.51% for 1996, 1995 and 1994, respectively. The Company's
yield on interest-earning assets for such periods was 1.94%, 1.88% and 1.62%,
respectively. Since the initial public offering in May 1994, the Company has
steadily grown both assets and liabilities, with average interest earning assets
growing from $206.9 million for the quarter ended March 31, 1994 to $575.5
million for the year ended December 31, 1996, and average interest bearing
liabilities growing from $206.1 million to $564.3 million over the same period.
The Company's ongoing strategy is to maintain a relatively stable interest rate
margin and interest rate spread.
The Company matches its assets and liabilities by examining the extent to
which such assets and liabilities are "interest rate sensitive" and by
monitoring interest rate sensitivity "gap." An asset or liability is said to be
interest rate sensitive within a specific period if it will mature or reprice
within that 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 the same time period. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest
rate sensitive liabilities, and is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap would adversely affect net interest income while a positive gap
would result in an increase in net interest income; conversely, during a period
of falling interest rates, a negative gap would result in an increase in net
interest income and a positive gap would adversely affect net interest income.
The Company's current asset-liability management strategy is to maintain an
evenly matched one-to-five year gap giving effect to hedging, but depending on
market conditions and related circumstances, a positive or negative one-to-five
year gap of up to 20% may be acceptable. Giving effect to the Company's hedging
activities, the Company's one-year gap at December 31, 1996 is (0.16)%. The
Company's hedge-effected one-to-five year gap at such date is (11.59)%.
The following assumptions were used by management in order to prepare the
Company's gap table set forth on the next page. Non-amortizing investment
securities are shown in the period in which they contractually mature.
Investment securities which contain embedded options such as puts or calls are
shown in the period in which that security is currently expected to be put or
called or to mature. The table assumes that fully-indexed, adjustable-rate,
residential mortgage loans and mortgage-backed securities prepay at an annual
rate between 10% and 15%, based on estimated future prepayment rates for
comparable market benchmark securities and the Company's prepayment history. The
table also assumes that fixed rate, current-coupon residential loans prepay at
an annual rate of between 10% and 15%. The above assumptions were adjusted up or
down on a pool by pool basis to model the effects of product type, coupon rate,
rate adjustment frequency, lifetime cap, net coupon reset margin, and periodic
rate caps upon prevailing annual prepayment rates. Time deposits are shown in
the period in which they contractually mature, and savings deposits are shown to
reprice immediately. The interest rate sensitivity of the Company's assets and
liabilities could vary substantially if different assumptions were used or if
actual experience differs from the assumptions used.
Certain shortcomings are inherent in the method of analysis presented in
the gap table. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in
AI-55
<PAGE>
advance of changes in market interest rates, while interest rates on other types
of assets and liabilities may lag behind changes in market interest rates.
Certain assets, such as adjustable-rate mortgages, have features which restrict
changes in interest rates on a short-term basis and over the life of the assets.
In the event of a change in interest rates, prepayment rates would likely
deviate significantly from those assumed in calculating the table. The ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
Management measures the efficiency of its asset/liability management
strategies by analyzing, on a quarterly basis, the Bank's theoretical Net
Portfolio Value (NPV) and the effect that changes in interest rates are expected
to have on NPV. The Board of Directors has established limits within which such
changes in NPV are expected to be maintained in the event of a change in
interest rates. Under proposed Office of Thrift Supervision ("OTS") regulations,
an institution's interest rate risk exposure is measured based upon a 200 basis
point parallel shift in market interest rates. A savings institution whose
measured interest rate risk exposure is greater than specified levels must
deduct an interest rate risk component from total capital for purpose of
determining regulatory risk-based capital levels. As of December 31, 1996, the
Bank would not have been required to deduct any interest rate risk component
from capital under the proposed OTS interest rate risk capital regulations.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
REPRICING REPRICING REPRICING
WITHIN WITHIN WITHIN REPRICING
BALANCE PERCENT 0-3 4-12 1-5 OVER
(Dollars in Thousands) DECEMBER 31, 1996 OF TOTAL MONTHS MONTHS YEARS 5 YEARS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $351,821 56.21% $ 17,339 $140,267 $133,274 $ 60,941
Investment securities
available for sale, interest
bearing accounts & FHLB stock 88,636 14.16 27,654 487 9,908 50,587
Mortgage-backed
securities available for sale 184,743 29.51 49,942 69,131 47,702 17,968
Federal funds sold 750 0.12 750 -- -- --
--------- -------------------------------------------------------------
Total interest-earning assets $625,950 100.00% $ 95,685 $209,885 $190,884 $ 129,496
Non-interest earning assets: 22,015 -------------------------------------------------------------
--------
Total assets $647,965
--------
Interest-bearing liabilities:
Savings deposits $111,843 18.35% $111,843 $ -- $ -- $ --
Time deposits 278,643 45.72 31,739 92,011 151,462 3,431
FHLB advances 144,800 23.76 134,800 10,000 -- --
Other borrowings 57,581 9.45 57,581 -- -- --
Subordinated debt 16,586 2.72 -- -- -- 16,586
--------- -------------------------------------------------------------
Total interest-bearing liabilities $609,453 100.00% $335,963 $102,011 $151,462 $ 20,017
Non-interest bearing liabilities 13,854 -------------------------------------------------------------
--------
Total liabilities $623,307
Stockholders' equity 24,658
Total liabilities and --------
stockholders equity $647,965
Periodic repricing difference
(periodic gap) $ (240,278) $ 107,874 $ 39,422 $ 109,479
Cumulative repricing difference
(cumulative gap) $ (240,278) $ (132,404) $ (92,982) $ 16,497
Cumulative gap to total assets (37.08)% (20.43)% (14.35)% 2.55%
Cumulative gap to total assets
hedge effected (a) (11.40)% (0.16)% (11.59)% 2.55%
--------------------------------------------------------------------------
</TABLE>
(a) The hedge effected cumulative gap to total assets reflects the effect of
hedging instruments on the Company's gap at December 31, 1996. For purposes
of determining the effect of such hedging instruments, interest rate swap
agreements are treated as part of the hedged liability, hence, the cash
flows from the swap and the hedged asset or liability are netted and the
resulting cash flows are used in the gap calculation. Interest rate cap
agreements also are treated as part of the hedged asset or liability and
weighted by market's estimate of the likelihood the cap strike will be met
or exceeded. The net cash flows are used in the gap calculations.
AI-56
<PAGE>
FINANCIAL CONDITION
The Company's total assets increased by $94.1 million or 17.0% from $553.9
million at December 31, 1995 to $648.0 million at December 31, 1996. The
increase in assets during 1996 primarily reflects continued leveraging of the
Bank's capital. At December 31, 1993, the Bank had stockholders' equity of $12.4
million. Following the Company's initial public offering in May 1994, the
Company increased the Bank's equity by $15.0 million, thereby supporting a
31-month period of growing the Bank from $220.3 million in assets to $648.0
million in assets as of December 31, 1996. Growth in assets is attributable to
increases in mortgage-backed securities and loans receivable. The primary
sources of funds for this growth in assets were deposits and borrowings.
Loans receivable, net and loans receivable held for sale increased $103.3
million or 41.6%, from $248.5 million at December 31, 1995 to $351.8 million at
December 31, 1996. The increase reflects whole loan purchases of $182.0 million
offset by $51.2 million of principal repayments and $27.0 million of loans sold
in 1996. In the second quarter of 1996, the Company reevaluated its loan
investment strategy. The Company determined that the probable sale of loans,
subsequent to a restructuring or credit enhancement, would add value to the
portfolio. Pursuant to this strategy, the Company created a loans held for sale
category with a one-time transfer of loans from the investment portfolio that
have characteristics that make them susceptible to sale after restructuring,
credit enhancement, or other improvements. Loans held for sale are recorded at
the lower of cost or market. Going forward, the Company will maintain loans held
for sale and loans held for investment categories.
Mortgage-backed securities, available-for-sale, decreased $49.6 million, or
21.2%, from $234.4 million at December 31, 1995 to $184.7 million at December
31, 1996. Investment securities, available for sale, increased $38.7 million, or
96.5%, from $40.1 million at December 31, 1995 to $78.8 million at December 31,
1996. These securities are held for liquidity purposes and increased along with
the growth of assets of the Bank in 1996.
Deposits increased $84.0 million, or 27.4%, from $306.5 million at December
31, 1995 to $390.5 million at December 31, 1996, largely as a result of the
Company's marketing efforts to attract money market and certificate of deposit
accounts, as well as the purchase of deposits from a failed institution. During
fiscal year 1996, approximately $21.4 million of interest was credited to the
accounts while deposits exceeded withdrawals by $62.6 million, resulting in a
net change of $84.0 million. During 1996, significant emphasis was also placed
upon raising deposits as a source of funds for asset growth.
FHLB advances increased $39.3 million, or 37.3%, from $105.5 million at
December 31, 1995 to $144.8 million at December 31, 1996. Other borrowings,
composed of securities sold under agreements to repurchase, decreased $36.3
million, or 38.7%, from $93.9 million at December 31, 1995 to $57.6 million at
December 31, 1996. This slight increase in net borrowings reflects the Company's
effort to focus funding efforts on deposits yet maintain additional funds at low
interest rates in order to support asset growth.
Stockholders' equity increased $3.1 million to $24.7 million at December
31, 1996 from $21.6 million at December 31, 1995. The increase reflects $2.6
million in net income and an unrealized gain for the year on securities
available for sale of $541,000, net of taxes, which increases the Company's
stockholders' equity, but does not impact the statement of operations.
The consolidated average balance sheets, along with income and expense and
related interest yields and rates at December 31, 1996 and for each of the
preceding three fiscal years are shown on the following page. The table also
presents information for the periods indicated with respect to the difference
between the weighted average yield earned on interest-earning assets and
weighted average rate paid on interest-bearing liabilities, or "interest rate
spread," which savings institutions have traditionally used as an indicator of
profitability. Another indicator of an institution's profitability is its "net
yield on interest-earning assets," which is its net interest income divided by
the average balance of interest-earning assets. Net interest income is affected
by the interest rate spread and by the relative amounts of interest earning
assets and interest-bearing liabilities. When interest-earning assets equal or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. As discussed above, the Company's operating
strategy tends to result in lower spreads and margins than other comparable
financial institutions, but the Company believes lower net interest income is
mitigated by savings in general and administrative expenses.
AI-57
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1996 1995
Balance Average Interest Average Average Interest Average
(Dollars in thousands) December 31, 1996 Balance Inc./Exp. Yield/Cost Balance Inc./Exp. Yield/Cost
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(a) $351,821 $279,038 $23,089 8.28% $201,737 $17,726 8.80%
Mortgage-backed &
related securities -- -- -- -- 233,728 18,614 7.96
Investment securities (b)(c) 9,810 12,841 871 6.79 13,627 990 7.27
Mortgage-backed &
related securities, AFS 184,743 221,656 17,955 8.10 19,138 1,597 8.35
Investment securities, AFS 78,826 61,169 3,959 6.47 25,516 2,071 8.12
Federal funds sold 750 842 44 5.22 810 49 6.05
Trading account -- -- -- -- 1,932 166 8.59
-------- ---------------------------- ----------------------------
Total-interest earning assets $625,950 $575,546 $45,918 7.98% $496,488 $41,213 8.31%
Non-interest earning assets 22,015 26,929 15,388
-------- ---------------------------- ----------------------------
Total assets $647,965 $602,475 $511,876
-------- ---------------------------- ----------------------------
Interest-bearing liabilities:
Savings deposits $111,843 $ 99,346 $ 4,815 4.85% $ 41,387 $ 2,111 5.10%
Time deposits 278,643 258,870 16,542 6.39 223,745 14,930 6.67
FHLB advances 144,800 120,678 6,689 5.54 104,142 6,571 6.31
Other borrowings 57,581 68,154 4,569 6.70 97,906 6,230 6.36
Subordinated debt, net 16,586 17,250 2,200 12.75 17,250 2,089 12.11
-------- ---------------------------- ----------------------------
Total interest-bearing liabilities $609,453 $564,298 $34,815 6.14% $484,430 $31,931 6.59%
Non-interest-bearing liabilities 13,854 15,900 8,150
-------- ---------------------------- ----------------------------
Total liabilities $623,307 $580,198 $492,580
Stockholders' equity 24,658 22,277 19,296
-------- ---------------------------- ----------------------------
Total liabilities and stockholders'
equity $647,965 $602,475 $511,876
-------- ---------------------------- ----------------------------
Excess of interest-earning assets
over interest-bearing liabilities/
net interest income/interest rate
spread $ 16,497 $ 11,248 $11,136 1.84% $ 12,058 $ 9,313 1.72%
Net yield on interest earning assets 1.94% 1.88%
Ratio of interest-earning assets
to interest-bearing liabilities 101.99% 102.49%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
AI-58
<PAGE>
- ------------------------------------------------------------------------
1994
Average Interest Average
(Dollars in thousands) Balance Inc./Exp. Yield/Cost
- ------------------------------------------------------------------------
Interest-earning assets:
Loans receivable, net(a) $127,805 $10,813 8.46%
Mortgage-backed &
related securities 136,304 9,328 6.84
Investment securities (b)(c) 14,627 801 5.48
Mortgage-backed &
related securities, AFS 8,934 645 7.22
Investment securities, AFS 13,705 771 5.63
Federal funds sold 2,092 83 3.97
Trading account -- -- --
-------------------------------
Total-interest earning assets $303,467 $22,441 7.39%
Non-interest earning assets 18,794
-------------------------------
Total assets $322,261
-------------------------------
Interest-bearing liabilities:
Savings deposits $ 17,587 $ 518 2.95%
Time deposits 140,485 9,209 6.56
FHLB advances 82,533 4,278 5.18
Other borrowings 47,715 2,281 4.78
Subordinated debt, net 9,555 1,227 12.84
-------------------------------
Total interest-bearing liabilities $297,875 $17,513 5.88%
Non-interest-bearing liabilities 7,401
-------------------------------
Total liabilities $305,276
Stockholders' equity 16,985
-------------------------------
Total liabilities and stockholders'
equity $322,261
-------------------------------
Excess of interest-earning assets
over interest-bearing liabilities/
net interest income/interest rate
spread $ 5,592 $ 4,928 1.51%
Net yield on interest earning assets 1.62%
Ratio of interest-earning assets
to interest-bearing liabilities 101.88%
- ----------------------------------------------------------------------
- ---------
(a) Includes mortgages held for sale and investments.
(b) Includes interest-bearing deposits, repurchase agreements, investment
securities held to maturity, and FHLB stock.
(c) Interest income and average yields on municipal bonds are presented on a
tax equivalent basis.
LIQUIDITY MANAGEMENT AND FUNDING
Liquidity is a company's ability to maintain sufficient cash flows to fund
operations and meet existing and future obligations, including maturing
liabilities, loan commitments, and depositors' withdrawals. The asset portion of
the balance sheet provides liquidity through short-term investments and
maturities and repayments of loans and investment securities. Other sources of
asset liquidity include sales of loans or securities.
Liquidity is provided through the Company's ability to attract and maintain
sufficient deposits and to access available funding markets. Federal regulations
require that the Bank maintain an average of 5.00% liquidity ratio in relation
to certain borrowings and the deposit base. The Bank exceeded the requirement
throughout 1996 and 1995.
The Company continues to enhance the core deposit base through its
branchless marketing strategy that targets individual savers who deposit an
average of $23,000. Management is developing new deposit products responsive to
our customers needs and cross marketing these services, which should provide
stable funding sources in future periods. In 1995, the Company introduced
callable CDs, money market accounts, and the Refer a Saver(TM) Program. The
callable CDs are redeemable at the option of the Company any time after the
second anniversary of the date of deposit, which allows management to hedge
against prepayment risk. The Refer a Saver(TM) Program rewards current CD
account holders with cash for each new customer referred to the Company.
AI-59
<PAGE>
The following table shows the changes in deposits for each of the prior
periods:
YEARS ENDED DECEMBER 31,
----------------------------------
(Dollars in thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
Balance at beginning of period $306,500 $212,411 $113,132
Deposits in excess of (less than)
withdrawals 62,629 76,866 91,806
Interest credited on deposits 21,357 17,223 7,473
----------------------------------
Balance at end of period $390,486 $306,500 $212,411
==================================
Management believes that liquidity of bank deposits coupled with FDIC
insurance will continue to encourage depositors to maintain significant portions
of their funds in insured depository accounts. Management also believes that a
high level of service and convenience coupled with a growing acceptance of
electronic and branchless banking will allow the Company to compete efficiently
and effectively against other FDIC insured banks and other non-bank financial
institutuions. Largely as a result of management's marketing efforts in 1996,
the Company experienced an increase in money market account balances, which cost
less than the cost of FHLB advances, other borrowings, and certificates of
deposit accounts. Total deposits increased $84.0 million, or 27.4%, during 1996.
Savings deposits increased $32.4 million, or 40.8%, and certificate of deposit
accounts increased $51.6 million, or 22.7% during 1996.
The Company also relies upon borrowed funds to provide a source of
liquidity at attractive interest rates. Total borrowings increased $3.0 million,
or 1.5%, during 1996. Advances from the FHLB increased $39.3 million, or 37.3%,
during the period largely as a result of attractive interest rates and due to
the various products offered by the FHLB to member institutions. Advances are
collateralized by specific liens on mortgage loans in accordance with an
"Advances, Specific Collateral Pledge and Security Agreement", which requires
the Company to maintain qualified collateral equal to 120 to 160 percent of the
Company's advances. Accordingly, the Company increased single-family residential
mortgage loan collateral to the FHLB to $186.1 million during the year.
Additional borrowings from the FHLB are contingent upon the Company providing
the appropriate collateral. Repurchase agreements decreased $36.3 million, or
38.7%, during 1996. Principally, mortgage-backed securities are pledged as
collateral for the repurchase agreements. As of December 31, 1996, the Bank had
approximately $100.0 million in additional borrowing capacity.
In the second quarter of 1994, TeleBanc completed its initial public
offering, raising an aggregate of $21.9 million through the issuance of common
stock and subordinated notes with warrants. The subordinated debt represents a
very stable, although relatively expensive, source of funds. Upon completion of
the offering, the Company invested $15.0 million of the proceeds as capital of
the Bank. At December 31, 1996, subordinated debt, net was $16.6 million. The
annual expense to service the debt is $2.2 million. Subject to regulatory
approval, the Bank will dividend this balance to the Company to service the
debt. There are various regulatory limitations on the extent to which federally
chartered savings institutions may pay dividends. Also, savings institution
subsidiaries of holding companies generally are required to provide their OTS
Regional Director with no less than 30 days' advance notice of any proposed
declaration on the institution's stock. Under terms of the indenture pursuant to
which the subordinated notes were issued, the Company presently is required to
maintain, on an unconsolidated basis, liquid assets in an amount equal to or
greater than $2.0 million, which represents 100% of the aggregate interest
expense for one year on the subordinated debt. The Company had $2.9 million in
liquid assets at December 31, 1996.
CAPITAL ADEQUACY
The Company's stockholders' equity at December 31, 1996, was $24.7 million.
This represents a $3.1 million, or 14.4%, increase from the prior year. The
increase reflects $2.6 million in net income and an unrealized gain for the year
on securities available-for-sale of $541,000, net of taxes, which pursuant to
SFAS 115 increases the Company's stockholders' equity, but does not impact the
statement of operation. See Note 2 of the Consolidated Financial Statements.
The Bank meets all current and fully phased-in capital requirements as
adjusted for the changes which are effective to the computation of risk-based
capital and core capital at December 31, 1996.
The required and actual amounts and ratios of capital pertaining to the
Bank as of December 31, 1996 are set forth as follows
<TABLE>
<CAPTION>
(dollars in thousands):
- ------------------------------------------------------------------------------------------------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES: ACTION PROVISIONS:
----------------- ----------------------------------------- ------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to risk
weighted assets) $34,104 10.41% greater than $ 26,205 greater than 8.0% greater than $32,756 greater than 10.0%
Tier 1 Capital (to risk
weighted assets) $31,726 9.69% greater than $ 13,102 greater than 4.0% greater than $19,654 greater than 6.0%
Tier 1 Capital (to
average assets) $31,726 5.08% greater than $ 24,999 greater than 4.0% greater than $31,248 greater than 5.0%
Tangible $31,711 5.07% greater than $ 9,374 greater than 1.5% N/A --
As of December 31, 1995:
Total Capital (to risk
weighted assets) $30,680 11.74% greater than $ 20,899 greater than 8.0% greater than $26,264 greater than 10.0%
Tier 1 Capital (to risk
weighted assets) $28,944 11.08% greater than $ 10,450 greater than 4.0% greater than $15,674 greater than 6.0%
Tier 1 Capital (to
average assets) $28,944 5.31% greater than $ 21,798 greater than 4.0% greater than $27,261 greater than 5.0%
Tangible $29,201 5.36% greater than $ 8,178 greater than 1.5% greater than N/A --
</TABLE>
AI-60
<PAGE>
EARNINGS PERFORMANCE
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 , 1995 AND
1994
NET INCOME. Net income for fiscal year 1996 was $2.6 million compared to $2.7
million for fiscal year 1995. Net income for 1996 includes the effect of a
one-time $1.7 million, before tax, assessment to recapitalize the Savings
Association Insurance Fund ("SAIF"). Without such assessment, net income would
have been $3.6 million. Net income for the year ended December 31, 1996
consisted primarily of $11.0 million in net interest income, $1.8 million in net
gains on the sale of loans held for sale and mortgage-backed and investment
securities offset by $9.1 million in non-interest expenses, $919,000 in
provision for loan losses and $1.2 million in income tax expenses. For fiscal
year 1996, the Company's return on average assets and return on average equity
was 0.42% and 11.46%, respectively. Based on 2,316,616 weighted average shares
of common stock issued and outstanding as well as common stock equivalents
earnings per share was $1.12.
Net income increased by $2.2 million, or 407.4%, from $540,000 in fiscal
year 1994, to $2.7 million in fiscal year 1995. Net income for the year ended
December 31, 1995 consisted primarily of $8.6 million in net interest income,
$1.6 million in gains on the sale of mortgage-backed securities available for
sale, $1.1 million in gains on the sale of investment securities available for
sale and $677,000 in profit on trading activities offset by $6.2 million in
total non-interest expenses, $1.7 million in provision for loan losses and $1.7
million in income taxes. The Company's return on average assets and return on
average equity was 0.53% and 14.10%, respectively. Based on 2,068,597 weighted
average shares of common stock issued and outstanding as well as common stock
equivalents, earnings per share was $1.33.
NET INTEREST INCOME. Net interest income is the principal source of a financial
institution's income stream and represents the spread between interest and fee
income generated from earning assets and the interest expense paid on deposits
and borrowed funds. Fluctuations in interest rates as well as volume and
composition changes in interest-earning assets and interest-bearing liabilities
materially affect net interest income.
Net interest income increased by $2.4 million, or 27.9%, from $8.6 million
to $11.0 million for the years ended December 31, 1995 and 1996, respectively.
Interest rate spreads increased from 1.72% to 1.84% for the years ended December
31, 1995 and 1996, respectively. The improvement in spreads reflects a 45 basis
point decline in the costs of interest-bearing liabilities offset by a 33 basis
point decline in the yield of interest-earning assets. Average interest-earning
assets were $575.5 million for 1996 compared to $496.5 million for 1995.
Net interest income increased $3.9 million, or 82.4%, from $4.7 million to
$8.6 million for the years ended December 31, 1994 and 1995, respectively.
Interest rate spreads increased to 1.72% from 1.51% for the years ended December
31, 1995 and 1994, respectively. The improvement in spreads reflects the
repricing of adjustable interest-bearing assets and the slight improvement in
the ratio of interest-earning assets to interest-bearing liabilities to 102.49%
in 1995 from 101.88% in 1994. Average interest-earning assets were $496.5
million for 1995 compared to $303.5 million for 1994.
The following table allocates the period-to-period changes in the Company's
various categories of interest income and expense between changes due to changes
in volume (calculated by multiplying the change in average volume of the related
interest-earning asset or interest-bearing liability category by the prior
year's rate) and changes due to changes in rate (changes in rate multiplied by
prior year's volume). Changes due to changes in rate-volume (change in rate
multiplied by changes in volume) have been allocated proportionately between
changes in volume and changes in rate.
AI-61
<PAGE>
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
-------------------------- --------------------------
(Dollars in thousands) VOLUME RATE TOTAL VOLUME RATE TOTAL
- ---------------------- ------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (a) $ 6,333 $ (968) $ 5,365 $ 6,491 $ 452 $ 6,943
Mortgage-backed and related securities (9,307) (9,307) (18,614) 7,555 1,730 9,285
Investment securities (b) (c) 16 (134) (118) (50) 239 189
Mortgage-backed and related securities
available for sale 16,404 (45) 16,359 837 115 952
Investment securities available for sale (c) 2,194 (305) 1,889 859 441 1,300
Federal funds sold 2 (8) (6) (257) 224 (33)
Trading account 17 (185) (168) 167 -- 167
------------------------------- ---------------------------------
Total interest-earning assets $ 15,659 $(10,952) $ 4,707 $ 15,602 $ 3,201 $ 18,803
Interest-bearing liabilities:
Savings deposits $ 2,803 $ (100) $ 2,703 $ 1,034 $ 559 $ 1,593
Time deposits 2,208 (596) 1,612 5,553 168 5,721
FHLB advances 972 (292) 680 1,253 1,040 2,293
Other borrowings (1,778) (446) (2,224) 3,004 946 3,950
Subordinated debt -- 112 112 928 (66) 862
------------------------------- ---------------------------------
Total interest-bearing liabilities 4,205 (1,322) 2,883 11,772 2,647 14,419
------------------------------- ---------------------------------
Change in net interest income $11,454 $ (9,630) $ 1,824 $ 3,830 $ 554 $ 4,384
=============================== =================================
</TABLE>
- ----------
(a) Includes mortgage and other loans.
(b) Includes interest-bearing deposits, repurchase agreements, investment
securities held to maturity, and FHLB stock.
(c) Interest income and average yields on municipal bonds, included in
investment securities, are presented on a tax equivalent basis.
INTEREST INCOME. Total interest income increased $5.3 million, or 13.1%, from
$40.5 million for the year ended December 31, 1995 to $45.8 million for the year
ended December 31, 1996. Interest income on mortgage and other loans increased
$5.4 million or 30.5%. The increase is largely attributed to the $77.3 million
increase in average loan balance. Interest income on mortgage-backed securities
held-to-maturity and available-for-sale decreased by $2.2 million, or 10.9%,
from $20.2 million at December 31, 1995 to $18.0 million at December 31, 1996
largely as a result of a $31.2 million decline in average mortgage backed
securities held-to-maturity and available-for-sale.
Total interest income increased $18.3 million, or 82.4%, from $22.2 million
for the year ended December 31, 1994 to $40.5 million for the year ended
December 31, 1995. Interest income on mortgage and other loans increased $6.9
million or 63.9%. The increase is primarily attributable to an increase in the
average balance of the loans receivable portfolio from $127.8 million for the
year ended December 31, 1994 to $201.7 million for the year ended December 31,
1995 as well as a slight increase in the average yield on the loans receivable
portfolio from 8.46% for the year ended December 31, 1994 to 8.80% for the year
ended December 31, 1995. Similarly, interest income on mortgage-backed and
related securities, including those available for sale, increased by $10.2
million, or 102.0%, from $10.0 million for the year ended December 31, 1994 to
$20.2 million for the year ended December 31, 1995 resulting primarily from an
$107.6 million increase in the average balance and a 113 basis point increase in
the average yield of such securities.
INTEREST EXPENSE. Total interest expense increased by $2.9 million, or 9.1%,
from $31.9 million for the year ended December 31, 1995 to $34.8 million for the
year ended December 31, 1996. The increase is attributable to a $79.9 million
increase in interest bearing liabilities offset by a 47 basis point decline in
interest costs.
AI-62
<PAGE>
Total interest expense increased by $14.4 million, or 82.3%, from $17.5 million
for the year ended December 31, 1994 to $31.9 million for the year ended
December 31, 1995 as the Company funded its growth with both deposits and
borrowings. The increase in total interest expense was primarily attributable to
a $186.6 million increase in interest bearing liabilities. The increase in total
interest expense reflects a $7.3 million increase and a $6.3 million decrease in
expenses relating to deposits and other borrowings, respectively.
PROVISION FOR LOAN LOSSES. The provision for loan losses is the annual cost of
providing an allowance or reserve for anticipated future losses on the loan
portfolio. The allowance reflects management's judgment as to the level
considered appropriate to absorb such losses based upon a review of factors
including delinquent loan trends, historical loss experience, economic
conditions, loan portfolio mix and the Company's internal credit review process.
Total provisions for loan losses decreased by $800,000, or 47.1% from $1.7
million for the year ended December 31, 1995 to $919,000 for the year ended
December 31, 1996. The decrease in loan loss provisions is attributable to the
Company's acquisition of several pools of credit enhanced mortgage loans which
have correspondingly lower anticipated losses as compared to the product
purchased in 1995. The net loan portfolio at December 31, 1996 includes four
pools of credit enhanced one-to-four family mortgage loans, totaling $53.2
million. Two of these pools, totaling $33.5 million, have a credit reserve from
the seller equal to 2.3% of the unpaid principal balance at the time of purchase
available to offset any losses. One pool, totaling $11.7 million, has an
indemnification whereby the seller must repurchase any loan that becomes more
than four payments past due at any time during the life of the loan. The final
pool of loans, totaling $8.0 million, has a credit reserve from the seller equal
to approximately 10.0% of the unpaid principal balance at the time of
acquisition. Since the available credit enhancement associated with these loans
exceeds the expected potential losses, the provision for loan losses declined
during 1996.
Management considers many factors in determining the required levels of
loan loss reserves, including a detailed analysis of specific loans in the
portfolio, known and inherent risk in the portfolio, estimated value of the
underlying collateral, assessment of general trends in the real estate market,
and current and prospective economic and regulatory conditions. The total loan
loss allowance at December 31, 1996 and 1995 was $3.0 million and $2.3 million,
respectively, which was 0.8% and 0.9%, respectively, of total loans outstanding.
Total loan loss allowance as a percentage of total non-performing assets was
26.3% at December 31, 1996 as compared to 43.4% at December 31, 1995. Management
believes the allowance for loan losses is adequate at December 31, 1996 to cover
potential losses.
Total provisions for loan losses increased $1.2 million, or 243.9%, from
$492,000 for the year ended December 31, 1994 to $1.7 million for the year ended
December 31, 1995. The increase in the provision for loan losses reflects
management's intent to provide prudent reserves for potential loan losses and
for loan acquisitions made during periods of high growth. During the year
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 2,311 $ 989 $ 835 $ 659 $ 531
Loans charged off, net of recoveries:
Real estate loans:
One-to four family (273) - (338) (19) (172)
Commercial real estate - - - - (235)
Land - - - (1) (178)
Construction - - - - (13)
Consumer and other:
Lease financing - - - - (303)
Other - (400) (15) -
----------------------------------------------------------------------
Total charge-offs (273) (400) (338) (35) (901)
Provision for possible loan losses 919 1,722 492 211 972
Allowance acquired through purchase - - - - 57
----------------------------------------------------------------------
Balance at end of period $2,957 $2,311 $ 989 $ 835 $ 659
----------------------------------------------------------------------
Ratio of net charge-offs to net average
loans outstanding during the period .10% .14% .24% .03% .88%
</TABLE>
AI-63
<PAGE>
ended December 31, 1995, the Company provided specific reserves for several
single family homes. In addition, the Company provided general reserves on loan
acquisitions of $145.9 million in accordance with the Company's loan loss
reserve policy. The total loan loss allowance at December 31, 1995 and 1994 was
$2.3 million and $989,000 respectively which was 0.9% and 0.6%, respectively of
total loans outstanding. Total loss allowance as a percentage of total
non-performing assets was 46.9% at December 31, 1995 as compared to 44.8% at
December 31, 1994.
NON-INTEREST INCOME. Total non-interest income declined by $1.0 million, or
26.3%, from $3.8 million for fiscal year 1995 to $2.8 million for fiscal year
1996. Loan fees and service charges increased $756,000 due to fees collected on
$2.8 million in purchased mortgage servicing rights. As a result of the newly
created loans held for sale category, the Company recognized non-interest income
on the prepayments of loans held for sale. In the prior year, this income would
have been recognized as interest income. Gains on loans held for sale increased
$642,000. Gains on sales of mortgage-backed securities and investments totaled
$935,000.
Total non-interest income increased by $3.6 million from $175,000 for the
year ended December 31, 1994 to $3.7 million for the year ended December 31,
1995. In order to take advantage of favorable market conditions, the Company
sold six mortgage backed and investment securities held for liquidity purposes,
for a $1.4 million gain in 1995. In addition, the Company realized a $2.0
million gain on the sale of two mortgage-backed securities with underlying
collateral of one-to-four family dwellings largely as a result of management's
ability to analyze, purchase, repackage and sell the undervalued securities.
With the significant growth in loan and deposit balances, loan fees and service
charges as well as other non-interest income increased to $228,000 offset by a
$100,000 loss recorded in connection with the kiting of a deposit. The Company
also recognized a $232,000 gain on the sale of a loan.
NON-INTEREST EXPENSES. Total non-interest expenses increased $2.9 million, or
46.8%, from $6.2 million for fiscal year 1995 to $9.1 million for fiscal year
1996. Non-interest expenses are composed of general and administrative expenses
and other non-interest expenses. General and administrative expenses increased
$2.8 million, or 50.0%, from $5.6 million for the year ended December 31, 1995
to $8.4 million for the year ended December 31, 1996. The increase is primarily
attributed to the effect of a one-time $1.7 million assessment to recapitalize
the SAIF, a $660,000 increase in compensation, employee benefits and $483,000 in
federal insurance premiums and overall administrative costs for a higher deposit
base. As in previous years, it is the Company's compensation policy to pay a
combination of salary and incentive based compensation consisting of bonuses
tied to the overall Company's performance and individual performances consistent
with the improved performance of the Company net of SAIF assessment, bonuses
increased to $1.1 million for 1996 from $775,000 for 1995. Bonuses were $1.1
million and $745,000 for the year ended December 31, 1996 and 1995,
respectively. General and administrative expenses net of bonuses and the SAIF
assessment as a percentage of total assets was 0.86% and 0.87% for the years
ended December 31, 1996 and 1995, respectively. General and administrative
expenses net of the SAIF assessment as a percentage of total assets was 1.03%
and 1.00% for the years ended December 31, 1996 and 1995, respectively. Other
non-interest expense increased $21,000, or 3.1%, from $679,000 at December 31,
1995 to $700,000 at December 31, 1996. The slight increase is attributable to a
$213,000 increase in amortization of purchased mortgage servicing rights offset
by a $192,000 decline in real estate owned expenses.
Total non-interest expenses increased $2.6 million, or 70.7%, from $3.6
million for the year ended December 31, 1994 to $6.2 million for the year ended
December 31, 1995. General and administrative expenses increased $2.1 million,
or 58.7%, from $3.5 million for the year ended December 31, 1994 to $5.6 million
for
AI-64
<PAGE>
the year ended December 31, 1995. This increase reflects increased expenses for
professional services and other general and administrative expenses related to
the significant growth in loan and deposit balances as well as a $762,000
increase in compensation and employee benefits, a $189,000 increase in federal
insurance premiums due to a higher deposit base and a $40,000 increase in office
occupancy. The Company incurred $300,000 for a marketing campaign which
management believes will ultimately enhance franchise value. General and
administrative expenses net of bonuses as a percentage of total assets was 0.87%
and 0.78% for the years ended December 31, 1995 and 1994, respectively. General
and administrative expenses as a percentage of assets was 1.00% and 0.82% for
the years ended December 31, 1995 and 1994, respectively. Other non-interest
expenses increased by $526,000, or 343.8%, from $153,000 for the year ended
December 31, 1994 to $679,000 for the year ended December 31, 1995. The increase
was primarily due to a $210,000 loss on the sale of a one-to-four family
property sold in conjunction with the unwinding of an unrated mortgage security
and $122,000 amortization of purchased mortgage servicing rights.
INCOME TAX EXPENSE. Income tax expense is computed upon, and generally varies
proportionally with, earnings before income tax expense adjusted for non-taxable
income and non-deductible expense.
The effective tax rate for the year ended December 31, 1996 was 31.9%
compared to 37.9% for 1995. The income tax expense for the year ended December
31, 1996 was $1.2 million as compared with $1.7 million for the year ended
December 31, 1995. The effective tax rate decreased largely as a result of a
decline in general loan provisions which are non-deductible for federal income
tax purposes.
The effective tax rate for 1995 was 37.9% as compared to 25.2% for 1994.
The income tax expense for the year ended December 31, 1995 was $1.7 million, as
compared with $182,000 for the year ended December 31, 1994. The Company's
effective tax rate exceeded the statutory federal income tax rate of 34% due
primarily to the non-deductibility for federal income tax purposes of goodwill
amortization and state taxes.
IMPACT OF INFLATION AND CHANGING PRICES
Since interest rates and inflation rates do not always move in concert, the
effect of inflation on financial institutions may not necessarily be the same as
on other businesses. A bank's asset and liability structure differs
significantly from that of industrial companies in that virtually all assets and
liabilities are of a monetary nature. Management believes that the impact of
inflation on financial results depends upon the Company's ability to manage
interest rate sensitivity and, by such management, reduce the inflationary
impact upon performance. Interest rates do not necessarily move in the same
direction, or in the same magnitude, as the prices of other goods and services.
As discussed above, management seeks to manage the relationship between interest
sensitive assets and liabilities in order to protect against wide interest rate
fluctuations, including those resulting from inflation.
NEW ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. It also establishes
criteria for the recognition of either a servicing asset or servicing liability
for servicing contracts to service financial assets. This standard is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. The Company believes the adoption of the new standard, effective
January 1, 1997, did not have a material impact on its financial position or
results of operations.
In December 1996, the FASB issued SFAS No. 127 "Deferral of the Effective
Date of Certain Provisions of SFAS 125" which amends the previously issued SFAS
No. 125 and deferred implementation of the standards enumerated in SFAS No. 125
for repurchase agreements and dollar rolls, securities lending and similar
transactions to transfers of financial assets that occur after December 31,
1997.
AI-65
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,259 $ 8,965
Investment securities available-for-sale 78,826 40,058
Mortgage-backed securities available-for-sale 184,743 234,385
Loans receivable, net 185,757 248,492
Loans receivable held for sale 166,064 --
Other assets 29,316 22,043
----------------------------
Total assets 647,965 553,943
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits 390,486 306,500
Advances from the Federal Home Loan Bank of Atlanta 144,800 105,500
Securities sold under agreements to repurchase 57,581 93,905
Subordinated debt, net of original issue discount 16,586 16,496
Other liabilities 13,854 9,977
----------------------------
Total liabilities 623,307 532,378
----------------------------
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 3,500,000 shares authorized;
2,049,500 issued and outstanding at December 31,1996 and 1995 20 20
Additional paid-in capital 14,637 14,637
Retained earnings 7,905 5,353
Unrealized gain (loss) on securities available for sale, net of tax 2,096 1,555
----------------------------
Total stockholders' equity 24,658 21,565
----------------------------
Total liabilities and stockholders' equity $647,965 $553,943
----------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
AI-66
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Mortgage loans and other loans $23,089 $ 17,726 $10,813
Mortgage-backed and related securities 17,955 20,205 9,973
Investment securities 4,690 2,347 1,290
Other 66 233 132
-------------------------------------
Total interest income 45,800 40,511 22,208
-------------------------------------
Interest expense:
Deposits 21,357 17,033 9,727
Advances from the Federal Home Loan Bank of Atlanta 6,689 5,985 4,278
Reverse repurchase agreements 4,569 6,839 2,281
Subordinated debt 2,200 2,089 1,227
-------------------------------------
Total interest expense 34,815 31,946 17,513
-------------------------------------
Net interest income 10,985 8,565 4,695
Provision for loan losses 919 1,722 492
-------------------------------------
Net interest income after provision for loan losses 10,066 6,843 4,203
-------------------------------------
Non-interest income:
Gain on sale of securities 935 3,412 118
Gain on sale of loans 874 232 --
Fees, service charges, and other 947 133 57
-------------------------------------
Total non-interest income 2,756 3,777 175
Non-interest expenses:
General and administrative expenses:
Compensation and employee benefits 3,690 3,030 1,807
SAIF assessment 1,671 -- --
Other 3,014 2,531 1,696
-------------------------------------
Total general and administrative expenses 8,375 5,561 3,503
Other non-interest expenses:
Net operating cost of real estate acquired through
foreclosure 238 430 (13)
Amortization of goodwill and other intangibles 462 249 166
-------------------------------------
Total other non-interest expenses 700 679 153
-------------------------------------
Total non-interest expenses 9,075 6,240 3,656
-------------------------------------
Income before income tax expense 3,747 4,380 722
Income tax expense 1,195 1,660 182
-------------------------------------
Net income $ 2,552 $ 2,720 $ 540
-------------------------------------
Earning per share
Primary $ 1.12 $ 1.33 $ 0.31
-------------------------------------
Fully diluted $ 1.09 $ 1.33 $ 0.31
-------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
AI-67
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
UNREALIZED
GAINS (LOSSES)
ADDITIONAL ON AVAILABLE-
PREFERRED COMMON PAID-IN RETAINED FOR-SALE
(Dollars in thousands) STOCK STOCK CAPITAL EARNINGS SECURITIES TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 3 $10 $ 9,488 $2,591 $ 286 $12,378
Dividends Paid ($0.38/share) -- -- -- (498) -- (498)
Stock conversion (3) 3 -- -- -- --
Sale of 750,000 shares
of common stock -- 7 5,149 -- -- 5,156
Net Income for the year ended
December 31, 1994 -- -- -- 540 -- 540
Unrealized Loss on Available-for-
Sale securities, net of tax effect -- -- -- -- (548) (548)
-----------------------------------------------------------------------------
Balances at December 31, 1994 $-- $20 $14,637 $2,633 $ (262) $17,028
Net Income for the year ended
December 31, 1995 -- -- -- 2,720 -- 2,720
Unrealized Gain on Available-for-
Sale securities, net of tax effect -- -- -- -- 1,817 1,817
-----------------------------------------------------------------------------
Balances at December 31, 1995 $-- $20 $14,637 $5,353 $1,555 $21,565
Net Income for the year ended
December 31, 1996 -- -- -- 2,552 -- 2,552
Unrealized Gain on Available-for-
Sale securities, net of tax effect -- -- -- -- 541 541
-----------------------------------------------------------------------------
Balances at December 31, 1996 $-- $20 $14,637 $7,905 $2,096 $24,658
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
AI-68
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,552 $ 2,720 $ 540
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiaries 274 -- --
Provision for loan losses 919 1,722 492
Provision for losses on foreclosed real estate 78 213 22
Other gains and losses, net (1,011) (153) (95)
Proceeds from sales of loans held for sale 27,865 -- --
Originations and purchases of loans held for sale (91,943) -- --
Net realized gains on available-for-sale securities and
loans held for sale (935) (3,412) (145)
Increase in accrued interest receivable (2,220) (4,954) (2,919)
Increase in other assets (2,433) (80) (3,621)
Interest credited to deposits 21,361 17,033 7,473
Increase in accrued expenses and other liabilities 4,636 2,134 1,960
Depreciation and amortization (1,516) (2,153) (770)
Deferred income taxes (1,130) -- --
---------------------------------------------------
Net cash (used in) provided by operating activities (43,503) 13,070 2,937
---------------------------------------------------
Cash flows from investing activities:
Net increase in loans (90,717) (98,439) (27,722)
Equity investments in subsidiaries (2,359) -- --
Purchases of available-for-sale securities (356,882) (122,785) (184,678)
Proceeds from sale of available-for-sale securities 220,293 71,084 7,977
Proceeds from maturities of and principal payment
on available-for-sale securities 201,547 39,646 --
Net purchases of premises and equipment (842) (537) (279)
Net expenditures on foreclosed real estate --
Proceeds from sale of foreclosed real estate 1,156 -- 750
---------------------------------------------------
Net cash used in investing activities (27,804) (111,031) (203,952)
---------------------------------------------------
Cash flows from financing activities:
Net increase in non-interest bearing demands, savings,
and NOW deposit accounts 62,625 77,056 91,806
Increase in advances from FHLB 273,500 59,000 207,000
Payments on advances from FHLB (234,200) (49,500) (172,000)
Net increase in securities sold under agreements to repurchase (36,324) 14,292 49,971
Net increase in other borrowed funds -- -- 16,390
Increase in common stock and additional paid in capital -- -- 5,157
Dividends paid on common and preferred stock -- -- (498)
---------------------------------------------------
Net cash provided by financing activities 65,601 100,848 197,826
===================================================
Net increase (decrease) in cash and cash equivalents (5,706) 2,887 (3,189)
Cash and cash equivalents at beginning of period 8,965 6,078 9,267
---------------------------------------------------
Cash and cash equivalents at end of period $ 3,259 $ 8,965 $ 6,078
===================================================
</TABLE>
AI-69
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental information:
Interest paid on deposits and borrowed funds $32,660 $29,852 $15,728
Income taxes paid 972 950 239
Gross unrealized gain (loss) on marketable securities
available-for-sale 3,512 2,590 (889)
Tax effect of gain (loss) on available-for-sale securities 1,416 1,036 (341)
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
TeleBanc Financial Corporation ("TeleBanc" or the "Company") is a savings
and loan holding company organized under the laws of Delaware in 1994. The
primary business of the Company is the activities conducted by TeleBank (the
"Bank"), formerly known as Metropolitan Bank for Savings, F.S.B. The Bank is a
federally chartered savings bank, which provides deposit accounts insured by the
Federal Deposit Insurance Corporation ("FDIC") to customers nationwide.
During the second quarter of 1996, the Bank, through its wholly owned
subsidiary TeleBanc Servicing Corporation ("TSC"), funded 50% of the capital
commitment for a new entity, AGT Mortgage Services, LLC ("AGT"). AGT services
performing loans and administers workouts for troubled or defaulted loans for a
fee.
The Bank also provided, in the second quarter of 1996, 50% of the capital
commitment for an additional new entity, AGT PRA, LLC ("AGT PRA"). The primary
business of AGT PRA is its investment in Portfolio Recovery Associates, LLC
("PRA"). PRA acquires and collects delinquent consumer debt obligations for its
own portfolio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
TeleBank and TSC, a wholly owned subsidiary. All significant intercompany
transactions and balances are eliminated in consolidation. In March, 1994,
TeleBanc became the direct savings and loan holding company parent of the Bank.
Accordingly, all financial data as of and for periods subsequent to March, 1994
represent the consolidated financial data of TeleBanc.
The Bank's total investment for the period ended December 31, 1996 through
TSC in AGT was $500,000. As of December 31, 1996 the Bank's equity investment in
AGT was $428,000 and total assets of AGT were $2.0 million. The investment in
AGT through TSC is accounted for under the equity method.
The Bank's total investment for the period ended December, 1996 through TSC
in AGT PRA was $1.9 million. As of December 31, 1996 the Bank's equity
investment in AGT PRA was $1.6 million and total assets of AGT PRA were $2.0
million. The investment in AGT PRA is accounted for under the equity method.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying 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, disclosures of contingent assets and
liabilities and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Material estimates for which a change
is reasonably possible in the near-term relate to the determination of the
allowance for loan losses, the fair value of investments and mortgage-backed
securities available-for-sale, loan receivables held for sale, and the valuation
of real estate acquired in connection with foreclosures.
In addition, the regulatory agencies which supervise the financial services
industry periodically review the Bank's allowance for losses on loans. This
review, which is an integral part of their examination process, may result in
additions to the allowance for loan losses based on judgments with regard to
available information provided at the time of their examinations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are composed of interest-bearing deposits,
certificates of deposit, funds due from banks, and federal funds sold with
original maturities of three months or less.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Company generally classifies its debt and marketable equity securities
in one of three categories: held-to-maturity, trading, or available-for-sale. On
December 15, 1995, the Company reclassified the entire held-to-maturity
investment and mortgage-backed securities portfolios as available-for-sale.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold until maturity. Held-to-maturity securities are
recorded at amortized cost, adjusted for the amortization or accretion of
premiums or discounts. Trading securities are bought and held principally for
the purpose of selling
AI-71
<PAGE>
them in the near term. Securities purchased for trading are carried at market
value with the corresponding unrealized gains and losses being recognized by
credits or charges to income. The Company had no assets classified as trading
securities at December 31, 1996 and 1995. All other securities not included in
held-to-maturity or trading are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized gains and
losses on available-for-sale securities, net of the related tax effects, are
reported as a separate component of stockholders' equity until realized.
A decline in market value of any held-to-maturity or available-for-sale
asset below its cost, that is deemed other than temporary, is charged to
earnings, resulting in the establishment of a new cost basis for the asset.
Transfers of securities into the available-for-sale category are recorded at
fair value at the date of the transfer. Any unrealized gain or loss at the date
of transfer is recognized as a separate component of stockholders' equity, net
of tax effect.
Premiums and discounts on securities are amortized or accreted over the
life of the related held-to-maturity security as an adjustment to yield using
the effective interest method. Dividend and interest income are recognized when
earned. Realized gains and losses for securities classified as
available-for-sale and trading are included in earnings and are derived using
the specific identification method for determining the cost of the security
sold.
LOANS HELD FOR SALE
Mortgages acquired by the Company and intended for sale in the secondary
market are carried at lower of cost or estimated market value in the aggregate.
Net unrealized losses are recognized through a valuation allowance by a charge
to income. The market value of these mortgage loans is determined by obtaining
market quotes for loans with similar characteristics. As of December 31, 1996,
no valuation allowance was recognized.
LOANS RECEIVABLE
Loans receivable consists of mortgages that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off and are
carried at amortized cost adjusted for charge-offs, the allowance for loan
losses, any deferred fees or costs on purchased or originated loans, and
unamortized premiums or discounts on purchased loans.
The loan portfolio is reviewed by the Company's management to set
provisions for estimated losses on loans which are charged to earnings in the
current period. In this review, particular attention is paid to delinquent loans
and loans in the process of foreclosure. The allowance and provision for loan
losses are based on several factors, including continuing examinations and
appraisals of the loan portfolio by management, examinations by supervisory
authorities, continuing reviews of problem loans and overall portfolio quality,
analytical reviews of loan loss experience in relation to outstanding loans, and
management's judgment with respect to economic conditions and its impact on the
loan portfolio.
NONPERFORMING/UNDERPERFORMING ASSETS
Nonperforming/underperforming assets consist of loans for which interest is
no longer being accrued, loans which have been restructured in order to afford
the Company a better opportunity to collect amounts due on the loan, real estate
acquired through foreclosure and real estate upon which deeds in lieu of
foreclosure have been accepted. Interest previously accrued but not collected on
nonaccrual loans is reversed against current income when a loan is placed on
nonaccrual status. Accretion of deferred fees is discontinued for nonaccrual
loans. All loans past due ninety days, as well as other loans considered
uncollectible, are placed on non-accrual status. Interest received on nonaccrual
loans is recognized as interest income or, when it is doubtful that full payment
will be collected, interest received is applied to principal. Loans delinquent
more than ninety days are considered impaired by management and accounted for in
accordance with SFAS No.114.
DEPOSITS ACQUISITIONS
On May 2, 1996, TeleBanc entered into an agreement to assume certain
deposit liabilities with First Commonwealth Savings Bank FSB ("First
Commonwealth"), First Commonwealth Financial Corp., and John York, Jr. Pursuant
to this agreement, TeleBanc assumed certain brokered and telephone solicited
deposit accounts of First Commonwealth, which deposits had a current balance of
approximately $53.1 million as of April 30, 1996. In the deposit assumption,
First Commonwealth paid TeleBanc the amount of the deposit liabilities assumed,
plus the amount of the deposit liabilities (less certain renewals) multiplied by
0.25 percent.
LOAN AND COMMITMENT FEES, DISCOUNTS AND PREMIUMS
Loan fees and certain direct loan origination costs are deferred and the
net fee or cost is recognized into interest income using the interest method
over the contractual life of the loans. Premiums and discounts on loans
receivable are amortized or accreted, respectively, into income using the
interest method over the remaining period to contractual maturity and adjusted
for anticipated prepayments. Premiums and discounts on loans held for sale are
not amortized or accreted, respectively. The premium or discount is recognized
as part of the loss or gain upon sale.
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<PAGE>
REAL ESTATE ACQUIRED THROUGH FORECLOSURE AND HELD FOR SALE
Real estate properties acquired through foreclosure and held for sale are
recorded at fair value less estimated selling costs at acquisition. Fair value
is determined by appraisal or other appropriate method of valuation. Losses
estimated at the time of acquisition are charged to the allowance for loan
losses. Valuations are periodically performed by management and an allowance for
losses is established through a charge to operations if the carrying value of a
property exceeds its estimated fair value less selling costs.
DEFERRED FINANCING COSTS
Deferred financing costs related to the issuance of the subordinated notes
in May and June 1994 have been capitalized and are being amortized using the
interest method over the life of the subordinated notes.
INCOME TAXES
Effective January 1, 1993, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). Under the asset and liability method of SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and their respective tax basis. 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.
FINANCIAL INSTRUMENTS
Interest rate swaps and caps are used by the Company in the management of
its interest-rate risk. The Company is generally exposed to rising interest
rates because of the nature of the repricing of rate-sensitive assets as
compared with rate-sensitive liabilities. The objective of these financial
instruments is to match estimated repricing periods of rate-sensitive assets and
liabilities to reduce interest rate exposure. These instruments are used only to
hedge specific assets and liabilities, and are not used for speculative
purposes.
The net interest received or paid on these contracts is treated as an
adjustment to the interest expense related to the hedged obligations in the
period in which such amounts are due. Premiums and fees associated with interest
rate caps are amortized to interest expense on a straight-line basis over the
lives of the contracts.
OTHER ASSETS
Other assets include purchased loan servicing rights, premiums paid on
interest rate caps, and prepaid assets.
AGT services the loans underlying these servicing rights. The cost of the
loan servicing rights is amortized in proportion to, and over the period of,
estimated net servicing income. Impairment of mortgage servicing rights is
assessed based on the fair value of those rights. Fair values are estimated
using discounted cash flows based on a current market interest rate. For
purposes of measuring impairment, the rights are stratified based on mortgage
product types. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights exceed their fair value in aggregate. As
of December 31, 1996, no valuation allowance was recognized.
EARNINGS PER SHARE
Earnings per share is computed by dividing adjusted net income by the total
of the weighted average number of common and preferred shares outstanding during
the respective period. The Company utilizes the modified treasury stock method
to calculate the weighted average number of common share equivalents, as the
exercise of all warrants and options potentially exercisable could result in a
greater than 20% increase in the number of shares outstanding. The calculation
requires that total proceeds from the exercise of warrants and options are
applied first to the repurchase of outstanding common shares up to a 20% limit
and second to the reduction of existing short-term or long-term debt and the
purchase of securities or commercial paper. The weighted average number of
common share equivalents outstanding in the calculation of primary earnings per
share was 2,316,616, 2,068,597, and 1,748,934 in 1996, 1995 and 1994,
respectively, after giving retroactive effect to a 100 for 1 stock split
consummated in March, 1994. The fully diluted earnings per share includes all
potentially dilutive shares such as employee stock option plan shares, warrants
and options. In addition, for purposes of determining fully diluted earnings per
share, purchases of common stock made from proceeds of the exercise of options
were assumed to have been made at the higher year-end price.
AI-73
<PAGE>
RECLASSIFICATIONS
Certain reclassifications of the 1995 and 1994 financial statements have
been made to conform to the 1996 presentation.
NEW ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. It also establishes
criteria for the recognition of either a servicing asset or servicing liability
for servicing contracts to service financial assets. This standard is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. The Company believes the adoption of the new standard, effective
January 1, 1997, did not have a material impact on its financial position or
results of operations.
In December 1996, the FASB issued SFAS No. 127 -"Deferral of the Effective
Date of Certain Provisions of SFAS No. 125", which amends the previously issued
SFAS No. 125 and deferred implementation of the standards enumerated in SFAS No.
125 for repurchase agreements, dollar rolls, securities lending, and similar
transactions to transfers of financial assets that occur after December 31,
1997.
3. CAPITAL REQUIREMENTS AND SUPERVISORY AGREEMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank'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 the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets.
Management believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and 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 Bank's actual capital amounts and ratios are presented in the table
below ($ in thousands):
<TABLE>
<CAPTION>
For Capital
Adequacy
Actual Purposes:
------ ---------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to risk
weighted assets) $34,104 10.41% greater than $26,205 greater than 8.0%
Tier I Capital (to risk
weighted assets) $31,726 9.69% greater than $13,102 greater than 4.0%
Tier I Capital (to
average assets) $31,726 5.08% greater than $24,999 greater than 4.0%
Tangible $31,711 5.07% greater than $ 9,374 greater than 1.5%
As of December 31, 1995:
Total Capital (to risk
weighted Assets) $30,680 11.74% greater than $20,899 greater than 8.0%
Tier I Capital (to risk
weighted assets) $28,944 11.08% greater than $10,450 greater than 4.0%
Tier 1 Capital (to average
total assets) $28,944 5.31% greater than $21,798 greater than 4.0%
Tangible $29,201 5.36% greater than $ 8,178 greater than 1.5%
</TABLE>
AI-74
<PAGE>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions:
------------------
Amount Ratio
------ -----
As of December 31, 1996:
Total Capital (to risk
weighted assets) greater than $32,756 greater than 10.0%
Tier I Capital (to risk
weighted assets) greater than $19,654 greater than 6.0%
Tier I Capital (to
average assets) greater than $31,248 greater than 5.0%
Tangible N/A --
As of December 31, 1995:
Total Capital (to risk
weighted Assets) greater than $26,264 greater than 10.0%
Tier I Capital (to risk
weighted assets) greater than $15,674 greater than 6.0%
Tier 1 Capital (to average
total assets) greater than $27,261 greater than 5.0%
Tangible N/A --
On August 8, 1996, the OTS terminated the May 1993 Supervisory Agreement
with TeleBank subsequent to the completion of a full scope safety and soundness
examination of the Bank.
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<PAGE>
4. Investment Securities
The cost basis and estimated fair values of investment securities
available-for-sale at December 31, 1996 and 1995, by contractual maturity, are
shown below (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUES
---- ----- ------ -----------
<S> <C> <C> <C> <C>
1996:
Due within one year:
Repurchase Agreement $ 1,730 $ -- $ -- $ 1,730
Margin Account 18 -- -- 18
Due within one to five years:
Corporate Debt 2,000 -- (10) 1,990
Agency Notes 988 1 -- 989
Municipal Bonds 565 3 -- 568
Certificate of Deposit 499 -- -- 499
Due within five to ten years:
Corporate Debt 7,436 61 -- 7,497
Municipal Bonds 3,560 27 -- 3,587
Due after ten years:
Agency Notes 30,151 132 -- 30,283
Equities 14,011 220 -- 14,231
Corporate Debt 13,089 994 -- 14,083
Municipal Bonds 3,200 151 -- 3,351
-------- ------- -------- --------
$77,247 $ 1,589 $ (10) $ 78,826
======== ======= ======== ========
1995:
Due within one year:
Agency Notes $ 3,359 $ -- $ -- $ 3,359
Due within one to five years:
Municipal Bonds 2,946 15 -- 2,961
Due within five to ten years:
Corporate Debt 6,162 79 -- 6,241
Municipal Bonds 5,942 74 -- 6,016
Due after ten years:
Corporate Debt 16,688 1,058 -- 17,746
Municipal Bonds 3,472 263 -- 3,735
-------- ------- -------- --------
$ 38,569 $ 1,489 $ -- $ 40,058
======== ======= ======== ========
</TABLE>
The proceeds from sale, gross realized gains and losses on investment
securities available for sale that were sold in 1996 were $25.1 million,
$311,000 and $153,000, respectively. The proceeds from sale, gross realized
gains and losses on investment securities available for sale that were sold in
1995 were $24.1 million, $1.1 million, and $52,000, respectively.
5. MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed and related securities represent participating interests in
pools of long-term first mortgage loans originated and serviced by the issuers
of the securities. The Company has also invested in collateralized mortgage
obligations ("CMOs") which are securities issued by special purpose entities
generally collateralized by pools of mortgage-backed securities. The Company's
CMOs are senior tranches collateralized by federal agency securities or whole
loans. The fair value of mortgage-backed and related securities fluctuate
according to current interest rate conditions and prepayments. Fair value is
estimated using quoted market prices. For illiquid securities, market prices are
estimated by obtaining market price quotes on similar liquid securities and
adjusting the price to reflect differences between the two securities, such as
credit risk, liquidity, term, coupon, payment characteristics, and other
information.
The amortized cost basis and estimated fair values of mortgage-backed
securities available-for-sale at December 31, 1996 and 1995, by contractual
maturity, are shown as follows (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUES
--------- ---------- ---------- -----------
1996:
Due within one to five years:
Private issuer $ 4,172 $ -- $ (56) $ 4,116
Due within five to ten years:
Private issuer 8,262 75 -- 8,337
Collateralized mortgage
obligations 371 -- (3) 368
Due after ten years:
Private issuer 132,791 1,367 -- 134,158
Collateralized mortgage
obligations 24,896 461 -- 25,357
Agency certificates 12,310 97 -- 12,407
$ 182,802 $ 2,000 $ (59) $ 184,743
1995:
Due within one to five years:
Private issuer $ 2,546 $ -- $ (15) $ 2,531
Agency certificates 9,594 62 -- 9,656
Due within five to ten years:
Private issuer 5,993 -- (111) 5,882
Agency certificates 3,085 -- (6) 3,079
Due after ten years:
Private issuer 181,481 260 -- 181,741
Agency certificates 22,252 686 -- 22,938
Collaterlized mortgage
obligations 8,325 233 -- 8,558
$ 233,276 $ 1,241 $ (132) $ 234,385
At December 31, 1996 and 1995, $61.4 million and $108.5 million
respectively, of private issuer mortgage-backed securities were pledged as
collateral for reverse repurchase agreements.
The proceeds from sale, gross realized gains and losses on mortgage-backed
securities available for sale that were sold in 1996 were $185.2 million, $1.4
million and $707,000, respectively. The proceeds from sale and, gross realized
gains and losses on mortgage-backed securities available for sale that were sold
in 1995 were $39.7 million, $1.6 million and $3,000, respectively.
AI-76
<PAGE>
6. LOANS RECEIVABLE
Loans receivable at December 31, 1996 and 1995 are summarized as follows
(in thousands):
1996 1995
--------- ---------
First mortgage loans (principally conventional):
Secured by one-to-four family residences $ 359,563 $ 254,678
Secured by commercial real estate 4,017 4,553
Secured by mixed-use property 1,180 1,792
Secured by five or more dwelling units 1,516 1,286
Secured by land 781 384
367,057 $ 262,693
Less:
Net deferred loan origination fees (42) (42)
Unamortized discounts, net (13,750) (14,129)
Total first mortgage loans 353,265 248,522
Other loans:
Home equity and second mortgage loans 1,208 2,202
Other 305 79
354,778 250,803
Less: allowance for loan losses (2,957) (2,311)
Net loans receivable $ 351,821 $ 248,492
The mortgage loans are located primarily in New York, California and New
Jersey according to the following percentages 29.2%, 13.9%, and 9.9%,
respectively.
Mortgage loans for which the company owns the servicing rights are serviced
by AGT for a fee. The unpaid principal balance of mortgage loans owned by the
Company but serviced by companies other than AGT was $203,852,788 and
$103,349,000 at December 31, 1996 and 1995, respectively.
Loans past due ninety days or more, and therefore on non-accrual status at
December 31, 1996 and 1995, are summarized as follows (in thousands):
1996 1995
---- ----
First mortgage loans:
Secured by one-to-four family residences $ 8,979 $ 4,526
Secured by commercial real estate 1,217 261
Home equity and second mortgage loans 54 136
Total $10,250 $ 4,923
The interest accrual balance for each loan that enters non-accrual is
reversed from income. If all nonperforming loans had been performing during
1996, 1995 and 1994, the Bank would have recorded $789,000, $365,000, and
$113,000, respectively, in additional interest income. There were no commitments
to lend additional funds to these borrowers as of December 31, 1996 and 1995.
Activity in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 is summarized as follows (in thousands):
1996 1995 1994
---- ---- ----
Balance, beginning of the year $ 2,311 $ 989 $ 835
Provision for loan losses 919 1,722 492
Charge-offs, net (273) (400) (338)
Balance, end of year $ 2,957 $ 2,311 $ 989
According to SFAS No. 114, a loan is considered impaired when, based upon
current information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The term "all amounts due" includes both the contractual interest and
principal payments of a loan as scheduled in the loan agreement. The Company has
determined that once a loan becomes 90 or more days past due, collection of all
amounts due is no longer probable and is therefore considered impaired. The
amount of impairment is measured based upon the fair value of the underlying
collateral and is reflected through the creation of a valuation allowance.
The table below presents impaired loans as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
AMOUNT
TOTAL AMOUNT OF OF RECORDED
RECORDED INVESTMENT SPECIFIC INVESTMENT NET OF
DESCRIPTION OF LOANS IN IMPAIRED LOANS RESERVES SPECIFIC RESERVES
- -------------------- ----------------- -------- -----------------
<S> <C> <C> <C>
1996:
Impaired loans:
Commercial real estate $ 1,217 $ 318 $ 899
One-to-four family 9,033 1,492 7,541
Total $ 10,250 $ 1,810 $ 8,440
Restructured loans:
Commercial real estate $ 251 $ 8 $ 243
One-to-four family 184 0 184
Total $ 435 $ 8 $ 427
1995:
Impaired loans:
Commercial real estate $ 261 $ 222 $ 39
One-to four family 4,662 1,070 3,592
Total $ 4,923 $ 1,292 $ 3,631
Restructured loans:
Commercial real estate $ 255 $ 38 $ 217
One-to-four family 110 26 84
Total $ 365 $ 64 $ 301
</TABLE>
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<PAGE>
The average recorded investment in impaired loans for the year ended
December 31, 1996 and 1995 was $2.5 million and $1.8 million, respectively. The
related amount of interest income the Company would recognize as additional
interest income for the years ended December 31, 1996, 1995 and 1994 was
$789,000, $365,000 and $113,000, respectively. The Company's charge-off policy
for impaired loans is consistent with its charge-off policy for other loans;
impaired loans are charged-off when, in the opinion of management, all principal
and interest due on the impaired loan will not be fully collected. Consistent
with the Company's method for non-accrual loans, interest received on impaired
loans is recognized as interest income, or when it is doubtful that full payment
will be collected, interest received is applied to principle.
7. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure at December 31, 1996 was $1.3
million, less the allowance for loan losses of $65,000, resulting in a net
balance of $1.2 million. The real estate acquired through foreclosure at
December 31, 1995 was $1.0 million, less the allowance for loan losses of
$213,000, resulting in a net balance of $787,000.
Activity in the allowance for real estate losses for the years ended
December 31, 1996, 1995, and 1994 is summarized as follows (in thousands):
1996 1995 1994
---- ---- ----
Balance, beginning of year $ 213 $ 92 $ 221
Provision for real estate losses 77 256 22
Charge-offs (225) (135) (151)
Balance, end of year $ 65 $ 213 $ 92
8. LOANS SERVICED FOR OTHERS
Mortgage loans serviced by AGT for others are not included in the
accompanying consolidated statements of financial condition because the related
loans are not owned by the Company or any of its subsidiaries. The unpaid
principal balances of these loans at December 31, 1996 and 1995 are summarized
as follows (in thousands):
1996 1995
---- ----
Mortgage loans underlying pass-through securities:
Federal Home Loan Mortgage Corporation $ 2,843 $ 3,574
Federal National Mortgage Association 11,548 5,307
Subtotal $14,391 8,881
Mortgage loan portfolio serviced for:
Other investors 31,465 9,315
Total $45,856 $18,196
Custodial escrow balances held in connection with the fore-going loans
serviced were approximately $84,422 and $168,000 at December 31, 1996 and 1995,
respectively.
In August 1995, the Bank purchased a loan secured by mortgage servicing
rights that were owned by an affiliate for $2.5 million. The loan was paid off
in October 1995 in conjunction with the Bank's purchase of the underlying
servicing rights for $3.3 million. Purchased mortgage servicing rights of $2.8
million and $3.3 million as of December 31, 1996 and 1995, respectively are
included in other assets.
9. DEPOSITS
The Bank initiates deposits directly with customers through contact on the
phone, the mail, and walk-ins at its headquarters. On May 2, 1996, TeleBanc
entered into an agreement to assume certain deposit liabilities with First
Commonwealth Savings Bank FSB ("First Commonwealth"), First Commonwealth
Financial Corp., and John York, Jr. Pursuant to this agreement, TeleBanc assumed
certain brokered and telephone solicited deposits accounts of First
Commonwealth, which deposits had a current balance of approximately $53.1
million as of April 30, 1996. In the deposit assumption, First Commonwealth paid
TeleBanc the amount of the deposit liabilities assumed, plus the amount of the
deposit liabilities (less certain renewals) multiplied by 0.25 percent. Deposits
at December 31, 1996 and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE AT
DECEMBER 31 AMOUNT PERCENT
---------------- ------------------ --------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Demand accounts,
non interest-
bearing --% --% $ 309 $ 2,020 --% 0.7%
Money market 5.10 5.23 109,835 75,732 28.1 24.7
Passbook savings 3.00 3.00 1,758 1,748 0.5 0.6
Certificates of
Deposit 6.28 6.53 278,584 227,000 71.4 74.0
---------------------------------------------
Total $390,486 $306,500 100.0% 100.0%
---------------------------------------------
</TABLE>
Certificates of deposit and money market accounts, classified by rates as
of December 31, 1996 and 1995 are as follows (in thousands):
Amount 1996 1995
------ ---- ----
0 - 1.99% $ 5,235 $ --
2 - 3.99% 148 --
4 - 5.99% 210,481 141,750
6 - 7.99% 170,056 158,375
8 - 9.99% 1,709 1,817
10 - 11.99% 790 790
Total $ 388,419 $ 302,732
AI-78
<PAGE>
At December 31, 1996, scheduled maturities of certificates of deposit and
money market accounts are as follows (in thousands):
<TABLE>
<CAPTION>
LESS THAN
ONE YEAR 1-2 2-3 3-4 4-5 5+
YEARS YEARS YEARS YEARS YEARS YEARS TOTAL
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
0 - 1.99% $ 5,235 $ -- $ -- $ -- $ -- $ -- $ 5,235
2 - 3.99% 148 -- -- -- -- -- 148
4 - 5.99% 158,566 36,344 13,459 910 1,161 41 210,481
6 - 7.99% 64,828 22,325 54,864 12,002 12,626 3,411 170,056
8 - 9.99% 1,058 543 -- 75 -- 33 1,709
10 - 11.99% 790 -- -- -- -- -- 790
$ 230,625 $ 59,212 $ 68,323 $ 12,987 $ 13,787 $ 3,485 $ 388,419
</TABLE>
The aggregate amount of certificates of deposit with denominations greater
than or equal to $100,000 was $45.1 million and $20.0 million at December 31,
1996 and 1995, respectively.
Interest expense on deposits for the years ended December 31, 1996, 1995,
and 1994 is summarized as follows (in thousands):
1996 1995 1994
---- ---- ----
Money market $ 4,740 $ 2,036 $ 417
Passbook savings 59 78 92
Certificates of deposit 16,558 14,919 9,218
Total $ 21,357 $ 17,033 $ 9,727
Accrued interest payable on deposits at December 31, 1996 and 1995 was
$667,000 and $452,000, respectively.
10. ADVANCES FROM THE FHLB OF ATLANTA
Advances to the Bank from the FHLB of Atlanta at December 31, 1996 and 1995
were as follows (dollars in thousands):
WEIGHTED WEIGHTED
AVERAGE AVERAGE
MATURITY 1996 INTEREST RATE 1995 INTEREST RATE
- -------- ---- ------------- ---- -------------
1996 $ -- 5.52% $ 51,000 5.52%
1997 64,800 5.56 29,500 5.72
1998 41,000 5.53 -- --
1999 39,000 5.60 25,000 5.59
Total $ 144,800 5.56% $ 105,500 5.59%
All advances, except for $2.0 million which matured in November of 1996,
are floating rate advances and adjust quarterly or semi-annually to the London
InterBank Offering Rate ("LIBOR") rate. In 1996 and 1995, the advances were
collateralized by a specific lien on mortgage loans in accordance with an
"Advances, Specific Collateral Pledge and Security Agreement" with the FHLB of
Atlanta, executed September 10, 1980. Under this agreement, the Bank is required
to maintain qualified collateral equal to 120 to 160 percent of the Bank's FHLB
advances, depending on the collateral type. As of December 31, 1996 and 1995,
the Company secured these advances with an assignment of specific mortgage loan
collateral from its loan and mortgage-backed security portfolio. These
one-to-four family whole first mortgage loans and securities pledged as
collateral totaled approximately $186.1 million and $140.2 million at December
31, 1996 and 1995, respectively.
The Company is required to be a member of the FHLB System and to maintain
an investment in the stock of the FHLB of Atlanta at least equal to the greater
of 1 percent of the unpaid principal balance of its residential mortgage loans
or 1 percent of 30 percent of its total assets or 1/20th of its outstanding
advances from the FHLB.
11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning borrowings under fixed and variable rate coupon
reverse repurchase agreements is summarized as follows (dollars in thousands):
1996 1995
---- ----
Weighted average balance during the year $ 68,920 $ 97,692
Weighted average interest rate during the year 5.77% 6.29%
Maximum month-end balance during the year $ 97,416 $119,507
Balance at year-end $ 57,581 $ 93,905
Securities underlying the agreements
as of the end of the year:
Carrying value, including accrued interest $ 61,418 $103,590
Estimated market value $ 61,426 $103,891
The securities sold under the reverse repurchase agreements at December 31,
1996 are due in less than one year. The Company enters into sales of securities
under agreements to repurchase the
AI-79
<PAGE>
same securities. Reverse repurchase agreements are collateralized by fixed and
variable rate mortgage-backed securities or investment grade securities. Reverse
repurchase agreements are treated as financings, and the obligations to
repurchase securities sold are reflected as a liability in the balance sheet.
The dollar amount of securities underlying the agreement remains in the asset
accounts. The securities underlying the agreements are physical and book entry
securities and the brokers retain possession of the securities collateralizing
the reverse repurchase agreements. If the counterparty in a reverse repurchase
agreement were to fail, the Company might incur an accounting loss for the
excess collateral posted with the counterparty. As of December 31, 1996, the
Company's amount at risk did not exceed 10% of the Company's stockholders'
equity with any one counterparty.
12. SUBORDINATED DEBT
In May and June 1994, the Company issued 15,000 units of subordinated debt
at a price of $15.0 million and 2,250 units at a price of $2.3 million,
respectively. The units each consist of $1,000 of 11.5% subordinated notes due
in 2004 and 20 detachable warrants to purchase one share each of TeleBanc common
stock. The notes may not be redeemed prior to May 1, 1999. The notes are
redeemable at the option of the Company after May 1, 1999, at an initial
redemption price of 105.75% of the principal amount plus accrued interest with
the redemption price declining to 104.60%, 103.45%, 102.30%, and 101.15%
annually each year thereafter. Interest is payable semi-annually on May 1 and
November 1, commencing November 1, 1994. The indenture, among other things,
restricts the ability of the Company under certain circumstances to incur
additional indebtedness, limits cash dividends and other capital distributions
by the Company, requires the maintenance of a reserve initially equal to 150% of
the Company's annual interest expense on all indebtedness, restricts disposition
of the Bank or its assets and limits transactions with affiliates.
The total value of the 345,000 warrants was $948,750 which resulted in an
original issue discount on the subordinated debt in the amount of $899,289. The
original issue discount is amortized on a level yield basis over the life of the
debt. The warrants became transferable on November 27, 1994 and are exercisable
on or after May, 27, 1995. The exercise price of each warrant is $7.65625.
13. PENSION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors an Employee Stock Ownership Plan ("ESOP"). All
full-time employees of the Company who meet limited qualifications participate
in the ESOP. Under the ESOP, the Company contributes cash to a separate trust
fund maintained exclusively for the benefit of those employees who have become
participants. Participants will have shares of TeleBanc common stock, valued at
market value, allocated to their personal plan accounts based on a uniform
percentage of wages. At December 31, 1996 and 1995, the Company carried a
$305,000 and $240,000, respectively, note receivable from the ESOP which was
collateralized by the Company's common stock. The ESOP owned 67,600 shares of
the Company's stock with approximately 32,000 and 18,000 shares vested at
December 31, 1996 and 1995, respectively. The Company's contribution to the
ESOP, which is reflected in compensation expense, was $224,000, $210,000 and
$104,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
14. INCOME TAXES
Income tax expense for the years ended December 31, 1996, 1995, and 1994 is
summarized as follows (in thousands):
1996 1995 1994
---- ---- ----
Current: Federal $1,194 $2,038 $ 224
State 225 181 59
1,419 2,219 283
Deferred: Federal (78) (474) (86)
State (146) (85) (15)
(224) (559) (101)
Total: Federal 1,116 1,564 138
State 79 96 44
Total $1,195 $1,660 $ 182
A reconciliation of the statutory Federal income tax rate to the Company's
effective income tax rate for the years ended December 31, 1996, 1995, and 1994
is as follows:
1996 1995 1994
---- ---- ----
Federal income tax at
statutory rate 34.0% 34.0% 34.0%
State taxes, net of
federal benefit 4.2 4.2 4.2
Municipal bond interest,
net of disallowed
interest expense (3.6) (7.0) (18.0)
Other (2.7) 6.7 5.0
Total 31.9% 37.9% 25.2%
AI-80
<PAGE>
Deferred income taxes result from temporary differences in the recognition
of income and expense for tax versus financial reporting purposes. The sources
of these temporary differences and the related tax effects for the years ended
December 31, 1996 and 1995 are as follows (in thousands):
1996 1995
Deferred Tax Liabilities:
Acquired Loan Servicing Rights $ (12) $ (15)
Purchase Accounting Premium
- Land & Building (37) (37)
Purchase Accounting Premium
on Investments (3) (3)
Depreciation (17) (15)
Tax Reserve in Excess of Base Year (93) (93)
Prepaid Expenses (52) (25)
FHLB Stock Dividends (168) (168)
Total (382) $(356)
Deferred Tax Assets:
Purchase Accounting Discount
on Loan Portfolio 6 4
General Reserves & Real Estate
Owned Losses 819 674
Deferred Loan Fees 14 16
Total 839 694
Net Deferred Tax Asset 457 338
Tax Effect of Securities
Available-for-sale
adjustment to Fair Value
(notes 4 and 5) (1,030) (832)
Adjusted Net Deferred Tax Liability $(573) $(494)
The Company carries an accumulated tax bad debt reserve of $643,000 with
the U.S. Internal Revenue Service for which income taxes have not been provided.
If the Bank were to convert from its thrift charter, the Bank would pay taxes of
approximately $100,000 on this bad debt reserve. In addition, the Bank has
entered into a tax sharing agreement with TeleBanc under which it is allocated
its share of income tax expense or benefit based on its portion of consolidated
income or loss. The net deferred tax liability is recorded in other liabilities
on the balance sheet.
15. FINANCIAL INSTRUMENTS
The Company is party to a variety of interest rate caps and swaps to manage
interest rate exposure. In general, the Company enters into agreements to assume
fixed-rate interest payments in exchange for variable market-indexed interest
payments. The effect of these agreements is to lengthen short-term variable
liabilities into longer term fixed-rate liabilities or to shorten long-term
fixed rate assets into short-term variable rate assets. The net costs of these
agreements are charged to interest expense or interest income, depending on
whether the agreement is designated to hedge a liability or an asset.
Interest rate swap agreements for the years ended December 31, 1996 and
1995 are summarized as follows (dollars in thousands):
1996 1995
---- ----
Weighted average fixed rate payments 5.97% 5.93%
Weighted average original term 5.0 yrs 6.0 yrs
Weighted average variable rate obligation 5.62% 5.63%
Notional amount $130,000 $40,000
-------- --------
The Company enters into interest rate cap agreements to hedge outstanding
FHLB advances and reverse repurchase agreements. Under the terms of the interest
rate cap agreements, the Company generally would receive an amount equal to the
difference between 3 month LIBOR or 6 month LIBOR and the cap's strike rate,
multiplied by the notional amount. The interest rate cap agreements are
summarized as follows (dollars in thousands):
- --------------------------------------------------------------------------------
Effective Notional Maturity
Cap Strike Rate Date Balance Date
- --------------------------------------------------------------------------------
4% July 1992 $10,000 July 1999
5% July 1992 10,000 July 1997
6% October 1996 20,000 October 1999
7% January 1997 10,000 January 2002
7% January 1995 10,000 July 1998
7% July 1995 10,000 July 1997
8% January 1995 10,000 January 1997
9% December 1994 14,000 December 1998
9.5% April 1995 10,000 April 1997
10% April 1995 10,000 January 2002
10% January 1995 10,000 January 1997
The counterparties to the interest rate cap agreements are Goldman Sachs,
Lehman Brothers, Salomon Brothers, and UBS and contain credit risk of $729,000,
$257,000, $165,000, and $855,000, respectively. The credit risk is attributable
to the unamortized cap premium and any amounts due from the counterparty as of
December 31,1996. The total amortization expense for premiums on interest rate
caps was $638,000, $213,000 and $292,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
16. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The fair value information for financial instruments, which is provided
below, is based on the requirements of Statement of Financial Accounting
Standards No. 107, Disclosure About Fair Value of Financial Instruments ("SFAS
No. 107") and does not
AI-81
<PAGE>
represent the aggregate net fair value of the Bank. Much of the information used
to determine fair value is subjective and judgmental in nature, therefore, fair
value estimates, especially for less marketable securities, may vary. In
addition, the amounts actually realized or paid upon settlement or maturity
could be significantly different. The following methods and assumptions were
used to estimate the fair value of each class of financial instrument for which
it is reasonable to estimate that value:
CASH AND INTEREST-BEARING DEPOSITS - Fair value is estimated to be carrying
value.
FEDERAL FUNDS SOLD - Fair value is estimated to be carrying value.
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL - Fair value is estimated to be
carrying value.
INVESTMENT SECURITIES - Fair value is estimated by using quoted market prices
for most securities. For illiquid securities, market prices are estimated by
obtaining market price quotes on similar liquid securities and adjusting the
price to reflect differences between the two securities, such as credit risk,
liquidity, term coupon, payment characteristics, and other information.
MORTGAGE-BACKED AND RELATED SECURITIES - Fair value is estimated using quoted
market prices. For illiquid securities, market prices are estimated by obtaining
market price quotes on similar liquid securities and adjusting the price to
reflect differences between the two securities, such as credit risk, liquidity,
term coupon, payment characteristics, and other information.
LOANS RECEIVABLE - For certain residential mortgage loans, fair value is
estimated using quoted market prices for similar types of products. The fair
value of other certain types of loans is estimated using quoted market prices
for securities backed by similar loans.
The fair value for loans which could not be reasonably established using
the previous two methods was estimated by discounting future cash flows using
current rates for similar loans.
Management adjusts the discount rate to reflect the individual
characteristics of the loan, such as credit risk, coupon, term, payment
characteristics, and the liquidity of the secondary market for these types of
loans.
DEPOSITS - For passbook savings, checking and money market accounts, fair value
is estimated at carrying value. For fixed maturity certificates of deposit, fair
value is estimated by discounting future cash flows at the currently offered
rates for deposits of similar remaining maturities.
ADVANCES FROM THE FHLB OF ATLANTA - For adjustable rate advances, fair value is
estimated at carrying value. For fixed rate advances, fair value is estimated by
discounting future cash flows at the currently offered rates for fixed-rate
advances of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Fair value is estimated using
carrying value. The securities are repriced on a semiannual basis.
SUBORIDNATED DEBT - For subordinated debt, fair value is estimated using quoted
market prices.
OFF-BALANCE SHEET INSTRUMENTS - The fair value of interest rate exchange
agreements is the net cost to the Company to terminate the agreement as
determined from market quotes.
The fair value of financial instruments as of December 31, 1996 and 1995 is
as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996 1996 1995 1995
Carrying Fair Carrying Fair
Value Value Value Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,259 $ 3,259 $ 8,965 $ 8,965
Investment securities
available-for-sale 78,826 78,826 40,058 40,058
Mortgage-backed securities
available-for-sale 184,743 184,743 234,210 234,210
Loans receivable 351,821 365,401 248,667 261,198
LIABILITIES:
Deposits 390,486 393,820 306,500 311,476
Advances from the
FHLB Atlanta 144,800 144,800 105,500 105,526
Securities sold under
agreements to repurchase 57,581 57,581 93,905 93,905
Subordinated debt, net 16,586 16,625 16,496 16,123
Off-balance sheet
financial instruments -- 1,684 -- 212
Commitments to
purchase loans -- 54,721 -- 24,738
</TABLE>
AI-82
<PAGE>
17. DISTRIBUTIONS
The Company is subject to certain restrictions on the amount of dividends
it may declare without prior regulatory approval. At December 31, 1996,
approximately $6.4 million of retained earnings were available for dividend
declaration without prior regulatory approval.
18. STOCK BASED COMPENSATION
In 1996, directors, officers and employees were issued 80,500 options to
purchase 80,500 shares of TeleBanc common stock at prices ranging from $7.75 to
$8.875. In 1995, officers and employees were issued 32,000 options to purchase
32,000 shares of TeleBanc common stock at a price of $5.50. As of December 31,
1996 and 1995, 180,438 and 110,392, respectively, of the shares were vested at
exercise prices ranging from $5.50 to $8.875. The options' exercise price was
the market value of the stock at the date of issuance. No options have been
exercised or canceled.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1996 1995
------------------------------ ----------------------------
WEIGHTED AVG. WEIGHTED AVG.
OPTIONS SHARES EXERCISED PRICE SHARES EXERCISED PRICE
(000's) (000's)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 271 $6.51 242 $6.64
Granted 81 $8.17 32 $5.50
Exercised -- -- -- --
Forfeited -- -- 3 $6.13
Outstanding at end of year 352 $6.89 271 $6.51
Options exercisable at year-end 180 $6.69 110 $6.55
Weighted avg. fair value
of options granted $2.61 $1.81
</TABLE>
The following table summarizes information about fixed options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- ------------------------------
RANGE OF NUMBER WEIGHTED AVG. NUMBER WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING EXERCISED PRICE EXERCISABLE EXERCISED PRICE
(000's) (000's)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$5.00 - $5.99 32 $5.50 13 $5.50
$6.00 - $6.99 114 $6.13 76 $6.13
$7.00 - $7.99 176 $7.30 85 $7.20
$8.00 - $8.99 30 $8.88 6 $8.88
$5.00 - $8.99 352 $6.89 180 $6.69
</TABLE>
As of December 31, 1996 the fixed options outstanding had a weighted
average remaining contractual life ranging from 7.4 years to 9.6 years. The
Company accounts for this plan under APB No. 25, under which no compensation
cost has been recognized. Had compensation cost for the plan been determined
consistent with SFAS No. 123, the Company's net income and net income per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
12/31/96 12/31/95
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations:
<S> <C> <C>
As reported $ 2,552 $ 2,720
Pro forma 2,342 2,662
Earnings per share:
As reported 1.12 1.33
Pro forma 1.03 1.30
Fully diluted earnings per share:
As reported 1.09 1.33
Pro forma 1.00 1.30
</TABLE>
Because the method of accounting required by SFAS No. 123 has not been
applied to options granted prior to January 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. The fair value of each option grant is estimated on the date of grant
using the Roll Geske option pricing model with the following weighted average
assumptions for grants; risk-free interest rates of 5.25 percent and 6.00
percent for 1996 and 1995, respectively; expected life of 10 years for all
options granted in 1996 and 1995; expected volatility of 23 percent and 16
percent for 1996 and 1995, respectively.
19. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The principal commitments of the
Company are as follows:
At December 31, 1996, the Company was obligated under an operating lease
for office space with an original term of ten years. Net rent expense under
operating leases was approximately $142,000, $127,000, and $60,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
AI-83
<PAGE>
The projected minimum rental payments under the terms of the lease are as
follows:
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------- ------
1997 $ 177,000
1998 165,000
1999 167,000
2000 169,000
2001 171,000
2002 and thereafter 701,000
$ 1,550,000
As of December 31, 1996, the Company had commitments to purchase $54.7
million of mortgage loans.
The Company self-insures for a portion of health insurance expenses paid by
the Company as a benefit to its employees. At December 31, 1996 and 1995, there
was no reserve needed for incurred but not reported claims under this insurance
arrangement.
20. SUBSEQUENT EVENTS
In February 1997, TeleBanc entered into definitive agreements to raise new
capital in the form of convertible preferred stock, senior subordinated notes
and warrants aggregating $29.9 million and to purchase the assets of Arbor
Capital Partners, Inc. ("Arbor"), a registered investment advisor, funds manager
and broker-dealer. MET Holdings, TeleBanc's majority shareholder, owns a
majority of Arbor.
The Board of Directors authorized the sale of $29.9 million in units to
investment partnerships managed by Conning & Company, CIBC WG Argosy Merchant
Fund 2, LLC, The Progressive Corporation and The Northwestern Mutual Life
Insurance Company. Representatives from the Conning partnerships and the CIBC
Merchant Fund will serve on the Board of Directors of the Company. The units
consist of $13.7 million in 9.5% senior subordinated notes with 198,088
detachable warrants, $16.2 million in 4.0% convertible preferred stock, and
rights to 205,563 contingent warrants. The Company finalized this transaction on
February 28, 1997.
Also in connection with the sale of units, the Arbor asset acquisition was
structured as a tax free issuance of 162,461 shares of TeleBanc common stock,
24,201 options, and a $500,000 cash payment for the Arbor assets. An independent
appraisal valued the assets to be acquired from Arbor at $3.1 million.
Consistent with TeleBanc's charter, the number of shares issued to Arbor as
consideration is limited to 5% of total market value of outstanding TeleBanc
stock at the time of acquisition. The Company finalized the sale of the units
and the related Arbor asset acquisition on February 28, 1997.
21. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Statements of Financial Condition
($ in thousands)
December 31,
------------------
1996 1995
---- ----
ASSETS:
Cash $ 159 $ 210
Investment securities available-for-sale 4,132 4,685
Mortgage-backed securities available-for-sale 14,086 940
Investment securities held-to-maturity -- --
Loans receivable, net 305 240
Equity in net assets of subsidiary 34,130 31,164
Deferred charges 940 1,066
Other assets 1,099 265
Total assets $54,851 $38,570
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Subordinated debt $16,586 $16,496
Securities sold under agreements to repurchase 12,831
Accrued interest payable 357 330
Taxes payable and other liabilities 419 179
Total liabilities $30,193 $17,005
STOCKHOLDERS' EQUITY
Preferred Stock $ -- $ --
Common Stock 20 20
Additional Paid in Capital 14,637 14,637
Retained earnings 7,904 5,352
Unrealized gain/loss on securities available-for-sale 2,097 1,556
Total stockholders' equity 24,658 21,565
Total liabilities and stockholders' equity $54,851 $38,570
STATEMENTS OF OPERATIONS
($ in thousands)
December 31,
------------------------------
1996 1995 1994
---- ---- ----
Interest income $ 531 $ 429 $ 177
Interest expense 2,163 2,111 1,227
Net interest loss (1,632) (1,682) (1,050)
Non interest income 133 92 1
Total general and
administrative expenses 1,393 1,046 320
Non interest expenses 127 126 74
Net loss before equity in
net income of subsidiary
and income taxes (3,019) (2,762) (1,443)
Equity in net income
of subsidiary 6,716 4,434 1,434
Income taxes 1,145 (1,048) (531)
Net Income $ 2,552 $ 2,720 $ 540
AI-84
<PAGE>
<TABLE>
<CAPTION>
STATE
MENT OF CASH FLOWS
Year ended December 31,
-------------------------------------
(Dollars in thousands) 1996 1995 1994
- ---------------------- ---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 2,552 $ 2,720 $ 540
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings
of subsidiaries (4,426) (4,434) (1,433)
Net realized gains on securities (36) (92) --
(Increase) decrease in other assets (592) 162 (1,362)
Increase in accrued expenses
and other liabilities 267 122 387
Depreciation and amortization (58) (32) --
Net cash provided by operating activities (2,293) (1,554) (1,868)
-------------------------------------
Cash flows from investing activities:
Net (increase) decrease in loan to
Employee Stock Ownership Plan (65) 60 (300)
Net (increase) decrease in equity
investment 2,074 2,089 (13,644)
Purchases of available-for-sale
securities (100,574) (20,771) (4,612)
Proceeds from sale of
available-for-sale securities 11,103 5,170 --
Proceeds from maturities of and
principal payment on
available-for-sale securities 76,910 14,619 --
Net purchases of premises and equipment (37) (21) (6)
Net cash (used in) provided by
investing activities (10,589) 1,146 (18,562)
-------------------------------------
Cash flows from financing activities:
Net increase in securities sold under
agreements to repurchase 12,831 -- --
Increase in subordinated debt -- -- 16,390
Increase in common stock and
additional paid in capital -- -- 5,156
Dividends paid on common and
preferred stock -- -- (498)
-------------------------------------
Net cash provided by (used in)
financing activities 12,831 -- 21,048
Net increase (decrease) in cash and
cash equivalents (51) (408) 618
-------------------------------------
Cash and cash equivalents at
beginning of period 210 618 0
Cash and cash equivalents at
end of period $ 159 $ 210 $ 618
=====================================
</TABLE>
TeleBanc Financial Corporation commenced activities on January 27, 1994,
the effective date of its formation as a holding company of the Bank. The Bank
paid dividends of $2.2 million and $2.1 million to TeleBanc for subordinated
interest expense payments for the years ended December 31, 1996 and 1995,
respectively.
22. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Condensed quarterly financial data for the years ended December 31, 1996
and 1995 is shown as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
(Dollars in thousands except per share data) 1996 1996 1996 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 11,131 $ 11,364 $ 11,871 $11,433
Interest expense 8,357 8,449 9,034 8,975
---------------------------------------------------------------
Net interest income 2,774 2,915 2,837 2,458
Provision for loan and lease losses 419 200 125 175
Non-interest income 605 291 540 1,320
General and administrative
expenses 1,679 1,749 3,287 1,660
Other non-interest expenses 300 81 247 71
Income before income taxes 981 1,176 (282) 1,872
Income tax expense 332 417 (220) 667
---------------------------------------------------------------
Net income $ 649 $ 759 $ (62) $ 1,205
---------------------------------------------------------------
Net income per share $ 0.31 $ 0.35 $ (0.03) $ 0.51
===============================================================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
(Dollars in thousands except per share data) 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 8,653 $10,414 $10,681 $10,763
Interest expense 7,155 8,151 8,215 8,425
---------------------------------------------------------------
Net interest income 1,498 2,263 2,466 2,338
Provision for loan and lease losses 309 353 502 558
Non-interest income 630 412 419 2,316
General and administrative
expenses 1,248 1,473 1,401 1,439
Other non-interest expenses 87 79 90 423
Income before income taxes 484 770 892 2,234
Income tax expense 164 264 343 889
---------------------------------------------------------------
Net income $ 320 $ 506 $ 549 $ 1,345
---------------------------------------------------------------
Net income per share $ 0.16 $ 0.25 $ 0.27 $ 0.65
===============================================================
</TABLE>
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<PAGE>
Report of the Independent Public Accountants
To the Board of Directors and Stockholders
of TeleBanc Financial Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of TeleBanc
Financial Corporation (a Delaware Corporation) and Subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended. 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. The consolidated statement of income of the company for the year
ended December 31, 1994 was audited by other auditors whose report dated
February 24, 1995 expressed an unqualified opinion on that statement.
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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TeleBanc Financial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years ended December 31, 1996 and
1995, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Washington, DC
February 14, 1997 (except with respect to the matters discussed in Note 20, as
to which the date is February 28, 1997)
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BOARD OF DIRECTORS CORPORATE OFFICERS CORPORATE COMMON STOCK
INFORMATION
Mitchell H. Caplan David A. Smilow The Common Stock is
Vice Chairman & President Chairman & CEO TRANSFER AGENT currently traded
TeleBanc Financial AND REGISTRAR "over-the counter"under
Corporation Mitchell H. Caplan Fifth Third Trust & the symbol "TBFC." The
Vice Chairman & President Investment Division following table sets
David R. DeCamp Fifth Third Center forth the closing high
Senior Vice President Laurence P. Greenberg Cincinnati, OH 45263 and low bid prices for
Grubb & Ellis, Co. Executive Vice President (513) 579-5300 the Common Stock for
Marketing the periods indicated.
Arlen W. Gelbard, Esq. FORM 10-K
Partner Aileen Lopez Pugh A copy of the Company's Initial Offering: $6.125
Hofheimer, Gartlir & Gross Executive Vice President Form 10-K for Fiscal
Chief Financial 1996 as filed with the ---------------------------
Steven F. Piaker Officer/Treasurer Securities and Exchange 1995 HIGH LOW
Partner Commission will be ---------------------------
Conning & Company Sang-Hee Yi furnished upon written 1st Q 5.625 5.50
Executive Vice President request to: 2nd Q 6.00 5.00
Dean C. Kehler Chief Operating Officer 3rd Q 6.625 6.0625
Managing Director Aileen Lopez Pugh 4th Q 7.75 6.50
CIBC Wood Gundy Securities Michael H. Aneiro Director of Shareholder
Senior Vice President Relations ---------------------------
Mark Rollinson, Esq. Portfolio Management TeleBanc Financial 1996 HIGH LOW
Attorney Corporation ---------------------------
Catherine M. Gallahan 1111 N. Highland Street 1st Q 8.00 7.50
David A. Smilow Senior Vice President Arlington, Virginia 22201 2nd Q 9.75 8.00
Chairman & CEO Systems (703) 247-3700 3rd Q 10.00 8.875
TeleBanc Financial Corporation 4th Q 13.25 9.75
Michael T. Girouard SPECIAL COUNSEL
Michael A. Smilow Senior Vice President Hogan & Hartson L.L.P. No dividends were paid
Mortgage Finance Consultant Chief Investment Officer Columbia Square in 1995 and 1996. The
555 Thirteenth Street, NW closing per share bid
Steven D. Greenwood Washington, DC 20004-1109 price of the Common
Senior Vice President Stock on December 31,
Product Development INDEPENDENT AUDITORS 1996 was $13.25.
Arthur Andersen LLP
Emidio Morizio 8000 Towers Crescent Drive
Senior Vice President Vienna, VA 22182 ANNUAL MEETING
Operations
The Company's Annual
Michael R. Opsahl Meeting of shareholders
Senior Vice President will be held at 11:00
Chief Credit Officer am on Wednesday, May 7,
1997 at the Corporate
Jane H. Gelman offices of TeleBanc
Vice President Financial Corporation,
Chief Administrative 1111 N. Highland
Officer/Secretary Street, Arlington,
Virginia 22201.
Dennis E. Carlton
General Counsel
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TeleBanc Financial Corporation and subsidiaries
Selected Financial Data
Years ended December 31,
-----------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 45,800 $ 40,511 $ 22,208 $ 16,667 $ 19,425
Interest expense 34,815 31,946 17,513 11,828 13,896
Net interest income 10,985 8,565 4,695 4,839 5,529
Provision for loan and lease losses 919 1,722 492 211 972
Non-interest income 2,756 3,777 175 1,157 1,014
General and administrative expenses 8,375 5,561 3,503 2,997 2,393
Other non-interest operating expenses 700 679 153 739 1,234
Income before income taxes and cumulative
effect of change in accounting principle 3,747 4,380 722 2,049 1,944
Income tax expense 1,195 1,660 182 842 857
Cumulative effect of change in accounting principle -- -- -- 170 --
Net income $ 2,552 $ 2,720 $ 540 $ 1,377 $ 1,087
Earnings per share:
Primary $ 1.12 $ 1.33 $ 0.31 $ 1.06 $ 0.84
Fully diluted $ 1.09 $ 1.33 $ 0.31 $ 1.06 $ 0.84
At December 31,
Total assets $647,965 $553,943 $427,292 $220,301 $229,374
Loans receivable, net 351,821 248,667 154,742 100,859 93,605
Mortgage-backed securities (a) 184,743 234,210 236,464 80,782 87,164
Investment securities (a) 78,826 40,058 12,444 18,110 13,570
Deposits 390,486 306,500 212,411 113,132 130,100
Advances from the FHLB 144,800 105,500 96,000 61,000 53,750
Securities sold under agreements to repurchase 57,581 93,905 79,613 29,642 29,642
Total stockholders equity 24,658 21,565 17,028 12,378 10,715
Financial ratios
Return on average
Total assets 0.61% 0.53% 0.17% 0.61% 0.45%
Stockholders' equity 16.50% 14.10% 3.17% 11.79% 10.51%
Average stockholders' equity to average total assets 3.70% 3.77% 5.27% 5.20% 4.32%
Total general and administrative expenses to total assets (b) 1.03%(c) 1.00% 0.82% 1.36% 1.04%
Number of (b):
Deposit accounts 16,506 12,919 8,564 2,932 3,568
Full-time equivalent employees 39 30 29 18 17
Total assets per employee (b) $ 16,614 $ 18,465 $ 14,734 $ 12,239 $ 13,493
(a) Includes available for sale, held to maturity, and held for sale. (b) At end of period. (c) Excludes SAIF assessment.
</TABLE>
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<PAGE>
SUBSIDIARIES OF REGISTRANT
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
------------------ -------------
TeleBank United States
TeleBanc Servicing Corporation United States
AGT Mortgage Services United States
AGT-PRA United States
Portfolio Recovery Associates United States
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<PAGE>
The Board of Directors and Stockholders
TeleBanc Financial Corporation:
We consent to incorporation by reference in the registration statement No.
F33-91786 on Form S-1 and on Form S-3 of TeleBanc Financial Corporation and
subsidiary of our report dated February 24, 1995, relating to the consolidated
statement of operations, changes in stockholders' equity, and cash flows for the
year ended December 31, 1994, which report is incorporated by reference in the
December 31, 1996 annual report on Form 10-K of TeleBanc Financial Corporation.
/s/ KPMG Peat Marwick
Washington, D.C.
March 26, 1997
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<PAGE>
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 14, 1997 included in
TeleBanc Financial Corporation's Annual Report for the year ended December 31,
1996. It should be noted that we have not audited any financial statements of
the company subsequent to December 31, 1996 or performed any audit procedures
subsequent to the date of our report.
/s/ Arthur Andersen LLP
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<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders
of TeleBanc Financial Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of TeleBanc
Financial Corporation (a Delaware Corporation) and Subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleBanc Financial Corporation
and Subsidiaries as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended December 31, 1996 and
1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, DC
February 14, 1997 (except with respect to the matters discussed in Note 20, as
to which the date is February 28, 1997)
AI-92
<PAGE>
The Board of Directors and Stockholders
TeleBanc Financial Corporation:
We have audited the accompanying consolidated statement of operations, changes
in stockholders' equity, and cash flows of TeleBanc Financial Corporation and
subsidiary for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of TeleBanc Financial Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the results of TeleBanc Financial Corporation
and subsidiary's operations and their cash flows for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
Washington, D.C.
February 24, 1995
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<PAGE>
TELEBANC
FINANCIAL CORPORATION
April 7, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders of TeleBanc Financial Corporation. The meeting will be held on
Wednesday, May 7, 1997 at 11:00 a.m. at the Company's headquarters, 1111 North
Highland Street, Arlington, Virginia 22201. I hope that you will be able to join
us.
At this meeting you will be asked to vote, in person or by proxy, to
elect three directors, amend certain provisions of the Company's certificate of
incorporation, adopt the 1997 Stock Option Plan, ratify the appointment of the
Company's independent accountants and act on such other business as may properly
come before the meeting. The Notice of Annual Meeting and Proxy Statement
accompanying this letter describe the business to be transacted at the meeting
It is important that your shares be represented at the meeting,
regardless of the number you may hold. Whether or not you plan to attend the
meeting in person, please sign, date and return the enclosed proxy card as soon
as possible. If you attend the meeting and desire to vote in person, you may do
so even though you have previously returned a proxy to the Company.
Thank you. We look forward to seeing you at the meeting.
Sincerely,
/s/ David A. Smilow
David A. Smilow
Chairman of the Board and
Chief Executive Officer
1111 North Highland Street, Arlington, Virginia 22201
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<PAGE>
TELEBANC FINANCIAL CORPORATION
1111 NORTH HIGHLAND STREET
ARLINGTON, VIRGINIA 22201
(703) 247-3700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 7, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
TeleBanc Financial Corporation (the "Company") will be held on Wednesday, May 7,
1997, at 11:00 a.m., at the Company's headquarters, 1111 North Highland Street,
Arlington, Virginia 22201, for the following purposes:
1. To elect three directors for terms of three years each;
2. To amend Article 4 of the Company's certificate of
incorporation to increase the number of authorized shares of
the Company's common stock from 3,500,000 to 8,500,000 and to
authorize the issuance of nonvoting common stock;
3. To amend Article 8 of the Company's certificate of
incorporation to reduce the effect of certain anti-takeover
provisions by increasing from 10% to 25% the percentage of the
Company's voting stock which is considered "Control" for
purposes of such Article;
4. To amend Article 11 of the Company's Certificate of
Incorporation to reduce the effect of certain anti-takeover
provisions by making it easier for the Board of Directors to
approve certain business combination transactions with the
approval of the stockholders required by law rather than a
supermajority;
5. To adopt the 1997 Stock Option Plan;
6. To ratify the appointment by the Board of Directors of Arthur
Andersen LLP as the Company's independent accountants for the
fiscal year ending December 31, 1997; and
7. To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on March 20,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting. Only stockholders of record at the close
of business on that date will be entitled to notice of and to vote at the Annual
Meeting or any adjournments or postponements thereof.
By order of the Board of Directors,
/s/ David A. Smilow
David A. Smilow
Chairman of the Board and
Chief Executive Officer
Arlington, Virginia
April 7, 1997
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR PROXY PROMPTLY. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING
AND DESIRE TO VOTE IN PERSON, YOU MAY DO SO EVEN THOUGH YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY.
- --------------------------------------------------------------------------------
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<PAGE>
TELEBANC FINANCIAL CORPORATION
1111 NORTH HIGHLAND STREET
ARLINGTON, VIRGINIA 22201
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1997
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying Notice of Annual Meeting and
proxy card are being furnished to the stockholders of TeleBanc Financial
Corporation, a Delaware corporation (the "Company" or "TeleBanc"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at the 1997 Annual Meeting of Stockholders of the Company (the "Annual
Meeting"). The Annual Meeting will be held at the headquarters of TeleBanc
located at 1111 North Highland Street, Arlington, Virginia 22201, on Wednesday,
May 7, 1997, at 11:00 a.m., and at any adjournment or postponement thereof. The
Annual Meeting has been called for the purposes set forth in the Notice of
Annual Meeting.
If the enclosed proxy is properly signed and returned to TeleBanc and
not revoked prior to its use, the shares represented thereby will be voted at
the Annual Meeting in accordance with the instructions thereon. EXECUTED BUT
UNMARKED PROXIES WILL BE VOTED: (1) FOR THE ELECTION OF THE THREE NOMINEES OF
THE BOARD OF DIRECTORS TO SERVE AS DIRECTORS; (2) FOR THE AMENDMENT OF ARTICLE 4
OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (THE
"CERTIFICATE OF INCORPORATION") TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
THE COMPANY'S COMMON STOCK (THE "COMMON STOCK") FROM 3,500,000 TO 8,500,000 AND
TO AUTHORIZE THE ISSUANCE OF NONVOTING COMMON STOCK (THE "NONVOTING COMMON
STOCK"); (3) FOR THE AMENDMENT OF ARTICLE 8 OF THE CERTIFICATE OF INCORPORATION
TO INCREASE FROM 10% TO 25% THE PERCENTAGE OF THE COMPANY'S VOTING STOCK WHICH
IS CONSIDERED "CONTROL" FOR PURPOSES OF SUCH ARTICLE; (4) FOR THE AMENDMENT OF
ARTICLE 11 OF THE CERTIFICATE OF INCORPORATION TO MAKE IT EASIER FOR THE BOARD
OF DIRECTORS TO APPROVE CERTAIN BUSINESS COMBINATION TRANSACTIONS WITH THE
APPROVAL OF THE STOCKHOLDERS REQUIRED BY LAW RATHER THAN A SUPERMAJORITY; (5)
FOR THE ADOPTION OF THE 1997 STOCK OPTION PLAN; AND (6) FOR THE RATIFICATION OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS. If any other
matters are properly brought before the Annual Meeting, proxies will be voted in
the discretion of the proxy holders. TeleBanc is not aware of any such matters
that are proposed to be presented at the Annual Meeting.
The cost of soliciting proxies in the form enclosed herewith will be
borne by the Company. In addition to the solicitation of proxies by mail,
directors, officers and regular employees of TeleBanc, without extra
remuneration, may solicit proxies personally, by telephone, telegram, or
otherwise. TeleBanc will also utilize the services of its transfer agent, Fifth
Third Trust, to provide broker search and proxy distribution services at an
estimated cost of $3,000. TeleBanc will request persons, firms and corporations
holding shares in their name or in the names of their nominees, which are
beneficially owned by others, to send proxy materials to and obtain proxies from
the beneficial owners and will reimburse the holders for their reasonable
expenses in doing so. It is anticipated that this Proxy Statement and the
enclosed proxy will be mailed to stockholders on or about April 7, 1997.
In February 1997, the Company entered into a $29,900,000 Unit Purchase
Agreement with two investment partnerships managed by Conning & Company and with
General American Life Insurance Company, CIBC WG Argosy Merchant Fund 2, LLC, PC
Investment Company and The Northwestern Mutual Life Insurance Company (the "Unit
Purchase Agreement"). Pursuant to the Unit Purchase Agreement, the Company
issued and sold 29,900 Units, which in the aggregate
AI-96
<PAGE>
consist of (i) $13,703,469 in aggregate principal amount of the Company's Senior
Subordinated Notes due March 31, 2004, (ii) 29,900 shares of serial preferred
stock, (iii) warrants to purchase 198,088 shares of Common Stock (the
"Warrants"), and (iv) contingent warrants to purchase up to 205,563 shares of
Common Stock (the "Contingent Warrants"). The serial preferred stock issued in
connection with this transaction consists of 18,850 shares of Series A Voting
Convertible Preferred Stock ("Series A Preferred Stock"), 4,050 shares of Series
B Nonvoting Convertible Preferred Stock ("Series B Preferred Stock"), and 7,000
shares of Series C Nonvoting Convertible Preferred Stock ("Series C Preferred
Stock," and collectively with the Series A Preferred Stock and the Series B
Preferred Stock, the "Preferred Stock").
In connection with the Unit Purchase Agreement, certain holders of the
Series A Preferred Stock are entitled to designate two persons to serve as
directors of the Company, who shall be nominated for election by the Company
(subject to certain exceptions). Such nominees to the Board of Directors, Dean
C. Kehler and Steven F. Piaker, were elected to the Board of Directors effective
upon the closing of the sale of the Units by the Company on February 28, 1997.
The Unit Purchase Agreement also contains an affirmative covenant by the Company
that it will obtain stockholder approval of the proposed amendments to the
Certificate of Incorporation that are presented as Proposals Two and Three in
this Proxy Statement.
In connection with the Unit Purchase Agreement, certain amendments were
made to the Company's Bylaws so that the number of directors on the Board of
Directors may not exceed nine members, any two directors have the right to call
a meeting of the Board of Directors and the affirmative vote of 66-2/3% of the
total number of votes of the then outstanding shares of capital stock of the
Company entitled generally to vote in the election of directors, voting together
as a single class, is required to amend the Bylaw provisions regarding the
number and selection process of the Board of Directors.
Also as part of the sale of Units pursuant to the Unit Purchase
Agreement, the Company entered into an agreement with Arbor Capital Partners,
Inc. ("Arbor"), a registered investment advisor, funds manager and
broker-dealer, MET Holdings Corporation ("MET Holdings") and William M.
Daugherty (the "Acquisition Agreement"), pursuant to which the Company purchased
substantially all of the assets and liabilities of Arbor. MET Holdings,
TeleBanc's largest stockholder, also owns a majority of the capital stock of
Arbor. This acquisition involved the tax-free issuance of 162,461 shares of the
Company's Common Stock and a $500,000 cash payment for the Arbor assets. Since
consummation of the Acquisition Agreement, Arbor has distributed the 162,461
shares of TeleBanc Common Stock that it received in the acquisition to its two
stockholders, MET Holdings and William M. Daugherty. As a result of this
distribution, Arbor no longer beneficially owns any of the capital stock of the
Company.
The securities that can be voted at the Annual Meeting consist of the
outstanding shares of Common Stock as well as the shares of Series A Preferred
Stock of the Company sold pursuant to the Unit Purchase Agreement. Each share of
Common Stock entitles its holder to one vote on each matter presented to the
stockholders. Each share of Series A Preferred Stock entitles its holder to that
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of Series A Preferred Stock could be converted on the
Record Date (as defined below) pursuant to the provisions of the Company's
Certificate of Incorporation.
The close of business on March 20, 1997 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting. On the
Record Date, there were approximately 220 holders of Common Stock and five
holders of Series A Preferred Stock. The number of shares of Common Stock
outstanding on the Record Date was 2,211,961, and the total number of shares of
Common Stock into which the Series A Preferred Stock would convert on that date
was 756,360. The Common Stock and the Series A Preferred Stock, which will vote
together as one class with respect to the proposals presented for stockholder
approval in this Proxy Statement, are collectively referred to as the
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<PAGE>
"Company's Voting Securities," and references to percentages of the Company's
Voting Securities are calculated on the basis of 2,968,321 shares of Common
Stock, the sum of the 2,211,961 outstanding shares of Common Stock and the
756,360 shares of Common Stock into which the outstanding Series A Preferred
Stock could be converted on the Record Date. On the Record Date, the Company's
largest stockholder, MET Holdings, held 1,433,081 shares of Common Stock, or
64.8% of the outstanding shares of Common Stock and 48.75% of the Company's
Voting Securities outstanding on that date.
The presence, in person or by proxy, of at least a majority of the
stock of the Company issued and outstanding and entitled to vote at the meeting
is necessary to constitute a quorum at the Annual Meeting. Stockholders' votes
will be tabulated by the person appointed by the Board of Directors to act as
inspector of election for the Annual Meeting. Under the Company's Bylaws,
directors are elected by a plurality of votes cast by the shares entitled to
vote in the election of directors. Unless otherwise required by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
the Bylaws, the Company's Bylaws provide that any other matter put to a
stockholder vote shall be decided by the affirmative vote of a majority of the
votes cast on the matter. As discussed below, certain proposals to be voted upon
by the Company's stockholders that are presented in this Proxy Statement require
a higher vote for stockholder approval.
Pursuant to the Company's Certificate of Incorporation, amendment of
Article 4 of the Certificate of Incorporation requires the affirmative vote of
the holders of at least a majority of the outstanding shares of stock of the
Company entitled to vote thereon at the Annual Meeting. MET Holdings has advised
the Company that it intends to vote all shares of Common Stock beneficially
owned by it in favor of the proposal amending Article 4 of the Certificate of
Incorporation. Each of the holders of the Series A Preferred Stock is obligated
by the terms of the Unit Purchase Agreement to vote in favor of this proposal.
MET Holdings and the holders of the Series A Preferred Stock collectively
beneficially own 73.8% of the Company's Voting Securities entitled to vote at
the Annual Meeting. Consequently, approval of this amendment of the Certificate
of Incorporation is assured.
Pursuant to the Company's Certificate of Incorporation, amendment of
Article 8 of the Certificate of Incorporation requires the affirmative vote of
the holders of at least 66-2/3 percent of the outstanding shares of stock of the
Company entitled to vote thereon at the Annual Meeting. MET Holdings has advised
the Company that it intends to vote all shares of Common Stock beneficially
owned by it in favor of the proposal amending Article 8 of the Certificate of
Incorporation. Each of the holders of the Series A Preferred Stock is obligated
by the terms of the Unit Purchase Agreement to vote in favor of this proposal.
MET Holdings and the holders of the Series A Preferred Stock collectively
beneficially own 73.8% of the Company's Voting Securities entitled to vote at
the Annual Meeting. Consequently, approval of this amendment of the Certificate
of Incorporation is assured.
Pursuant to the Company's Certificate of Incorporation, amendment of
Article 11 of the Certificate of Incorporation requires the affirmative vote of
the holders of at least 80 percent of the outstanding shares of stock of the
Company entitled to vote thereon at the Annual Meeting. MET Holdings has advised
the Company that it intends to vote all shares of Common Stock beneficially
owned by it in favor of the proposal amending Article 11 of the Certificate of
Incorporation. The holders of the Series A Preferred Stock are not obligated by
the terms of the Unit Purchase Agreement to vote in favor of this proposal. MET
Holdings beneficially owns 48.75% of the Company's Voting Securities entitled to
vote at the Annual Meeting.
Abstentions and broker non-votes will be treated as shares that are
present, or represented, and entitled to vote for purposes of determining the
presence of a quorum at the Annual Meeting. Broker non-votes and abstentions
will not be counted in determining the number of votes cast in connection with
any matter presented at the Annual Meeting.
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<PAGE>
The presence of a stockholder at the Annual Meeting will not
automatically revoke the stockholder's proxy. However, any stockholder may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
TeleBanc a written notice of revocation, by delivering to TeleBanc a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
giving the Secretary notice of his or her intention to vote in person.
A copy of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 accompanies this Proxy Statement, and is incorporated by
reference herein. TeleBanc has filed an Annual Report on Form 10-K for its
fiscal year ended December 31, 1996 with the Securities and Exchange Commission
(the "Commission"). Stockholders may obtain, free of charge, a copy of the
Annual Report on Form 10-K by writing to TeleBanc Financial Corporation, 1111
North Highland Street, Arlington, Virginia 22201, Attention: Investor Relations.
STOCK OWNED BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following tables set forth certain information regarding the
beneficial ownership of the Company's Common Stock and Series A Preferred Stock
as of the Record Date by (i) any person known to the Company to be the
beneficial owner of more than 5% of any class of the Company's voting
securities, (ii) each director and person nominated to be a director, (iii) the
Chief Executive Officer and each of the other executive officers whose total
annual salary and bonus exceeded $100,000 during the year ended December 31,
1996 (the "Named Executive Officers"), and (iv) all directors and executive
officers as a group. The tables also reflect the options that have been
previously granted, including those granted under the Company's 1997 Stock
Option Plan, which is subject to stockholder approval at the Annual Meeting.
The information in the tables is based on information from the named
persons regarding ownership of Common Stock and Series A Preferred Stock. Unless
otherwise indicated, each stockholder has sole voting and investment power as to
all shares listed as beneficially owned by such person.
Under the rules of the Commission, a person is deemed a "beneficial
owner" of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities of which that person has the right to acquire beneficial ownership
within 60 days. More than one person may be deemed to be a beneficial owner of
the same securities.
AI-99
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY'S SECURITIES
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF: CLASS
NATURE OF OUTSTANDING/
TITLE BENEFICIAL COMPANY'S
OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP VOTING SECURITIES (a)
- -------- ------------------------ --------- ---------------------
<S> <C> <C> <C>
Series A Conning Insurance Capital Limited 4,719 25.03% / 6.38%
Preferred Partnership III
Stock c/o Conning & Company
CityPlace II, 185 Asylum Street
Hartford, CT 06103
Conning Insurance Capital International 667 3.54% / 0.90%
Partners III, L.P.
c/o Conning & Company
CityPlace II, 185 Asylum Street
Hartford, CT 06103
General American Life Insurance Company 1,539 8.16% / 2.08%
700 Market Street
St. Louis, MO 63101
PC Investment Company 6,925 36.74% / 9.36%
401 Theodore Fremd Avenue
Rye, NY 10580
The Northwestern Mutual Life Insurance 5,000 26.53% / 6.76%
Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
</TABLE>
- ----------
(a) For purposes of voting at the Annual Meeting, each share of Series A
Preferred Stock has 40.12519 votes, based on its conversion into an
equivalent number of shares of Common Stock. Accordingly, the percentages
reflected include (i) the percentage of Series A Preferred Stock
outstanding and (ii) the percentage of the Company's Voting Securities
beneficially owned, giving effect to the voting rights held by the owners
of Series A Preferred Stock for purposes of voting at the Annual Meeting.
AI-100
<PAGE>
<TABLE>
<CAPTION>
Amount and Percentage of: Class
Nature of Outstanding/
Title Beneficial Company's
of Class Name of Beneficial Owner Ownership Voting Securities (a)
- -------- ------------------------ --------- ---------------------
<S> <C> <C> <C> <C>
Common MET Holdings Corporation 1,433,081 64.78% / 48.28%
Stock 405 Park Avenue, Suite 1104
New York, NY 10022 (b)
David A. Smilow 205,365 (c) 8.50% / 6.48%
Mitchell H. Caplan 205,365 (c) 8.50% / 6.48%
David R. DeCamp 16,000 (d) * / *
Arlen W. Gelbard 10,000 (d) * / *
Dean C. Kehler -- (e) n/a / n/a
Steven F. Piaker -- (f) n/a / 7.28%
Mark Rollinson 18,000 (d) * / *
Michael A. Smilow -- (g) * / *
Aileen Lopez Pugh 42,100 (h) 1.87% / 1.40%
Directors and Executive Officers as a group
(9 individuals) 496,830 (i) 18.42% / 20.64% (j)
TeleBanc Employee Stock Ownership Plan 67,600 3.06% / 2.28%
</TABLE>
- ----------
* Less than 1%.
(a) For purposes of voting at the Annual Meeting, each share of Series A
Preferred Stock has 40.12529 votes, based on its conversion into an
equivalent number of shares of Common Stock. Accordingly, the percentages
reflected include (i) the percentage of Common Stock outstanding and (ii)
the percentage of the Company's Voting Securities beneficially owned,
giving effect to the voting rights held by the owners of Series A Preferred
Stock for purposes of voting at the Annual Meeting.
(b) MET Holdings is the predecessor savings and loan holding company of
Metropolitan Bank for Savings, F.S.B. ("Metropolitan Bank"). MET Holdings
organized the Company so that it could become, in March 1994, the holding
company for Metropolitan Bank as part of the Company's initial public
offering of debt and equity securities in 1994. Metropolitan Bank was
renamed "TeleBank" in March 1996, and is a wholly owned subsidiary of the
Company.
(c) Consists solely of options to acquire Common Stock, of which 63,219 are
exercisable within 60 days of March 20, 1996. Messrs. D. Smilow and Caplan,
including their affiliates, also hold significant ownership positions in
the outstanding securities of MET Holdings. See "Security Ownership of the
Company's Parent by Management."
(d) For each of Messrs. DeCamp and Rollinson, includes options to acquire
15,000 shares of Common Stock, 7,000 of which are exercisable within 60
days of March 20, 1997, and for Mr. Gelbard, includes options to acquire
10,000 shares of Common Stock, 2,000 of which are exercisable within 60
days of March 20, 1997.
(e) Dean C. Kehler is the designated director for CIBC WG Argosy Merchant Fund
2, LLC.
(f) Steven F. Piaker is the designated director for Conning Insurance Capital
Limited Partnership III and Conning Insurance Capital International
Partners III, L.P., which collectively own 5,386 shares of Series A
Preferred Stock.
(g) Michael A. Smilow owns 110 shares, or 1.1%, of the Class A Common Stock of
MET Holdings and 117 shares, or 1.4%, of the Class B Common Stock of MET
Holdings.
(h) Includes options to acquire 35,000 shares of Common Stock.
(i) Includes options to acquire 485,730 shares of Common Stock.
(j) Includes an additional 216,114 of the Company's Voting Securities, based on
the 5,386 shares of Series A Preferred Stock collectively owned by Conning
Insurance Capital Limited Partnership III and Conning Insurance Capital
International Partners III, L.P., for which Steven A. Piaker is the
designated director.
AI-101
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL ONE)
The Company's Bylaws provide that the Board of Directors shall consist
of not fewer than six nor more than nine members. Pursuant to the Certificate of
Incorporation and the Bylaws, a majority of the directors then in office may
vote to fill any vacancies on the Board or any newly-created directorships. In
April 1996, the Board of Directors elected Arlen W. Gelbard to fill one of the
two vacancies on the Board of Directors. As discussed above, pursuant to the
Unit Purchase Agreement certain holders of Series A Preferred Stock have the
right to designate for nomination two members of the Board of Directors.
Effective February 28, 1997, the date of the closing of the sale of Units by the
Company, Dean C. Kehler and Steven F. Piaker, the designees of the holders of
the Series A Preferred Stock, were appointed to fill the remaining vacancy and
one newly-created directorship. Messrs. Gelbard, Kehler and Piaker are members
of the class of directors whose terms expire at the 1999 annual meeting of
stockholders. In March 1997, the Board of Directors created a directorship with
a term expiring at this Annual Meeting, and appointed Michael A. Smilow to fill
this newly-created directorship. Michael A. Smilow is the father of David A.
Smilow. The Company's Board of Directors currently consists of eight members.
The Board of Directors consists of three classes of directors with
overlapping three-year terms. One class of directors is to be elected each year
with terms expiring at the third succeeding annual meeting of stockholders after
such election. At the Annual Meeting, three directors will be elected to hold
office for three-year terms which will expire at the 2000 annual meeting of
stockholders.
Unless otherwise instructed on the proxy, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the election of the nominee directors listed below. The Board
of Directors believes that the nominees will stand for election and will serve
if elected. However, if any person nominated by the Board of Directors fails to
stand for election or is unable to accept election, proxies will be voted by the
proxy holders for the election of such other person or persons as the Board of
Directors may recommend. There is no cumulative voting for the election of
directors. Assuming the presence of a quorum at the Annual Meeting, directors
will be elected by a plurality of the votes cast by the shares entitled to vote
in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF ITS NOMINEES AS DIRECTORS OF THE COMPANY.
The following table sets forth the names of the persons nominated by
the Board of Directors for election as directors and the current directors whose
terms do not expire until subsequent annual meetings. Also set forth is certain
information with respect to each person's age at the Record Date, the periods
during which such person has served as a director of the Company and its wholly
owned subsidiary, TeleBank, and positions currently held with the Company and
TeleBank. The table also sets forth certain information with respect to the
Company's sole executive officer who does not also serve as a director.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH DIRECTOR FOR TERM
NAME AGE THE COMPANY AND TELEBANK SINCE TO EXPIRE
- ---- --- ------------------------ ----- ---------
THE NOMINEES:
<S> <C> <C> <C> <C>
David R. DeCamp (1)(2) 37 Director of the Company and TeleBank 1993 (3) 2000
Mark Rollinson (1) 60 Director of the Company and TeleBank 1992 (3) 2000
Michael A. Smilow 59 Director of the Company and TeleBank 1997 2000
</TABLE>
AI-102
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD WITH DIRECTOR FOR TERM
NAME AGE THE COMPANY AND TELEBANK SINCE TO EXPIRE
- ---- --- ------------------------ ----- ---------
CONTINUING DIRECTORS:
<S> <C> <C> <C>
David A. Smilow 35 Chairman of the Board and Chief Executive 1989 (3) 1998
Officer of the Company; Chairman of the Board
and Chief Risk Management Officer of TeleBank
Mitchell H. Caplan 39 Vice Chairman of the Board and President of 1994 1998
the Company; Vice Chairman, President and
Chief Executive Officer of TeleBank
Arlen W. Gelbard (1)(2) 39 Director of the Company and TeleBank 1996 1999
Dean C. Kehler (1)(2)(4) 40 Director of the Company and TeleBank 1997 1999
Steven F. Piaker (1)(2)(4) 34 Director of the Company and TeleBank 1997 1999
EXECUTIVE OFFICER:
Aileen Lopez Pugh 29 Executive Vice President - Chief Financial
Officer/Treasurer of the Company and TeleBank
</TABLE>
- ----------
(1) Member of the compensation committees of the Company and TeleBank
(together, the "Compensation Committee") and the stock option committee of
the Company (the "Stock Option Committee").
(2) Member of the audit and compliance committees of the Company and TeleBank
(together, the "Audit and Compliance Committee").
(3) For the years prior to 1994, includes service as a director of TeleBank.
(4) Nominated as a director pursuant to the Unit Purchase Agreement, as
described above.
Director Nominees
David R. DeCamp has been a director of the Company since its formation
in 1994, and a director of TeleBank since 1992. Mr. DeCamp, a Senior Vice
President of Grubb & Ellis, is currently employed as a commercial real estate
broker. From 1988 to 1996, Mr. DeCamp was employed as a commercial real estate
broker by Cassidy & Pinkard, Inc. Mr. DeCamp is the Chairman of the audit and
compliance committees of the Company and TeleBank.
Mark Rollinson has been a director of the Company since its formation
in 1994, and a director of TeleBank since 1992. He is a self-employed attorney,
and has been practicing law in the Leesburg, Virginia area since 1982.
Michael A. Smilow has been a director of the Company and TeleBank since
March 1997. Mr. Smilow served as the Executive Vice President of Fannie Mae from
1984 to 1993, and also served as Chief Credit Officer and Chief Operating
Officer. He was responsible for establishing and monitoring credit policies for
Fannie Mae's product and customer relationships. He also served as a member of
Fannie Mae's policy and management committees. Mr. Smilow currently serves as a
mortgage consultant.
Continuing Directors and Executive Officer
David A. Smilow is the Chairman of the Board and Chief Executive
Officer of the Company and MET Holdings and the Chairman of the Board and Chief
Risk Management Officer of TeleBank. Prior to January 1994, Mr. Smilow served as
President of TeleBank. Since 1992, Mr. Smilow has been a director and the
Treasurer of Arbor. Between 1987 and 1989, Mr. Smilow was an associate in
AI-103
<PAGE>
Goldman Sachs' Mortgage Capital Markets Group. From 1984 to 1987, Mr. Smilow
worked as a bond trader with Drexel Burnham Lambert.
Mitchell H. Caplan is the Vice Chairman of the Board and President of
the Company and MET Holdings and Vice Chairman, President and Chief Executive
Officer of TeleBank. He is also a co-founder of Arbor, where he has served as
Vice President and director since Arbor's inception in 1992. From 1990 until
December 1993, Mr. Caplan was a member of the law firms of Danziger & Caplan and
Zuckerman & Gore, where he represented and advised private and public commercial
institutions, including MET Holdings. From 1985-1990, he practiced law with
Shearman & Sterling in New York City.
Arlen W. Gelbard is a member of the law firm of Hofheimer Gartlir &
Gross, LLP, New York, New York where he has specialized in transactional real
estate, lending, leasing, foreclosures and workouts since 1982. Mr. Gelbard is a
member of the New York State Bar Association and American Bar Association. Mr.
Gelbard has been a director of the Company since April 1996, when he was elected
by the Company's Board of Directors to fill one of the vacancies on the Board of
Directors of the Company and TeleBank. Mr. Gelbard is the Chairman of the
compensation committees of the Company and TeleBank.
Dean C. Kehler has been a Managing Director of CIBC Wood Gundy
Securities and co-head of the High Yield Group since August 1995. From February
1990, Mr. Kehler was a founding partner and Managing Director of The Argosy
Group, L.P., which was acquired by CIBC Wood Gundy in August 1995. Mr. Kehler
has extensive experience in all areas of high yield finance, mergers and
acquisitions and corporate restructuring.
Steven F. Piaker is a Senior Vice President and Partner of Conning &
Company, a provider of asset management, private equity capital, corporate
finance services and research to the insurance and financial services industry.
Prior to joining Conning & Company, he was a Senior Vice President of Conseco
where he was involved in the formation of Conseco, the raising of funds,
leveraged buyouts and private placement investments.
Aileen Lopez Pugh serves as Executive Vice President - Chief Financial
Officer/Treasurer of the Company and TeleBank. Prior to joining management, Ms.
Pugh served as a director from 1993 to 1994. From December 1993 to May 1994, she
served as a consultant to MET Holdings in connection with the organization of
the Company and its initial public offering. From 1989 through 1992, Ms. Pugh, a
certified public accountant, was an auditor with KPMG Peat Marwick.
BOARD OF DIRECTORS' COMMITTEES AND NOMINATIONS BY SHAREHOLDERS
Each of the Board of Directors of the Company and TeleBank has a
compensation committee and an audit and compliance committee. The committees of
the Boards of the Company and TeleBank are comprised of the same members and
meet simultaneously. In 1996, the members of the Compensation Committee of the
Company and TeleBank were David R. DeCamp and Mark Rollinson and as of April
1996, Arlen W. Gelbard. In 1996, the members of the Audit and Compliance
Committee of the Company and TeleBank were David R. DeCamp and Arlen W. Gelbard.
Effective February 28, 1997, Dean C. Kehler and Steven F. Piaker were elected as
members of the Compensation Committee and Audit and Compliance Committee of the
Company and TeleBank. In addition, the Company has a Stock Option Committee,
which consists of the same members as the Compensation Committee, to administer
the 1997 Stock Option Plan. The Compensation Committee establishes compensation
for directors, reviews compensation for all executive officers on an annual
basis and reviews the overall bonus plan offered to all employees of the Company
and TeleBank. The Audit and Compliance Committee reviews TeleBank's compliance
with regulatory matters and reviews the scope of the internal auditors and the
independent annual audit. It also reviews the independent accountants' letter to
management concerning the effectiveness of the Company's internal financial and
accounting controls and management's
AI-104
<PAGE>
response to the letter. In addition, the Audit and Compliance Committee reviews
and recommends to the Board of Directors the firm to be engaged as the Company's
independent accountants. The Audit and Compliance Committee may also examine and
consider other matters relating to the financial affairs of the Company and
TeleBank as it determines appropriate. In 1996, the Compensation Committee and
the Audit and Compliance Committee met five and four times, respectively.
During the year ended December 31, 1996 the Board of Directors of the
Company held 11 meetings. No director attended fewer than 75 percent of the
aggregate of the total number of meetings of the Board of Directors held during
the period for which he was a director and the total number of meetings held by
all committees of the Board of Directors on which he served during the periods
that he served.
The Board of Directors acts as a nominating committee for selecting
nominees for election as directors. TeleBanc's Bylaws also permit stockholders
eligible to vote for the election of directors at the Annual Meeting to make
nominations for directors if such nominations are made pursuant to timely notice
in writing to the Secretary of the Company. To be timely, notice must be
delivered to, or mailed to and received at, the principal executive offices of
the Company no later than the date designated for receipt of stockholder
proposals in a prior public disclosure by the Company. If there has been no such
prior public disclosure, notice must be delivered or mailed to and received at
the Company's principal executive offices not less than 60 days nor more than 90
days prior to the date of the meeting, provided that at least 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders. If less than 70 days' notice or prior public disclosure of the
date of the Annual Meeting is given or made to stockholders, notice by the
stockholder to be timely must be received by the Company not later than the
close of business on the 10th day following the day on which such notice of the
date of the Annual Meeting was mailed or such public disclosure was made. A
stockholder's notice of nomination must also set forth certain information
specified in Section 3.5 of TeleBanc's Bylaws concerning each person the
stockholder proposes to nominate for election and the nominating stockholder.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company receive $750 for each Company
board and committee meeting attended, and non-employee directors of TeleBank
receive $750 for each TeleBank board or committee meeting attended. In addition,
non-employee directors are reimbursed for travel costs and other out-of-pocket
expenses incurred in attending such meeting. Annual directors' fees are capped
at $3,000 per board member of the Company, and $12,000 per board member of
TeleBank.
AI-105
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned during the
periods indicated for the Named Executive Officers. The Company does not have
any stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($)(a) BONUS ($) OPTIONS (#) COMPENSATION ($)(b)
- ------------------ ---- ------------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
David A. Smilow, Chairman and
Chief Executive Officer of the
Company and Chairman and 1996 $ 205,000 $ 188,000 --- $ 15,000
Chief Risk Management Officer 1995 205,000 150,000 --- 15,000
of TeleBank 1994 180,000 75,000(c) 105,365 15,000
Mitchell H. Caplan, Vice Chairman
and President of the Company and 1996 205,000 188,000 --- 15,000
Vice Chairman, President and 1995 205,000 150,000 --- 15,000
Chief Executive Officer of TeleBank 1994 180,000 125,000(c) 105,365 15,000
Aileen Lopez Pugh, Executive Vice 1996 75,000 60,000 15,000 13,500
President - Chief Financial Officer/ 1995 75,000 60,000 5,000 13,500
Treasurer of the Company 1994 18,735(d) 10,000 5,000 ---
and TeleBank
</TABLE>
- ----------
(a) Salary earned from the Company and TeleBank.
(b) Dollar value of contributions by TeleBank to each officer's account in the
Company's ESOP (defined below).
(c) Mr. D. Smilow's and Mr. Caplan's 1994 bonuses reflects $75,000 for bonuses
not paid until the first quarter of 1995 as they were contingent upon the
successful completion of the restructuring of an asset. Mr. Caplan also
received a $50,000 bonus from TeleBank in 1994 upon becoming President.
(d) Ms. Pugh joined the Company and TeleBank in August 1994.
AI-106
<PAGE>
STOCK OPTIONS
Option Grants. The following table contains information with respect to
grants of stock options for Common Stock to the sole Named Executive Officer who
received options during 1996. All such grants were made under the Company's 1994
Stock Option Plan. The Company does not have any SARs.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants (a) Option Term (b)
- --------------------------------------------------------------------------------------------------------------------
% of Total Options
Number of Granted
Securities Underlying to Employees Exercise or Base Expiration
Name Options Granted (#) in Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
- ---- ------------------- ------------------------------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Aileen Lopez Pugh 15,000 29.7% $7.75 2/15/06 $73,109 $185,273
</TABLE>
- ----------
(a) Option grants were made on February 15, 1996, with 20% immediately
exercisable and 20% becoming exercisable in each subsequent year through
2000.
(b) The dollar amounts under these columns are the result of calculations at
the 5% and 10% assumed annual growth rates mandated by the Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the Company's Common Stock price.
Option Exercises and Holdings. The Named Executive Officers did not
exercise any stock options during 1996. The following table presents information
with respect to outstanding options held by the Named Executive Officers at
year-end 1996. There are no outstanding SARs.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Options Value of Unexercised
at In-the-Money Options
FY-End (#) at FY-End ($) (1)
---------- -----------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Smilow --- --- 63,219 42,146 $ 412,787 $ 275,191
Mitchell H. Caplan --- --- 63,219 42,146 412,787 275,191
Aileen Lopez Pugh --- --- 9,000 16,000 60,500 96,375
</TABLE>
- ----------
(1) Based on last reported sale price of the Company's Common Stock on December
31, 1996 of $13.25 per share and applicable per share exercise price for
the options. The option grants with respect to the Named Executive Officers
were granted with 20% immediately exercisable and 20% becoming exercisable
in each subsequent year for five years. For each of Messrs. D. Smilow and
Caplan, 42,617 options were granted on April 28, 1994 with an exercise
price of $6.125, with the remainder having an exercise price equal to
$7.125. The options expire in April 2004. As for Ms. Pugh, the Company has
granted a total of 25,000 options with 5,000 options granted on April 28,
1994 with an exercise price of $6.125, 5,000 options granted on February
15, 1995 with an exercise price of $5.50 and 15,000 options granted on
February 15, 1996 with an exercise price of $7.75. The options expire in
April 2004, February 2005 and February 2006, respectively.
AI-107
<PAGE>
PENSION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
The Company has adopted and is the sponsor of a combined stock bonus
and money purchase pension plan that constitutes an "employee stock ownership
plan" under applicable law (the "ESOP"), that was originally established by MET
Holdings. Employees of TeleBank who have completed six months of service are
eligible to participate in the ESOP. The Company's and TeleBank's total
contributions to the ESOP, which are reflected in compensation expense, were
$224,000, $210,000 and $104,000 for the years ending December 31, 1996, 1995 and
1994, respectively.
Under the ESOP, each Employer (defined to include the Company,
TeleBank, and MET Holdings) is obliged annually to contribute 10% of the
aggregate compensation that such Employer pays to eligible participants. The
required contribution is allocated to the individual ESOP accounts of eligible
participants based on a uniform percentage of compensation. A participant who is
not an employee of the Employer on the last day of the plan year (December 31)
or who completes less than 500 hours of service during the plan year is not an
eligible participant. The Employer is also required to make contribution to the
extent necessary to pay debt service on any funds borrowed by the ESOP to
finance the purchase of Employer stock. Otherwise, additional contributions are
at the discretion of the Board of Directors.
Contributions may be paid either in cash or in common stock of the
Company or MET Holdings. From time to time, the ESOP may purchase additional
shares of common stock of the Company or MET Holdings through the purchase of
outstanding shares in the market or from individual stockholders, upon the
original issuance of additional shares, or upon the sale of treasury shares, by
the Company or MET Holdings. Under its terms, the ESOP may borrow funds to
finance purchases of common stock. As of December 31, 1996, the Company had
notes receivable of $305,000 to the ESOP to finance the purchase of
approximately 60,000 shares of TeleBanc common stock and 310 preferred shares of
MET Holdings.
The Board of Directors of the Company appointed a committee to
administer the ESOP. On major corporate issues, participants in the ESOP are
permitted to direct the trustees as to the voting of shares of MET Holdings
common stock allocated to their accounts; otherwise the trustees of the Plan
have sole discretion as to the voting of such stock held by the ESOP, so long as
such stock is not required to be registered under section 12 of the Securities
Exchange Act of 1934. Shares of TeleBanc Common Stock have been allocated to
participants' accounts and are voted by the trustees in accordance with the
directions of participants on all matters. Unallocated shares will be voted by
the trustees in their sole discretion. Messrs. D. Smilow, Caplan and Emidio
Morizio, an employee of TeleBanc Capital Markets, Inc., a wholly-owned
subsidiary of the Company, serve as trustees of the ESOP. Participant accounts
vest at the rate of 20% for each year of service, so that accounts become 100%
vested after five years of service. Vesting will be accelerated upon retirement,
death, disability, or when the participant reaches the age of 65. The Company,
MET Holdings or the ESOP may have a right of first refusal as to MET Holdings
common stock distributed to participants, and participants will have the right
to "put" to MET Holdings shares of MET Holdings stock that are distributed to
them under the ESOP, so long as such stock is not publicly traded on an
established securities market.
REPORT OF THE COMPENSATION COMMITTEE
The Company's and TeleBank's compensation program is administered by
the Compensation Committee comprised of five non-employee members of the
Company's and TeleBank's Board of Directors. Two members of the Compensation
Committee, Messrs. Kehler and Piaker, were elected to that committee effective
February 28, 1997. All decisions by the Compensation Committee in relation to
the compensation of executive officers are reviewed by the full Board. The
Company's and TeleBank's executive compensation program provides competitive
levels of compensation designed to correlate pay with the Company's and
TeleBank's annual and long term performance goals. Underlying this objective are
the following concepts: supporting an individual pay-for-performance
AI-108
<PAGE>
policy that differentiates compensation levels based on corporate, business
unit, and individual performance; motivating key senior officers to achieve
strategic business objectives and rewarding them for that achievement; providing
compensation opportunities which are competitive to those offered in the
marketplace, thus allowing the Company to compete for and retain talented
executives who are critical to the Company's and TeleBank's long term success;
and aligning the interest of executives with the long term interests of the
Company's stockholders.
Executive compensation consists of three components: base salary;
annual incentive bonus; and stock options. It is the Company's compensation
policy to pay a combination of salary and highly incentive-based compensation
consisting of bonuses based on overall Company performance and individual
performances.
During the fourth quarter of 1996, the Compensation Committee reviewed
in detail the base salaries for executive officers for fiscal 1997. In light of
TeleBank's performance and the salary levels of institutions with similar
operations, the Compensation Committee recommended that TeleBank should continue
its policy of compensation based on a combination of salary and highly
incentivized additional compensation consisting of bonuses based on overall
Company and individual performance.
The Compensation Committee awards bonuses, which bonuses are awarded
annually based on overall corporate performance and include financial results
and regulatory compliance. All Company and TeleBank employees are eligible for
bonus awards under this plan except for Messrs. D. Smilow and Caplan, whose
bonuses, if any, are determined according to the discretion of the Compensation
Committee. In addition, the Compensation Committee reviews the compensation of
all executive and senior officers.
Base salaries and bonuses for executive officers were reviewed in
detail by the Compensation Committee at its January 1997 meeting. In determining
the base salaries, the Compensation Committee considered various industry
sources such as Don Richards Associates' Washington Area Accounting Compensation
Survey and SNL Executive Compensation Reviews for Thrift Institutions and for
Commercial Banks. In addition, the Compensation Committee considered the
improved financial performance in 1996 and expectations for 1997 in setting 1997
base salaries.
The Company maintains a stock option plan to provide long-term
incentives to key employees, including executive officers, through the grant of
stock options. The grant of stock options is intended to foster management team
cohesion and align management and stockholder interests. Stock option grants
provide an additional means to provide incentives for executive officers. The
Company believes that the grant of stock options can be used to encourage
performance that can result in enhanced stockholder value.
In addition to the compensation paid to executive officers as described
above, executive officers receive, along with and on the same terms as other
employees, contributions by the Company and TeleBank pursuant to the ESOP and
group term life insurance on the same terms as other employees, as well as
certain other perquisites.
CEO Compensation. David A. Smilow's 1995 and 1996 salary remained
stable at $205,000, equally paid by the Company and TeleBank. The allocation
reflects Mr. D. Smilow's duties on behalf of the Company including capital
market strategies and maintaining the Company's investments of the funds raised
thereby. The Compensation Committee increased Mr. D. Smilow's 1996 bonus
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$38,000 over 1995 levels based on Company performance as measured by the 1995
and 1996 increases in net income, return on assets and return on stockholders'
equity, excluding the government mandated insurance assessment. No options were
granted to David A. Smilow in 1996.
Respectfully submitted,
Compensation Committee
----------------------
Arlen W. Gelbard, Chairman
David R. DeCamp
Mark Rollinson
COMPARATIVE COMPANY PERFORMANCE
The following chart compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock since the
initial public offering completed in May 1994 with the cumulative total return
on the NASDAQ Bank Index and all NASDAQ US Stocks. The comparison assumes $100
was invested on May 27, 1994 in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
PERIOD ENDING
----------------------------------------------------------
INDEX 5/27/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TELEBANC FINANCIAL CORPORATION 100.00 91.84 93.84 126.53 159.18 216.33
NASDAQ TOTAL RETURN INDEX 100.00 103.43 128.97 146.27 165.60 179.92
NASDAC BANKS INDEX 100.00 93.82 113.41 139.73 147.70 184.71
</TABLE>
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INTERESTS OF CERTAIN PERSONS
Subject to stockholder approval of the 1997 Stock Option Plan, David A.
Smilow, Mitchell H. Caplan and William M. Daugherty, a Vice President of
TeleBanc Capital Markets, Inc., each have been granted an option to purchase
40,000 shares of the Company's Common Stock at $13.50 per share, which options
will become exercisable in three installments, each consisting of one-third of
the shares covered by the option, with the first installment becoming
exercisable for 30 days on February 28, 1998, and the second and third
installments becoming exercisable for 30 days on February 28, 1999 and February
28, 2000, respectively so long as the optionee continues to be an employee of
TeleBanc or a subsidiary on each such date. The options granted to Messrs.
Caplan and Daugherty were intended to constitute incentive stock options to the
extent permissible under the Internal Revenue Code. The option granted to Mr. D.
Smilow was a nonqualified option. Subject to stockholder approval of the 1997
Stock Option Plan, each of Messrs. D. Smilow and Caplan have also been granted
an option to purchase 60,000 shares of Common Stock at $13.50 per share, with
the option exercisable immediately as to 20% of such shares and as to an
additional 20% of such shares on each of the next four anniversaries of February
25, 1997, so long as the optionee continues to be an employee of TeleBanc or a
subsidiary on each such anniversary.
CERTAIN TRANSACTIONS
The Company's policy is not to enter into any transactions with
officers, directors, or 5% stockholders or other affiliates of the Company
unless the terms are as favorable to the Company as those generally available
from unaffiliated third parties. Transactions between the Company and its
affiliates will require approval by a majority of disinterested directors.
In connection with the sale of Units pursuant to the Unit Purchase
Agreement, the Company entered into the Acquisition Agreement with Arbor, MET
Holdings and William M. Daugherty. MET Holdings, the Company's largest
stockholder, also owns a majority of the capital stock of Arbor. Pursuant to the
Acquisition Agreement, the Company acquired substantially all of the assets and
liabilities of Arbor and the Company issued 162,641 shares of Common Stock to
Arbor and paid Arbor $500,000. The purchase price paid by the Company was based
on an independent appraisal by Corporate Finance of Washington, Inc. that valued
the Arbor assets at $3.1 million. Mr. Daugherty, the other stockholder of Arbor,
is the President of Arbor. Upon the acquisition of the Arbor assets, the Company
issued to Mr. Daugherty an option for 24,201 shares of Common Stock (the
"Daugherty Option"), which has an exercise price of $64,407.69 and is
exercisable for a period of 10 years from February 28, 1997. In addition, Arbor
has distributed the 162,461 shares of TeleBanc Common Stock that it received in
the acquisition to its two stockholders, MET Holdings and Mr. Daugherty. Since
consummation of the Arbor transaction, Mr. Daugherty has served as a Vice
President of TeleBanc Capital Markets, Inc., a wholly-owned subsidiary of the
Company.
As discussed above, in February 1997, the Company completed the sale of
Units pursuant to the Unit Purchase Agreement with two investment partnerships
managed by Conning & Company and with General American Life Insurance Company,
CIBC WG Argosy Merchant Fund 2, LLC, PC Investment Company and The Northwestern
Mutual Life Insurance Company. In connection with the Unit Purchase Agreement,
certain holders of the Series A Preferred Stock are entitled to designate two
persons to serve as directors of the Company, who shall be nominated for
election by the Company (subject to certain exceptions). Such nominees to the
Board of Directors, Dean C. Kehler and Steven F. Piaker, were elected to the
Board of Directors effective upon the closing of the sale of the Units by the
Company on February 28, 1997.
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SECURITY OWNERSHIP OF THE COMPANY'S PARENT BY MANAGEMENT
The following table sets forth certain information as of the Record
Date with respect to the beneficial ownership by the management of the Company
of equity securities of the Company's parent, MET Holdings. MET Holdings has
four classes of equity securities, Class A Common Stock, Class B Common Stock,
6% Class A Serial Preferred Stock ("Class A Serial Preferred Stock") and 6%
Class B Serial Preferred Stock ("Class B Serial Preferred Stock"). No shares of
Class A Serial Preferred Stock have been issued. The Class A Serial Preferred
Stock and Class B Serial Preferred Stock have certain limited voting rights.
Unless otherwise required by law, the Class B Common Stock is non-voting.
<TABLE>
<CAPTION>
NAME EQUITY SECURITY OWNED PERCENT OF CLASS
- ---- --------------------- ----------------
<S> <C> <C>
and Chief Executive Officer of the
Company and MET Holdings and 4,091 (Class A Common Stock) (a) 40.7 %
Chairman of the Board and Chief Risk 1,641 (Class B Common Stock) (a) 26.3
Management Officer of TeleBank 2,091 (Class B Serial Preferred Stock) (a) 41.8
Mitchell H. Caplan, Vice Chairman and
President of the Company and MET 987 (Class A Common Stock) (b) 9.8
Holdings and Vice Chairman, President 1,051 (Class B Common Stock) (b) 16.8
and Chief Executive Officer of TeleBank 1,079 (Class B Serial Preferred Stock) (b) 21.6
Michael A. Smilow, Director of the 110 (Class A Common Stock) 1.1
Company and TeleBank 117 (Class B Common Stock) 1.4
Directors and Executive Officers 5,188 (Class A Common Stock) 51.6
of TeleBanc as a group 2,809 (Class B Common Stock) 44.9
(9 individuals) 3,170 (Class B Serial Preferred Stock) 63.4
</TABLE>
- ----------
(a) Includes 1,586 shares of Class A Common Stock, 980 shares of Class B Common
Stock and 893 shares of Class B Serial Preferred Stock owned by Mr. D.
Smilow's wife.
(b) Includes 645 shares of Class A Common Stock, 655 shares of Class B Common
Stock and 1,079 shares of Class B Serial Preferred Stock, with respect to
which Mr. Caplan shares beneficial ownership.
AMENDMENT OF CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
AND TO AUTHORIZE THE ISSUANCE OF NONVOTING COMMON STOCK
(PROPOSAL TWO)
Section 4.1 of the Certificate of Incorporation currently provides that
the total number of shares of all classes of stock that the Company shall have
the authority to issue is 4,000,000 shares, consisting of 3,500,000 shares of
Common Stock and 500,000 shares of serial preferred stock. Section 4.2(a) of the
Certificate of Incorporation provides that each share of Common Stock shall be
identical in all respects to all the other shares of Common Stock. The proposed
amendment to Article 4 of the Certificate of Incorporation is to increase the
authorized number of shares of Common Stock from 3,500,000 to 8,500,000 and to
authorize the issuance of Nonvoting Common Stock. The text of the proposed
amendment is set forth at Exhibit A to this Proxy Statement, and the following
discussion of the proposed amendment is qualified in its entirety by reference
to Exhibit A.
Increase in the Number of Shares of Authorized Common Stock
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Of the 3,500,000 presently authorized shares of Common Stock, 2,211,961
were issued and outstanding on the Record Date, and a total of 2,385,624 shares
were required to be reserved for issuance for the following purposes: 437,230
for stock options, 345,000 for warrants issued in connection with the Company's
initial public offering in 1994 ("Initial Warrants"), 198,088 for the Warrants,
205,563 the Contingent Warrants and 1,199,743 for the potential conversion of
the Preferred Stock. Accordingly, the Company does not have sufficient Common
Stock to meet all of its existing obligations. Also, subject to the approval by
stockholders of Proposal Five, the Company will be required to reserve an
additional 440,000 shares for options. Of the 500,000 presently authorized
shares of serial preferred stock, on the Record Date, 18,850 shares of Series A
Preferred Stock, 4,050 shares of Series B Preferred Stock and 7,000 shares of
Series C Preferred Stock were issued and outstanding, and 11,050 shares of
Series A Preferred Stock and 25,850 shares of Series B Preferred Stock were
reserved for issuance with respect to the potential conversion of Preferred
Stock. On the Record Date, 470,100 shares of authorized but not outstanding and
unreserved shares of serial preferred stock remained available for future
issuance.
The Company has made an affirmative covenant in the Unit Purchase
Agreement to obtain stockholder approval of this amendment. As discussed above,
the current number of authorized but unissued shares of Common Stock is
insufficient to permit the issuance of all of the shares of Common Stock
(whether voting or nonvoting) called for in connection with stock options, the
exercise of the Initial Warrants, the Warrants and the Contingent Warrants and
the conversion of the Preferred Stock. Additionally, the Board of Directors
believes that the proposed increase in the authorized shares of Common Stock in
excess of the number of shares necessary for a Preferred Stock conversion and
the exercise of the Initial Warrants, the Warrants and the Contingent Warrants
is desirable to enhance the Company's flexibility in connection with possible
future actions, such as use in employee benefit plans, stock splits, stock
dividends, financings, the raising of additional capital through a potential
public offering or private placement, possible future mergers or acquisitions,
and other general corporate purposes. The unissued and unreserved shares of
Common Stock and serial preferred stock will be available for issuance for any
proper corporate purpose, as authorized from time to time by the Board of
Directors, without further approval of stockholders of the Company, except as
otherwise required by law. Elimination of the delay occasioned by the necessity
of obtaining stockholder approval will better enable the Company to engage in
financing transactions and acquisitions which take full advantage of changing
market conditions. The Company is not presently engaged in any negotiations
concerning the issuance of any shares of the additional authorized Common Stock,
nor are there any present arrangements, understandings or plans concerning the
issuance of such shares, apart from the transactions described in this Proxy
Statement.
As a Delaware corporation, the Company is taxed on its authorized
capital stock. In general, the annual franchise tax is $90 on the first 10,000
shares and the further sum of $50 on each 10,000 shares or part thereof.
Currently, the Company's annual franchise tax is $17,540. Increasing the number
of authorized shares of Common Stock to 8,500,000 will result in an annual
franchise tax of $42,540. TeleBanc stockholders do not have any preemptive or
stock purchase rights to purchase additional shares of TeleBanc stock, whether
now or hereafter authorized. Further issuances of additional shares of Common
Stock or serial preferred stock or securities convertible into such stock may
have a dilutive effect on existing stockholders.
In the event of a proposed merger, tender offer or other attempt to
gain control of the Company of which management does not approve, it might be
possible for the Board of Directors to authorize the issuance of shares of
Common Stock or serial preferred stock in a transaction that could have the
effect of frustrating or impeding such takeover attempt. The Board of Directors
has no current intention to issue authorized but unissued shares for such
purpose. The Board of Directors is not aware of any specific effort to
accumulate the Company's capital stock in order to obtain control of the Company
by means of a merger, tender offer or otherwise.
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<PAGE>
If the proposed amendment is approved, after reservation for stock
options, the exercise of the Initial Warrants, the Warrants and the Contingent
Warrants, and the potential future conversion of the Preferred Stock, 748,651
shares of Common Stock would be available for issuance.
Authorization of Issuance of Nonvoting Common Stock
Pursuant to the Unit Purchase Agreement, the Company has agreed to
obtain stockholder approval of the issuance of authorized shares of the
Company's Common Stock as Nonvoting Common Stock. The Unit Purchase Agreement
and the Certificate of Incorporation provide that Nonvoting Common Stock must be
available for issuance in certain instances in connection with the Preferred
Stock. The purpose of the Nonvoting Common Stock is to permit one of the
purchasers in the Unit Purchase Agreement to convert its shares of Series C
Preferred Stock into a form of Common Stock. That purchaser, CIBC WG Argosy
Merchant Fund 2, LLC, is subject to regulatory limitations as to the ownership
of voting stock. The Company's Certificate of Incorporation provides that shares
of the Company's Series C Preferred Stock may be converted into shares of
Nonvoting Common Stock at any time. The number of shares of Nonvoting Common
Stock into which shares of the Series C Preferred Stock shall be converted is
the product obtained by multiplying the Applicable Conversion Rate (as defined)
by the number of shares being converted at any time. Also, the Certificate of
Incorporation provides that if a dividend is payable in voting Common Stock or
other securities of the Company that are voting securities, the Company must
make available to each holder of Preferred Stock, at such holder's request,
dividends consisting of nonvoting securities of the Company that are otherwise
identical to the voting securities. On the Record Date, there were 18,850 shares
of Series A Preferred Stock, 4,050 shares of Series B Preferred Stock and 7,000
shares of Series C Preferred Stock issued and outstanding. Although the Company
has no specific plans at this time, the Board of Directors could issue Nonvoting
Common Stock in connection with possible acquisitions, dividends, convertible
debt issuances, employee incentive programs and public and private offerings
that are not related to the Unit Purchase Agreement.
Holders of Nonvoting Common Stock will be entitled to receive notice of
meetings of the Company's stockholders, but will have no voting rights on any
matter or thing (including the election of directors) unless otherwise required
by law. Each share of Nonvoting Common Stock may be converted into one fully
paid and nonassessable share of voting Common Stock upon the occurrence of
certain events: (i) any sale to the public in a widely dispersed offering
(including a public offering of stock), (ii) any disposition of no more than 2%
of the Company's outstanding voting securities pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act of 1933, as amended, (iii) certain
transfers pursuant to a right of first refusal set forth in transfer restriction
agreements executed in connection with the Unit Purchase Agreement, or (iv)
certain transfers in a single transaction to an independent third party who
acquires at least a majority of the Company's voting stock without regard to the
transfer of such securities. No stockholder approval would be necessary to
effect the conversion of Nonvoting Common Stock into Common Stock if a holder of
Nonvoting Common Stock were to exercise its conversion privilege.
If the proposed amendment is approved, the Board of Directors may issue
authorized shares of Nonvoting Common Stock without further approval of the
Company's stockholders unless such approval is required for a particular
transaction by applicable law or regulations. Stockholders of the Company do not
have any preemptive rights to subscribe for any shares of Nonvoting Common Stock
that may be issued.
The creation of Nonvoting Common Stock is not intended to have an
anti-takeover effect. The proposed amendment to the Certificate of Incorporation
is not part of a plan by the Board of Directors to adopt a series of
anti-takeover measures. The Company's Board of Directors does not presently
intend to propose any additional measures designed to discourage any unfair or
unnegotiated takeovers apart from the three amendments to the Certificate of
Incorporation proposed in this Proxy Statement and those measures that
previously have been adopted, but
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<PAGE>
reserves the right to propose and adopt additional measures if the Board of
Directors determines that such measures are in the best interests of the Company
and its stockholders.
VOTE REQUIRED
Adoption of the proposed amendment of Article 4 of the Certificate of
Incorporation requires the affirmative vote of the holders of at least a
majority of the outstanding shares of stock of the Company entitled to vote
thereon at the Annual Meeting. MET Holdings has advised the Company that it
intends to vote all shares of Common Stock beneficially owned by it in favor of
this proposal. Each of the holders of Series A Preferred Stock is required by
the terms of the Unit Purchase Agreement to vote in favor of this proposed
amendment. MET Holdings and the holders of the Series A Preferred Stock
collectively beneficially own 73.8% of the Company's Voting Securities.
Consequently, approval of the amendment of Article 4 of the Certificate of
Incorporation is assured.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSED AMENDMENT TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF THE COMPANY'S
COMMON STOCK AND TO AUTHORIZE THE ISSUANCE OF NONVOTING COMMON STOCK.
AMENDMENT OF CERTIFICATE OF INCORPORATION TO
REVISE TWO CURRENT ANTI-TAKEOVER PROVISIONS
(PROPOSALS THREE AND FOUR )
The Company's Certificate of Incorporation currently includes a number
of provisions, so-called "anti-takeover" provisions, intended to protect the
Company's stockholders in the event of a takeover attempt that, in the opinion
of the Board of Directors, may not be in the best interests of the Company's
stockholders. These proposals are intended to enhance management's bargaining
power against potential bidders. However, they were adopted in connection with
the Company's initial public offering in 1994, and in contemplation of the
Company's securities being widely held. That is not the case. Furthermore, in
the sale of Units pursuant to the Unit Purchase Agreement, the limitations on
the amount of "Voting Stock" which constitutes "Control" for purposes of Article
8 has the effect of limiting the amount of Voting Stock which can be held by a
purchaser thereunder. The Company agreed to amend this limitation in Article 8,
as well as to amend Article 11, because the Board of Directors believes that
these current provisions need to be revised in order to allow the Company a
greater measure of flexibility in corporate financing and business combination
transactions. The text of the proposed amendments of Article 8 and 11 are set
forth as Exhibit B and Exhibit C to this Proxy Statement, respectively, and the
following discussion of the terms of the proposed amendments is qualified in its
entirety by reference to Exhibit B and Exhibit C.
Proposed Amendment of Article 8 (Proposal Three)
Article 8 of the Certificate of Incorporation currently prohibits any
person from acquiring "Control" of the Company unless such acquisition has been
approved in advance by 66-2/3% of the outstanding shares of capital stock of the
Company entitled to vote generally in the election of directors (the "Voting
Stock"). In Section 8.3 of the Certificate of Incorporation, "Control" is
defined as the sole or shared power to vote or direct the voting of, or to
dispose or to direct the disposition of 10 percent or more of the Voting Stock,
subject to certain exceptions. Section 8.2 of the Certificate of Incorporation
provides that, in addition to other penalties, if any person acquires Control in
violation of Article 8, all shares of stock beneficially owned by that person in
excess of 10 percent of the Company's Voting Stock shall lose their voting
power.
The Board of Directors believes that the definition of Control is
unnecessarily restrictive, and should be modified by increasing the Voting Stock
ownership threshold in the definition of Control from 10% to 25%. Such approval
will have the immediate effect of permitting the holders of Series B
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Preferred Stock (which generally is nonvoting) to convert such stock to Series A
Preferred Stock (which generally votes with the Common Stock).
Proposed Amendment of Article 11 (Proposal Four)
Article 11 of the Certificate of Incorporation currently prohibits
business combinations with an "Interested Stockholder" or an affiliate or
associate of such person unless such business combination has been approved by
the affirmative vote of at least (i) the holders of 80% of the total number of
outstanding shares of Voting Stock and (ii) the holders of two-thirds of the
voting power of the outstanding shares of the Voting Stock, excluding for
purposes of calculating the affirmative vote and the total number of outstanding
shares under clause (ii) above all shares of Voting Stock owned by the
Interested Stockholder and its affiliates and associates. An "Interested
Stockholder" is defined as any person that is (i) the beneficial owner of 5
percent or more of the then outstanding Voting Stock or (ii) an affiliate of the
Company that, within the two years preceding the date in question, was the
beneficial owner of ten percent or more of the then outstanding Voting Stock.
The Certificate of Incorporation further provides that this higher vote
for a business combination is not required if two conditions are met: (i) that
at least two-thirds of the "Continuing Directors" then in office approve the
business combination and (ii) that certain price and procedure requirements are
met. A "Continuing Director" is defined as a director who is unaffiliated with
the Interested Stockholder and who was a director prior to the time that the
Interested Stockholder became an Interested Stockholder. If the two conditions
are met, the business combination need only be approved by the affirmative vote
required by law and any other provision of the Certificate of Corporation.
Generally, the Delaware General Corporation Law requires approval by a majority
of eligible shares to approve a business combination.
The Board of Directors believes that the higher vote for a business
combination involving an Interested Stockholder may be unnecessarily restrictive
if either one of the two conditions set forth in the paragraph above is met. The
proposed amendment of Article 11 would require the higher vote to approve a
business combination only if the business combination did not meet one or the
other of these conditions.
The proposed amendments to Articles 8 and 11 of the Certificate of
Incorporation are not part of a plan by the Board of Directors to adopt a series
of anti-takeover measures. The Company's Board of Directors does not presently
intend to propose any additional measures designed to discourage any unfair or
unnegotiated takeovers apart from the four amendments proposed in this Proxy
Statement and those measures that previously have been adopted, but reserves the
right to propose and adopt additional measures if the Board of Directors
determines that such measures are in the best interests of the Company and its
stockholders.
VOTE REQUIRED FOR AMENDMENT OF ARTICLE 8
Adoption of the proposed amendment of Article 8 of the Certificate of
Incorporation requires the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of stock of the Company entitled to vote thereon at
the Annual Meeting. MET Holdings has advised the Company that it intends to vote
all shares of Common Stock beneficially owned by it in favor of this proposal.
Each of the holders of Series A Preferred Stock is required by the terms of the
Unit Purchase Agreement to vote in favor of this proposed amendment. MET
Holdings and the holders of the Series A Preferred Stock collectively
beneficially own 73.8% of the Company's Voting Securities. Consequently,
approval of the amendment of Article 8 of the Certificate of Incorporation is
assured.
VOTE REQUIRED FOR AMENDMENT OF ARTICLE 11
Adoption of the proposed amendment of Article 11 of the Certificate of
Incorporation requires the affirmative vote of the holders of at least 80% of
the outstanding shares of stock of the Company
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<PAGE>
entitled to vote thereon at the Annual Meeting. MET Holdings has advised the
Company that it intends to vote all shares of Common Stock beneficially owned by
it in favor of this proposal. The holders of Series A Preferred Stock are not
required by the terms of the Unit Purchase Agreement to vote in favor of this
proposed amendment.
MET Holdings beneficially owns 48.75% of the Company's Voting Securities.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSED REVISIONS OF THESE TWO CURRENT ANTI-TAKEOVER PROVISIONS.
ADOPTION OF THE 1997 STOCK OPTION PLAN
(PROPOSAL FIVE)
The TeleBanc Financial Corporation 1997 Stock Option Plan (the "Plan")
was adopted by the Board of Directors of TeleBanc on February 25, 1997, subject
to stockholder approval at the Annual Meeting, to provide for the grant of
options to purchase shares of Common Stock to employees, nonemployee directors
and independent contractors of TeleBanc, its subsidiaries and affiliates. As of
March 20, 1997, there were approximately 51 employees, non-employee directors
and independent contractors of TeleBanc and its subsidiaries and affiliates who
were eligible to participate in the Plan.
The principal provisions of the Plan are summarized below. Such summary
does not, however, purport to be complete and is qualified in its entirety by
the terms of the Plan. A copy of the Plan is attached hereto as Exhibit D and is
incorporated herein by reference.
The Board of Directors of TeleBanc believes that stock options are
important to attract and to encourage the continued employment and service of
officers, other selected employees, non-employee directors and selected
independent contractors by facilitating their acquisition of a stock interest in
TeleBanc. The acquisition and holding of an equity interest in TeleBanc by such
individuals is in the best interest of TeleBanc because equity ownership will
even more closely align their interests with the interests of TeleBanc's
stockholders.
The adoption of the Plan is subject to stockholder approval at the
Annual Meeting. TeleBanc is submitting the Plan for stockholder approval at the
Annual Meeting to allow TeleBanc to obtain a tax deduction for the full amount
allowable with respect to the exercise of options granted under the Plan and to
provide flexibility to grant options qualifying as incentive stock options for
tax purposes ("incentive options"). See "--Federal Income Tax Consequences of
the Plan."
DESCRIPTION OF THE PLAN
The Plan provides for the grant of options to employees, non-employee
directors and independent contractors of TeleBanc and employees and independent
contractors of any subsidiary of TeleBanc. A total of 440,000 shares of Common
Stock will be reserved for issuance to employees, non-employee directors and
independent contractors under the Plan, representing approximately 19.9% of the
outstanding shares of Common Stock on March 20, 1997. Based on the $14.50 price
of a share of Common Stock on March 31, 1997, the aggregate value of the 440,000
shares reserved for issuance under the Plan is $6.4 million.
The Plan is administered by the Stock Option Committee, which consists
of not less than two outside directors appointed by the Board of Directors. The
Stock Option Committee selects the employees and independent contractors of
TeleBanc and its subsidiaries and affiliates to whom options will be granted.
Options covering not more than 200,000 shares of Common Stock may be granted to
any employee during any calendar year. Grants of stock options contingent upon
stockholder approval of the Plan have been made to certain executive officers as
set out in the table below.
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The option exercise price under the Plan may not be less than 100% of
the fair market value of the Common Stock on the date of grant of the option (or
110% in the case of an incentive stock option granted to an optionee
beneficially owning more than 10% of the outstanding Common Stock). The maximum
option term is 10 years (or five years in the case of an incentive stock option
granted to an optionee beneficially owning more than 10% of the outstanding
Common Stock). Options become vested and exercisable at the time and to the
extent provided in the option agreement related to such Option. Options become
exercisable in full upon the occurrence of a change in control of TeleBanc (as
defined in the Plan). Generally, for this purpose, a change in control is deemed
to occur if any person (i) acquires direct or indirect beneficial ownership of
at least 50% of the issued and outstanding shares of Common Stock or (ii) has
the power (whether as a result of ownership of capital stock, by contract or
otherwise) or ability to elect or cause the election of directors who, at the
time of such election, constitute a majority of the board of directors of
TeleBanc. The Stock Option Committee has the discretion to accelerate the
vesting and exercisability of options.
There is a $100,000 limit on the value of stock (determined at the time
of grant) covered by incentive stock options that first become exercisable by an
optionee in any calendar year. No option may be granted more than 10 years after
the effective date of the Plan. Generally, during an optionee's lifetime, only
the optionee (or a guardian or committee if the optionee is incapacitated) may
exercise an option except that, upon approval by the Stock Option Committee,
nonqualified options may be transferred to certain family members of the
optionee, charitable organizations or to trusts for the benefit of such persons.
Incentive stock options are non-transferable except at death.
Payment for shares purchased under options granted pursuant to the Plan
may be made either in cash or by exchanging shares of Common Stock of TeleBanc
with a fair market value of up to the total option exercise price and cash for
any difference. Options may be exercised by directing that certificates for the
shares purchased be delivered to a licensed broker as agent for the optionee,
provided that the broker tenders to TeleBanc cash or cash equivalents equal to
the option exercise price plus the amount of any taxes that TeleBanc may be
required to withhold in connection with the exercise of the option.
If an employee's employment with TeleBanc or a subsidiary, affiliate or
former subsidiary following a spin-off (a "Spin-Off Corporation") terminates by
reason of death or permanent and total disability, his or her options, whether
or not then exercisable, may be exercised within three years after such death or
disability, unless otherwise provided with respect to a particular option (but
not later than the date the option would otherwise expire). If the employee's
employment by TeleBanc or a subsidiary, affiliate or Spin-Off Corporation
terminates for any reason other than death or disability, options held by such
optionee terminate three months after such termination, unless otherwise
provided with respect to a particular option. In that event, each option would
be exercisable to the extent it had become vested before such termination of
employment (unless otherwise provided in the option agreement).
If the outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or securities
of TeleBanc, by reason of merger, consolidation, reorganization,
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares without receipt of
consideration by TeleBanc, an appropriate and proportionate adjustment will be
made in the number and kinds of shares subject to the Plan, and in the number,
kinds and per share exercise price of shares subject to the unexercised portion
of options granted prior to any such change. Any such adjustment in an
outstanding option, however, will be made without a change in the total price
applicable to the unexercised portion of the option, but with a corresponding
adjustment in the per share option price.
Upon any dissolution or liquidation of TeleBanc, or upon a
reorganization, merger or consolidation in which TeleBanc is not the surviving
corporation, or upon the sale of substantially all of the assets of TeleBanc to
another corporation, or upon any transaction (including, without
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limitation, a merger or reorganization in which TeleBanc is the surviving
corporation) approved by the Board of Directors which results in any person or
entity owning 80% or more of the total combined voting power of all classes of
stock of TeleBanc, the Plan and the options issued thereunder will terminate,
unless provision is made in connection with such transaction for the
continuation of the Plan, the assumption of the options or both the continuation
of the Plan and the assumption of such options, or for the substitution for such
options of new options covering the stock of a successor corporation or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kinds
of shares and the per share exercise price. In the event of such termination,
all outstanding options shall be exercisable in full during such period
immediately prior to the occurrence of such termination as the board of
directors in its discretion shall determine.
The Board of Directors may amend the Plan with respect to shares of the
Common Stock as to which options have not been granted. However, TeleBanc's
stockholders must approve any amendment that would (i) change the requirements
as to eligibility to receive incentive stock options; (ii) increase the maximum
number of shares in the aggregate for which incentive stock options may be
granted (except for adjustments upon changes in capitalization); or (iii)
otherwise cause the Plan to fail to satisfy the requirements of Section 162(m)
of the Internal Revenue Code relating to limitations on the deduction of amounts
not constituting qualified performance-related compensation.
The Board of Directors at any time may terminate or suspend the Plan.
Unless previously terminated, the Plan will terminate automatically on February
25, 2007, the tenth anniversary of the date of adoption of the Plan by the Board
of Directors. No termination, suspension or amendment of the Plan may, without
the consent of the person to whom an option has been granted, adversely affect
the rights of the holder of the option.
NEW PLAN BENEFITS
The table below provides certain information as of the date of this
proxy statement regarding stock options granted under the Plan to (i) the Named
Executive Officers (which includes all executive officers of TeleBanc as a
group, and (iii) all employees of TeleBanc as a group (including all officers
who are not executive officers). No other grants under the 1997 Stock Option
Plan have been made. All such grants are subject to stockholder approval of the
Plan.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION(S) EXERCISE PRICE (A) OPTIONS GRANTED
-------------------- ------------------ ---------------
<S> <C> <C>
David A. Smilow, Chairman of the Board and $13.50 100,000
Chief Executive Officer of the Company and
Chairman of the Board and Chief Risk Management
Officer of TeleBank
Mitchell H. Caplan, Vice Chairman and $13.50 100,000
President of the Company and Vice Chairman,
President and Chief Executive Officer of TeleBank
Aileen Lopez Pugh, Executive Vice President -- --
- Chief Financial Officer/Treasurer of the
Company and TeleBank
All employees as a group (51 persons) $13.50 200,000
</TABLE>
- ----------
(a) All option grants were made at 100% of the fair market value of the Common
Stock on the date of grant. Grants covering 60,000 shares to each Messrs.
Caplan and D. Smilow are ten-year,
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nonqualified options vesting 20% on the date of grant and 20% per year
thereafter. Grants covering 40,000 shares to Messrs. Caplan and D. Smilow
are nonqualified options vesting to the extent of 1/3 of such shares on
each of the first three anniversaries of the date of grant that expire if
not exercised within 30 days of first becoming exercisable.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The grant of an option is not a taxable event for the optionee or
TeleBanc.
Upon exercising a non-qualifying option, an optionee will recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of the Common Stock on the date of exercise (except
that, if the optionee is subject to certain restrictions on transfer of shares
of Common Stock, the measurement date may be delayed, unless the optionee makes
a special tax election within 30 days after exercise to have income determined
without regard to the restrictions). If TeleBanc complies with applicable
reporting requirements, it will be entitled to a business expense deduction in
the same amount. Non-qualifying options under the Plan are intended to satisfy
the requirements applicable to "qualified performance-related compensation"
under the Code, so that TeleBanc should be entitled to deduct the full amount of
such compensation income without regard to the $1,000,000 limitation imposed on
the deduction of annual compensation paid to each of the chief executive officer
and the four other most highly compensated officers of a publicly held
corporation. Upon a taxable disposition of shares acquired pursuant to the
exercise of a non-incentive option, the optionee will have taxable gain or loss,
measured by the difference between the amount realized on the disposition and
the tax basis of the shares (generally, the amount paid for the shares plus the
amount treated as ordinary income at the time the option was exercised).
If the optionee surrenders shares of Common Stock in payment of part or
all of the exercise price for non-qualifying options, no gain or loss will be
recognized with respect to the shares surrendered and the optionee will be
treated as receiving an equivalent number of shares pursuant to the exercise of
the option in a non-taxable exchange. The basis of the shares surrendered will
be treated as the substituted tax basis for an equivalent number of option
shares received. However, the fair market value of any shares received in excess
of the number of shares surrendered will be taxed as ordinary income.
With respect to "incentive options," an optionee will not recognize
taxable income upon exercise of an incentive option, and any gain realized upon
a disposition of shares received pursuant to the exercise of an incentive option
will be taxed as long-term capital gain if the optionee holds the shares for at
least two years after the date of grant and for one year after the date of
exercise of the option. However, the excess of the fair market value of the
shares subject to an incentive option on the exercise date over the option
exercise price will be included in the optionee's alternative minimum taxable
income in the year of exercise (except that, if the optionee is subject to
certain restrictions on transfer, the determination of the amount included in
alternative minimum taxable income may be delayed, unless the optionee elects
within 30 days following exercise to have income determined without regard to
such restrictions) for purposes of the alternative minimum tax. An optionee may
be entitled to a credit against regular tax liability in future years for
minimum taxes paid with respect to the exercise of incentive options. TeleBanc
and its subsidiaries and affiliates will not be entitled to any business expense
deduction with respect to the grant or exercise of an incentive option, except
as discussed below.
For the exercise of an incentive option to qualify for the foregoing
tax treatment, the optionee generally must be an employee of TeleBanc or its
subsidiaries from the date the option is granted through a date within three
months before the date of exercise. In the case of an optionee who is disabled,
this three-month period is extended to one year. In the case of an employee who
dies, the three-month period and the holding period for shares received pursuant
to the exercise of the option are waived.
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If all of the foregoing requirements for incentive option treatment are
met except for the special holding period rules set forth above, the optionee
will recognize ordinary income upon the disposition of the shares in an amount
equal to the excess of the fair market value of the shares at the time the
option was exercised over the option exercise price. However, if the optionee
was subject to certain restrictions on transfer of Common Stock at the time the
option was exercised, the measurement date may be delayed, unless the optionee
has made a special tax election within 30 days after the date of exercise to
have taxable income determined without regard to such restrictions. The balance
of the realized gain, if any, will be long- or short-term capital gain,
depending upon whether or not the shares were sold more than one year after the
option was exercised. If the optionee sells the shares prior to the satisfaction
of the holding period rules but at a price below the fair market value of the
shares at the time the option was exercised (or other applicable measurement
date), the amount of ordinary income (and the amount included in alternative
minimum taxable income, if the sale occurs during the same year as the option
was exercised) will be limited to the excess of the amount realized on the sale
over the option exercise price. If TeleBanc complies with applicable (if any)
reporting requirements, it will be allowed a business expense deduction to the
extent the optionee recognizes ordinary income.
If an optionee exercises an incentive option by tendering shares of
Common Stock with a fair market value equal to part or all of the option
exercise price, the exchange of shares generally will be treated as a nontaxable
exchange (except that this treatment would not apply if the optionee had
acquired the shares being transferred pursuant to the exercise of an incentive
option and had not satisfied the special holding period requirements summarized
above). If the exercise is treated as a tax free exchange, the optionee would
have no taxable income from the exchange and exercise (other than minimum
taxable income as discussed above) and the tax basis of the shares exchanged
would be treated as the substituted basis for the shares received. If the
optionee used shares received pursuant to the exercise of an incentive option
(or another statutory option) as to which the optionee had not satisfied the
applicable holding period requirement, the exchange would be treated as a
taxable disqualifying disposition of the exchanged shares, with the result that
the excess of the fair market value of the shares tendered over the optionee's
basis in the shares would be taxable.
The foregoing is a brief summary of some of the principal federal
income tax consequences of stock option grants under the Plan and recipients of
grants under the Plan should consult with their personal tax advisors with
respect to such grants and transactions in stock acquired pursuant to the Plan.
REQUIRED VOTE
Assuming the presence of a quorum at the Annual Meeting, the
affirmative vote of the holders of a majority of the shares of voting stock
present in person or represented by proxy, and entitled to vote at the Annual
Meeting is required to approve the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL SIX)
The Board of Directors has approved the appointment of Arthur Andersen
LLP to continue as TeleBanc's independent public accountants for the year ending
December 31, 1997, subject to ratification by stockholders at the Annual
Meeting. Arthur Andersen LLP has been acting as independent public accountants
for the Company since fiscal 1995. Representatives of Arthur Andersen LLP will
be present at the Annual Meeting. They will be given an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
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Unless otherwise indicated, properly executed proxies will be voted in
favor of ratifying the appointment of Arthur Andersen LLP to audit the books and
accounts of the Company for the year ending December 31, 1997. No determination
has been made as to what action the Board of Directors would take if the
stockholders do not ratify the appointment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1997.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes to have presented at the next
annual meeting and included in the proxy materials of the Company must be
received at the main office of the Company, 1111 North Highland Street,
Arlington, Virginia 22201, no later than December 8, 1997. If such proposal is
in compliance with all of the requirements of Rule 14a-8 of the Exchange Act of
1934, as amended, it will be included in the proxy statement and set forth on
the form of proxy issued for the next annual meeting of stockholders. Please
send any such proposal by certified mail, return receipt requested.
OTHER MATTERS
The Board of Directors is not aware of any matters that may come before
the Annual Meeting other than those specifically listed in the Notice of Annual
Meeting of Stockholders. If any other business is properly presented at the
Annual Meeting, it is the intention of the proxy holders to vote or act in
accordance with their best judgment with respect to such matters.
By order of the Board of Directors,
/s/ David A. Smilow
David A. Smilow
Chairman of the Board and
Chief Executive Officer
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<PAGE>
EXHIBIT A
---------
TEXT OF PROPOSAL TWO
--------------------
Resolved, that Section 4.1 of the Company's Amended and Restated
Certificate of Incorporation shall be amended by deleting the text of Section
4.1 in its entirety and replacing it with the following:
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 9,000,000
shares, of which 500,000 shares shall be serial preferred
stock, having a par value of $0.01 per share ("Preferred
Stock"), and 8,500,000 shall be classified as shares of common
stock, having a par value of $0.01 per share ("Common Stock").
The Board of Directors is expressly authorized to issue,
without stockholder approval, any unissued shares of the
Corporation's authorized Common Stock as nonvoting Common
Stock ("Nonvoting Common Stock").
Resolved, that the second sentence of Section 4.2(a) of the Company's
Amended and Restated Certificate of Incorporation shall be amended by deleting
the word "Each" at the beginning of that sentence and inserting in its place the
words "Except as provided in Section 4.2(e) hereof, each".
Resolved, that the first sentence of Section 4.2(b) of the Company's
Amended and Restated Certificate of Incorporation shall be amended by deleting
the word "Each" at the beginning of that sentence and inserting in its place the
words "Except as provided in Section 4.2(e) hereof, each".
Resolved, that Section 4.2 of the Company's Amended and Restated
Certificate of Incorporation shall be amended by inserting a new Section 4.2(e)
which shall provide as follows:
(e) NONVOTING COMMON STOCK.
The holders of Nonvoting Common Stock shall be
entitled to notice of meetings of the Corporation's
stockholders. Notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation or the
Corporation's Bylaws, the Nonvoting Common Stock shall have no
voting rights upon any matter or thing (including, without
limitation, the election of directors) unless provided by
applicable law. Subject to and in compliance with the
following provisions of this Section 4.2(e), each share of
Nonvoting Common Stock held by any person or entity may be
converted into one fully-paid and non-assessable share of
voting Common Stock.
(i) In connection with the disposition of
shares upon the occurrence (or the expected
occurrence as described in Section 4.2(e)(iii)
below), of any Conversion Event (as defined below),
each holder of Nonvoting Common Stock shall be
entitled to convert such Nonvoting Common Stock into
an equal number of shares of voting Common Stock.
(ii) For purposes of this Section 4.2(e), a
"Conversion Event" shall mean, (A) any sale to the
public in a widely dispersed offering (including,
without limitation, a public offering registered
under the Securities Act of 1933, as amended), (B)
any disposition under Rule 144 or Rule 144A
promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or any
similar rule then in force of no more than two
percent (2%) of the outstanding voting securities of
the Corporation, (C) any transfer pursuant to a right
of first refusal set forth in the Transfer
Restriction Agreement, dated as of February 28, 1997,
by and among the Purchasers (as identified in the
$29,900,000 Unit Purchase
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<PAGE>
Agreement, dated as of February 19, 1997, between the
Purchasers and the Corporation), David A. Smilow, MET
Holdings Corporation and the Corporation or the
Transfer Restriction Agreement, dated as of February
28, 1997, by and among the Purchasers, Mitchell H.
Caplan, MET Holdings Corporation and the Corporation
or (D) any transfer in a single transaction to an
independent third party who acquires at least a
majority of the voting stock of the Corporation
without regard to the transfer of such securities.
For purposes of this Section 4.2(e) "person" shall
include any natural person and any corporation,
partnership, joint venture, trust, unincorporated
organization and any other entity or organization.
(iii) Each holder of Nonvoting Common Stock
shall be entitled to convert shares of Nonvoting
Common Stock in connection with any Conversion Event
if such holder reasonably believes that such
Conversion Event shall be consummated, and a written
request for conversion from any holder of Nonvoting
Common Stock to the Corporation stating such holder's
reasonable belief that a Conversion Event shall occur
shall be conclusive and shall obligate the
Corporation to effect such conversion in a timely
manner so as to enable each such holder to
participate in such Conversion Event. The Corporation
shall not cancel the shares of Nonvoting Common Stock
so converted before the tenth day following such
Conversion Event and shall reserve such shares until
such tenth day for reissuance in compliance with the
next sentence. If any shares of Nonvoting Common
Stock are converted into shares of voting Common
Stock in connection with a Conversion Event and such
shares of voting Common Stock are not actually
distributed, disposed of or sold pursuant to such
Conversion Event, such shares of voting Common Stock
shall be promptly converted back into the same number
of shares of Nonvoting Common Stock, and during such
period prior to such distribution, disposal or sale,
the holder of such voting Common Stock shall not be
entitled to vote such shares notwithstanding
provisions of this Amended and Restated Certificate
of Incorporation.
(iv) To exercise its conversion privilege, a
holder of Nonvoting Common Stock shall surrender the
certificate or certificates representing the shares
being converted to the Corporation at its principal
office, and shall give written notice to the
Corporation at that office that such holder elects to
convert such shares. Such notice shall also state the
name or names (with address or addresses) in which
the certificate or certificates for shares of voting
Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of
Nonvoting Common Stock surrendered for conversion
shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such
written notice is received by the Corporation,
together with the certificate or certificates
representing the shares of Nonvoting Common Stock
being converted, shall be the "Conversion Date". As
promptly as practicable after the Conversion Date,
the Corporation shall issue and shall deliver to the
holder of the shares of Nonvoting Common Stock being
converted, or on its written order, such certificate
or certificates as it may request for the number of
shares of voting Common Stock issuable upon the
conversion of such shares of Nonvoting Common Stock
in accordance with the provisions of this Section
4.2(e). Such conversion shall be deemed to have been
effected immediately prior to the closing of business
on the Conversion Date, and at such time the rights
of the holder as holder of the converted shares of
Nonvoting Common Stock shall cease and the person(s)
in whose name(s) any certificate(s) for shares of
voting Common Stock shall be issuable upon such
conversion shall be deemed to have become
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<PAGE>
the holder or holders of record of the shares of
voting Common Stock represented thereby.
AI-125
<PAGE>
EXHIBIT B
---------
TEXT OF PROPOSAL THREE
----------------------
Resolved, that the definition of "Control" in Section 8.3 of the
Company's Amended and Restated Certificate of Incorporation shall be amended by
deleting the word "10" and inserting in its place the word "25".
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<PAGE>
EXHIBIT C
---------
TEXT OF PROPOSAL FOUR
---------------------
Resolved, that the first paragraph of Section 11.2 of the Company's
Amended and Restated Certificate of Incorporation shall be amended by deleting
the wo
rds "if the conditions specified in both paragraphs (a) and (b)" and
inserting in their place "if the condition or conditions specified in either
paragraph (a) or paragraph (b)."
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<PAGE>
EXHIBIT D
---------
TELEBANC FINANCIAL CORPORATION
1997 STOCK OPTION PLAN
TELEBANC FINANCIAL CORPORATION ("TeleBanc") hereby adopts this
TeleBanc Financial Corporation 1997 Stock Option Plan (the "Plan") the terms of
which shall be as follows:
1. PURPOSE
The Plan is intended to advance the interests of TeleBanc by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in TeleBanc, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of TeleBanc and its subsidiaries, and will encourage such eligible
individuals to remain in the employ of TeleBanc or one or more of its
subsidiaries. Each stock option granted under the Plan (an "Option") is intended
to be an "incentive stock option" ("Incentive Stock Option") within the meaning
of Section 422 of the Internal Revenue Code of 1986, or the corresponding
provision of any subsequently-enacted tax statute, as amended from time to time
(the "Code"), except to the extent that any such Option (i) would exceed the
limitations set forth in Section 7 below; (ii) is specifically designated at the
time of grant as not being an Incentive Stock Options; or (iii) is granted to
someone who is not an employee of TeleBanc or any subsidiary or affiliate of
TeleBanc.
2. ADMINISTRATION
(a) Board. The Plan shall be administered by the
Board of Directors of TeleBanc (the "Board"), which shall have the full power
and authority to take all actions, and to make all determinations required or
provided for under the Plan or any Option granted or Option Agreement (as
defined in Section 8 below) entered into under the Plan and all such other
actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Board to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement entered
into hereunder. All such actions and determinations shall be by the affirmative
vote of a majority of the members of the Board present at a meeting at which any
issue relating to the Plan is properly raised for consideration or without a
meeting by written consent of the Board executed in accordance with TeleBanc's
Articles of Incorporation and By-Laws, and with applicable law. The
interpretation and construction by the Board of any provision of the Plan or of
any Option granted or Option Agreement entered into hereunder shall be final and
conclusive.
(b) Committee. The Board may from time to time
appoint a Stock Option Committee (the "Committee") consisting of not less than
two members of the Board, none of whom shall be an officer or other salaried
employee of TeleBanc or any of its subsidiaries, and each of whom shall qualify
in all respects as a "non-employee director" as defined in Rule 16b-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934
(the "Exchange Act") and an "outside director" for purposes of Section 162(m) of
the Code. The Board, in its sole discretion, may provide that the role of the
Committee shall be limited to making recommendations to the Board concerning any
determinations to be made and actions to be taken by the Board pursuant to or
with respect to the Plan, or the Board may delegate to the Committee such powers
and authorities related to the administration of the Plan, as set forth in
Section 2(a) above, as the Board shall determine, consistent with the Articles
of Incorporation and By-Laws of TeleBanc and applicable law. The Board may
remove members, add members, and fill vacancies on the Committee from time to
time, all in accordance with TeleBanc's Articles of Incorporation and By-Laws,
and with applicable law. The majority vote of the Committee, or acts reduced to
or approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee.
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<PAGE>
(c) No Liability. No member of the Board or of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted or Option Agreement entered into
hereunder.
(d) Delegation to the Committee. In the event that
the Plan or any Option granted or Option Agreement entered into hereunder
provides for any action to be taken by or determination to be made by the Board,
such action may be taken by or such determination may be made by the Committee
if the power and authority to do so has been delegated to the Committee by the
Board as provided for in Section 2(b) above. Unless otherwise expressly
determined by the Board, any such action or determination by the Committee shall
be final and conclusive.
3. STOCK
The stock that may be issued pursuant to Options
granted under the Plan shall be shares of common stock, $.01 par value, of
TeleBanc (the "Stock"), which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 440,000 shares,
subject to adjustment as provided in Section 17 below. If any Option expires,
terminates, or is terminated or canceled for any reason prior to exercise in
full, the shares of Stock that were subject to the unexercised portion of such
Option shall be available for future Options granted under the Plan.
4. ELIGIBILITY
(a) Employees. Options may be granted under the Plan
to any employee of TeleBanc or any "subsidiary corporation" (a "Subsidiary")
thereof within the meaning of Section 424(f) of the Code (including any such
employee who is an officer or director of TeleBanc or any Subsidiary) as the
Board shall determine and designate from time to time prior to expiration or
termination of the Plan. The maximum number of shares of Stock subject to
Options that may be granted under the Plan during any calendar year to any
executive officer or other employee of TeleBanc or any Subsidiary whose
compensation is or may be subject to Code ss. 162(m) is 200,000 shares (subject
to adjustment as provided in Section 17 hereof).
(b) Directors and Independent Contractors. Options
not intended to constitute Incentive Stock Options may be granted to members of
the Board who are not employees of TeleBanc or any Subsidiary and to independent
contractors performing services for TeleBanc or a Subsidiary as determined by
the Board from time to time on the basis of their importance to the business of
TeleBanc or such Subsidiary.
(c) Multiple Grants. An individual may hold more than
one Option, subject to such restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date. The Plan shall be effective as of
the date of adoption by the Board, which date is set forth below, subject to
approval of the Plan, within one year of such effective date, by the
shareholders of TeleBanc by a majority of the votes present and entitled to vote
at a duly held meeting of the shareholders at which a quorum representing a
majority of all outstanding voting stock is present, either in person or by
proxy or by written consent in accordance with TeleBanc's Articles of
Incorporation and By-Laws; provided, however, that upon approval of the Plan by
the shareholders of TeleBanc as set forth above, all Options granted under the
Plan on or after the effective date shall be fully effective as if the
shareholders of TeleBanc had approved the Plan on the effective date. If the
shareholders fail to approve the Plan within one year of such effective date,
any options granted hereunder shall be null and void and of no effect.
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<PAGE>
(b) Term. The Plan shall terminate on the date 10
years from the effective date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board
may, at any time and from time to time, prior to the date of termination of the
Plan, grant to such eligible individuals as the Board may determine
("Optionees"), Options to purchase such number of shares of the Stock on such
terms and conditions as the Board may determine, including any terms or
conditions which may be necessary to qualify such Options as Incentive Stock
Options. The date on which the Board approves the grant of an Option (or such
later date as is specified by the Board) shall be considered the date on which
such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option (other than an Option described in exception (ii) of
Section 1) shall constitute an Incentive Stock Option to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under the Plan and all
other plans of the Optionee's employer corporation and its parent and subsidiary
corporations within the meaning of Section 422(d) of the Code) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements"), to be executed by TeleBanc and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same time
need not contain similar provisions; provided, however, that all such Option
Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Board and stated in each
Option Agreement, except that the Option Price of a share of Stock subject to an
Option that is intended to constitute an Incentive Stock Option shall be not
less than 100 percent of the fair market value of a share of the Stock on the
date the Option is granted (as determined in good faith by the Board); provided,
however, that in the event the Optionee would otherwise be ineligible to receive
an Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and
424(d) of the Code (relating to stock ownership of more than 10 percent), the
Option Price of an Option that is intended to be an Incentive Stock Option shall
be not less than 110 percent of the fair market value of a share of Stock at the
time such Option is granted. In the event that the Stock is listed on an
established national or regional stock exchange, is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System, or is
publicly traded on an established securities market, in determining the fair
market value of the Stock, the Board shall use the closing price of the Stock on
such exchange or System or in such market (the highest such closing price if
there is more that one such exchange or market) on the trading date immediately
before the Option is granted (or, if there is no such closing price, then the
Board shall use the mean between the high and low prices on such date), or, if
no sale of the Stock had been made on such day, on the next preceding day on
which any such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) Term. Each Option granted under the Plan shall
terminate and all rights to purchase shares thereunder shall cease upon the
expiration of ten years from the date such
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Option is granted, or on such date prior thereto as may be fixed by the Board
and stated in the Option Agreement relating to such Option; provided, however,
that in the event the Optionee would otherwise be ineligible to receive an
Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and
424(d) of the Code (relating to stock ownership of more than 10 percent), an
Option granted to such Optionee that is intended to be an Incentive Stock Option
shall in no event be exercisable after the expiration of five years from the
date it is granted.
(b) Option Period and Limitations on Exercise. Each
Option shall be exercisable, in whole or in part, at any time and from time to
time, over a period commencing on or after the date of grant and ending upon the
expiration or termination of the Option, as the Board shall determine and set
forth in the Option Agreement relating to such Option. Without limiting the
foregoing, the Board, subject to the terms and conditions of the Plan, may in
its sole discretion provide that an Option may not be exercised in whole or in
part for any period or periods of time during which such Option is outstanding;
provided, however, that any such limitation on the exercise of an Option
contained in any Option Agreement may be rescinded, modified or waived by the
Board, in its sole discretion, at any time and from time to time after the date
of grant of such Option, so as to accelerate the time at which the Option may be
exercised. Each Option shall be exercisable, in whole or in part, at any time
and from time to time, over a period commencing on the date of grant and ending
upon the expiration of the Option. Notwithstanding any other provision of the
Plan, no Option granted to an Optionee under the Plan shall be exercisable in
whole or in part prior to the date the Plan is approved by the shareholders of
TeleBanc as provided in Section 5 above.
(c) Method of Exercise. An Option that is exercisable
hereunder may be exercised by delivery to TeleBanc on any business day, at its
principal office, addressed to the attention of the Committee, of written notice
of exercise, which notice shall specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied by payment in full
of the Option Price of the shares for which the Option is being exercised,
except as provided below. The minimum number of shares of Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made
(i) in cash or in cash equivalents; (ii) through the tender to TeleBanc of
shares of Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their fair market
value (determined in the manner described in Section 9 above) on the date of
exercise; (iii) by delivering a written direction to TeleBanc that the Option be
exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to TeleBanc by a broker
upon receipt of stock certificates from TeleBanc) or a cashless exercise/loan
procedure (pursuant to which the optionees would obtain a margin loan from a
broker to fund the exercise) through a licensed broker acceptable to TeleBanc
whereby the stock certificate or certificates for the shares of Stock for which
the Option is exercised will be delivered to such broker as the agent for the
individual exercising the Option and the broker will deliver to TeleBanc cash
(or cash equivalents acceptable to TeleBanc) equal to the Option Price for the
shares of Stock purchased pursuant to the exercise of the Option plus the amount
(if any) of federal and other taxes that TeleBanc, may, in its judgment, be
required to withhold with respect to the exercise of the Option; (iv) to the
extent permitted by applicable law and under the terms of the Option Agreement
with respect to such Option, by the delivery of a promissory note of the
Optionee to TeleBanc on such terms as shall be set out in such Option Agreement;
(v) by a combination of the methods described in (i), (ii), (iii) and (iv).
Payment in full of the Option Price need not accompany the written notice of
exercise if the Option is exercised pursuant to the cashless exercise/sale
procedure described above. An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Promptly after the exercise of an Option, the individual exercising the Option
shall be entitled to the issuance of a Stock certificate or certificates
evidencing his ownership of such shares. A separate Stock certificate or
certificates shall be issued for any shares purchased pursuant to the exercise
of an Option that is intended to be an Incentive Stock Option, which certificate
or certificates shall not include any shares that were purchased pursuant to the
exercise of an Option that is not an Incentive Stock Option. An individual
holding or exercising an Option shall
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have none of the rights of a shareholder until the shares of Stock covered
thereby are fully paid and issued to him and, except as provided in Section 18
below, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
(d) Restrictions on Transfer of Stock. If an Option
is exercised before the date that is six months from the later of (i) the date
of grant of the Option or (ii) the date of shareholder approval of the Plan and
the sale of stock acquired pursuant to such exercise would subject the
individual exercising the Option to liability under Section 16 of the Exchange
Act, then such certificate or certificates shall bear a legend restricting the
transfer of the Stock covered thereby until the expiration of six months from
the later of the date specified in clause (i) above or the date specified in
clause (ii) above.
(e) Change in Control. In the event of a Change in
Control (as defined below), subject to the limitations set out in Section 17(f)
hereof and except as the Board shall otherwise provide in an Option Agreement
with respect to an Option granted under the Plan, all outstanding Options shall
become immediately exercisable in full, without regard to any limitation on
exercise imposed pursuant to Section 10(b) above. For purposes of the Plan, a
"Change in Control" shall be deemed to occur if any person shall (a) acquire
direct or indirect beneficial ownership of more than 50% of the total combined
voting power with respect to the election of directors of the issued and
outstanding stock of TeleBanc (except that no Change in Control shall be deemed
to have occurred if the persons who were stockholders of TeleBanc immediately
before such acquisition own all or substantially all of the voting stock or
other interests of such person immediately after such transaction), or (b) have
the power (whether as a result of stock ownership, revocable or irrevocable
proxies, contract or otherwise) or ability to elect or cause the election of
directors consisting at the time of such election of a majority of the Board. A
"person" for this purpose shall mean any person, corporation, partnership, joint
venture or other entity or any group (as such term is defined for purposes of
Section 13(d) of the Exchange Act), other than those persons who beneficially
own, or have outstanding options or warrants to acquire, more than five percent
of the voting stock of TeleBanc as of February 25, 1997. For purposes of this
Section 10(e), "fair market value" shall be determined in accordance with
Section 9 hereof and a person shall be deemed to be a beneficial owner as that
term is used in Rule 13d-3 under the Exchange Act.
11. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee to whom an Incentive Stock
Option is granted, only such Optionee (or, in the event of legal incapacity or
incompetence, the Optionee's guardian or legal representative) may exercise the
Incentive Stock Option. No Option shall be assignable or transferable by the
Optionee to whom it is granted, other than by will or the laws of descent and
distribution, except that the Optionee may transfer an Option that is not
intended to constitute an Incentive Stock Option (a) pursuant to a qualified
domestic relations order as defined for purposes of the Employee Retirement
Income Security Act of 1974, as amended, or (b) by gift: to a member of the
"Family" (as defined below) of the Optionee, to or for the benefit of one or
more organizations qualifying under Code ss.ss. 501(c)(3) and 170(c)(2) (a
"Charitable Organization") or to a trust for the exclusive benefit of the
Optionee, one or more members of the Optionee's Family, one or more Charitable
Organizations, or any combination of the foregoing, provided that any such
transferee shall enter into a written agreement to be bound by the terms of this
Agreement. For this purpose, "Family" shall mean the spouse, siblings, and
lineal ancestors and descendants of the Optionee.
12. TERMINATION OF EMPLOYMENT OR SERVICE
Upon the termination of the employment or other
service of an Optionee with TeleBanc or a Subsidiary, other than by reason of
the death or "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of such Optionee, any Option granted to an Optionee
pursuant to the Plan shall terminate three months after the date of such
termination of employment or service and thereafter such Optionee shall have no
further right to purchase shares of Stock pursuant to such Option; provided,
however, that the Board may provide, by inclusion of
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appropriate language in any Option Agreement, that the Optionee may (subject to
the general limitations on exercise set forth in Section 10(b) above), in the
event of termination of employment or service of the Optionee with TeleBanc or a
Subsidiary, exercise an Option, in whole or in part, at any time subsequent to
such termination of employment or service and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
installment or other limitation on exercise imposed pursuant to Section 10(b)
above. Whether a leave of absence or leave on military or government service
shall constitute a termination of employment or service for purposes of the Plan
shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment or service
with TeleBanc or a Subsidiary shall not be deemed to occur if the Optionee is
immediately thereafter employed by or otherwise providing services to TeleBanc
or any Subsidiary.
13. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) Death. If an Optionee dies while in the employ or
service of TeleBanc or a Subsidiary or within the period following the
termination of employment or service during which the Option is exercisable
under Section 12 above or Section 13(b) below, the executors or administrators
or legatees or distributees of such Optionee's estate shall have the right
(subject to the general limitations on exercise set forth in Section 10(b)
above), at any time within one year after the date of such Optionee's death and
prior to termination of the Option pursuant to Section 10(a) above, to exercise
any Option held by such Optionee at the date of such Optionee's death, whether
or not such Option was exercisable immediately prior to such Optionee's death;
provided, however, that the Board may provide by inclusion of appropriate
language in any Option Agreement that, in the event of the death of the
Optionee, the executors or administrators or legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general limitations on
exercise set forth in Section 10(b) above), in whole or in part, at any time
subsequent to such Optionee's death and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
installment or other limitation on exercise imposed pursuant to Section 10(b)
above.
(b) Disability. If an Optionee terminates employment
or service with TeleBanc or a Subsidiary by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, then such Optionee shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) above), at any time within
one year after such termination of employment or service and prior to
termination of the Option pursuant to Section 10(a) above, to exercise, in whole
or in part, any Option held by such Optionee at the date of such termination of
employment or service, whether or not such Option was exercisable immediately
prior to such termination of employment or service; provided, however, that the
Board may provide, by inclusion of appropriate language in any Option Agreement,
that the Optionee may (subject to the general limitations on exercise set forth
in Section 10(b) above), in the event of the termination of employment or
service of the Optionee with TeleBanc or a Subsidiary by reason of the
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, exercise an Option in whole or in part, at any time
subsequent to such termination of employment or service and prior to termination
of the Option pursuant to Section 10(a) above, either subject to or without
regard to any installment limitation on exercise imposed pursuant to Section
10(b) above. Whether a termination of employment or service is to be considered
by reason of "permanent and total disability" for purposes of this Plan shall be
determined by the Board, which determination shall be final and conclusive.
14. USE OF PROCEEDS
The proceeds received by TeleBanc from the sale of Stock
pursuant to Options granted under the Plan shall constitute general funds of
TeleBanc.
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15. REQUIREMENTS OF LAW
(a) Violations of Law. TeleBanc shall not be required
to sell or issue any shares of Stock under any Option if the sale or issuance of
such shares would constitute a violation by the individual exercising the Option
or TeleBanc of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Any determination in this connection by the Board shall be final,
binding, and conclusive. TeleBanc shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority. As to any jurisdiction that expressly imposes the requirement that an
Option shall not be exercisable unless and until the shares of Stock covered by
such Option are registered or are subject to an available exemption from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
(b) Compliance with Rule 16b-3. The intent of this
Plan is to qualify for the exemption provided by Rule 16b-3 under the Exchange
Act. To the extent any provision of the Plan does not comply with the
requirements of Rule 16b-3, it shall be deemed inoperative to the extent
permitted by law and deemed advisable by the Board and shall not affect the
validity of the Plan. In the event Rule 16b-3 is revised or replaced, the Board,
or the Committee acting on behalf of the Board, may exercise discretion to
modify this Plan in any respect necessary to satisfy the requirements of the
revised exemption or its replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend,
suspend or terminate the Plan as to any shares of Stock as to which Options have
not been granted; provided, however, that no amendment by the Board shall,
without approval by a majority of the votes present and entitled to vote at a
duly held meeting of the shareholders of TeleBanc at which a quorum representing
a majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the amendment, or by written consent in accordance with
applicable state law and the Articles of Incorporation and By-Laws of TeleBanc,
change the requirements as to eligibility to receive Incentive Stock Options,
increase the maximum number of shares of Stock in the aggregate that may be sold
pursuant to Incentive Stock Options granted under the Plan (except as permitted
under Section 17 hereof) or modify the Plan so that Options granted under the
Plan could not satisfy the applicable requirements of Code ss. 162(m). Except as
permitted under Section 17 hereof, no amendment, suspension or termination of
the Plan shall, without the consent of the holder of the Option, alter or impair
rights or obligations under any Option theretofore granted under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Stock. If the outstanding shares of
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of TeleBanc by reason of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by TeleBanc, occurring after the effective date of the
Plan, the number and kinds of shares for the purchase of which Options may be
granted under the Plan shall be adjusted proportionately and accordingly by
TeleBanc. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share. If there is a distribution payable in
the capital stock of a subsidiary corporation of TeleBanc ("Spin-off Shares"),
to the extent consistent with Treasury Regulation Section 1.425-1(a)(6) or the
corresponding
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provision of any subsequent regulation, each outstanding Option shall thereafter
additionally pertain to the number of Spin-off Shares that would have been
received in such distribution by a shareholder of TeleBanc who owned a number of
shares of Common Stock equal to the number of shares that are subject to the
Option at the time of such distribution, and the aggregate Option Price of the
Option shall be allocated between the Spin-off Shares and the Common Stock in
proportion to the relative fair market values of a Spin-off Share and a share of
Common Stock immediately after the distribution of Spin-off Shares.
(b) Reorganization in Which TeleBanc Is the Surviving
Corporation. Subject to Subsection (c) hereof, if TeleBanc shall be the
surviving corporation in any reorganization, merger, or consolidation of
TeleBanc with one or more other corporation s, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation.
(c) Reorganization in Which TeleBanc Is Not the
Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or
liquidation of TeleBanc, or upon a merger, consolidation, reorganization or
other business combination of TeleBanc with one or more other entities in which
TeleBanc is not the surviving entity, or upon a sale of all or substantially all
of the assets of TeleBanc to another entity, or upon any transaction (including,
without limitation, a merger or reorganization in which TeleBanc is the
surviving corporation) approved by the Board which results in any person or
entity (or persons or entities acting as a group or otherwise in concert) owning
80 percent or more of the combined voting power of all classes of stock of
TeleBanc, the Plan and all Options outstanding hereunder shall terminate, except
to the extent provision is made in writing in connection with such transaction
for the continuation of the Plan and/or the assumption of the Options
theretofore granted, or for the substitution for such Options of new options
covering the stock of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. In the event of any such
termination of the Plan, each individual holding an Option shall have the right
(subject to Section 17(f) below and to the general limitations on exercise set
forth in Section 10(b) above, and except as otherwise specifically provided in
the Option Agreement relating to such Option), immediately prior to the
occurrence of such termination and during such period occurring prior to such
termination as the Board in its sole discretion shall determine and designate,
to exercise such Option in whole or in part, whether or not such Option was
otherwise exercisable at the time such termination occurs and without regard to
any installment limitation on exercise imposed pursuant to Section 10(b) above.
The Board shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at which
TeleBanc gives notice thereof to its shareholders.
(d) Adjustments. Adjustments under this Section 17
related to stock or securities of TeleBanc shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.
(e) No Limitations on Corporation. The grant of an
Option pursuant to the Plan shall not affect or limit in any way the right or
power of TeleBanc to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
(f) Parachute Limitation. If the acceleration of the
exercisability or vesting of any Option or any other benefit to an Optionee
under this Plan would be considered a
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"parachute payment" within the meaning of Section 280G(b)(2) of the Code and if,
after reduction for any applicable federal excise tax imposed by Section 4999 of
the Code (the "Excise Tax") and federal income tax imposed by the Code, the
Optionee's net proceeds from the exercise of such Options and from other amounts
that would be so considered would be less than the amount of the Optionee's net
proceeds resulting from the payment of the Reduced Amount described below, after
reduction for federal income taxes, then the exercisability and vesting of
Options and other benefits provided under the Plan shall be limited to the
Reduced Amount. The "Reduced Amount" shall be the largest amount that could be
received by the Optionee under the Plan and each Option Agreement such that no
payment or other benefit received by the Optionee under the Plan and Option
Agreements and any other agreement, contract, or understanding heretofore or
hereafter entered into between the Optionee and TeleBanc or any Subsidiary (the
"Other Agreements") and any formal or informal plan or other arrangement (other
than the Plan) heretofore or hereafter adopted by TeleBanc or any Subsidiary for
the direct or indirect provision of compensation to the Optionee (including
groups or classes of participants or beneficiaries of which the Optionee is a
member), whether or not such compensation is deferred, is in cash, or is in the
form of a benefit to or for the Optionee (a "Benefit Plan") would be subject to
the Excise Tax. In the event that the Optionee shall be limited to the Reduced
Amount under the preceding sentence, then the Optionee shall have the right, in
the Optionee's sole discretion, to designate those payments or benefits under
the Plan and Option Agreements, any Other Agreements, and any Benefit Plans,
that should be reduced or eliminated so as to avoid having the benefits to the
Optionee under the Plan and Option Agreements be subject to the Excise Tax. In
the event that the Optionee would otherwise be deemed to have received an amount
that would constitute a parachute payment, the amount received by him that
exceeds the maximum amount permissible under this Section 17(f) shall be treated
as a loan to him and shall be repaid, with interest, to the extent necessary to
reduce the amount paid to the maximum permissible amount. The interest rate of
any such loan shall be at the minimum rate necessary to avoid characterization
of the loan as an excess parachute payment and the other terms of any such loan
shall conform to customary and reasonable terms that would be applicable to
loans of a similar unsecured type made by a bank or other financial institution
to an unrelated third party. Any such loan shall be repaid in full not later
than six months after the date on which TeleBanc notifies the Optionee that a
loan relationship exists, and may be repaid by the Optionee without prepayment
penalty at any time during such six month period.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ of TeleBanc or any Subsidiary,
or to interfere in any way with the right and authority of TeleBanc or any
Subsidiary either to increase or decrease the compensation of any individual at
any time, or to terminate any employment or other relationship between any
individual and TeleBanc or any Subsidiary.
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the
Plan to the shareholders of TeleBanc for approval shall be construed as creating
any limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
* * *
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This Plan was duly adopted and approved by the Board of
Directors of TeleBanc by resolution at a meeting held on the 25th day of
February, 1997.
/s/ Sang-Hee Yi
--------------------------------
Assistant Secretary of TeleBanc
This Plan was duly approved by the shareholders of TeleBanc at
a meeting held the ______ day of ________________, 1997.
--------------------------------
Secretary of TeleBanc
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<PAGE>
APPENDIX II
Quarterly Report of the Corporation on Form 10-Q for the Quarter Ended September
30, 1997
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 33-76930
TELEBANC FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3759196
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1111 N. Highland Street, Arlington, Virginia 22201
--------------------------------------------------
(Address of principal executive office) (Zip code)
(703) 247-3700
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding for the issuer's classes of common
stock, as of November 6, 1997.
$.01 par value of common stock 2,224,161
------------------------------- ---------
(class) (outstanding)
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<PAGE>
TELEBANC FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I - Financial Information Page
- ------------------------------ ----
Consolidated Statements of Financial Condition -September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations - Three and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders' Equity - Nine
months ended September 30, 1997 and 1996 6
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Part II - Other Information
- ---------------------------
Item 5, Other Information 21
Item 6, Exhibits and Reports on Form 8-K 21
Signatures 22
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<PAGE>
TELEBANC FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
Assets: 1997 1996
---- -----
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 5,123 $ 3,259
Investment securities available for sale 65,750 78,826
Mortgage-backed securities available for sale and trading 240,091 184,743
Loans receivable, net 324,968 185,757
Loans receivable held for sale 170,343 166,064
Other assets 32,258 29,316
------ ------
Total assets $ 838,533 $ 647,965
======= =======
Liabilities and Stockholders' Equity:
Liabilities:
Deposits $ 445,241 $ 390,486
Advances from the Federal Home Loan Bank of Atlanta 170,000 144,800
Securities sold under agreements to repurchase 122,408 57,581
Subordinated debt 29,556 16,586
Other liabilities 16,466 13,854
------ ------
Total liabilities 783,671 623,307
------- -------
Corporation-Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust Holding Solely Junior Subordinated
Debentures of the Corporation
9,602 --
Commitments and contingencies -- --
Stockholders' equity:
4% Cumulative Preferred Stock, $0.01 par value,
500,000 shares authorized
Series A, 18,850 issued and outstanding -- --
Series B, 4,050 issued and outstanding -- --
Series C, 7,000 issued and outstanding -- --
Common stock, $0.01 par value, 3,500,000 shares authorized;
2,211,961 and 2,049,500 issued and outstanding 22 20
Additional paid-in capital 31,392 14,637
Retained earnings, substantially restricted 10,496 7,905
Unrealized gain on securities available for sale, net of deferred tax 3,350 2,096
----- -----
Total stockholders' equity 45,260 24,658
------ ------
Total liabilities & stockholders' equity $ 838,533 $ 647,965
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
AII-3
<PAGE>
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Mortgage loans and other loans $ 8,855 $ 6,080 $ 24,727 $ 16,946
Mortgage-backed and related securities 4,248 4,483 13,179 14,117
Investment securities 1,348 1,289 4,330 3,261
Other 369 19 697 43
--- -- --- --
Total interest income 14,820 11,871 42,933 34,367
------ ------ ------ ------
Interest expense:
Deposits 6,649 5,635 18,686 15,419
Advances from the Federal Home Loan Bank of Atlanta 2,528 1,902 6,784 4,980
Reverse repurchase agreements 1,493 978 5,422 3,885
Subordinated debt 878 519 2,399 1,556
--- --- ----- -----
Total interest expense 11,548 9,034 33,291 25,840
------ ----- ------ ------
Net interest income 3,272 2,837 9,642 8,527
Provision for loan losses 120 125 671 744
--- --- --- ---
Net interest income after provision for loan losses 3,152 2,712 8,971 7,783
----- ----- ----- -----
Non-interest income:
Gain on sale of available for sale & trading securities 408 181 1,827 263
Gain on sale of loans 226 98 636 415
Fees, service charges and other 450 261 472 758
--- --- --- ---
Total non-interest income 1,084 540 2,935 1,436
----- --- ----- -----
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
AII-4
<PAGE>
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Eneded Nine Months Ended
September 30, September 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-interest expenses:
General and administrative expenses:
Compensation and employee benefits 1,049 882 3,427 2,670
Federal insurance assessment -- 1,671 -- 1,671
Other 1,029 734 2,798 2,373
----- ----- ----- -----
Total general and administrative expenses 2,078 3,287 6,225 6,714
----- ----- ----- -----
Other non-interest expenses:
Net operating costs of real estate acquired
through foreclosure 55 126 185 173
Amortization of goodwill and other intangibles 204 121 486 457
--- --- --- ---
Total other non-interest expenses 259 247 671 630
--- --- --- ---
Total non-interest expenses 2,337 3,534 6,896 7,344
----- ----- ----- -----
Income (loss) before income tax expense and
minority interest 1,899 (282) 5,010 1,875
Income tax expense (benefit) 709 (220) 1,682 528
Minority interest in subsidiary (286) -- (353) --
----- -- ----- --
Net income (loss) $ 904 $ (62) $ 2,975 $ 1,347
=== ==== ===== =====
Preferred stock dividends 162 -- 384 --
--- -- --- --
Net income after preferred stock dividends $ 742 $ (62) $ 2,591 $ 1,347
=== ==== ===== =====
Net income per common share:
Primary $ 0.26 $(0.02) $ 0.94 $ 0.63
Fully diluted 0.26 (0.03) 0.93 0.63
</TABLE>
See accompanying notes to consolidated financial statements.
AII-5
<PAGE>
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain
Additional on Available
Preferred Common Paid-in Retained for Sale
Stock Stock Capital Earnings Securities Total
----- ----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ -- $ 20 $ 14,637 $ 5,352 $ 1,556 $ 21,565
Net income for the nine months ended
September 30, 1996 -- -- -- 1,346 -- 1,346
Unrealized Gain on Available for Sale
Securities, net of tax effect -- -- -- -- 928 928
-- -- ------ ----- ----- ------
Balances at September 30, 1996 $ -- $ 20 $ 14,637 $ 6,698 $ 2,484 $ 23,839
== == ====== ===== ===== ======
Balances at December 31, 1996 $ -- $ 20 $ 14,637 $ 7,905 $ 2,096 $ 24,658
Net income for the nine months ended
September 30, 1997 -- -- -- 2,975 -- 2,975
Stock issued -- 2 1,474 -- -- 1,476
Issuance of 4% cumulative Preferred -- -- 9,634 -- -- 9,634
Stock, Series A
Issuance of 4% cumulative Preferred -- -- 2,070 -- -- 2,070
Stock, Series B
Issuance of 4% cumulative Preferred -- -- 3,577 -- -- 3,577
Stock, Series C
Dividends on 4% cumulative Preferred -- -- -- (384) -- (384)
Stock
Unrealized Gain on Available for Sale
Securities, net of tax effect -- -- -- -- 1,254 1,254
-- -- ------ ------ ----- ------
Balances at September 30, 1997 $ -- $ 22 $ 31,392 $ 10,496 $ 3,350 $ 45,260
== == ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
AII-6
<PAGE>
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Net cash (used in) provided by operating activities $ (16,375) $ 15,692
-------- ------
Cash flows from investing activities:
Purchases of held-to-maturity loans (184,634) (105,761)
Equity investments in subsidiaries (1,608) (1,383)
Purchases of available-for-sale securities (250,956) (274,147)
Proceeds from sale of available-for-sale securities 125,520 206,639
Proceeds from maturities of and principal payments on
Available-for-sale securities and loans 162,030 109,354
Net sales (purchases) of premises and equipment 420 (623)
Proceeds from sale of foreclosed real estate 1,239 514
----- ---
Net c
ash used in investing activities (147,989) (65,407)
--------- ---------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
AII-7
<PAGE>
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net increase in non-interest bearing demand, savings, and
NOW deposit accounts and certificates of deposit accounts 37,256 75,924
Increase in advances from FHLB 244,000 237,000
Payments on advances from FHLB 218,800) (221,000)
Net decrease (increase) in securities sold under agreements
to repurchase 64,827 (46,218)
Net increase in other borrowed funds 12,970 68
Issuance of trust preferred stock 9,602 --
Issuance of common stock and 4% preferred stock 16,757 --
Dividends paid on common and preferred stock (384) --
Net cash provided by financing activities 166,228 45,774
------- -------
Net increase (decrease) in cash and cash equivalents 1,864 (3,941)
Cash and cash equivalents at beginning of period 3,259 8,965
----- -----
Cash and cash equivalents at end of period $ 5,123 $ 5,024
===== =====
Supplemental information:
Interest paid on deposits and borrowed funds $ 26,526 $ 11,770
Income taxes paid 853 822
Transfers from loans to real estate acquired through foreclosures 568 326
Gross unrealized gain on securities available for sale 1,888 1,292
Tax effect of gain on available for sale securities 634 364
</TABLE>
See accompanying notes to consolidated financial statements.
AII-8
<PAGE>
TELEBANC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION
TeleBanc Financial Corporation, (the "Company") was incorporated on
January 26, 1994 and in March, 1994 became the direct savings and loan holding
company parent of TeleBank (the "Bank"), formerly known as Metropolitan Bank for
Savings, F.S.B. The primary business of the Company is the business of the Bank,
the Bank's subsidiaries and TeleBanc Capital Markets, Inc. ("TCM"), a registered
investment advisor, funds manager and broker-dealer. The Bank is a federally
chartered savings bank in which deposit accounts are insured to applicable
limits by the Federal Deposit Insurance Corporation ("FDIC"). The consolidated
financial statements include financial information from TeleBanc Financial
Corporation and its wholly-owned subsidiaries.
The financial statements as of September 30, 1997 and for the three and
nine months ended September 30, 1997 and 1996 are unaudited, but in the opinion
of management, contain all adjustments, consisting solely of normal recurring
entries, necessary to present fairly the consolidated financial condition as of
September 30, 1997 and the results of consolidated operations for the three and
nine months ended September 30, 1997 and 1996. The results of consolidated
operations for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The Notes to Consolidated Financial Statements for the year ended December 31,
1996, included in the Company's Annual Report to Stockholders for 1996, should
be read in conjunction with these statements.
Certain prior year's amounts have been reclassified to conform to the
current year's presentation.
NOTE 2. NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"), effective December 15, 1997. This statement specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS") for
entities with publicly held common stock or potential common stock. The impact
on the Company has been calculated below:
AII-9
<PAGE>
TELEBANC FINANCIAL CORPORATION
Pro Forma EPS Calculation
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------
Per share amounts 1997 1996 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary EPS as reported $ 0.26 $ (0.02) $ 0.94 $ 0.63
Effect of SFAS 128 0.07 (0.01) 0.25 0.03
---- ------ ---- ----
Pro forma basic EPS $ 0.33 $ (0.03) $ 1.19 $ 0.66
==== ====== ==== ====
Fully diluted EPS as reported $ 0.26 $ (0.03) $ 0.93 $ 0.63
Effect of SFAS 128 (0.02) 0.01 (0.11) (0.18)
------ ------ ------ ------
Pro Forma diluted EPS $ 0.24 $ (0.02) $ 0.82 $ 0.45
==== ====== ==== ====
</TABLE>
Basic earnings per common share, as required by SFAS 128, is computed
by dividing adjusted net income by the total of the weighted average number of
common shares outstanding during the respective periods. The year to date
weighted average number of common shares outstanding was 2,179,510 and 2,049,500
for the Company at September 30, 1997 and 1996, respectively. Weighted average
shares outstanding also include common stock equivalents which consist of
outstanding stock options and warrants, if such options or warrants are
dilutive.
Pro Forma EPS Calculation
<TABLE>
<CAPTION>
Income Shares Per Share Amount
------ ------ ----------------
For the Quarter Ended September 30, 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Net income $ (62,000) 2,049,500 $ (0.03)
=========================
Options issued to management -- 528,019
Warrants -- 127,373
------------------------------------------
Diluted earnings per share $ (62,000) 2,704,892 $ (0.02)
======================================================================
For the Quarter Ended September 30, 1997
-----------------------------------------------------------------------
Net income $ 904,000
less: Preferred Stock Dividends (162,000)
-----------------------
Basic earnings per share
Income available to common shareholders
$ 742,000 2,218,513 $ 0.33
=======================
Options issued to management -- 382,677
Warrants -- 254,261
Convertible preferred stock 162,000 910,180
----------------------------------------------
Diluted earnings per share $ 904,000 3,765,631 $ 0.24
======================================================================
</TABLE>
AII-10
<PAGE>
TELEBANC FINANCIAL CORPORATION
NOTE 3. RECENT EVENTS
On February 28, 1997, the Company sold $29.9 million of units in the
form of 4% convertible preferred stock, 9.5% senior subordinated notes and
warrants, and purchased substantially all of the assets of Arbor Capital
Partners, Inc. ("Arbor"), a registered investment advisor, funds manager and
broker-dealer. MET Holdings, TeleBanc's majority shareholder, owned a majority
of Arbor. In connection with this sale, the Company incurred approximately $1.7
million of expenses, of which, approximately $725,000 is attributed to the
senior subordinated notes which will be amortized through March 31, 2004.
The $29.9 million of units were sold to investment partnerships managed
by Conning & Co., CIBC Wood Gundy Argosy Merchant Fund 2, LLC, The Progressive
Corporation and The Northwestern Mutual Life Insurance Company. Upon the sale of
the units, representatives from the Conning partnerships and the CIBC Merchant
Fund were appointed to the Company's Board. The units consist of $13.7 million
in 9.5% senior subordinated notes with 198,088 detachable warrants, $16.2
million in 4.0% convertible preferred stock, and rights to 205,563 contingent
warrants. The senior subordinated notes are due on March 31, 2004 and stipulate
increases over time in interest rates subsequent to March 31, 2002 from 9.5% up
to 15.25%. The warrants are exercisable at $9.50 with an expiration date of
February 28, 2005. Consisting of Series A Voting Convertible Preferred Stock,
Series B Nonvoting Convertible Preferred Stock and Series C Nonvoting
Convertible Preferred Stock, the preferred stock is convertible to 1,199,743
shares of common stock. Series A and Series B shares may be converted at any
time into fully-paid and non-assessable shares of Voting Common Stock. Series C
shares may be converted at any time to Series A or Series B shares or at any
time into fully-paid and non-assessable nonvoting common stock. The contingent
warrants may be exercised upon a change of control or at any time after February
29, 2002 ("Exercise Event"). If the Company's annual internal rate of return is
less than 25% at the time of an Exercise Event, unit holders may exercise the
contingent warrants for $0.01 until an internal rate of return of 25% is
obtained.
Also in connection with the sale of units, the Arbor asset acquisition
was structured as a tax free issuance of 162,461 shares of TeleBanc common stock
and a $500,000 cash payment for the Arbor assets. An independent appraisal
valued the assets to be acquired from Arbor at $3.1 million. Consistent with
TeleBanc's charter, the number of shares issued to Arbor as consideration was
limited to 5% of total market value of outstanding TeleBanc stock at the time of
acquisition.
In June 1997, the Company formed TeleBanc Capital Trust I, which in
turn sold, at par, 10,000 shares of trust preferred securities, Series A,
liquidation amount of $1,000, for a total of $10,000,000 in a private placement.
TeleBanc Capital Trust I is a business trust formed for the purpose of issuing
capital securities and investing the proceeds in junior subordinated debentures
issued by the company. The trust preferred securities mature in 2027 and have an
annual dividend rate of 11.0% payable semi-annually, beginning in December 1997.
The net proceeds will be used for general corporate purposes which include the
funding of Bank operations to create and expand its financial service and
product operations.
AII-11
<PAGE>
NOTE 4. COMMITMENTS AND CONTINGENT LIABILITIES
In managing the Company's interest-rate risk, the Company utilizes
financial derivatives in the normal course of business. These products consist
primarily of interest rate cap and swap agreements. Financial derivatives are
employed to assist in the management and/or reduction of interest rate risk for
the Company and can effectively alter the interest sensitivity of segments of
the balance sheet for specified periods of time.
The Company accounts for interest rate swap agreements and cap
agreements as hedges of debt issuances, deposit balances and investment in loan
portfolio to which such agreements have been specifically designated. Cash
remittances due or received pursuant to these agreements are reported as
adjustments to interest expense on an accrual basis. Any premiums paid in
conjunction with these interest rate swap and cap agreements are amortized as
additional interest expense on a straight-line basis over the term of these
agreements. Any gain or loss upon early termination of these instruments would
be deferred and amortized as an adjustment to interest expense over the term of
the applicable interest rate agreement.
AII-12
<PAGE>
TELEBANC FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AS OF AND FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
This discussion and analysis includes descriptions of material changes
which have affected the Company's consolidated financial condition and
consolidated results of operations during the periods included in the Company's
financial statements.
FINANCIAL CONDITION (SEPTEMBER 30, 1997 COMPARED TO DECEMBER 31, 1996)
The Company's total assets increased by $190.5 million or 29.4% from
$648.0 million at December 31, 1996 to $838.5 million at September 30, 1997. The
increase in total assets primarily reflects increases in loans receivable, net
and loans held for sale of $143.5 million, or 40.8% and mortgage-backed
securities available for sale and trading of $55.3 million, or 30.0%. The
increase in loans receivable includes purchases of primarily adjustable rate
loans. In February, 1997, the Company raised $28.2 million of net proceeds from
the sale of units consisting of debt and equity securities. In June 1997, the
Company raised $10.0 million from the sale of Trust Preferred securities (see
Note 1 to Consolidated Financial Statements for the three and nine months ended
September 30, 1997 and 1996). The Company continues to invest the net proceeds
as additional equity capital of the Bank. The increase in asset size reflects
management's initial efforts to leverage the proceeds raised from the sale of
units and capital securities. The Company intends to continue to leverage such
proceeds, as well as capital raised from earnings, for additional growth in the
foreseeable future.
The Company funded its asset growth with a mix of securities sold under
agreements to repurchase ("reverse repos"), Federal Home Loan Bank advances and
deposits. Total deposits increased by $54.8 million, or 14.0% from $390.5
million at December 31, 1996 to $445.2 million at September 30, 1997. The
average term for the new time deposits gathered in the three months ended
September 30, 1997 was approximately 30.7 months with an average percentage
yield of 5.95%. The Company has continued to focus on building core deposit
accounts. Money market checking and savings accounts increased 25.0% from $109.8
million at December 31, 1996 to $137.3 million at September 30, 1997. Federal
Home Loan Bank Advances remained relatively stable. As of September 30, 1997,
the weighted average interest rate (excluding hedges) and weighted average
maturity for Federal Home Loan Bank Advances was 5.70% and 554 days,
respectively. Securities sold under agreements to repurchase, increased by $64.8
million or 112.5% from $57.6 million at December 31, 1996 to $122.4 million at
September 30, 1997 largely as a result of management's intention to fund high
growth after the capital raising and to replace these borrowings with the core
deposits over the year. As of September 30, 1997, the weighted average interest
rate (excluding hedges) and weighted average maturity for securities sold under
agreements to repurchase was 5.80% and 128 days, respectively. As of September
30, 1997, subordinated debt, net of original issue discount was $29.6 million,
which includes the 9.5% senior subordinated debt raised in February, 1997 and
the 11.5% subordinated debt raised in the second quarter of 1994. In June 1997,
the Company formed TeleBanc Capital Trust I, which in turn sold shares of trust
preferred securities, Series A, for a total of $10,000,000
AII-13
<PAGE>
TELEBANC FINANCIAL CORPORATION
in a private placement. The trust preferred securities have an annual dividend
rate of 11.0% payable semi-annually, beginning in December 1997.
Stockholders' equity increased $20.6 million, from $24.7 million at
December 31, 1996 to $45.3 million at September 30, 1997. The increase was due
to the $15.3 million issuance of 4% convertible preferred stock, $1.5 million
stock issuance in exchange for Arbor's assets, $3.0 million in net income for
the nine months ended September 30, 1997 and an unrealized gain on securities
available for sale, net of deferred taxes, of $1.3 million, which pursuant to
SFAS 115 affects the Company's stockholders' equity but does not impact the
statement of operations. This increase is partially offset by $384,000 of
preferred stock dividends.
AII-14
<PAGE>
TELEBANC FINANCIAL CORPORATION
The consolidated average balance sheets, along with income and expense
and related interest yields and rates for the quarters ended September 30, 1997
and 1996 are shown below. The table also presents information for the periods
indicated with respect to the difference between the weighted average yield
earned on interest-earning assets and weighted average rate paid on
interest-bearing liabilities, or "interest rate spread," which saving
institutions have traditionally used as an indicator of profitability. Another
indicator of an institution's net interest income is its "net yield on
interest-earning assets," which is its net interest income divided by the
average balance of interest-earning assets and interest-bearing liabilities.
When interest-earning assets approximate or exceed interest-bearing liabilities,
any positive interest rate spread will generate interest income.
<TABLE>
<CAPTION>
Quarter ended September 30, 1997 Quarter ended September 30, 1996
----------------------------------- ------------------------------------
Interest Average Interest Average
(Dollars in thousands) Average Income/ Annualized Average Income/ Annualized
unaudited Balance Expense Yield/Cost Balance Expense Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 456,059 $ 8,864 7.77% $ 302,358 $ 6,089 8.06%
Investment securities 8,244 116 5.59 7,531 115 5.99
Mortgage-backed and related
securities available for sale 212,961 4,397 8.26 218,350 4,453 8.16
Investment securities available
for sale (a) 66,609 1,111 6.67 67,263 1,109 6.59
Federal funds sold 1,566 22 5.58 659 9 5.19
Investment in FHLB 8,346 152 7.25 7,059 129 7.25
Trading account 19,663 360 7.25 -- -- --
------- ------- ---- ------- ------ ----
Total interest-earning assets 773,448 15,022 7.74% 603,220 11,904 7.90%
Non-interest-earning assets 70,621 12,817
------ ------
Total assets $ 844,069 $ 616,037
======= =======
Interest-bearing liabilities:
Savings deposits $ 147,009 $ 1,953 5.27% $ 104,033 $ 1,247 4.77%
Time deposits 315,627 4,995 6.28 275,302 4,384 6.34
FHLB advances 161,871 2,528 6.11 136,332 2,040 5.85
Other borrowings 98,924 1,493 5.91 57,204 839 5.74
Subordinated debt, net 39,519 1,153 11.67 17,250 519 12.03
Total interest-bearing 762,950 12,122 6.28% 590,121 9,029 6.06%
liabilities
Non-interest-bearing liabilities 37,256 2,283
------ -----
Total liabilities 800,206 592,404
Stockholders' equity 43,863 23,633
------ ------
Total liabilities and
stockholders' equity $ 844,069 $ 616,037
======= =======
Excess of interest-earning assets
over interest-bearing
liabilities/net interest $ 10,498 $ 2,900 1.46% $ 13,099 $ 2,875 1.84%
====== ===== ==== ====== ===== ====
income/interest rate spread
Net yield on interest earning assets 1.50% 1.91%
==== ====
Ratio of interest-earning assets
to interest-bearing liabilities 101.38% 102.22%
====== ======
</TABLE>
(a) Interest income and average yields on municipal bonds are presented on a tax
equivalent basis.
AII-15
<PAGE>
TELEBANC FINANCIAL CORPORATION
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
Net Income. Net income for the three and nine months ended September
30, 1997 was $904,000 and $3.0 million, compared to $(62,000) and $1.3 million
for the three and nine months ended September 30, 1996, respectively. Net income
for the three months ended September 30, 1997 consisted primarily of $3.3
million of net interest income reduced by $120,000 in provision for loan losses,
$1.1 million in non-interest income, $2.3 million in non-interest expenses and
$709,000 in income tax expense. Net income for the three months ended September
30, 1996 consisted primarily of $2.8 million in net interest income offset by
$125,000 in provision for loan losses, non-interest income of $540,000, $3.5
million in non-interest expenses and a tax benefit of $220,000. General and
administrative expenses for the quarter ended September 30, 1996 included a $1.7
million accrual for a one-time assessment mandated by the Federal Deposit
Insurance Corporation ("FDIC") to recapitalize the Savings Association Insurance
Fund ("SAIF"). Net income for the nine months ended September 30, 1997 consisted
of $9.6 million of net interest income offset by $671,000 in provision for loan
losses, $2.9 million of non-interest income, $6.9 million of non-interest
expenses and $1.7 million in income tax expense. Net income for the nine months
ended September 30, 1996 consisted of net interest income of $8.5 million
reduced by $744,000 of provision for loan losses, non-interest income of $1.4
million offset by $7.3 million of non-interest expense and $528,000 in income
tax expense.
Net Interest Income. Net interest income was $3.3 million and $2.8
million for the three months ended September 30, 1997 and 1996, respectively,
reflecting an annualized interest rate spread of 1.46% and 1.84% for the three
months ended September 30, 1997 and 1996, respectively. The decline in yield is
attributable to a decrease in loan yield due to a larger held for sale portfolio
than in the same quarter last year and an increase in hedging instruments used
to reduce interest rate risk matched against the deposit portfolio resulting in
higher costs. In the quarter ending September 30, 1997, total interest earning
assets, consisting primarily of loans receivable, net and mortgage-backed and
related securities, yielded 7.74% as compared to 7.90% for the same period in
1996. The decline is attributed to an increase in the held for sale category and
an increase in non-accrual loans. In 1996, the Bank made a one-time transfer of
approximately $106.6 million from loans receivable, net to loans held for sale.
According to generally accepted accounting principles, purchase discounts on
mortgage loans held for sale are not amortized as interest revenue. Discounts on
loans held for sale are recognized as non-interest income when principal
repayments are received or when loans are sold. Non-accrual loans increased from
$8.9 million at September 30, 1996 to $11.1 million at September 30, 1997
causing a decline in loan interest income. Average interest-earning assets were
$773.4 million and $603.2 million for the quarters ending September 30, 1997 and
1996, respectively. Average interest bearing liabilities were $763.0 million and
$590.1 million for the quarters ending September 30, 1997 and 1996,
respectively. Interest-bearing liabilities cost 6.28% in the third quarter of
1997 as compared 6.06% in the same period in 1996. Third quarter decreases in
interest-earning assets and interest-bearing liabilities primarily reflect an
overall decrease in interest rates.
AII-16
<PAGE>
TELEBANC FINANCIAL CORPORATION
Provision for Loan Losses. Total provision for loan losses decreased
$5,000 from $125,000 for the three months ending September 30, 1996 to $120,000
for the three months ending September 30, 1997. The provision for loan losses
reflects management's intent to provide prudent reserves for loan losses. During
the quarters ended September 30, 1997 and 1996, the Company provided additional
reserves for single-family loans acquired during each quarter. Total provision
for loan losses decreased $73,000 from $744,000 for the nine months ended
September 30, 1996 to $671,000 for the nine months ended September 30, 1997. For
the first nine months of 1997 and 1996, the Company provided reserves for
several single-family loans and for loan acquisitions in accordance with the
Company's loan loss reserve policy. For the nine months ended September 30, 1997
and 1996, the Company purchased approximately $231.3 and $132.6 million in whole
loans. The total loan loss allowance at September 30, 1997 was $3.2 million
which was 0.7% of total loans outstanding. Total loss allowance as a percentage
of total non-performing assets was 17.1%. The total loan loss allowance at
September 30, 1996 was $2.6 million which was 0.8% of total loans outstanding.
Total loss allowance as a percentage of total non-performing assets was 16.7%.
Non-Interest Income. Total non-interest income increased by $544,000
from $540,000 for the three months ended September 30, 1996 to $1.1 million for
the three months ended September 30, 1997. During the third quarter of 1997, the
Company sold corporate bonds held for liquidity purposes for a gain of $259,000,
recognized $226,000 on prepayments in the loan held for sale portfolio, $213,000
in gains in the trading account and the remainder in loan fees and service
charges. For the three months ending September 30, 1996, non-interest income
primarily consists of $195,000 in loan fees and service charges on the Bank's
portfolio and on the purchase mortgage servicing rights, a net gain of $181,000
on the sale of several liquid bonds in the mortgage-backed security and
investment portfolio, $100,000 on the sale of real estate held for sale offset
by $108,000 loss on the Bank's equity investments in a mortgage service company
and a company that acquires and collects delinquent consumer debt obligations
for its own portfolio. Total non-interest income increased by $1.5 million from
$1.4 million for the nine months ended September 30, 1996 to $2.9 million for
the nine months ended September 30, 1997. During the first nine months of 1997,
the Company reported non-interest income of $1.8 million in trading income
attributed to the second quarter securitization of cooperative mortgage loans
held for sale, the sale of mortgage-backed securities and investments held for
liquidity purposes, $636,000 on the sale of loans, and $472,000, net, in loan
fees and TCM commission income offset by a loss on its equity investment in AGT
Mortgage Services ("AGT"). AGT serviced performing and non-performing loans for
a fee. Given lower than anticipated non-performing loan levels, AGT did not
achieve adequate economies of scale to generate sufficient revenue. Accordingly,
management decided to cease operations of AGT on July 31, 1997. Non-interest
income of $1.4 million for the nine months ended September 30, 1996 primarily
reflects $263,000 in income resulting from the sale of securities, $415,000 on
the sale of loans and $758,000, net, in loan fees, service charges, and equity
investment.
Non-Interest Expenses. Non-interest expenses for the three and nine
months ended September 30, 1997 were $2.3 million and $6.9 million,
respectively. Non-interest expenses for the three and nine months ended
September 30, 1996 were $3.5 million and $7.3 million, respectively. On
September 30, 1996, President Clinton signed legislation calling for a one-time
AII-17
<PAGE>
TELEBANC FINANCIAL CORPORATION
assessment on the FDIC's SAIF-insured deposits held by depository institutions
as of March 31, 1995 to recapitalize SAIF. TeleBank recorded an accrual of $1.7
million, $1.1 million after-tax, for this assessment. The recapitalization of
SAIF has resulted in lower deposit insurance premiums in the future for most
SAIF-insured institutions, including TeleBank. Total non-interest expenses,
excluding the special assessment, increased by $474,000 from $1.9 million for
the three months ended September 30, 1996 to $2.3 million for the three months
ended September 30, 1997. Excluding the special assessment, this increase is
largely the result of a $462,000 increase in general and administrative expenses
associated with a higher volume of deposit accounts, an increase in marketing
expenses, and an overall increase in compensation levels. Total non-interest
expenses, excluding the special assessment, increased by $1.2 million from $5.7
million for the nine months ended September 30, 1996 to $6.9 million for the
nine months ended September 30, 1997. The increase in general and administrative
expense for the nine months ended September 30, 1997 is the result of increases
in compensation, increases in personnel, marketing expenditures and an accrual
for bonuses as well as the inclusion of TCM's expenses.
Income Tax Expense. The effective tax rate for the nine months ended
September 30, 1997 was 33.6% compared to 28.2% for the nine months ended
September 30, 1996. The effective tax rate increased due to the $1.7 million
federal insurance assessment which was incurred in 1996. The Company carried a
deferred tax payable of $474,000 on its Consolidated Statement of Financial
Condition as of September 30, 1997.
LIQUIDITY
Liquidity is the ability of the Company to generate cash flows
sufficient to fund operations and to meet present and future financial
obligations to borrowers and depositors in a timely manner. Cash flows provided
from operating activities, consisting primarily of interest received less
interest paid on borrowings and purchases less sales of loans held for sale,
were $(16.4) million and $15.7 million for the nine months ended September 30,
1997 and 1996, respectively. Net cash flow used in investing activities
(primarily purchases of mortgage-backed and related securities and mortgage
loans, offset by principal payments on loans and mortgage-backed and related
securities and proceeds from sale or maturity of investment securities) was
$148.0 million and $65.4 million for the nine months ended September 30, 1997
and 1996, respectively. The increase in cash flows related to investing
activities for the nine months ended September 30, 1997 reflects a significant
increase in the amount of mortgage-backed securities, mortgage loans and
investment securities purchased. Net cash provided by financing activities
(primarily net activity in deposits and borrowings) were $166.2 million and
$45.8 million for the nine months ended September 30, 1997 and 1996,
respectively. The increase in net cash provided by financing activities for the
nine months ended September 30, 1997 is primarily the result of increased growth
in 1997 as compared to the same period in 1996. The total net increase in cash
and cash equivalents was $1.9 and $(3.9) million for the nine months ended
September 30, 1997 and 1996, respectively.
AII-18
<PAGE>
TELEBANC FINANCIAL CORPORATION
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, and proceeds from
sales and maturities of mortgage-backed and related securities and investment
securities. Investment maturities and scheduled amortization of loans and
mortgage-backed securities are generally a predictable source of funds. Deposit
flows and mortgage prepayments are greatly influenced by the general level of
interest rates, economic conditions, and competition. The Company also accesses
FHLB advances and has utilized securities sold under agreements to repurchase.
The Bank is required to maintain minimum levels of liquid assets as
defined by the OTS regulations. This requirement, which may vary at the
discretion of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The minimum
required ratio is 5.0%. At September 30, 1997, the Company's liquidity ratio was
5.43%.
In the second quarter of 1994, the Company completed its initial public
offering, raising an aggregate of $21.9 million through the issuance of common
stock and subordinated notes with warrants. Upon completion of this offering,
the Company invested $15 million of the proceeds as capital of the Bank. In
February, 1997, the Company raised an additional $29.9 million in aggregate
through the issuance of 4.0% cumulative preferred stock and 9.5% senior
subordinated notes with warrants. Upon completion of this offering, the Company
invested $10 million of the proceeds as capital of the Bank. The subordinated
debt represents a stable, although relatively expensive, source of funds. In
addition, the Company formed TeleBanc Capital Trust I, which in turn sold shares
of trust preferred securities, Series A, for a total of $10,000,000 in a private
placement. The annual expense to service the total subordinated debt and the
trust preferred securities are $3.3 million and $1.1 million, respectively.
Annual dividends on the 4% preferred stock are $648,000.
Subject to regulatory approval, the Bank anticipates distributing
dividends of $3.9 million to the Company at year end to service the debt and
preferred stock. There are various regulatory limitations on the extent to which
federally chartered savings institutions may pay dividends. Also, savings
institution subsidiaries of holding companies generally are required to provide
their OTS Regional Director with no less than 30 days notice of any proposed
declaration on the institution's stock. Under terms of the indentures pursuant
to which the subordinated notes were issued, the Company presently is required
to maintain, on an unconsolidated basis, liquid assets in an amount equal to or
greater than $3.3 million, which represents 100% of the aggregate interest
expenses for one year on the subordinated debt.
The Company's most liquid assets are cash and cash equivalents, which
include investments in liquid short-term investments and federal funds sold with
maturities of nine months or less. The levels of these assets are dependent upon
the Company's operating, financing, and investing activities during any given
period. Cash equivalents totaled $5.1 million and $3.3 million as of September
30, 1997 and December 31, 1996, respectively. As of September 30, 1997, the
Company had commitments to purchase $10.2 million in loans.
AII-19
<PAGE>
TELEBANC FINANCIAL CORPORATION
In the normal course of business, the Company makes various commitments
to extend credit and incurs contingent liabilities which are not reflected in
the consolidated statements of financial condition.
CAPITAL RESOURCES
Capital ratios at September 30, 1997 exceeded each of the three OTS
capital requirements on a fully phased-in basis. The following table sets forth
the actual and required minimum levels of regulatory capital for the Company
under applicable OTS regulations as of September 30, 1997 ($ in thousands):
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
-------------------------------------------------------------------------------------
As of September 30, 1997 AMOUNT RATIO AMOUNT RATIO AMOUNT
------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Total Capital (to risk
weighted assets) $51,228 13.37% $30,663 8.00% $20,565
Tier 1 Capital (to risk
weighted assets) $48,354 12.62% $15,331 4.00% $33,023
Tier 1 Capital (to average
assets) $48,354 5.99% $32,278 4.00% $16,076
Tangible $48,344 6.15% $11,788 1.50% $36,556
</TABLE>
AII-20
<PAGE>
TELEBANC FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 5. Other Information
No information to report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No information to report.
AII-21
<PAGE>
TELEBANC FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TeleBanc Financial Corporation
------------------------------
(Registrant)
Date: November 14, 1997 By: /s/ Mitchell H. Caplan
----------------------------------- ---------------------------------
Mitchell H. Caplan
President
Date: November 14, 1997 By: /s/ Aileen Lopez Pugh
----------------------------------- ---------------------------------
Aileen Lopez Pugh
Executive Vice President
Chief Financial Officer/Treasurer
AII-22
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION OR THE TRUST. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE CORPORATION OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information............................... 7
Summary............................................. 8
Selected Consolidated Financial Data................ 16
Risk Factors........................................ 17
TeleBanc Financial Corporation...................... 24
TeleBanc Capital Trust I............................ 25
Use of Proceeds..................................... 25
Ratios of Earnings to Combined Fixed
Charges.......................................... 27
Accounting Treatment................................ 27
Capitalization...................................... 28
The Exchange Offer.................................. 28
Description of Exchange Securities.................. 38
Description of Original Securities.................. 63
Relationship Among the Exchange Capital
Securities, the Exchange Junior
Subordinated Debentures and the
Exchange Guarantee............................... 64
Certain Federal Income Tax Consequences............. 65
ERISA Considerations................................ 69
Plan of Distribution................................ 69
Validity of Exchange Securities..................... 70
Appendices ......................................... 70
================================================================================
<PAGE>
================================================================================
$10,000,000
TELEBANC CAPITAL TRUST I
OFFER TO EXCHANGE ITS
11.00% EXCHANGE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER EXCHANGE CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11.00% ORIGINAL CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER ORIGINAL CAPITAL SECURITY)
UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
TELEBANC FINANCIAL CORPORATION
---------------------------------------------------------------
PROSPECTUS
---------------------------------------------------------------
NOVEMBER ___, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
------------------------------------------
As authorized by Section 145 of the Delaware General Corporation Law,
the Corporation may indemnify its directors and officers against expenses
(including attorneys' fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred in connection with the defense or settlement of
any threatened, pending or completed legal proceedings in which the director or
officer is involved by reason of the fact that he is or was a director or
officer of the Corporation if he acted in good faith and in the manner that 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, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the Corporation, the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he shall have been adjudged to be liable to the Corporation unless a court
determines otherwise.
Article 8 of the Corporation's Bylaws requires that the Corporation
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed legal proceeding (other than an action
by or in right of the Corporation) by reason of the fact that such person is or
was a director, officer, trustee, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
trustee, employee, or agent of another corporation, association, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorney's fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by such person in connection with
such legal proceeding, if such person acted in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal legal proceeding, had no
reasonable cause to believe that such conduct was unlawful. The Corporation is
also required to indemnify any such person in connection with a legal proceeding
brought by or in the right of the Corporation to procure a judgment in the
Corporation's favor by reason of such person's connection to the Corporation,
against such expenses incurred by such person in connection with the defense or
settlement of such legal proceeding if such person acted in good faith and in a
manner which such person reasonably believed to be in, or not opposed to, the
best interests of the Corporation. No such indemnification shall be made against
expenses in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation or against amounts paid in
settlement unless and only to the extent that there is a determination 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 or amounts paid in settlement. The Corporation is permitted to advance
expenses incurred by such person in advance of the final disposition of such
legal proceeding upon the receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that such
person is not entitled to indemnification from the Corporation.
The Corporation also has the power to purchase and maintain insurance
on behalf of its directors, officers, trustees, employees and agents and persons
serving in such capacities with other entities at the Corporation's request. The
Corporation has a policy of liability insurance covering its directors and
officers, the effect of which is to reimburse the directors and officers of the
Corporation against certain damages and expenses resulting from certain claims
made against them caused by their negligent act, error or omission.
The foregoing indemnity and insurance provisions have the effect of
reducing directors' and officers' exposure to personal liability for actions
taken in connection with their respective positions.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
-------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the Corporation.
3.2 Certificate of Designation of the Corporation (incorporated by
reference herein from Exhibit 3 to the Corporation's Current Report on
Form 8-K filed with the Commission on March 17, 1997).
3.3 Bylaws, as amended, of the Corporation (incorporated by reference
herein from Exhibit 3.2 to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, attached to the Prospectus as
Appendix I).
3.4 Amended and Restated Declaration of Trust of TeleBanc Capital Trust I,
dated as of June 9, 1997.
4.1 Indenture, dated as of June 9, 1997, between the Corporation and
Wilmington Trust Company, as debenture trustee.
4.2 Form of Certificate of Exchange Junior Subordinated Debentures (filed
as Exhibit A to Exhibit 4.1 hereto).
4.3 Certificate of Trust of TeleBanc Capital Trust I, dated as of June 3,
1997.
4.4 Declaration of Trust of TeleBanc Capital Trust I, dated as of June 2,
1997.
4.5 Amended and Restated Declaration of Trust of TeleBanc Capital Trust I,
dated as of June 9, 1997 (filed as Exhibit 3.4 hereto).
4.6 Form of Exchange Capital Security Certificate (filed as EXHIBIT A-1 to
Exhibit 3.4 hereto).
4.7 Exchange Guarantee Agreement by the Corporation for the benefit of the
holders of Exchange Capital Securities.
4.8 Registration Rights Agreement, dated June 5, 1997, among the
Corporation, TeleBanc Capital Trust I, and the Initial Purchaser.
4.9 Liquidated Damages Agreement, dated June 9, 1997, among the
Corporation, TeleBanc Capital Trust I, and the Initial Purchaser.
5.1 Opinion of Hogan & Hartson L.L.P. as to the validity of the securities
registered hereunder (including the consent of that firm).
5.2 Form of opinion of Morris, James, Hitchens & Williams as to the
validity of the Exchange Capital Securities (including the consent of
that firm).
8 Form of opinion of Hogan & Hartson L.L.P. as to certain federal income
tax matters (including the consent of that firm).
10.1 1994 Stock Option Plan (incorporated by reference herein from the
Corporation's Registration Statement on Form S-1 (File No. 33-76930)
filed with the Commission on March 25, 1994).
10.2 Tax Allocation Agreement, dated April 7, 1994, between TeleBank and the
Corporation (incorporated by reference herein from the Corporation's
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1
(File No. 33-76930) filed with the Commission on May 3, 1994).
10.3 Unit Purchase Agreement, dated as of February 19, 1997, among the
Corporation and the Purchasers identified therein (incorporated by
reference herein from Exhibit 10.1 to the Corporation's Current Report
on Form 8-K filed with the Commission on March 17, 1997).
10.4 Amended and Restated Acquisition Agreement, dated as of February 19,
1997, among the Corporation, Arbor Capital Partners, Inc., MET Holdings
Corporation, and William M.
II-2
<PAGE>
Daugherty (incorporated by reference herein from Exhibit 10.2 to the
Corporation's Current Report on Form 8-K filed with the Commission on
March 17, 1997).
10.5 1997 Stock Option Plan (incorporated by reference herein from Exhibit D
to the Corporation's definitive proxy materials which were filed as
Exhibit 99.3 to the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, attached to the Prospectus as Appendix
I).
12 Computation of ratio of earnings to combined fixed charges. *
13 1996 Annual Report to Stockholders (portions of which are incorporated
by reference herein from Exhibit 13 to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996, attached to the
Prospectus as Appendix I).
21.1 Subsidiaries of the Corporation (incorporated by reference herein from
Exhibit 21 to the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, attached to the Prospectus as Appendix I).
21.2 Subsidiaries of TeleBanc Capital Trust I. *
23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1 and
Exhibit 8).
23.2 Consent of Morris, James, Hitchens & Williams (included as part of
Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24 Power of Attorney (incorporated herein by reference from the signature
page of the Registration Statement on Form S-4 filed by the Corporation
and TeleBanc Capital Trust I on November 17, 1997).
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee for the Exchange Capital Securities of TeleBanc Capital Trust
I.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee for the Exchange Junior Subordinated Debentures of TeleBanc
Financial Corporation (Exhibits A-D filed as Exhibits A-D of Exhibit
25.1 hereto).
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee for the TeleBanc Financial Corporation Exchange Guarantee with
respect to Exchange Capital Securities (Exhibits A-D filed as Exhibits
A-D of Exhibit 25.1 hereto).
99.1 Form of Letter of Transmittal. *
99.2 Form of Notice of Guaranteed Delivery. *
99.3 Form of Exchange Agent Agreement. *
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees. *
99.5 Form of Client Letter. *
----------------
* Previously filed.
ITEM 22. UNDERTAKINGS.
-------------
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, each of the
registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of such registrant
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, each registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned registrants hereby undertakes 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrants
have duly caused this registration statement to be signed on their behalf by the
undersigned, thereunto duly authorized, in the City of Arlington, Commonwealth
of Virginia, on December __, 1997.
TELEBANC FINANCIAL CORPORATION
By: Mitchell H. Caplan
----------------------------------------
Mitchell H. Caplan
Vice Chairman of the Board and President
TELEBANC CAPITAL TRUST I
By: David A. Smilow
----------------------------------------
David A. Smilow,
as Administrative Trustee
By: Mitchell H. Caplan
----------------------------------------
Mitchell H. Caplan,
as Administrative Trustee
By: Aileen Lopez Pugh
----------------------------------------
Aileen Lopez Pugh,
as Administrative Trustee
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities indicated
on December __, 1997.
Signature Title
- --------- -----
David A. Smilow Chairman of the Board and Chief Executive Officer
- --------------------------- (Principal Executive Officer)
David A. Smilow
Aileen Lopez Pugh Executive Vice President - Chief Financial
- --------------------------- Officer/ Treasurer, Director
Aileen Lopez Pugh (Principal Financial and Accounting Officer)
Mitchell H. Caplan Vice Chairman of the Board and President
- ---------------------------
Mitchell H. Caplan
II-4
<PAGE>
Arlen W. Gelbard * Director
- ---------------------------
Arlen W. Gelbard
Dean C. Kehler * Director
- ---------------------------
Dean C. Kehler
Steven F. Piaker * Director
- ---------------------------
Steven F. Piaker
David R. DeCamp * Director
- ---------------------------
David R. DeCamp
Mark Rollinson * Director
- ---------------------------
Mark Rollinson
Director
- ---------------------------
Michael A. Smilow
* By power of attorney
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
3.1 Amended and Restated Certificate of Incorporation of the
Corporation.
3.2 Certificate of Designation of the Corporation (incorporated
by reference herein from Exhibit 3 to the Corporation's
Current Report on Form 8-K filed with the Commission on March
17, 1997).
3.3 Bylaws, as amended, of the Corporation (incorporated by
reference herein from Exhibit 3.2 to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996,
attached to the Prospectus as Appendix I).
3.4 Amended and Restated Declaration of Trust of TeleBanc Capital
Trust I, dated as of June 9, 1997.
4.1 Indenture, dated as of June 9, 1997, between the Corporation
and Wilmington Trust Company, as debenture trustee.
4.2 Form of Certificate of Exchange Junior Subordinated
Debentures (filed as Exhibit A to Exhibit 4.1 hereto).
4.3 Certificate of Trust of TeleBanc Capital Trust I, dated as of
June 3, 1997.
4.4 Declaration of Trust of TeleBanc Capital Trust I, dated as of
June 2, 1997.
4.5 Amended and Restated Declaration of Trust of TeleBanc Capital
Trust I, dated as of June 9, 1997 (filed as Exhibit 3.4
hereto).
4.6 Form of Exchange Capital Security Certificate (filed as
EXHIBIT A-1 to Exhibit 3.4 hereto).
4.7 Exchange Guarantee Agreement by the Corporation for the
benefit of the holders of Exchange Capital Securities.
4.8 Registration Rights Agreement, dated June 5, 1997, among the
Corporation, TeleBanc Capital Trust I, and the Initial
Purchaser.
4.9 Liquidated Damages Agreement, dated June 9, 1997, among the
Corporation, TeleBanc Capital Trust I, and the Initial
Purchaser.
5.1 Opinion of Hogan & Hartson L.L.P. as to the validity of the
securities registered hereunder (including the consent of
that firm).
5.2 Form of opinion of Morris, James, Hitchens & Williams as to
the validity of the Exchange Capital Securities (including
the consent of that firm).
8 Form of opinion of Hogan & Hartson L.L.P. as to certain
federal income tax matters (including the consent of that
firm).
10.1 1994 Stock Option Plan (incorporated by reference herein from
the Corporation's Registration Statement on Form S-1 (File
No. 33-76930) filed with the Commission on March 25, 1994).
10.2 Tax Allocation Agreement, dated April 7, 1994, between
TeleBank and the Corporation (incorporated by reference
herein from the Corporation's Pre-Effective Amendment No. 1
to the Registration Statement on Form S-1 (File No. 33-76930)
filed with the Commission on May 3, 1994).
II-6
<PAGE>
10.3 Unit Purchase Agreement, dated as of February 19, 1997, among
the Corporation and the Purchasers identified therein
(incorporated by reference herein from Exhibit 10.1 to the
Corporation's Current Report on Form 8-K filed with the
Commission on March 17, 1997).
10.4 Amended and Restated Acquisition Agreement, dated as of
February 19, 1997, among the Corporation, Arbor Capital
Partners, Inc., MET Holdings Corporation, and William M.
Daugherty (incorporated by reference herein from Exhibit 10.2
to the Corporation's Current Report on Form 8-K filed with
the Commission on March 17, 1997).
10.5 1997 Stock Option Plan (incorporated by reference herein from
Exhibit D to the Corporation's definitive proxy materials
which were filed as Exhibit 99.3 to the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996,
attached to the Prospectus as Appendix I).
12 Computation of ratio of earnings to combined fixed charges. *
13 1996 Annual Report to Stockholders (portions of which are
incorporated by reference herein from Exhibit 13 to the
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, attached to the Prospectus as Appendix I).
21.1 Subsidiaries of the Corporation (incorporated by reference
herein from Exhibit 21 to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996, attached to
the Prospectus as Appendix I).
21.2 Subsidiaries of TeleBanc Capital Trust I. *
23.1 Consent of Hogan & Hartson L.L.P. (included as part of
Exhibit 5.1 and Exhibit 8.1).
23.2 Consent of Morris, James, Hitchens & Williams (included as
part of Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24 Power of Attorney (incorporated herein by reference from the
signature page of the Registration Statement on Form S-4
filed by the Corporation and TeleBanc Capital Trust I on
November 17, 1997).
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee for the Exchange Capital Securities of
TeleBanc Capital Trust I.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee for the Exchange Junior Subordinated
Debentures of TeleBanc Financial Corporation (Exhibits A-D
filed as Exhibits A-D of Exhibit 25.1 hereto).
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee for the TeleBanc Financial Corporation
Exchange Guarantee with respect to Exchange Capital
Securities (Exhibits A-D filed as Exhibits A-D of Exhibit
25.1 hereto).
99.1 Form of Letter of Transmittal. *
99.2 Form of Notice of Guaranteed Delivery. *
99.3 Form of Exchange Agent Agreement. *
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees. *
99.5 Form of Client Letter. *
- --------------
* Previously filed.
II-7
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TELEBANC FINANCIAL CORPORATION
TeleBanc Financial Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is TeleBanc Financial
Corporation. The original Certificate of Incorporation of the Corporation was
filed under the name "At Home Financial Corporation" with the Secretary of State
of the State of Delaware on January 27, 1994. An Amended and Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on March 23, 1994.
SECOND: This Amended and Restated Certificate of Incorporation
was duly adopted in accordance with Section 245 of the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law"), and restates
and integrates and further amends the provisions of the Amended and Restated
Certificate of Incorporation of the Corporation.
THIRD: The text of the Amended and Restated Certificate of
Incorporation of the Corporation hereby is amended and restated to read in its
entirety as follows:
1. NAME.
The name of the Corporation is TeleBanc Financial Corporation.
2. REGISTERED OFFICE AND AGENT.
The registered office of the Corporation shall be located at
1013 Centre Road, Wilmington, Delaware 19805 in the County of New Castle. The
registered agent of the Corporation at such address shall be Corporation Service
Company.
3. PURPOSE AND POWERS.
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Delaware General
Corporation Law. The Corporation shall have all power necessary or helpful to
engage in such acts and activities.
<PAGE>
4. CAPITAL STOCK.
4.1. AUTHORIZED SHARES.
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 9,000,000 shares, of which
500,000 shares shall be serial preferred stock, having a par value of $0.01 per
share ("Preferred Stock"), and 8,500,000 shall be classified as shares of common
tock, having a par value of $0.01 per share ("Common Stock"). The Board of
Directors is expressly authorized to issue, without stockholder approval, any
unissued shares of the Corporation's authorized Common Stock as nonvoting Common
Stock ("Nonvoting Common Stock").
4.2. COMMON STOCK.
(a) RELATIVE RIGHTS.
The Common Stock shall be subject to all of the rights,
privileges, preferences and priorities of the Preferred Stock as set forth in
the certificate of designations filed to establish the respective series of
Preferred Stock. Except as provided in Section 4.2(e) hereof, each share of
Common Stock shall have the same relative rights as and be identical in all
respects to all the other shares of Common Stock.
(b) VOTING RIGHTS.
Except as provided in Section 4.2(e) hereof, each holder of
shares of Common Stock shall be entitled to attend all special and annual
meetings of the stockholders of the Corporation and, share for share and without
regard to class, together with the holders of all other classes of stock
entitled to attend such meetings and to vote (except any class or series of
stock having special voting rights), to cast one vote for each outstanding share
of Common Stock so held upon any matter or thing (including, without limitation,
the election of one or more directors) properly considered and acted upon by the
stockholders, except as otherwise provided in this Amended and Restated
Certificate of Incorporation or by applicable law. There shall be no cumulative
voting rights in the election of directors.
(c) DIVIDENDS.
Whenever there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class of stock
having preference over the Common Stock as to the payment of dividends, the full
amount of dividends and of sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the Common
<PAGE>
Stock, then the holders of record of the Common Stock and any class or series of
stock entitled to participate therewith as to dividends, shall be entitled to
receive dividends, when, as, and if declared by the Board of Directors, out of
any assets legally available for the payment of dividends thereon.
(d) DISSOLUTION, LIQUIDATION, WINDING UP.
In the event of any dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders of record of the
Common Stock then outstanding, and all holders of the outstanding shares of any
class or series of stock entitled to participate therewith in whole or in part,
as to distribution of assets, shall become entitled to participate in the
distribution of any assets of the Corporation available for distribution, in
cash or in kind, remaining after the Corporation shall have paid, or set aside
for payment, to the holders of outstanding shares of any class of stock having
preference over the Common Stock in the event of dissolution, liquidation or
winding up, the full preferential amounts (if any) to which they are entitled,
and shall have paid or provided for payment of all debts and liabilities of the
Corporation.
(e) NONVOTING COMMON STOCK.
The holders of Nonvoting Common Stock shall be entitled to
notice of meetings of the Corporation's stockholders. Notwithstanding any other
provision of this Amended and Restated Certificate of Incorporation or the
Corporation's Bylaws, the Nonvoting Common Stock shall have no voting rights
upon any matter or thing (including, without limitation, the election of
directors) unless provided by applicable law. Subject to and in compliance with
the following provisions of this Section 4.2(e), each share of Nonvoting Common
Stock held by any person or entity may be converted into one fully-paid and
non-assessable share of voting Common Stock.
(i) In connection with the disposition of shares upon
the occurrence (or the expected occurrence as described in
Section 4.2(e)(iii) below), of any Conversion Event (as
defined below), each holder of Nonvoting Common Stock shall be
entitled to convert such Nonvoting Common Stock into an equal
number of shares of voting Common Stock.
(ii) For purposes of this Section 4.2(e), a
"Conversion Event" shall mean, (A) any sale to the public in a
widely dispersed offering (including, without limitation, a
public offering registered under the Securities Act of 1933,
as amended), (B) any disposition under Rule 144 or Rule 144A
promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended, or any similar rule
then in force of no more than two percent (2%) of the
<PAGE>
outstanding voting securities of the Corporation, (C) any
transfer pursuant to a right of first refusal set forth in the
Transfer Restriction Agreement, dated as of February 28, 1997,
by and among the Purchasers (as identified in the $29,900,000
Unit Purchase Agreement, dated as of February 19, 1997,
between the Purchasers and the Corporation), David A. Smilow,
MET Holdings Corporation and the Corporation or the Transfer
Restriction Agreement, dated as of February 28, 1997, by and
among the Purchasers, Mitchell H. Caplan, MET Holdings
Corporation and the Corporation or (D) any transfer in a
single transaction to an independent third party who acquires
at least a majority of the voting stock of the Corporation
without regard to the transfer of such securities. For
purposes of this Section 4.2(e) "person" shall include any
natural person and any corporation, partnership, joint
venture, trust, unincorporated organization and any other
entity or organization.
(iii) Each holder of Nonvoting Common Stock shall be
entitled to convert shares of Nonvoting Common Stock in
connection with any Conversion Event if such holder reasonably
believes that such Conversion Event shall be consummated, and
a written request for conversion from any holder of Nonvoting
Common Stock to the Corporation stating such holder's
reasonable belief that a Conversion Event shall occur shall be
conclusive and shall obligate the Corporation to effect such
conversion in a timely manner so as to enable each such holder
to participate in such Conversion Event. The Corporation shall
not cancel the shares of Nonvoting Common Stock so converted
before the tenth day following such Conversion Event and shall
reserve such shares until such tenth day for reissuance in
compliance with the next sentence. If any shares of Nonvoting
Common Stock are converted into shares of voting Common Stock
in connection with a Conversion Event and such shares of
voting Common Stock are not actually distributed, disposed of
or sold pursuant to such Conversion Event, such shares of
voting Common Stock shall be promptly converted back into the
same number of shares of Nonvoting Common Stock, and during
such period prior to such distribution, disposal or sale, the
holder of such voting Common Stock shall not be entitled to
vote such shares notwithstanding provisions of this Amended
and Restated Certificate of Incorporation.
(iv) To exercise its conversion privilege, a holder
of Nonvoting Common Stock shall surrender the certificate or
certificates representing the shares being converted to the
Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder
elects to convert such shares. Such notice shall also state
the name or names (with address or addresses) in which the
<PAGE>
certificate or certificates for shares of voting Common Stock
issuable upon such conversion shall be issued. The certificate
or certificates for shares of Nonvoting Common Stock
surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. The date
when such written notice is received by the Corporation,
together with the certificate or certificates representing the
shares of Nonvoting Common Stock being converted, shall be the
"Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver
to the holder of the shares of Nonvoting Common Stock being
converted, or on its written order, such certificate or
certificates as it may request for the number of shares of
voting Common Stock issuable upon the conversion of such
shares of Nonvoting Common Stock in accordance with the
provisions of this Section 4.2(e). Such conversion shall be
deemed to have been effected immediately prior to the closing
of business on the Conversion Date, and at such time the
rights of the holder as holder of the converted shares of
Nonvoting Common Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of voting Common Stock
shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of voting
Common Stock represented thereby.
4.3. SERIAL PREFERRED STOCK.
(a) ISSUANCE, DESIGNATIONS, POWERS, ETC.
The Board of Directors expressly is authorized, subject to
limitations prescribed by the Delaware General Corporation Law and the
provisions of this Amended and Restated Certificate of Incorporation, by
resolution or resolutions from time to time adopted and by filing a certificate
of designations pursuant to the Delaware General Corporation Law, to provide for
the issuance from time to time of the serial preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and other
rights of the shares of each such series and to fix the qualifications,
limitations and restrictions thereon, including, but without limiting the
generality of the foregoing, the following:
(i) the number of shares constituting that series and
the distinctive designation of that series;
(ii) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which
date or dates, and the relative rights of priority, if any, of
payment of dividends on shares of that series;
<PAGE>
(iii) whether that series shall have voting rights,
in addition to the voting rights provided by law, and, if so,
the terms of such voting rights;
(iv) whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall
determine;
(v) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the dates upon or after which they shall
be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption dates;
(vi) whether that series shall have a sinking fund
for the redemption or purchase of shares of that series, and,
if so, the terms and amount of such sinking fund;
(vii) the rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series; and
(viii) any other relative powers, preferences, and
rights of that series, and qualifications, limitations or
restrictions on that series.
(b) DISSOLUTION, LIQUIDATION, WINDING UP.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of record of the
Preferred Stock of each series shall be entitled to receive only such amount or
amounts as shall have been fixed by the certificate of designations or by the
resolution or resolutions of the Board of Directors providing for the issuance
of such series.
4.4. ADJUSTMENTS OF AUTHORIZED STOCK.
Except as provided to the contrary in the provisions
establishing a class or series of stock, the amount of the authorized stock of
the Corporation of any class or classes may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of a majority of the
directors then in office, whether or not a quorum.
<PAGE>
4.5. PREEMPTIVE RIGHTS.
Holders of the capital stock of the Corporation shall not be
entitled to preemptive rights with respect to any shares or other securities of
the Corporation which may be issued.
5. BOARD OF DIRECTORS.
5.1. CLASSIFICATION.
The Board of Directors shall consist of not less than six
directors nor more than 15 directors. The number of directors of the Corporation
shall be as fixed from time to time by or pursuant to the Bylaws of the
Corporation. The directors, other than those who may be elected by the holders
of any series of Preferred Stock voting separately by series, shall be
classified, with respect to the time for which they severally hold office, into
three classes, Class I, Class II and Class III. When the number of directors is
changed, the Board of Directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned, provided
that the directors in each class shall be as nearly equal in number as possible,
and provided further, that no decrease in the number of directors shall affect
the term of any director then in office.
The classification shall be such that the term of one class
shall expire each succeeding year. The terms, classifications, qualifications
and election of the Board of Directors and the filling of vacancies thereon
shall be as provided herein and in the Bylaws. Each initial director in Class I
shall hold office for a term expiring at the 1997 annual meeting of
stockholders, each initial director in Class II shall hold office initially for
a term expiring at the 1996 annual meeting of stockholders, and each initial
director in Class III shall hold office for a term expiring at the 1995 annual
meeting of stockholders. Notwithstanding the foregoing provisions of this
Section 5.1, each director shall serve until such director's successor is duly
elected and qualified or until such director's earlier death, resignation or
removal. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified or until any such director's earlier death, resignation or
removal.
5.2. REMOVAL.
Except as otherwise provided pursuant to the provisions of
this Amended and Restated Certificate of Incorporation or a certificate of
designations relating to the rights of the holders of any series of Preferred
Stock, voting separately by series, to elect directors under specified
circumstances, any director or
<PAGE>
directors may be removed from office at any time, but only for cause and only by
the affirmative vote, at a special meeting of the stockholders called for such a
purpose, of not less than 66-2/3 percent of the total number of votes of the
then outstanding shares of stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class, but only if
notice of such proposal was contained in the notice of such meeting. At least 30
days prior to such special meeting of stockholders, written notice shall be sent
to the director or directors whose removal will be considered at such meeting.
For purposes of this Section 5.2, "cause" shall mean (a)
conduct as a director of the Corporation or any subsidiary involving willful
material misconduct, breach of material fiduciary duty involving personal
profit, or gross negligence as to material duties, or (b) conduct, whether or
not as a director of the Corporation or any subsidiary, involving dishonesty or
breach of trust which is punishable by imprisonment for a term exceeding one
year under state or federal law.
Any vacancy in the Board of Directors, including any vacancy
created by reason of an increase in the number of directors, shall be filled for
the unexpired term by the vote of a majority of the directors then in office,
whether or not a quorum, and any director so chosen shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall be elected and qualified, or until such director's earlier
death, resignation or removal.
5.3. CHANGE OF AUTHORIZED NUMBER.
In the event of any increase or decrease in the authorized
number of directors, the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to maintain such classes as nearly
equal as possible. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
5.4. DIRECTORS ELECTED BY HOLDERS OF PREFERRED STOCK.
Notwithstanding the foregoing, whenever the holders of any one
or more series of Preferred Stock issued by the Corporation shall have the
right, voting separately by series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Amended and Restated Certificate of Incorporation or a certificate of
designations applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article 5 unless expressly provided by the
certificate of designations.
<PAGE>
5.5. LIMITATION OF LIABILITY.
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders; (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (c)
for the types of liability set forth in Section 174 of the Delaware General
Corporation Law; or (d) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of this Section 5.5 by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification with respect to
acts or omissions occurring prior to the effective date of such repeal or
modification.
6. ACTIONS BY STOCKHOLDERS.
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders, and may not be effected by any consent in
writing by such stockholders, unless such consent is unanimous.
7. SPECIAL MEETINGS.
Special meetings of the stockholders may be called at any time
but only by (a) the Chairman of the Board of the Corporation, (b) a majority of
the directors in office, although less than a quorum, or (c) the holders of not
less than 50 percent of the Voting Stock (as defined in Section 8.3 of Article 8
hereof).
8. APPROVAL FOR ACQUISITIONS OF CONTROL AND OFFERS TO ACQUIRE CONTROL.
8.1. STOCKHOLDER VOTE AND REGULATORY APPROVAL REQUIRED FOR
ACQUISITION OF CONTROL.
No Person shall acquire Control of the Corporation at any
time, unless such acquisition has been approved prior to its consummation by the
affirmative vote of the holders of at least 66-2/3 percent of the Voting Stock
at a duly constituted meeting of stockholders called for such purpose.
(Capitalized terms are defined in Section 8.3 hereof.) In addition, no Person
shall acquire Control of the Corporation at any time without obtaining prior
thereto all federal and state regulatory approvals, including those approvals
required under the Home Owners' Loan Act and Federal Deposit Insurance Act, any
applicable state law, or any successor provisions of law, and in the manner
provided by all applicable
<PAGE>
regulations of the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation, and any applicable state regulations. In the event that Control is
acquired without obtaining all such regulatory approvals, such acquisition shall
constitute a violation of this Article 8 and the Corporation shall be entitled
to institute a private right of action to enforce such statutory and regulatory
provisions.
8.2. EXCESS SHARES.
In the event that Control of the Corporation is acquired in
violation of this Article 8, all shares of Voting Stock owned by the Person so
acquiring Control in excess of the number of shares the beneficial ownership of
which is deemed under Section 8.3 hereof to confer Control of the Corporation
shall be considered from and after the date of their acquisition by such Person
to be "excess shares" for purposes of this Article 8. Such excess shares shall
thereafter no longer (a) be entitled to vote on any matter, (b) be entitled to
take other stockholder action, (c) be entitled to be counted in determining the
total number of outstanding shares for purposes of any matter involving
stockholder action, or (d) be transferable except with the approval of the Board
of Directors or by an independent trustee appointed by the Board of Directors
for the purpose of having such excess shares sold on the open market or
otherwise. The proceeds from the sale by the trustee of such excess shares shall
be paid (i) first, to the trustee in the amount equal to the trustee's
reasonable fees and expenses, (ii) second, to the "beneficial owner" (as defined
in Section 11.3 of Article 11, hereof) of such excess shares in an amount up to
such owner's federal income tax basis in such excess shares, and (iii) third, to
the Corporation as to any remaining balance.
8.3 CERTAIN DEFINITIONS
For purposes of this Article 8:
"Control" means the sole or shared power to vote or direct the
voting of, or to dispose or to direct the disposition of, 25 percent or more of
the Voting Stock; provided, that the solicitation, holding and voting of proxies
obtained by the Board of Directors of the Corporation pursuant to a solicitation
under Regulation 14A of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") shall not constitute
"control;" and provided further, that an investment advisor shall not be deemed
to acquire the Voting Stock of its advisee if the advisor (a) votes the stock
only upon instruction from the beneficial owner, and (b) does not provide the
beneficial owner with advice concerning the voting of such stock.
"Group Acting in Concert" includes Persons seeking to combine
or pool their voting or other interests in the Voting Stock for a common
purpose, pursuant to any contracts, understanding, relationship, agreement or
other arrangement,
<PAGE>
whether written or otherwise; provided, that a "Group Acting in Concert" shall
not include the board of directors of the Corporation in its solicitation,
holding and voting of proxies obtained by it pursuant to a solicitation under
Regulation 14A of the General Rules and Regulations under the Exchange Act.
"Person" means any individual, firm, corporation or other
entity including a Group Acting in Concert.
"Voting Stock" means the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors.
8.4. INAPPLICABILITY TO MET HOLDINGS CORPORATION, PUBLIC
OFFERING OR EMPLOYEE BENEFIT PLANS.
This Article 8 shall not apply to an acquisition or offer to
acquire securities of the Corporation (a) by MET Holdings Corporation, or any
successor thereto; (b) by underwriters in connection with a public offering of
such securities or (c) by any employee stock purchase plan, pension plan, profit
sharing plan or other employee benefit plan of the Corporation or any of its
subsidiaries.
9. CONTROL SHARE ACQUISITIONS
9.1. ACQUIRING PERSON STATEMENT.
Any person who proposes to make or has made a Control Share
Acquisition (as defined in Section 9.7 hereof), may at the person's election
deliver an acquiring person statement to the Corporation at the Corporation's
principal office. The acquiring person statement must set forth all of the
following:
(a) The identity of the acquiring person and each other member
of any group of which the person is a part for purposes of determining
Control Shares.
(b) A statement that the acquiring person statement is given
pursuant to this Article 9.
(c) The number of shares of the Corporation owned (directly or
indirectly) by the acquiring person and each other member of the group.
(d) The range of voting power under which the Control Share
Acquisition falls or would, if consummated, fall.
<PAGE>
(e) If the Control Share Acquisition has not taken place:
(i) a description in reasonable detail of the terms
of the proposed Control Share Acquisition; and
(ii) representations of the acquiring person,
together with a statement in reasonable detail of the facts
upon which they are based, that the proposed Control Share
Acquisition, if consummated, will not be contrary to law and
that the acquiring person has the financial capacity to make
the proposed Control Share Acquisition.
9.2. SPECIAL MEETING OF STOCKHOLDERS.
If the acquiring person so requests at the time of delivery of
an acquiring person statement and gives an undertaking to pay the Corporation's
expenses of a special meeting, within ten (10) days thereafter, the directors of
the Corporation shall call a special meeting of the stockholders of the
Corporation, to take place not sooner than thirty (30) days after the receipt by
the Corporation of the acquiring person statement, for the purpose of
considering the voting rights to be accorded to the shares acquired or to be
acquired in the Control Share Acquisition. Unless the acquiring person agrees in
writing to another date, the special meeting of the stockholders shall be held
within fifty (50) days after the receipt by the Corporation of the request. If
no request for a special meeting is made, the voting rights to be accorded the
shares acquired in the Control Share Acquisition shall be presented at the next
special or annual meeting of stockholders.
9.3. NOTICE.
If a special meeting is requested, notice of the special
meeting of stockholders shall be given as promptly as reasonably practicable by
the Corporation to all stockholders of record as of the record date set for the
meeting, whether or not entitled to vote at the meeting. Notice of the special
or annual stockholder meeting at which the voting rights are to be considered
must include or be accompanied by both of the following:
(a) a copy of the acquiring person statement delivered to the
Corporation pursuant to this Article 9.
(b) A statement by the Board of the Directors of the
Corporation, authorized by its directors, of its position or recommendation, or
that it is taking no position or making no recommendation, with respect to the
proposed Control Share Acquisition.
<PAGE>
9.4. VOTING RIGHTS.
Control Shares (as defined in Section 9.7 hereof) acquired in
a Control Share Acquisition have the same voting rights as were accorded the
shares before the Control Share Acquisition only to the extent granted by
resolutions approved by a majority of the then outstanding shares of stock of
the Corporation entitled to vote generally in the election of directors other
than Interested Shares (as defined in Section 9.7 hereof). Interested Shares
shall not be entitled to vote on the matter, and in determining whether a quorum
exists, all Interested Shares shall be disregarded. For the purpose of this
Section 9.4, the Interested Shares shall be determined as of the record date for
determining the stockholders entitled to vote at the meeting.
9.5. REDEMPTION.
Control Shares acquired in a Control Share Acquisition with
respect to which no acquiring person statement has been filed with the
Corporation may, at any time during the period ending sixty (60) days after the
last acquisition of Control Shares by the acquiring person, be subject to
redemption by the Corporation at the redemption price equal to the number of
such shares multiplied by the dollar amount (rounded to the nearest cent) equal
to the average per share price, including any brokerage commissions, transfer
taxes and soliciting dealers fees, paid by the acquiring person for such shares.
Control Shares acquired in a Control Share Acquisition are not subject to
redemption after an acquiring person statement has been filed unless the shares
are not accorded full voting rights by the stockholders as provided in Section
9.4 above. In order to determine the redemption price provided for in this
Section 9.5, the Corporation may rely conclusively on public announcements by,
or filings with the Securities and Exchange Commission by, the acquiring person
as to the prices so paid.
9.6. DISSENTERS RIGHTS.
In the event Control Shares acquired in a Control Share
Acquisition are accorded full voting rights and the acquiring person has
acquired Control Shares with a majority or more of all voting power, all
stockholders of the Corporation, other than the acquiring person, have the right
to dissent from the granting of voting rights and to demand payment of the fair
value of their shares under Section 262 of the Delaware General Corporation Law
as though such granting of voting rights were a corporate action described in
paragraph (b) of Section 262, except that the provisions of subsection (1) of
paragraph (b) of Section 262 shall not be applicable. For purposes of this
Section 9.6, "fair value" of shares under Section 262 of the Delaware General
Corporation Law shall in no event be less than the highest price per share paid
in the Control Share Acquisition, as adjusted for any subsequent stock dividends
or reverse stock splits or similar changes.
<PAGE>
9.7. CERTAIN DEFINITIONS
For purposes of this Article 9:
"Control Share" means shares of the Corporation that would
have voting power that when added to all the other shares of the Corporation
owned by a person or in respect to which that person may exercise or direct the
exercise of voting power, would entitle that person, immediately after
acquisition of the shares (directly or indirectly, alone or as part of a group),
to exercise or direct the exercise of the voting power of the Corporation in the
election of directors within any of the following ranges of voting power: (a)
one-fifth or more but less than a third of all voting power; (b) one-third or
more but less than a majority of all voting power; or (c) a majority or more of
all voting power.
"Control Share Acquisition" means the acquisition (directly or
indirectly) by any person of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding Control Shares. Shares
acquired within ninety (90) days of a prior acquisition or shares acquired
pursuant to a plan to make a Control Share Acquisition are considered to have
been acquired in the same acquisition. The acquisition of any shares of the
Corporation does not constitute a Control Share Acquisition if the acquisition
is consummated in any of the following circumstances: (a) before March 31, 1994;
(b) pursuant to a binding contract existing before March 31, 1994; (c) pursuant
to the laws of descent and distribution; (d) pursuant to the satisfaction of a
pledge or other security interest created in good faith and not for the purpose
of circumventing this Article 9; (e) pursuant to a merger or plan of share
exchange if the Corporation is a party to the agreement of merger or plan of
share exchange; (f) pursuant to a tender or exchange offer that is made pursuant
to an agreement to which the Corporation is a party, or directly from the
Corporation, or from any of its wholly owned subsidiaries, or (g) by MET
Holdings Corporation or any successor thereto.
The acquisition of any shares of the Corporation in good faith
and not for the purpose of circumventing this Article 9 by or from (i) any
person whose voting rights had previously been authorized by stockholders in
compliance with this Article 9, or (ii) any person whose previous acquisition of
shares of the Corporation would have constituted a Control Share Acquisition but
for the circumstances specified in the paragraph above, does not constitute a
Control Share Acquisition, unless the acquisition entitles the person (directly
or indirectly, alone or as a part of a group) to exercise or direct the exercise
of voting power of the Corporation in the election of directors in excess of the
voting power otherwise authorized.
For purposes of this Article 9, a person who acquires shares
in the ordinary course of business for the benefit of others in good faith and
not for the
<PAGE>
purpose of circumventing this Article 9 has voting power only of shares in
respect of which that person would be able to exercise or direct the vote
without further instruction from others.
"Interested Shares" mean the shares of the Corporation in
respect of which any of the following persons may exercise or direct the
exercise of the voting power of the Corporation in the election of directors:
(a) an acquiring person or member of a group with respect to a Control Share
Acquisition; (b) any officer of the Corporation; (c) any employee of the
Corporation who is also a director of the Corporation.
10. CRITERIA FOR EVALUATING CERTAIN OFFERS.
The Board of Directors, when evaluating any offer of another
party to (a) make a tender or exchange offer for any equity security of the
Corporation, (b) merge or consolidate the Corporation with another institution,
or (c) purchase or otherwise acquire all or substantially all of the properties
and assets of the Corporation, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the Corporation and its
stockholders, be authorized to give due consideration to any such factors as the
Board of Directors determines to be relevant, including, without limitation, the
economic effects of acceptance of such offer on (i) depositors, borrowers and
employees of the insured institution subsidiary or subsidiaries of the
Corporation, and on the communities in which such subsidiary or subsidiaries
operate or are located and (ii) the ability of such subsidiary or subsidiaries
to fulfill the objectives of an insured institution under applicable Federal
statutes and regulations.
11. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
11.1. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS.
In addition to any affirmative vote required by law or this
Amended and Restated Certificate of Incorporation, and except as otherwise
expressly provided in Section 11.2 hereof:
(a) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (i) any Interested Stockholder or
(ii) any other corporation (whether or not itself an Interested
Stockholder) which is, or after the merger, consolidation or share
exchange would be, an Affiliate or Associate of such Interested
Stockholder prior to the transaction ( capitalized terms are defined in
Section 11.3 hereof);
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition other than in the usual and regular course of
business (in one
<PAGE>
transaction or a series of transactions in any 12-month period) to any
Interested Stockholder or any Affiliate or Associate of such Interested
Stockholder, other than the Corporation or any of its Subsidiaries, of any
assets of the Corporation or any Subsidiary that have an aggregate book value as
of the end of the Corporation's most recent fiscal quarter of 10 percent or more
of the total Market Value of the outstanding shares of the Corporation or of its
net worth as of the end of its most recent fiscal quarter, measured at the time
the transaction (or transactions) is (are) approved by the Board of Directors of
the Corporation;
(c) any issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
equity securities of the Corporation or any Subsidiary having an
aggregate Market Value of five percent or more of the total Market
Value of the outstanding shares of the Corporation or such Subsidiary
to any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder, other than the Corporation or any of its
Subsidiaries, except pursuant to the exercise of warrants, rights or
options to subscribe for or purchase securities offered, issued or
granted pro rata to all holders of the Voting Stock of the Corporation
or any other method affording substantially proportionate treatment to
the holders of Voting Stock;
(d) any adoption of any plan or proposal for the liquidation
or dissolution of the Corporation or any Subsidiary proposed by or on
behalf of an Interested Stockholder or any Affiliate or Associate of
such Interested Stockholder, other than the Corporation or any of its
Subsidiaries; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, in one transaction or a series of transactions, of
increasing the proportionate amount of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder, other than the Corporation or any of its subsidiaries;
shall be approved by the affirmative vote of at least (i) the holders of 80
percent of the total number of outstanding shares of Voting Stock and (ii) the
holders of two-thirds of the voting power of the outstanding shares of Voting
Stock, excluding for purposes of calculating the affirmative vote and the total
number of outstanding shares of Voting Stock under this clause (ii), all shares
of Voting Stock of which the beneficial owner is the Interested Shareholder
involved in the Business Combination or any Affiliate or Associate of such
Interested Shareholder.
<PAGE>
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or this
Amended and Restated Certificate of Incorporation.
"Business Combination" means any transaction which is referred
to in any one or more of clauses (a) through (e) of this Section 11.1.
11.2. WHEN HIGHER VOTE IS NOT REQUIRED.
The provisions of Section 11.1 hereof shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of this Amended and Restated Certificate of Incorporation, if the condition or
conditions specified in either paragraph (a) or paragraph (b) below are met:
(a) APPROVAL BY CONTINUING DIRECTORS.
The Business Combination shall have been approved by at least
two-thirds of the Continuing Directors then in office at a duly constituted
meeting of the board of directors called for such purpose.
(b) PRICE AND PROCEDURE REQUIREMENTS.
All of the following conditions shall have been met:
(i) The aggregate amount of the cash and of the
Market Value as of the Valuation Date of consideration other
than cash to be received per share by holders of Common Stock
in such Business Combination shall be at least equal to the
highest of the following:
(A) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for
any shares of Common Stock acquired by it (1) within
the two-year period immediately prior to the first
public announcement of the proposal of the Business
Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(B) the Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this
Article 11 as the "Determination Date"), whichever is
higher; or
<PAGE>
(C) the price per share equal to the Market Value
per share of Common Stock determined pursuant to
subdivision (i)(B) hereof, multiplied by the fraction
of (1) the highest per share price (including
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for
any shares of common stock of the same class or
series acquired by it within the two-year period
immediately prior to the Announcement Date, over (2)
the Market Value per share of common stock of the
same class or series on the first day in such
two-year period on which the Interested Stockholder
acquired shares of Common Stock.
(ii) The aggregate amount of the cash and the Market
Value as of the Valuation Date of consideration other than
cash to be received per share by holders of shares of any
class or series of outstanding Voting Stock, other than Common
Stock, shall be at least equal to the highest of the following
(it being intended that the requirements of this paragraph
(b)(ii) shall be required to be met with respect to every
class of outstanding Voting Stock, other than Common Stock,
whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock):
(A) the highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers fees) paid by the Interested
Stockholder for any shares of such class or series of
Voting Stock acquired by it: (1) within the two-year
period immediately prior to the Announcement Date or
(2) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(B) the highest preferential amount per
share to which the holders of shares of such class or
series of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, or in the event of
any call of such class or series of Voting Stock;
(C) the Market Value per share of such class
or series of Voting Stock on the Announcement Date or
on the Determination Date, whichever is higher; or
(D) the price per share equal to the Market
Value per share of such class or series of stock
determined pursuant to subdivision (ii)(C) hereof,
multiplied by the fraction of (1) the highest per
share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by
the Interested
<PAGE>
Stockholder for any shares of any class or series of
Voting Stock acquired by it within the two-year
period immediately prior to the Announcement Date
over (2) the Market Value per share of the same class
or series of Voting Stock on the first day in such
two-year period on which the Interested Stockholder
acquired any shares of the same class or series of
Voting Stock.
(iii) The consideration to be received by holders of
a particular class or series of outstanding Voting Stock shall
be in cash or in the same form, and on the same terms, as the
Interested Stockholder has previously paid for shares of such
class or series of Voting Stock. If the Interested Stockholder
has paid for shares of any class or series of Voting Stock
with varying forms of consideration, on varying terms, the
form and terms of consideration for such class or series of
Voting Stock shall be either cash or the form and terms used
to acquire the largest number of shares of such class or
series of Voting Stock previously acquired by it.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (A) there shall have been no failure to
declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any
outstanding preferred stock of the Corporation; (B) there
shall have been (1) no reduction in the annual rate of
dividends paid on any class or series of the capital stock of
the Corporation, (except as necessary to deflect any
subdivision of the capital stock), and (2) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of common stock; and (C) such Interested Stockholder
shall not have become the beneficial owner of any additional
shares of capital stock except as part of the transaction
which results in such Interested Shareholder becoming an
Interested Stockholder or by virtue of proportionate stock
splits or stock dividends.
The provisions of subdivisions (iv)(A) and (iv)(B) of
this subsection do not apply if the Interested Stockholder or
any Affiliate or Associate of the Interested Stockholder voted
as a director of the Corporation in a manner consistent with
such subdivisions, and the Interested Stockholder, within 10
days after any act or failure to act by or on behalf of the
Corporation, which act or failure to act is inconsistent with
such subdivisions, notifies the board of directors of the
Corporation in writing that the Interested Stockholder
disapproves
<PAGE>
thereof and requests in good faith that the board of directors
rectify such act or failure to act.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation or
any of its Subsidiaries (whether in anticipation of or in
connection with such Business Combination or otherwise).
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Exchange Act and the rules and regulations
thereunder (or any subsequent provisions replacing the
Exchange Act, rules or regulations) shall be mailed to public
stockholders of the Corporation at least 20 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed
pursuant to the Exchange Act or subsequent provisions).
11.3. CERTAIN DEFINITIONS
For the purposes of this Article 11:
"Affiliate" means a person that directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, a specified person.
"Associate," when used to indicate a relationship with any
person, means: (a) any domestic or foreign corporation or organization, other
than the Corporation or a subsidiary of the Corporation, of which such person is
an officer, director or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities; (b) any trust or
other estate, other than an employee stock purchase plan, pension plan, profit
sharing plan or other employee benefit plan of the Corporation or any
Subsidiary, in which such person has a substantial beneficial interest or as to
which such person serves as a trustee or in a similar fiduciary capacity; and
(c) any relative or spouse of such person, or any relative of such spouse who
has the same home as such person or who is a director or officer of the
Corporation or any of its Affiliates.
<PAGE>
"Beneficial owner," when used with respect to any Voting
Stock, means any person that:
(a) individually or with any of its Affiliates or Associates,
beneficially owns Voting Stock directly or indirectly;
(b) individually or with any of its Affiliates or Associates,
has (i) the right to acquire Voting Stock (whether such right is
exercisable immediately or only after passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
(ii) the right to vote or direct the voting of Voting Stock pursuant to
any agreement, arrangement or understanding; or (iii) the right to
dispose of or to direct the disposition of Voting Stock pursuant to any
agreement, arrangement or understanding; or
(c) individually or with any of its Affiliates or Associates,
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of Voting Stock with any other
person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, such shares of Voting Stock.
"Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested Stockholder
and was a member of the Board of Directors of the Corporation prior to the time
that the Interested Stockholder (including any Affiliate or Associate of such
Interested Stockholder) became an Interested Stockholder, and any successor of a
Continuing Director who is unaffiliated with the Interested Stockholder and is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board of Directors of the Corporation.
"Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary or any employee stock purchase plan, pension plan,
profit sharing plan or other employee benefit plan of the Corporation or any
Subsidiary) that (a) is the beneficial owner, directly or indirectly, of five
percent or more of the voting power of the then outstanding Voting Stock; or (b)
is an Affiliate of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of the then outstanding
Voting Stock. For the purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding shall
include the shares with respect to which such person is the beneficial owner, as
defined above, except it shall not include any shares of Voting Stock which may
be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
<PAGE>
"Market Value" means:
(a) In the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of
a share of such stock on the established national or regional stock
exchange on which it is listed, or, if such stock is not listed on any
such exchange, the highest closing sales price or bid quotation with
respect to a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities Dealers,
Inc. Automated Quotation System or any system then in use, or if no
such quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board of
Directors of the Corporation in good faith; and
(b) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
a majority of the Board of Directors of the Corporation in good faith.
"Subsidiary" means any corporation of which Voting Stock
having a majority of the votes entitled to be cast is owned, directly or
indirectly, by the Corporation.
"Valuation Date" means: (a) For a Business Combination voted
on by shareholders, the latter of the day prior to the date of the shareholders'
vote or the date l0 days prior to the consummation of the Business Combination;
and (b) for a Business Combination not voted upon by the shareholders, the date
of the consummation of the Business Combination.
"Voting Stock" means the then outstanding shares of capital
stock of the Corporation of Subsidiary, as the case may be, entitled to vote
generally in the election of directors.
In the event of any Business Combination in which the
Corporation is the surviving corporation, the phrase "consideration other than
cash to be received" as used in paragraphs (b)(i) and (b)(ii) of Section 11.2
hereof shall include the shares of Common Stock and/or the shares of any other
class or series of outstanding Voting Stock retained by the holders of such
shares.
11.4. POWERS OF THE BOARD OF DIRECTORS.
A majority of the Corporation's directors then in office shall
have the power and duty to determine for the purposes of this Article 11, on the
basis of information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder, (b) the number of shares of Voting Stock
beneficially owned by any person, (c) whether a person is an Affiliate or
Associate of another, and
<PAGE>
(d) whether the requirements of paragraph B of Section 11.2 have been met with
respect to any Business Combination; and the good faith determination of a
majority of the Board of Directors on such matters shall be conclusive and
binding for all the purposes of this Article 11.
11.5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
STOCKHOLDERS.
Nothing contained in this Article 11 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
12. INDEMNIFICATION.
To the extent permitted by law, the Corporation shall fully
indemnify any 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) by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully
indemnify any 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) by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of
such action, suit or proceeding upon the receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification. The
Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
<PAGE>
13. AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
Except as set forth in this Article 13 or as otherwise
specifically required by law, no amendment of any provision of this Amended and
Restated Certificate of Incorporation shall be made unless such amendment has
been first proposed by the Board of Directors of the Corporation upon the
affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the Board of Directors called for such purpose, and
thereafter approved by the stockholders of the Corporation by the affirmative
vote of the holders of at least a majority of the shares entitled to vote
thereon at a duly called annual or special meeting; provided, however, that if
such amendment is to the provisions set forth in this Article 13 or in Article
5, 6, 7, 8, 9, 10, or 12 hereof, such amendment must be approved by the
affirmative vote of the holders of at least 66-2/3 percent of the then
outstanding shares of stock of the Corporation entitled to vote thereon rather
than a majority; provided, further, that if such amendment is to the provisions
set forth in Article 11 hereof, such amendment must be approved by the
affirmative vote of the holders of at least 80 percent of the shares entitled to
vote thereon rather than a majority.
14. AMENDMENT OF BYLAWS.
In furtherance and not in limitation of the powers conferred
by the Delaware General Corporation Law, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to amend or repeal Bylaws adopted by the Board of Directors as
provided for in this Amended and Restated Certificate of Incorporation or in the
Bylaws of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended
and Restated Certificate of Incorporation to be executed on its behalf on May
28, 1997.
TELEBANC FINANCIAL CORPORATION
By: /s/ Mitchell H. Caplan
-------------------------
Mitchell H. Caplan
President and Vice Chairman of the Board
Attest:
By: /s/ Sang-Hee Yi
------------------
Sang-Hee Yi
Assistant Secretary
EXHIBIT 3.4
AMENDED AND RESTATED DECLARATION
OF TRUST
OF
TELEBANC CAPITAL TRUST I
Dated as of June 9, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.................................................32
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application...........................41
SECTION 2.2 Lists of Holders of Securities.............................41
SECTION 2.3 Reports by the Property Trustee............................42
SECTION 2.4 Periodic Reports to Property Trustee.......................42
SECTION 2.5 Evidence of Compliance with Conditions Precedent...........42
SECTION 2.6 Events of Default; Waiver..................................42
SECTION 2.7 Default; Notice............................................44
ARTICLE III
ORGANIZATION
SECTION 3.1 Name........................................................45
SECTION 3.2 Office......................................................45
SECTION 3.3 Purpose.....................................................45
SECTION 3.4 Authority...................................................45
SECTION 3.5 Title to Property of the Trust..............................46
SECTION 3.6 Powers and Duties of the Administrative Trustees............46
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees........49
SECTION 3.8 Powers and Duties of the Property Trustee...................50
SECTION 3.9 Certain Duties and Responsibilities of the Property
Trustee.....................................................53
SECTION 3.10 Certain Rights of Property Trustee.......................55
SECTION 3.11 Delaware Trustee..........................................57
SECTION 3.12 Execution of Documents....................................57
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities....58
SECTION 3.14 Duration of Trust.........................................58
SECTION 3.15 Mergers...................................................58
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities....................60
<PAGE>
SECTION 4.2 Responsibilities of the Sponsor............................60
SECTION 4.3 Right to Proceed...........................................61
SECTION 4.4 Right to Terminate Trust...................................61
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee..............62
SECTION 5.2 Delaware Trustee...........................................62
SECTION 5.3 Property Trustee; Eligibility..............................63
SECTION 5.4 Certain Qualifications of Administrative Trustees and......64
SECTION 5.5 Administrative Trustees....................................64
SECTION 5.6 Appointment, Removal and Resignation of Trustees...........65
SECTION 5.7 Vacancies among Trustees...................................67
SECTION 5.8 Effect of Vacancies........................................67
SECTION 5.9 Meetings...................................................67
SECTION 5.10 Delegation of Power.......................................68
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Bu.....68
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions..............................................69
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities....................69
SECTION 7.2 Execution and Authentication...............................70
SECTION 7.3 Form and Dating............................................71
SECTION 7.4 Registrar, Paying Agent and Exchange Agent.................72
SECTION 7.5 Paying Agent to Hold Money in Trust........................73
SECTION 7.6 Replacement Securities.....................................73
SECTION 7.7 Outstanding Capital Securities.............................74
SECTION 7.8 Capital Securities in Treasury.............................74
SECTION 7.9 Temporary Securities.......................................74
SECTION 7.10 Cancellation...............................................75
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.......................................76
<PAGE>
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.....................................77
SECTION 9.2 Transfer Procedures and Restrictions.......................78
SECTION 9.3 Deemed Security Holders....................................88
SECTION 9.4 Book-Entry Interests.......................................89
SECTION 9.5 Notices to Clearing Agency.................................89
SECTION 9.6 Appointment of Successor Clearing Agency...................90
ARTICLE X
LIMITATION OF LIABILITY OF HOLDERS
OF SECURITIES, TRUSTEE
SECTION 10.1 Liability..................................................90
SECTION 10.2 Exculpation................................................90
SECTION 10.3 Fiduciary Duty.............................................91
SECTION 10.4 Indemnification............................................92
SECTION 10.5 Outside Businesses.........................................95
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year...............................................96
SECTION 11.2 Certain Accounting Matters................................96
SECTION 11.3 Banking...................................................97
SECTION 11.4 Withholding...............................................97
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments................................................97
SECTION 12.2 Meetings of the Holders; Action by Written
Consent..................................................100
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUST
SECTION 13.1 Representations and Warranties of Property
Trustee..................................................101
SECTION 13.2 Representations and Warranties of Delaware
Trustee..................................................102
<PAGE>
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights Agreement; Liquidated
Damages..................................................103
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices..................................................103
SECTION 15.2 Governing Law............................................105
SECTION 15.3 Intention of the Parties.................................105
SECTION 15.4 Headings.................................................105
SECTION 15.5 Successors and Assigns...................................105
SECTION 15.6 Partial Enforceability...................................105
SECTION 15.7 Counterparts.............................................106
CROSS-REFERENCE TABLE*
Section of Trust Indenture Act Section of
of 1939, as amended Declaration
310(a) .........................................5.3
310(b) ..............................5.3(c), 5.3(d)
311(a) ......................................2.2(b)
311(b) ......................................2.2(b)
312(a) ......................................2.2(a)
312(b) ......................................2.2(b)
313 .........................................2.3
314(a) .................................2.4; 3.6(j)
314(c) .........................................2.5
315(a) .........................................3.9
315(b) ......................................2.7(a)
315(c) ......................................3.9(a)
315(d) ......................................3.9(b)
316(a) .........................................2.6
316(c) ......................................3.6(e)
317(a) ..............................3.8(e); 3.8(h)
317(b) .................................3.8(i); 7.5
---------------
* This Cross-Reference Table does not constitute part of this
Declaration and shall not affect the interpretation of any of its terms
or provisions.
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
TELEBANC CAPITAL TRUST I
Dated as of June 9, 1997
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration")
dated and effective as of June 9, 1997, by the Trustees (as defined herein), the
Sponsor (as defined herein) and by the holders, from time to time, of undivided
beneficial interests in the Trust to be issued pursuant to this Declaration;
WHEREAS, the Trustees (other than the Property Trustee (as
defined herein)) and the Sponsor established TeleBanc Capital Trust I (the
"Trust"), a trust formed under the Delaware Business Trust Act pursuant to a
Declaration of Trust dated as of June 3, 1997 (the "Original Declaration"), and
a Certificate of Trust filed with the Secretary of State of the State of
Delaware on June 3, 1997, for the sole purpose of issuing and selling certain
securities representing undivided beneficial interests in the assets of the
Trust, investing the proceeds thereof in certain Debentures of the Debenture
Issuer (each as hereinafter defined), and engaging in only those activities
necessary, advisable or incidental thereto;
WHEREAS, prior to the date hereof, no interests in the Trust
have been issued;
WHEREAS, all of the Trustees and the Sponsor, by this
Declaration, amend and restate each and every term and provision of the Original
Declaration; and
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 declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration and, in consideration
of the mutual covenants contained herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
<PAGE>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) capitalized terms used in this Declaration but not defined
in the preamble above or elsewhere herein have the respective meanings
assigned to them in this Section 1.1;
(b) a term defined anywhere in this Declaration has the same
meaning throughout;
(c) all references to "the Declaration" or "this Declaration"
are to this Declaration and each Annex and Exhibit hereto, as modified,
supplemented or amended from time to time;
(d) all references in this Declaration to Articles and
Sections and Annexes and Exhibits are to Articles and Sections of and
Annexes and Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires;
(f) a term defined in the Indenture (as defined herein) has
the same meaning when used in this Declaration unless otherwise defined
in this Declaration or the context otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"Administrative Trustee" has the meaning set forth in Section
5.1.
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent, Registrar or Exchange Agent.
"Authorized Officer" of a Person means any other Person that
is authorized to legally bind such former Person.
"Book-Entry Interest" means a beneficial interest in the
Global Capital Security registered in the name of a Clearing Agency or its
nominee, ownership and
<PAGE>
transfers of which shall be maintained and made through book entries by a
Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday or a Sunday
or a day on which banking institutions in New York, New York, Wilmington,
Delaware and Arlington, Virginia are authorized or required by law or executive
order to remain closed.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Codess.3801 et seq., as it may be amended from time to
time, or any successor legislation.
"Capital Security Beneficial Owner" means, with respect to a
Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Capital Security Certificate" has the meaning set forth in
Section 9.4.
"Capital Securities" means, collectively, the Series A Capital
Securities and the Series B Capital Securities.
"Capital Securities Guarantee" means, collectively, the Series
A Capital Securities Guarantee and the Series B Capital Securities Guarantee.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Capital Securities and in whose name or in the name of a
nominee of that organization shall be registered a Global Certificate and which
shall undertake to effect book entry transfers and pledges of the Capital
Securities.
"Clearing Agency Participant" means a broker, dealer, bank,
other financial institution or other Person for whom from time to time the
Clearing Agency effects book entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Time" means the "Closing Time" as defined in the
Purchase Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
<PAGE>
"Commission" means the United States Securities and Exchange
Commission as from time to time constituted, or if at any time after the
execution of this Declaration such Commission is not existing and performing the
duties now assigned to it under applicable federal securities laws, then the
body performing such duties at such time.
"Common Securities" has the meaning specified in Section
7.1(a).
"Common Securities Guarantee" means the Common Securities
Guarantee Agreement, dated as of the Closing Time, of TeleBanc Financial
Corporation, Inc. in respect of the Common Securities.
"Common Securities Subscription Agreement" means the Common
Securities Subscription Agreement, dated as of the Closing Time, between the
Trust and the TeleBanc Financial Corporation, relating to the Common Securities.
"Company Indemnified Person" means (a) any Administrative
Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers,
directors, shareholders, members, partners, employees, representatives or agents
of any Administrative Trustee; or (d) any officer, employee or agent of the
Trust or its Affiliates.
"Corporate Trust Office" means the office of the Property
Trustee at which the corporate trust business of the Property Trustee shall, at
any particular time, be principally administered, which office at the date of
execution of this Agreement is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001.
"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 TeleBanc Financial Corporation, a
Delaware corporation, or any successor entity resulting from any consolidation,
amalgamation, merger or other business combination, in its capacity as issuer of
the Debentures under the Indenture.
"Debenture Subscription Agreement" means the Debenture
Subscription Agreement, dated as of the Closing Time, between the Debenture
Issuer and the Trust in respect of the Series A Debentures.
"Debenture Trustee" means Wilmington Trust Company, a Delaware
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
<PAGE>
"Debentures" means, collectively, the Series A Debentures and
the Series B Debentures.
"Default" means an event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Definitive Capital Securities" has the meaning set forth in
Section 7.3(c).
"Delaware Trustee" has the meaning set forth in Section 5.1.
"Direct Action" has the meaning set forth in Section 3.8(e).
"Distribution" means a distribution payable to Holders in
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" in respect of the Securities means an Event
of Default (as defined in the Indenture) that has occurred and is continuing in
respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Exchange Agent" has the meaning set forth in Section 7.4.
"Exchange Offer" means the offer that may be made pursuant to
the Registration Rights Agreement (i) by the Trust to exchange Series B Capital
Securities for Series A Capital Securities and (ii) by the Debenture Issuer to
exchange Series B Debentures for Series A Debentures and to execute the Series B
Capital Securities Guarantee in respect of the Series B Capital Securities.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Global Capital Security" has the meaning set forth in Section
7.3(a).
<PAGE>
"Holder" means a Person in whose name a Security or Successor
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture, dated as of the Closing Time,
between the Debenture Issuer and the Debenture Trustee, as amended from time to
time.
"Initial Optional Redemption Date" has the meaning set forth
in Section 4(b) of Annex I hereto.
"Investment Company" means an investment company as defined in
the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Like Amount" has the meaning set forth in Section 3 of Annex
I hereto.
"List of Holders" has the meaning set forth in Section 2.2(a).
"Majority in liquidation amount" means, with respect to the
Trust Securities, except as provided in the terms of the Capital Securities or
by the Trust Indenture Act, Holders of outstanding Trust Securities voting
together as a single class or, as the context may require, Holders of
outstanding Capital Securities or Holders of outstanding Common Securities
voting separately as a class, who are the record owners of more than 50% of the
aggregate liquidation amount (including the 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.
"Offering Memorandum" has the meaning set forth in Section
3.6(b)(i).
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman, the Chief Executive Officer, the President,
an Executive or Senior Vice President, a Vice President, the Chief Financial
Officer, the Secretary or an Assistant Secretary. Any Officers' Certificate
delivered by the Trust shall be signed by at least one Administrative Trustee.
Any Officers' Certificate delivered
<PAGE>
with respect to compliance with a condition or covenant provided for in this
Declaration shall include:
(a) a statement that each officer signing the Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering
the Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who
may be an employee of the Sponsor, and who shall be acceptable to the Property
Trustee.
"Participants" has the meaning specified in Section 7.3(b).
"Paying Agent" has the meaning specified in Section 7.4.
"Payment Amount" has the meaning specified in Section 6.1.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PORTAL" has the meaning set forth in Section 3.6(b)(iii).
"Property Trustee" has the meaning set forth in Section
5.3(a).
"Property Trustee Account" has the meaning set forth in
Section 3.8(c)(i).
"Purchase Agreement" means the Purchase Agreement, dated June
9, 1997, by and among the Trust, the Debenture Issuer and the Initial Purchaser
named therein.
"QIBs" shall mean qualified institutional buyers as defined in
Rule 144A.
<PAGE>
"Quorum" means a majority of the Administrative Trustees or,
if there are only two Administrative Trustees, both of them.
"Registrar" has the meaning set forth in Section 7.4.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of June 9, 1997, by and among the Trust, the Debenture
Issuer and the Initial Purchaser named therein, as amended from time to time.
"Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Regulatory Capital Event" has the meaning set forth in
Section 4(c) of Annex I hereto.
"Related Party" means, with respect to the Sponsor, any direct
or indirect wholly owned subsidiary of the Sponsor or any other Person that
owns, directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means any officer within the Corporate
Trust Office of the Property Trustee with direct responsibility for the
administration of this Declaration and also means, with respect to a particular
corporate trust matter, any other officer of the Property Trustee to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Restricted Definitive Capital Securities" has the meaning set
forth in Section 7.3(c).
"Restricted Capital Security" means a Capital Security
required by Section 9.2 to contain a Restricted Securities Legend.
"Restricted Securities Legend" has the meaning set forth in
Section 9.2(i).
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act,
or any successor rule or regulation.
"Rule 144" means Rule 144 under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Rule 144A" means Rule 144A under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
<PAGE>
"Securities" or "Trust Securities" means the Common Securities
and the Capital Securities.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
"Securities Guarantees" means the Common Securities Guarantee
and the Capital Securities Guarantee.
"Series A Capital Securities" has the meaning specified in
Section 7.1(a).
"Series A Capital Securities Guarantee" means the Series A
Capital Securities Guarantee Agreement, dated as of the Closing Time, by
TeleBanc Financial Corporation, in respect of the Series A Capital Securities.
"Series A Debentures" means the 11.00% Junior Subordinated
Deferrable Interest Debentures due June 1, 2027, Series A, of the Debenture
Issuer issued pursuant to the Indenture.
"Series B Capital Securities" has the meaning specified in
Section 7.1(a).
"Series B Capital Securities Guarantee" means the Series B
Capital Securities Guarantee Agreement to be entered into in connection with the
Exchange Offer by Telebanc Financial Corporation, in respect of the Series B
Capital Securities.
"Series B Debentures" means the 11.00% Junior Subordinated
Deferrable Interest Debentures due June 1, 2027, Series B, of the Debenture
Issuer to be issued pursuant to the Indenture in connection with the Exchange
Offer.
"Special Event" has the meaning set forth in Section 4(c) of
Annex I hereto.
"Special Event Redemption Price" has the meaning set forth in
Section 4(c) of Annex I hereto.
"Sponsor" means TeleBanc Financial Corporation, a Delaware
corporation, or any successor entity resulting from any merger, consolidation,
amalgamation or other business combination, in its capacity as sponsor of the
Trust.
"Successor Delaware Trustee" has the meaning set forth in
Section 5.6(b)(ii).
<PAGE>
"Successor Entity" has the meaning set forth in Section
3.15(b)(i).
"Successor Property Trustee" has the meaning set forth in
Section 3.8(f)(ii).
"Successor Securities" has the meaning set forth in Section
3.15(b)(i).
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
"Tax Event" has the meaning set forth in Section 4(c) of Annex
I hereto.
"10% in liquidation amount" means, with respect to the Trust
Securities, except as provided in the terms of the Capital Securities or by the
Trust Indenture Act, Holders of outstanding Trust Securities voting together as
a single class or, as the context may require, Holders of outstanding Capital
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of 10% or more of the aggregate liquidation
amount (including the 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.
"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).
"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 as a trustee of
the Trust in accordance with the terms hereof, and all other Persons who may
from time to time be duly appointed, qualified and serving as Trustees in
accordance with the provisions hereof, and references herein to a Trustee or the
Trustees shall refer to such Person or Persons solely in their capacity as
trustees hereunder.
"Trust Property" means (a) the Debentures, (b) any cash on
deposit in, or owing to the Property Trustee Account and (c) all proceeds and
rights in respect of the foregoing and any other property and assets for the
time being held or deemed to be held by the Property Trustee pursuant to this
Declaration.
"Unrestricted Global Capital Security" has the meaning set
forth in Section 9.2(b).
<PAGE>
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration in order for this
Declaration to be qualified under the Trust Indenture Act and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this
Declaration limits, qualifies or conflicts with the duties imposed by ss.ss. 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
(a) Each of the Sponsor and the Administrative Trustees on
behalf of the Trust shall provide the Property Trustee, unless the Property
Trustee is Registrar for the Securities, (i) within 14 days after each record
date for payment of Distributions, a list, in such form as the Property Trustee
may reasonably require, of the names and addresses of the Holders ("List of
Holders") as of such record date, provided that neither the Sponsor nor the
Administrative Trustees on behalf of the Trust shall be obligated to provide
such List of Holders at any time that the List of Holders does not differ from
the most recent List of Holders given to the Property Trustee by the Sponsor and
the Administrative Trustees on behalf of the Trust, and (ii) at any other time,
within 30 days of receipt by the Trust of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Property Trustee. The Property Trustee shall preserve, in as current a
form as is reasonably practicable, all information contained in Lists of Holders
given to it or which it receives in the capacity as Paying Agent (if acting in
such capacity), provided that the Property Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations
underss.ss.311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
<PAGE>
Within 60 days after June 1 of each year, commencing June 1,
1998, the Property Trustee shall provide to the Holders of the Capital
Securities such reports as are required by ss. 313 of the Trust Indenture Act,
if any, in the form and in the manner provided by ss. 313 of the Trust Indenture
Act. The Property Trustee shall also comply with the requirements of ss. 313(d)
of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such documents, reports and
information as are required by ss. 314 (if any) of the Trust Indenture Act and
the compliance certificate required by ss. 314 of the Trust Indenture Act in the
form, in the manner and at the times required by ss. 314 of the Trust Indenture
Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent provided for in this Declaration that relate to
any of the matters set forth in ss. 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to ss.
314(c)(1) of the Trust Indenture Act may be given in the form of an Officers'
Certificate.
SECTION 2.6 Events of Default; Waiver.
(a) The Holders of a Majority in liquidation amount of Capital
Securities may, by vote, on behalf of the Holders of all of the Capital
Securities, waive any past Event of Default in respect of the Capital Securities
and its consequences, provided that, if the underlying Event of Default under
the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority
in aggregate principal amount of the holders of the Debentures (a
"Super Majority") to be waived under the Indenture, the Event of
Default under the Declaration may only be waived by the vote of the
Holders of at least the proportion in aggregate liquidation amount of
the Capital Securities that the relevant Super Majority represents of
the aggregate principal amount of the Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of ss.
316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the
<PAGE>
Trust Indenture Act. Upon such waiver, any such Default shall cease to exist,
and any Event of Default with respect to the Capital Securities arising
therefrom shall be deemed to have been cured, for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or other Default
or an Event of Default with respect to the Capital Securities or impair any
right consequent thereon. Any waiver by the Holders of the Capital Securities of
an Event of Default with respect to the Capital Securities shall also be deemed
to constitute a waiver by the Holders of the Common Securities of any such Event
of Default with respect to the Common Securities for all purposes of this
Declaration without any further act, vote, or consent of the Holders of the
Common Securities.
(b) The Holders of a Majority in liquidation amount of the
Common Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event
of Default under the Declaration as provided below in this Section
2.6(b), the Event of Default under the Declaration shall also not be
waivable; or
(ii) requires the consent or vote of a Super Majority to be
waived, except where the Holders of the Common Securities are deemed to
have waived such Event of Default under the Declaration as provided
below in this Section 2.6(b), the Event of Default under the
Declaration may only be waived by the vote of the Holders of at least
the proportion in aggregate liquidation amount of the Common Securities
that the relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and their consequences if all Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated, and until
such Events of Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the Holders of
the Capital Securities and only the Holders of the Capital Securities will have
the right to direct the Property Trustee in accordance with the terms of the
Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of
ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such ss.ss.
316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon
such waiver, any such Default shall cease to exist and any Event of Default with
respect to the Common Securities arising
<PAGE>
therefrom shall be deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or other Default
or Event of Default with respect to the Common Securities or impair any right
consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Property Trustee, at the direction of the Holders of the Capital Securities,
constitutes a waiver of the corresponding Event of Default under this
Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of
ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 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 Default; Notice.
(a) The Property Trustee shall, within 90 days after a
Responsible Officer obtains actual knowledge of the occurrence of a Default with
respect to the Securities, transmit by mail, first class postage prepaid, to the
Holders, notices of all such Defaults, unless such Defaults have been cured
before the giving of such notice or previously waived; provided, however, that
except in the case of a Default arising from the nonpayment of principal of (or
premium, if any) or interest (including Compounded Interest and Additional Sums
(as such terms are defined in the Indenture), if any) or Liquidated Damages (as
defined in the Registration Rights Agreement) on any of the Debentures, the
Property Trustee shall be protected in withholding such notice if and so long as
a Responsible Officer in good faith determines that the withholding of such
notice is in the interests of the Holders.
(b) The Property Trustee shall not be deemed to have knowledge
of any Default or Event of Default except:
(i) a Default or Event of Default under Sections 5.01(a)
(other than the payment of Compounded Interest, Additional Sums and
Liquidated Damages) and 5.01(b) of the Indenture; or
(ii) any Default or Event of Default as to which the Property
Trustee shall have received written notice or of which a Responsible
Officer charged with the administration of the Declaration shall have
actual knowledge.
(c) Within ten Business Days after a Responsible Officer
obtains actual knowledge of the occurrence of any Event of Default, the Property
Trustee shall transmit notice of such Event of Default to the Holders of the
Capital Securities, the Administrative Trustees and the Sponsor, unless such
Event of Default shall have been cured or waived. The Sponsor and the
Administrative
<PAGE>
Trustees shall file annually with the Property Trustee a certification as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under this Declaration.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
The Trust is named "TeleBanc Capital Trust I" as such name may
be modified from time to time by the Administrative Trustees following written
notice to the Delaware Trustee, the Property Trustee and the Holders. The
Trust's activities may be conducted under the name of the Trust or any other
name deemed advisable by the Administrative Trustees.
SECTION 3.2 Office.
The address of the principal office of the Trust is c/o
TeleBanc Financial Corporation, 1111 North Highland Street, Arlington, Virginia
22201. On ten Business Days' prior written notice to the Delaware Trustee, the
Property Trustee and the Holders of Securities, the Administrative Trustees may
designate another principal office.
SECTION 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to
issue and sell Securities, (b) use the proceeds from the sale of the Securities
to acquire the Debentures, and (c) except as otherwise limited herein, to engage
in only those other activities necessary, advisable or incidental thereto,
including without limitation, those activities specified in Sections 3.6, 3.8,
3.9, 3.10, 3.11 and/or 3.12. The Trust shall not borrow money, issue debt or
reinvest proceeds derived from investments, mortgage or pledge any of its
assets, or otherwise undertake (or permit to be undertaken) any activity that
would cause the Trust not to be classified for United States federal income tax
purposes as a grantor trust.
SECTION 3.4 Authority.
Subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Administrative Trustees shall
have exclusive and complete authority to carry out the purposes of the Trust. An
action taken by one or more of the Administrative Trustees in accordance with
their powers shall constitute the act of and serve to bind the Trust and an
action taken by the Property Trustee on behalf of the Trust in accordance with
its powers shall constitute the act of and serve to bind the Trust. In dealing
with the Trustees acting on behalf of the Trust, no Person shall be required to
inquire into the
<PAGE>
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
SECTION 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the
Debentures and the Property Trustee Account or as otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.6 Powers and Duties of the Administrative Trustees.
The Administrative Trustees shall have the exclusive power,
duty and authority, and are hereby authorized and directed, to cause the Trust
to engage in the following activities:
(a) to execute, enter into and deliver the Common Securities
Subscription Agreement and to execute, deliver, issue and sell the Securities in
accordance with this Declaration; provided, however, that except as contemplated
in Section 7.1(a), (i) the Trust may issue no more than one series of Capital
Securities and no more than one series of Common Securities, (ii) there shall be
no interests in the Trust other than the Securities, and (iii) the issuance of
Securities shall be limited to a simultaneous issuance of both Capital
Securities and Common Securities at the Closing Time;
(b) in connection with the issue and sale of the Capital
Securities and the consummation of the Exchange Offer, at the direction of the
Sponsor, to:
(i) prepare and execute, if necessary, an offering memorandum
(the "Offering Memorandum") in preliminary and final form prepared by
the Sponsor, in relation to the offering and sale of Series A Capital
Securities to QIBs in reliance on Rule 144A and to institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act), and to execute and file with the Commission,
at such time as determined by the Sponsor, any Registration Statement,
including any amendments thereto, as contemplated by the Registration
Rights Agreement;
(ii) execute and file any documents prepared by the Sponsor,
or take any acts as determined by the Sponsor to be necessary in order
to qualify or register all or part of the Capital Securities in any
State in which the Sponsor has determined to qualify or register such
Capital Securities for sale;
<PAGE>
(iii) execute and file an application, prepared by the
Sponsor, to permit the Capital Securities to trade or be quoted or
listed in or on the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") Market or any other securities exchange,
quotation system or the Nasdaq Stock Market's National Market;
(iv) execute and deliver letters, documents, or instruments
with DTC and other Clearing Agencies relating to the Capital
Securities;
(v) if required, execute and file with the Commission a
registration statement on Form 8-A, including any amendments thereto,
prepared by the Sponsor, relating to the registration of the Capital
Securities under Section 12(b) or 12(g) of the Exchange Act, as the
case may be; and
(vi) execute, enter into and deliver the Purchase Agreement
and the Registration Rights Agreement providing for, among other
things, the sale and registration of the Capital Securities;
(c) to execute, enter into and deliver the Debenture
Subscription Agreement, to acquire the Series A Debentures with the proceeds of
the sale of the Series A Capital Securities and the Common Securities and to
exchange the Series A Debentures for a like principal amount of Series B
Debentures, pursuant to the Exchange Offer; provided, however, that the
Administrative Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders;
(d) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all actions to
be taken hereunder that require a record date be established, including and with
respect to, for the purposes of ss. 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be
required of the Administrative Trustees pursuant to the terms of the Securities;
(g) to the fullest extent permitted by law, to bring or
defend, pay, collect, compromise, arbitrate, resort to legal action, or
otherwise adjust claims or demands of or against the Trust ("Legal Action"),
unless pursuant to Section 3.8(e), the Property Trustee has the exclusive power
to bring such Legal Action;
<PAGE>
(h) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors, advisors,
and consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations
under the Trust Indenture Act;
(j) to give the certificate required by ss. 314(a)(4) of the
Trust Indenture Act to the Property Trustee, which certificate may be executed
by any Administrative Trustee;
(k) to incur expenses that are necessary or incidental to
carry out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, Registrar
and Exchange Agent for the Securities or to appoint a Paying Agent for the
Securities as provided in Section 7.4 except for such time as such power to
appoint a Paying Agent is vested in the Property Trustee;
(m) to give prompt written notice to the Property Trustee and
to Holders of any notice received from the Debenture Issuer of its election to
defer payments of interest on the Debentures by extending the interest payment
period under the Indenture;
(n) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the laws
of the State of Delaware and of each other jurisdiction in which such existence
is necessary to protect the limited liability of the Holders or to enable the
Trust to effect the purposes for which the Trust was created;
(o) to take any action, not inconsistent with this Declaration
or with applicable law, that the Administrative Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment
Company required to be registered under the Investment Company Act;
(ii) causing the Trust to continue to be classified for United
States federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes;
<PAGE>
(p) to take all action necessary to consummate the Exchange
Offer or otherwise cause the Capital Securities to be registered pursuant to an
effective registration statement in accordance with the provisions of the
Registration Rights Agreement;
(q) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with respect
to the Trust to be duly prepared and filed by the Administrative Trustees, on
behalf of the Trust; and
(r) to execute and deliver all documents or instruments,
perform all duties and powers, and do all things for and on behalf of the Trust
in all matters necessary, advisable or incidental to the foregoing.
The Administrative Trustees must exercise the powers set forth
in this Section 3.6 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Administrative Trustees
shall not take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Administrative Trustees shall
have none of the powers or the authority of the Property Trustee set forth in
Section 3.8.
Any expenses incurred by the Administrative Trustees pursuant
to this Section 3.6 shall be reimbursed by the Debenture Issuer.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
The Trust shall not, and the Trustees (including the Property
Trustee and the Delaware Trustee) shall not, and the Administrative Trustees
shall cause the Trust not to, engage in any activity other than as required or
authorized by this Declaration. The Trust shall not:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders pursuant
to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided
herein;
(iii) possess Trust Property for other than a Trust purpose or
execute any mortgage in respect of, or pledge, any Trust Property;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
<PAGE>
(v) possess any power or otherwise act in such a way as to
vary the Trust Property or the terms of the Securities in any way
whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities;
(vii) other than as provided in this Declaration or Annex I
hereto, (A) direct the time, method and place of conducting any
proceeding with respect to any remedy available to the Debenture
Trustee, or exercising any trust or power conferred upon the Debenture
Trustee with respect to the Debentures, (B) waive any past default that
is waivable under the Indenture, or (C) exercise any right to rescind
or annul any declaration that the principal of all the Debentures shall
be due and payable; or
(viii) consent to any amendment, modification or termination
of the Indenture or the Debentures where such consent shall be required
unless the Trust shall have received an opinion of independent tax
counsel experienced in such matters to the effect that such amendment,
modification or termination will not cause more than an insubstantial
risk that the Trust will not be classified as a grantor trust for
United States federal income tax purposes.
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. The right, title and interest of the Property Trustee
to the Debentures shall vest automatically in each Person who may hereafter be
appointed as Property Trustee in accordance with Section 5.6. Such vesting and
cessation of title shall be effective whether or not conveyancing documents with
regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title
and interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
trust account (the "Property Trustee Account") in the name of and under
the exclusive control of the Property Trustee on behalf of the Holders
and, upon the receipt of payments of funds made in respect of the
Debentures held by the Property Trustee, deposit such funds into the
Property Trustee Account and make payments or cause the Paying Agent to
make payments to the
<PAGE>
Holders from the Property Trustee Account in accordance with Section
6.1; funds in the Property Trustee Account shall be held uninvested
until disbursed in accordance with this Declaration; and the Property
Trustee Account shall be an account that is maintained with a banking
institution the rating on whose long-term unsecured indebtedness by a
"nationally recognized statistical rating organization", as that term
is defined for purposes of Rule 436(g)(2) under the Securities Act, is
at least equal to the rating assigned to the Capital Securities;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect the redemption of the Securities to
the extent the Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the
Administrative Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as shall be necessary or
appropriate to effect the distribution of the Debentures to Holders
upon the occurrence of certain events.
(d) The Property Trustee shall take all actions and perform
such duties as may be specifically required of the Property Trustee pursuant to
the terms of this Declaration and the Securities.
(e) Subject to Section 3.9(a), the Property Trustee shall take
any Legal Action which arises out of or in connection with an Event of Default
of which a Responsible Officer has actual knowledge or the Property Trustee's
duties and obligations under this Declaration or the Trust Indenture Act and if
the Property Trustee shall have failed to take such Legal Action, the Holders of
the Capital Securities may take such Legal Action, to the same extent as if such
Holders of Capital Securities held an aggregate principal amount of Debentures
equal to the aggregate liquidation amount of such Capital Securities, without
first proceeding against the Property Trustee or the Trust; provided, however,
that if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuer to pay the principal of or
premium, if any, or interest (including Compounded Interest and Additional Sums,
if any) or Liquidated Damages, if any, on the Debentures on the date such
principal, premium, if any, or interest (including Compounded Interest and
Additional Sums, if any) or Liquidated Damages, if any, is otherwise payable (or
in the case of redemption, on the redemption date), then a Holder of Capital
Securities may directly institute a proceeding for enforcement of payment to
such Holder of the principal of or premium, if any or interest (including
Compounded Interest and Additional Sums, if any) or Liquidated Damages, if any,
on the Debentures having a principal amount equal to the aggregate liquidation
amount of the Capital Securities of such Holder (a "Direct Action") on or after
the respective due date specified in the Debentures. In connection with such
Direct Action, the rights of the Holders of the Common
<PAGE>
Securities will be subrogated to the rights of such Holder of Capital Securities
to the extent of any payment made by the Debenture Issuer to such Holder of
Capital Securities in such Direct Action. Except as provided in the preceding
sentences, the Holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Debentures.
(f) The Property Trustee shall 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 pursuant to the terms of
the Securities; or
(ii) a successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.6 (a "Successor
Property Trustee").
(g) The Property Trustee shall have the legal power to
exercise all of the rights, powers and privileges of a holder of Debentures
under the Indenture and, if an Event of Default actually known to a Responsible
Officer occurs and is continuing, the Property Trustee shall, for the benefit of
Holders, enforce its rights as holder of the Debentures subject to the rights of
the Holders pursuant to the terms of this Declaration and the Securities.
(h) The Property Trustee shall be authorized to undertake any
actions set forth in ss. 317(a) of the Trust Indenture Act.
(i) For such time as the Property Trustee is the Paying Agent,
the Property Trustee may authorize one or more Persons to act as additional
Paying Agents and to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Securities and any such
Paying Agent shall comply with ss. 317(b) of the Trust Indenture Act. Any such
additional Paying Agent may be removed by the Property Trustee at any time the
Property Trustee remains as Paying Agent and a successor Paying Agent or
additional Paying Agents may be (but are not required to be) appointed at any
time by the Property Trustee while the Property Trustee is acting as Paying
Agent.
(j) Subject to this Section 3.8, the Property Trustee shall
have none of the duties, liabilities, powers or the authority of the
Administrative Trustees set forth in Section 3.6.
Notwithstanding anything expressed or implied to the contrary
in this Declaration or any Annex or Exhibit hereto, (i) the Property Trustee
must exercise the powers set forth in this Section 3.8 in a manner that is
consistent with the purposes and functions of the Trust set out in Section 3.3,
and (ii) the Property
<PAGE>
Trustee shall not take any action that is inconsistent with the purposes and
functions of the Trust set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event
of Default and after the curing or waiving of all Events of Default that may
have occurred, shall undertake to perform only such duties as are specifically
set forth in this Declaration and in the Securities and no implied covenants
shall be read into this Declaration against the Property Trustee. In case an
Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) of which a Responsible Officer has actual knowledge, the Property
Trustee shall exercise such of the rights and powers vested in it by this
Declaration, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) No provision of this Declaration shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property
Trustee shall be determined solely by the express provisions
of this Declaration and in the Securities and the Property
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Declaration and in the Securities, and no implied covenants or
obligations shall be read into this Declaration against the
Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively rely,
as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Property Trustee and conforming to the
requirements of this Declaration; provided, however, that in
the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to
the Property Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or not on their
face they conform to the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall
be
<PAGE>
proved that the Property Trustee was negligent in ascertaining the
pertinent facts;
(iii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a Majority in
liquidation amount of the Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the
Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Declaration or indemnity reasonably satisfactory to the Property
Trustee against such risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the
custody, safekeeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such property in a
similar manner as the Property Trustee deals with similar property for
its own account, subject to the protections and limitations on
liability afforded to the Property Trustee under this Declaration and
the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of
the Debentures or the payment of any taxes or assessments levied
thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree
in writing with the Sponsor. Money held by the Property Trustee need
not be segregated from other funds held by it except in relation to the
Property Trustee Account maintained by the Property Trustee pursuant to
Section 3.8(c)(i) and except to the extent otherwise required by law;
and
(viii) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the Sponsor
with their respective duties under this Declaration, nor shall the
Property Trustee be liable for any default or misconduct of the
Administrative Trustees or the Sponsor.
SECTION 3.10 Certain Rights of Property Trustee.
<PAGE>
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the Administrative
Trustees contemplated by this Declaration may be sufficiently evidenced
by an Officers' Certificate;
(iii) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon receipt of
such request, shall be promptly delivered by the Sponsor or the
Administrative Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel or other
experts of its selection and the advice or opinion of such counsel and
experts with respect to legal matters or advice within the scope of
such experts' area of expertise shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion, such counsel may be counsel to the Sponsor or any of
its Affiliates, and may include any of its employees, and the Property
Trustee shall have the right at any time to seek instructions
concerning the administration of this Declaration from any court of
competent jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration
at the request or direction of any Holder, unless such Holder shall
have provided to the Property Trustee security and indemnity,
reasonably satisfactory to the Property Trustee, against the costs,
expenses (including reasonable attorneys' fees and expenses and the
expenses of the Property Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request
or direction, including such reasonable advances
<PAGE>
as may be requested by the Property Trustee; provided, however, that,
nothing contained in this Section 3.10(a)(vi) shall be taken to relieve
the Property Trustee, upon the occurrence of an Event of Default, of
its obligation to exercise the rights and powers vested in it by this
Declaration;
(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Property Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents, custodians, nominees or attorneys and the Property
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders, and the signature of
the Property Trustee or its agents alone shall be sufficient and
effective to perform any such action and no third party shall be
required to inquire as to the authority of the Property Trustee to so
act or as to its compliance with any of the terms and provisions of
this Declaration, both of which shall be conclusively evidenced by the
Property Trustee's or its agent's taking such action;
(x) whenever in the administration of this Declaration the
Property Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Property Trustee (i) may request instructions from the
Holders which instructions may only be given by the Holders of the same
proportion in liquidation amount of the Securities as would be entitled
to direct the Property Trustee under the terms of the Securities in
respect of such remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in conclusively
relying on or acting in or accordance with such instructions;
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any obligation to
take any action that is discretionary under the provisions of this
Declaration; and
(xii) the Property Trustee shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith, without
negligence or
<PAGE>
willful misconduct, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Declaration.
(b) No provision of this Declaration shall be deemed to impose
any duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other
than Section 5.2, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Trustees described in this Declaration (except as
required under the Business Trust Act). Except as set forth in Section 5.2, the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of ss. 3807 of the Business Trust Act. In the event
the Delaware Trustee shall at any time be required to take any action or perform
any duty hereunder, the Delaware Trustee shall be entitled to the benefits of
Section 3.9(b)(ii) to (viii), inclusive, and Section 3.10. No implied covenants
or obligations shall be read into this Declaration against the Delaware Trustee.
SECTION 3.12 Execution of Documents.
Unless otherwise determined by the Administrative Trustees,
each Administrative Trustee, individually, is authorized to execute and deliver
on behalf of the Trust any documents, agreements, instruments or certificates
that the Administrative Trustees have the power and authority to execute
pursuant to Section 3.6.
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities
shall be taken as the statements of the Sponsor, and the Trustees do not assume
any responsibility for their correctness. The Trustees make no representations
as to the value or condition of the Trust Property or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of
Article VIII hereof, shall have existence up to June 1, 2028.
<PAGE>
SECTION 3.15 Mergers.
(a) The Trust may not merge with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any Person, except as
described in Section 3.15(b) and (c) and except with respect to the distribution
of Debentures to Holders pursuant to Section 8.1(a)(iii).
(b) The Trust may, at the request of the Sponsor, with the
consent of the Administrative Trustees or, if there are more than two, a
majority of the Administrative Trustees and without the consent of the Holders,
the Delaware Trustee or the Property Trustee, merge with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to, a trust organized as
such under the laws of any State; provided that:
(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the
Trust under the Securities; or
(B) substitutes for the Securities other securities
having substantially the same terms as the Securities (the
"Successor Securities") so long as the Successor Securities
rank the same as the Securities rank in priority with respect
to Distributions and payments upon liquidation, redemption and
otherwise;
(ii) the Sponsor expressly appoints a trustee of the Successor
Entity that possesses the same powers and duties as the Property
Trustee with respect to the Debentures;
(iii) the Successor Securities are listed, quoted or included
for trading, or any Successor Securities will be listed, quoted or
included for trading upon notification of issuance, on any national
securities exchange or with any other organization on which the Capital
Securities are then listed, quoted or included;
(iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Capital Securities
(including any Successor Securities) or the Debentures to be downgraded
by any nationally recognized statistical rating organization that
publishes a rating on the Capital Securities or the Debentures;
<PAGE>
(v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the Holders (including the holders of any
Successor Securities) in any material respect (other than with respect
to any dilution of the interests of such Holders or holders, as the
case may be, in the new entity);
(vi) the 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
(including the holders of any Successor Securities) in any
material respect (other than with respect to any dilution of
the interests of such Holders or holders, as the case may be,
in the new entity);
(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, replacement, conveyance, transfer or lease, the
Trust (or the Successor Entity) will continue to be 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 of the Successor Entity and guarantees the
obligations of the Successor Entity under the Successor Securities at
least to the extent provided by the Capital Securities Guarantee and
the Common Securities Guarantee; and
(ix) there shall have been furnished to the Property Trustee
an Officer's Certificate and an Opinion of Counsel, each to the effect
that all conditions precedent in this Declaration to such transaction
have been satisfied.
(c) Notwithstanding Section 3.15(b), the Trust shall not,
except with the consent of Holders of 100% in liquidation amount of the
Securities, consolidate, amalgamate, merge with or into, or be replaced by, or
convey, transfer
<PAGE>
or lease its properties and assets as an entirety or substantially as an
entirety to, any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Trust or the Successor Entity not to be classified as a grantor trust for United
States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities.
At the Closing Time, pursuant to the Common Securities
Subscription Agreement, the Sponsor will purchase all of the Common Securities
then issued by the Trust, in an amount equal to at least 3% of the total capital
of the Trust, at the same time as the Series A Capital Securities are issued and
sold.
SECTION 4.2 Responsibilities of the Sponsor.
In connection with the issue and sale of the Capital
Securities, the Sponsor shall have the exclusive right and responsibility to
engage in the following activities:
(a) to prepare the Offering Memorandum, in preliminary and
final form, and to prepare for filing by the Trust with the Commission any
Registration Statement, including any amendments thereto, as contemplated by the
Registration Rights Agreement;
(b) to determine the States in which to take appropriate
action to qualify or register for sale all or part of the Capital Securities and
to do any and all such acts, other than actions which must be taken by the
Trust, and advise the Trust of actions it must take, and prepare for execution
and filing any documents to be executed and filed by the Trust, as the Sponsor
deems necessary or advisable in order to comply with the applicable laws of any
such States;
(c) if deemed necessary or advisable by the Sponsor, to
prepare for filing by the Trust an application to permit the Capital Securities
to trade or be quoted or listed in or on the PORTAL market, or any other
securities exchange, quotation system or the Nasdaq Stock Market's National
Market;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A, including any amendments thereto, relating
to the registration of the Capital Securities under Section 12(b) or 12(g) of
the Exchange Act, as the case may be, including any amendments thereto; and
<PAGE>
(e) to negotiate the terms of the Purchase Agreement and the
Registration Rights Agreement providing for the sale and registration, as
applicable, of the Capital Securities.
SECTION 4.3 Right to Proceed.
The Sponsor acknowledges the rights of the Holders of Capital
Securities, in the event that a failure of the Trust to pay Distributions on the
Capital Securities is attributable to the failure of the Debenture Issuer to pay
the principal of or premium (if any) or interest on the Debentures, to institute
a proceeding directly against the Debenture Issuer for enforcement of its
payment obligations in respect of the Debentures.
SECTION 4.4 Right to Terminate Trust.
The Sponsor will have the right at any time to terminate the
Trust and, after satisfaction of liabilities to creditors of the Trust as
required by applicable law, to cause the Debentures to be distributed to the
Holders in liquidation of the Trust. Such right is subject to the Sponsor's
having received (i) an Opinion of Counsel to the effect that such distribution
will not cause the holders of Capital Securities to recognize gain or loss for
United States federal income tax purposes and (ii) any and all required
regulatory approvals.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees; Appointment of Co-Trustee.
The number of Trustees initially shall be five (5), and:
(a) at any time before the issuance of any Securities, the
Sponsor may, by written instrument, increase or decrease the number of Trustees;
and
(b) after the issuance of any Securities, the number of
Trustees may be increased or decreased by vote of the Holders of a Majority in
liquidation amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities;
provided, however, that, the number of Trustees shall in no event be less than
two (2); provided further that (1) one Trustee, 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 (the "Delaware Trustee"); (2) there shall be at least one
Trustee who is an employee or officer of, or is affiliated with, the Sponsor (an
"Administrative Trustee"); and (3)
<PAGE>
one Trustee shall be the Property Trustee for so long as this Declaration is
required to qualify as an indenture under the Trust Indenture Act, and such
Trustee may also serve as Delaware Trustee if it meets the applicable
requirements. Notwithstanding the above, unless an Event of Default shall have
occurred and be continuing, at any time or times, for the purpose of meeting the
legal requirements of the Trust Indenture Act or of any jurisdiction in which
any part of the Trust Property may at the time be located, the Holders of a
Majority in liquidation amount of the Common Securities acting as a class at a
meeting of the Holders of the Common Securities, and the Administrative Trustees
shall have power to appoint one or more Persons either to act as a co-trustee,
jointly with the Property Trustee, of all or any part of the Trust Property, or
to act as separate trustee of any such property, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such Person
or Persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of this Declaration. In case an Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make any such appointment of a co-trustee.
SECTION 5.2 Delaware Trustee.
For so long as required by the Business Trust Act, 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, however, 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.
The initial Delaware Trustee shall be:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopier: (302) 651-8882
Telephone: (302) 651-1000
SECTION 5.3 Property Trustee; Eligibility.
<PAGE>
(a) There shall at all times be one Trustee (the "Property
Trustee") which shall act as Property Trustee and which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted by
the Commission to act as an indenture trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least 50 million U.S.
dollars ($50,000,000), and subject to supervision or examination by
federal, state, territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority
referred to above, then for the purposes of this Section 5.3(a)(ii),
the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Property Trustee shall cease to be
eligible to so act under Section 5.3(a), the Property Trustee shall immediately
resign in the manner and with the effect set forth in Section 5.6(c).
(c) If the Property Trustee has or shall acquire any
"conflicting interest" within the meaning of ss. 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 ss. 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of ss. 310(b) of the Trust Indenture Act.
(d) The Capital Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first proviso contained in ss.310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopier: (302) 651-8882
Telephone: (302) 651-1000
<PAGE>
SECTION 5.4 Certain Qualifications of Administrative Trustees
and Delaware Trustee Generally.
Each Administrative Trustee and the Delaware Trustee (unless
the Property Trustee also acts as Delaware Trustee) shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more Authorized Officers.
SECTION 5.5 Administrative Trustees.
The initial Administrative Trustees shall be:
David A. Smilow
Mitchell H. Caplan
Aileen Lopez Pugh
c/o TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Telecopier: (703) 247-5456
Telephone: (703) 247-3700
(a) Except as expressly set forth in this Declaration and
except if a meeting of the Administrative Trustees is called with respect to any
matter over which the Administrative Trustees have power to act, any power of
the Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee.
(b) Unless otherwise determined by the Administrative
Trustees, and except as otherwise required by the Business Trust Act or
applicable law, any Administrative Trustee acting alone is authorized to execute
on behalf of the Trust any documents which the Administrative Trustees have the
power and authority to cause the Trust to execute pursuant to Section 3.6.
(c) An Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purposes of signing any documents which the
Administrative Trustees have power and authority to cause the Trust to execute
pursuant to Section 3.6.
SECTION 5.6 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.6(b) hereof and to Section 6(b) of
Annex I hereto, Trustees may be appointed or removed without cause at any time:
<PAGE>
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor;
(ii) unless an Event of Default shall have occurred and be
continuing after the issuance of any Securities, by vote of the Holders
of a Majority in liquidation amount of the Common Securities voting as
a class at a meeting of the Holders of the Common Securities; and
(iii) if an Event of Default shall have occurred and be
continuing after the issuance of the Securities, with respect to the
Property Trustee or the Delaware Trustee, by vote of Holders of a
Majority in liquidation amount of the Capital Securities voting as a
class at a meeting of Holders of the Capital Securities.
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.6(a) until 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 removed Property
Trustee, the Administrative Trustees and the Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with this Section 5.6(a) until a successor
Trustee possessing the qualifications to act as Delaware Trustee under
Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been
appointed and has accepted such appointment by written instrument
executed by such Successor Delaware Trustee and delivered to the
removed Delaware Trustee, the Property Trustee (if the removed Delaware
Trustee is not also the Property Trustee), the Administrative Trustees
and the Sponsor.
(c) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the other Trustees, 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, the Delaware Trustee (if the resigning
Property Trustee is not also the Delaware Trustee) and the
resigning Property Trustee; or
<PAGE>
(B) until the assets of the Trust have been
completely liquidated and the proceeds thereof distributed to
the Holders; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the Trust,
the Property Trustee (if the resigning Delaware Trustee is not also the
Property Trustee), the Sponsor and the resigning Delaware Trustee.
(d) The Holders of the Common Securities or, if an Event of
Default shall have occurred and be continuing after the issuance of the
Securities, the Holders of the Capital Securities shall use their best efforts
to promptly appoint a Successor Delaware Trustee or Successor Property Trustee,
as the case may be, if the Property Trustee or the Delaware Trustee delivers an
instrument of resignation in accordance with this Section 5.6.
(e) If no Successor Property Trustee or Successor Delaware
Trustee shall have been appointed and accepted appointment as provided in this
Section 5.6 within 60 days after delivery of an instrument of resignation or
removal, the Property Trustee or Delaware Trustee resigning or being removed, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Property Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee,
as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable
for the acts or omissions to act of any Successor Property Trustee or Successor
Delaware Trustee, as the case may be.
(g) At the time of resignation or removal of the Property
Trustee or the Delaware Trustee, the Sponsor shall pay to such Trustee any
amounts that may be owed to such Trustee pursuant to Section 10.4.
SECTION 5.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the
number of Trustees is not reduced pursuant to Section 5.1, or if the number of
Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A
resolution certifying the existence of such vacancy by the Administrative
Trustees or, if there are more than two, a majority of the Administrative
Trustees shall be conclusive evidence of the existence of such vacancy. The
vacancy shall be filled with a Trustee appointed in accordance with Section 5.6.
SECTION 5.8 Effect of Vacancies.
<PAGE>
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of a
Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a
vacancy in the number of Administrative Trustees shall occur, until such vacancy
is filled by the appointment of an Administrative Trustee in accordance with
Section 5.6, the Administrative Trustees in office, regardless of their number,
shall have all the powers granted to the Administrative Trustees and shall
discharge all the duties imposed upon the Administrative Trustees by this
Declaration.
SECTION 5.9 Meetings.
If there is more than one Administrative Trustee, meetings of
the Administrative Trustees shall be held from time to time upon the call of any
Administrative Trustee. Regular meetings of the Administrative Trustees may be
held at a time and place fixed by resolution of the Administrative Trustees.
Notice of any in-person meetings of the Administrative Trustees shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a hard
copy by overnight courier) not less than 24 hours before such meeting. Notice of
any telephonic meetings of the Administrative Trustees or any committee thereof
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of an Administrative Trustee at a meeting shall constitute a waiver
of notice of such meeting except where an Administrative Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Administrative
Trustees may be taken at a meeting by vote of a majority of the Administrative
Trustees present (whether in person or by telephone) and eligible to vote with
respect to such matter, provided that a Quorum is present, or without a meeting
by the unanimous written consent of the Administrative Trustees. In the event
there is only one Administrative Trustee, any and all action of such
Administrative Trustee shall be evidenced by a written consent of such
Administrative Trustee.
SECTION 5.10 Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purpose of executing any documents
contemplated in Section 3.6, including any registration statement or amendment
thereto filed with the Commission, or making any other governmental filing.
<PAGE>
(b) The Administrative Trustees shall have power to delegate
from time to time to such of their number or to officers of the Trust the doing
of such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the Trust, as set
forth herein.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Buiness.
Any Person into which the Property Trustee or the Delaware Trustee or
any Administrative Trustee that is not a natural person, as the case may be, may
be merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which the Property
Trustee or the Delaware Trustee, as the case may be, shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
the Property Trustee or the Delaware Trustee, as the case may be, shall be the
successor of the Property Trustee or the Delaware Trustee, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided such Person shall be otherwise
qualified and eligible under this Article.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
Holders shall receive Distributions in accordance with the
applicable terms of the relevant Holder's Securities. If and to the extent that
the Debenture Issuer makes a payment of interest (including Compounded Interest
and Additional Sums), premium and/or principal on the Debentures held by the
Property Trustee or Liquidated Damages or any other payments pursuant to the
Registration Rights Agreement with respect to the Debentures held by the
Property Trustee (the amount of any such payment being a "Payment Amount"), the
Property Trustee shall and is directed, to the extent funds are available for
that purpose, to make a distribution (a "Distribution") of the Payment Amount to
Holders in accordance with the terms of the Securities.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
<PAGE>
(a) The Administrative Trustees shall on behalf of the Trust
issue one class of capital securities representing undivided preferred
beneficial interests in the assets of the Trust having such terms as are set
forth in Annex I (the "Series A Capital Securities") and one class of common
securities representing common undivided beneficial interests in the assets of
the Trust having such terms as are set forth in Annex I (the "Common
Securities"). The Administrative Trustees shall on behalf of the Trust issue one
class of capital securities representing undivided preferred beneficial
interests in the Trust having such terms as set forth in Annex I (the "Series B
Capital Securities") in exchange for the Series A Capital Securities accepted
for exchange in the Exchange Offer, which Series B Capital Securities shall not
bear the legends required by Section 9.2(i) unless the Holder of such Series A
Capital Securities is either (A) a broker-dealer who purchased such Series A
Capital Securities directly from the Trust for resale pursuant to Rule 144A or
any other available exemption under the Securities Act, (B) a Person
participating in the distribution of the Series A Capital Securities or (C) a
Person who is an Affiliate of the Sponsor or the Trust. The Trust shall issue no
securities or other interests in the assets of the Trust other than the Capital
Securities and the Common Securities.
(b) The consideration received by the Trust for the issuance
of the Securities shall constitute a contribution to the capital of the Trust
and shall not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable.
(d) Every Person, by virtue of having become a Holder or a
Capital Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of, and shall be bound by, this Declaration.
SECTION 7.2 Execution and Authentication.
(a) The Securities shall be signed on behalf of the Trust by
an Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the Person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of this Declaration any such
person was not an Administrative Trustee.
<PAGE>
(b) One Administrative Trustee shall sign the Securities for
the Trust by manual or facsimile signature. Unless otherwise determined by the
Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Capital Security shall not be valid until authenticated by
the manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Capital Security has been
authenticated under this Declaration. A Common Security shall be valid upon
execution by an Administrative Trustee without any act of the Property Trustee.
Upon a written order of the Trust signed by one Administrative
Trustee, the Property Trustee shall authenticate the Capital Securities for
original issue. The aggregate number of Capital Securities outstanding at any
time shall not exceed the number set forth in Annex I hereto except as provided
in Section 7.6.
The Property Trustee may appoint an authenticating agent
acceptable to the Trust to authenticate Capital Securities. An authenticating
agent may authenticate Capital Securities whenever the Property Trustee may do
so. Each reference in this Declaration to authentication by the Property Trustee
includes authentication by such agent. An authenticating agent has the same
rights as the Property Trustee hereunder with respect to the Sponsor or an
Affiliate.
SECTION 7.3 Form and Dating.
The Capital Securities shall be evidenced by one or more
certificates substantially in the form of Exhibit A-1, and the Common Securities
shall be evidenced by one or more certificates substantially in the form of
Exhibit A-2. The Property Trustee's certificate of authentication shall be
substantially in the form set forth in Exhibit A-1. Certificates representing
the Securities may be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to an Administrative Trustee, as
evidenced by the execution thereof. The Securities may have letters, "CUSIP" or
other numbers, notations or other marks of identification or designation and
such legends or endorsements required by law, stock exchange rule, agreements to
which the Trust is subject, if any, or usage, provided that any such notation,
legend or endorsement is in a form acceptable to the Administrative Trustees, as
evidenced by their execution thereof. The Trust at the direction of the Sponsor
shall furnish any such legend not contained in Exhibit A-1 to the Property
Trustee in writing. Each Capital Security shall be dated the date of its
authentication. The terms and provisions of the Securities set forth in Annex I
and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the
terms of this Declaration and, to the extent applicable, the Property Trustee
and the Sponsor, by their execution and delivery of this Declaration, expressly
agree to such terms and provisions and to be bound thereby.
<PAGE>
(a) Global Capital Security. Capital Securities offered and
sold to QIBs in reliance on Rule 144A, as provided in the Purchase Agreement,
shall be issued in the form of a single permanent global Capital Security in
definitive, fully registered form without distribution coupons with the
appropriate global legends and Restricted Securities Legend set forth in Exhibit
A-1 hereto (the "Global Capital Security"), which shall be deposited on behalf
of the purchasers of the Capital Securities represented thereby with the
Property Trustee, at its Wilmington, Delaware office, as custodian for the
Clearing Agency, and registered in the name of the Clearing Agency or a nominee
of the Clearing Agency, duly executed by the Trust and authenticated by the
Property Trustee as hereinafter provided. The number of Capital Securities
represented by the Global Capital Security may from time to time be increased or
decreased by adjustments made on the records of the Property Trustee and the
Clearing Agency or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 7.3(b) shall apply
only to the Global Capital Security and such other Capital Securities in global
form as may be authorized by the Trust to be deposited with or on behalf of the
Clearing Agency.
An Administrative Trustee shall execute and the Property
Trustee shall, in accordance with this Section 7.3, authenticate and make
available for delivery initially a single Global Capital Security that (i) shall
be registered in the name of Cede & Co. or other nominee of such Clearing Agency
and (ii) shall be delivered by the Property Trustee to such Clearing Agency or
pursuant to such Clearing Agency's written instructions or, if no such written
instructions are received by the Property Trustee, held by the Property Trustee
as custodian for the Clearing Agency.
Members of, or participants in, the Clearing Agency
("Participants") shall have no rights under this Declaration with respect to the
Global Capital Security held on their behalf by the Clearing Agency or by the
Property Trustee as the custodian of the Clearing Agency or under such Global
Capital Security, and the Clearing Agency may be treated by the Trust, the
Property Trustee and any agent of the Trust or the Property Trustee as the
absolute owner of such Global Capital Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Trust, the
Property Trustee or any agent of the Trust or the Property Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Clearing Agency or impair, as between the Clearing Agency and its
Participants, the operation of customary practices of such Clearing Agency
governing the exercise of the rights of a holder of a beneficial interest in the
Global Capital Security.
(c) Definitive Capital Securities. Except as provided in
Section 7.9 or 9.2(f)(i), owners of beneficial interests in the Global Capital
Security will not be entitled to receive physical delivery of certificated
Capital Securities ("Definitive
<PAGE>
Capital Securities"). Purchasers of Securities who are "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and who
are not QIBs will receive Capital Securities in the form of individual
certificates in definitive, fully registered form without distribution coupons
and with the Restricted Securities Legend set forth in Exhibit A-1 hereto
("Restricted Definitive Capital Securities"); provided, however, that upon
registration of transfer of such Restricted Definitive Capital Securities to a
QIB, such Restricted Definitive Capital Securities will, unless the Global
Capital Security has previously been exchanged, be exchanged for an interest in
the Global Capital Security pursuant to the provisions of Section 9.2.
Restricted Definitive Capital Securities will bear the Restricted Securities
Legend set forth on Exhibit A-1 unless removed in accordance with this Section
7.3 or Section 9.2.
SECTION 7.4 Registrar, Paying Agent and Exchange Agent.
The Trust shall maintain in Wilmington, Delaware (i) an office
or agency where Capital Securities may be presented for registration of transfer
("Registrar"), (ii) an office or agency where Capital Securities may be
presented for payment ("Paying Agent") and (iii) an office or agency where
Securities may be presented for exchange ("Exchange Agent"). The Registrar shall
keep a register of the Capital Securities and of their transfer. The Trust may
appoint the Registrar, the Paying Agent and the Exchange Agent and may appoint
one or more co-registrars, one or more additional paying agents and one or more
additional exchange agents in such other locations as it shall determine. The
term "Registrar" includes any additional registrar, the term "Paying Agent"
includes any additional paying agent and the term "Exchange Agent" includes any
additional exchange agent. The Trust may change any Paying Agent, Registrar,
co-registrar or Exchange Agent without prior notice to any Holder. The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written notice
to the Property Trustee, the Administrative Trustees and the Sponsor. The Trust
shall notify the Property Trustee of the name and address of any Agent not a
party to this Declaration. If the Trust fails to appoint or maintain another
entity as Registrar, Paying Agent or Exchange Agent, the Property Trustee shall
act as such. The Trust or any of its Affiliates may act as Paying Agent,
Registrar, or Exchange Agent. The Trust shall act as Paying Agent, Registrar and
Exchange Agent for the Common Securities.
The Trust initially appoints the Property Trustee as
Registrar, Paying Agent and Exchange Agent for the Capital Securities.
SECTION 7.5 Paying Agent to Hold Money in Trust.
The Trust shall require each Paying Agent other than the
Property Trustee to agree in writing that the Paying Agent will hold in trust
for the benefit of Holders or the Property Trustee all money held by the Paying
Agent for the
<PAGE>
payment of liquidation amounts or Distributions, and will notify the Property
Trustee if there are insufficient funds for such purpose. While any such
insufficiency continues, the Property Trustee may require a Paying Agent to pay
all money held by it to the Property Trustee. The Trust at any time may require
a Paying Agent to pay all money held by it to the Property Trustee and to
account for any money disbursed by it. Upon payment over to the Property
Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust)
shall have no further liability for the money. If the Trust or the Sponsor or an
Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall segregate
and hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent.
SECTION 7.6 Replacement Securities.
If a Holder claims that a Security owned by it has been lost,
destroyed or wrongfully taken or if such Security is mutilated and is
surrendered to the Trust or in the case of the Capital Securities to the
Property Trustee, an Administrative Trustee shall execute and the Property
Trustee shall authenticate and make available for delivery a replacement
Security if the Property Trustee's requirements are met. An indemnity bond must
be provided by the Holder which, in the judgment of the Property Trustee, is
sufficient to protect the Trustees, the Sponsor, the Trust or any authenticating
agent from any loss which any of them may suffer if a Security is replaced. The
Trust may charge such Holder for its expenses in replacing a Security.
SECTION 7.7 Outstanding Capital Securities.
The Capital Securities outstanding at any time are all the
Capital Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation, and those described in
this Section as not outstanding.
If a Capital Security is replaced, paid or purchased pursuant
to Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Capital
Security is held by a bona fide purchaser.
If Capital Securities are considered paid in accordance with
the terms of this Declaration, they cease to be outstanding and Distributions on
them shall cease to accumulate.
A Capital Security does not cease to be outstanding because
one of the Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
SECTION 7.8 Capital Securities in Treasury.
<PAGE>
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Capital
Securities owned by the Trust, the Sponsor or an Affiliate of the Sponsor, as
the case may be, shall be disregarded and deemed not to be outstanding, except
that for the purposes of determining whether the Property Trustee shall be fully
protected in relying on any such direction, waiver or consent, only Securities
which the Property Trustee actually knows are so owned shall be so disregarded.
SECTION 7.9 Temporary Securities.
(a) Until Definitive Securities are ready for delivery, the
Trust may prepare and, in the case of the Capital Securities, the Property
Trustee shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of Definitive Securities but may have variations that
the Trust considers appropriate for temporary Securities. Without unreasonable
delay, the Trust shall prepare and, in the case of the Capital Securities, the
Property Trustee shall authenticate Definitive Securities in exchange for
temporary Securities.
(b) The Global Capital Security deposited with the Clearing
Agency or with the Property Trustee as custodian for the Clearing Agency
pursuant to Section 7.3 shall be transferred to the beneficial owners thereof in
the form of Definitive Capital Securities only if such transfer complies with
Section 9.2 and (i) the Clearing Agency notifies the Sponsor that it is
unwilling or unable to continue as Clearing Agency for such Global Capital
Security or if at any time such Clearing Agency ceases to be a "clearing agency"
registered under the Exchange Act, and, in each case, a clearing agency is not
appointed by the Sponsor within 90 days of receipt of such notice or of becoming
aware of such condition, (ii) a Default or an Event of Default has occurred and
is continuing or (iii) the Trust at its sole discretion elects to cause the
issuance of Definitive Capital Securities.
(c) Any Global Capital Security that is transferable to the
beneficial owners thereof in the form of Definitive Capital Securities pursuant
to this Section 7.9 shall be surrendered by the Clearing Agency to the Property
Trustee located in Wilmington, Delaware, to be so transferred, in whole or from
time to time in part, without charge, and the Property Trustee shall
authenticate and make available for delivery, upon such transfer of each portion
of such Global Capital Security, an equal aggregate liquidation amount of
Securities of authorized denominations in the form of Definitive Capital
Securities. Any portion of the Global Capital Security transferred pursuant to
this Section shall be registered in such names as the Clearing Agency shall
direct. Any Definitive Capital Security delivered in exchange for an interest in
the Restricted Global Capital Security shall, except as otherwise provided by
Sections 7.3 and 9.1, bear the Restricted Securities Legend set forth in Exhibit
A-1 hereto.
<PAGE>
(d) Subject to the provisions of Section 7.9(c), the Holder of
the Global Capital Security may grant proxies and otherwise authorize any
Person, including Participants and Persons that may hold interests through
Participants, to take any action which such Holder is entitled to take under
this Declaration or the Securities.
(e) In the event of the occurrence of any of the events
specified in Section 7.9(b), the Trust will promptly make available to the
Property Trustee a reasonable supply of certificated Capital Securities in fully
registered form without distribution coupons.
SECTION 7.10 Cancellation.
The Trust at any time may deliver Capital Securities to the
Property Trustee for cancellation. The Registrar, Paying Agent and Exchange
Agent shall forward to the Property Trustee any Capital Securities surrendered
to them for registration of transfer, redemption, exchange or payment. The
Property Trustee shall promptly cancel all Capital Securities, surrendered for
registration of transfer, redemption, exchange, payment, replacement or
cancellation and shall dispose of cancelled Capital Securities in accordance
with its customary procedures unless the Trust otherwise directs. The Trust may
not issue new Capital Securities to replace Capital Securities that it has paid
or that have been delivered to the Property Trustee for cancellation or that any
Holder has exchanged.
SECTION 7.11 CUSIP Numbers.
The Trust in issuing the Capital Securities may use "CUSIP"
numbers (if then generally in use), and, if so, the Property Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders of Capital
Securities; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Capital
Securities or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Capital
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Sponsor will promptly notify the Property Trustee
of any change in the CUSIP numbers.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
(a) The Trust shall dissolve and be of no further force or
effect:
<PAGE>
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or
liquidation or its equivalent with respect to the Sponsor; or the
revocation of the Sponsor's charter and the expiration of 90 days after
the date of revocation without a reinstatement thereof;
(iii) following the distribution of a Like Amount of the
Debentures to the Holders, provided that, the Property Trustee has
received written notice from the Sponsor directing the Property Trustee
to terminate the Trust (which direction is optional, and except as
otherwise expressly provided below, within the discretion of the
Sponsor) and provided, further, that such direction and such
distribution is conditioned on (a) the receipt by the Sponsor of any
required regulatory approvals, and (b) the Administrative Trustees'
receipt of an opinion of independent tax counsel experienced in such
matters, which opinion may rely on public or private rulings of the
Internal Revenue Service, to the effect that the Holders of the Capital
Securities will not recognize any gain or loss for United States
federal income tax purposes as a result of the dissolution of the Trust
and the distribution of Debentures;
(iv) upon the entry of a decree of judicial dissolution of the
Trust by a court of competent jurisdiction;
(v) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have
been paid to the Holders in accordance with the terms of the
Securities;
(vi) upon the redemption or repayment of the Debentures or at
such time as no Debentures are outstanding; or
(vii) the expiration of the term of the Trust provided in
Section 3.14.
(b) As soon as is practicable upon completion of winding up of
the Trust following the occurrence of an event referred to in Section 8.1(a),
the Administrative Trustees shall file a certificate of cancellation with the
Secretary of State of the State of Delaware in accordance with the Business
Trust Act.
(c) The provisions of Section 3.9 and Article X shall survive
the termination of the Trust.
ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.
<PAGE>
(a) Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Capital Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any
Security not made in accordance with this Declaration shall be null and void.
(c) For so long as the Securities remain outstanding, the
Sponsor agrees (i) not to transfer ownership of the Common Securities of the
Trust, provided that any permitted successor of the Sponsor under the Indenture
may succeed to the Sponsor's ownership of the Common Securities, (ii) not to
cause, as Sponsor of the Trust, or to permit, as Holder of the Common
Securities, the dissolution, winding-up or termination of the Trust, except as
provided in this Declaration and (iii) to use its best efforts to cause the
Trust (a) to remain a business trust, except in connection with the distribution
of Debentures to the Holders in liquidation of the Trust, the redemption of all
of the Securities, or certain mergers, consolidations or amalgamations, each as
permitted by this Declaration, and (b) to otherwise continue to be classified as
a grantor trust for United States federal income tax purposes.
(d) The Property Trustee shall provide for the registration of
Capital Securities and of the transfer of Capital Securities, which will be
effected without charge but only upon payment (with such indemnity as the
Property Trustee may require) in respect of any tax or other governmental
charges that may be imposed in relation to it. Upon surrender for registration
of transfer of any Capital Securities, an Administrative Trustee shall cause one
or more new Capital Securities to be issued in the name of the designated
transferee or transferees. Every Capital Security surrendered for registration
of transfer shall be accompanied by a written instrument of transfer in form
satisfactory to the Property Trustee duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Capital Security surrendered
for registration of transfer shall be delivered to the Property Trustee and
canceled in accordance with Section 7.10. A transferee of a Capital Security
shall be entitled to the rights and subject to the obligations of a Holder
hereunder upon the receipt by such transferee of a Capital Security. By
acceptance of a Capital Security or any interest therein, each transferee shall
be deemed to have agreed to be bound by this Declaration.
SECTION 9.2 Transfer Procedures and Restrictions.
(a) General. Except as otherwise provided in Section 9.2(b),
if Capital Securities are issued upon the transfer, exchange or replacement of
Capital
<PAGE>
Securities bearing the Restricted Securities Legend set forth in Exhibit A-1
hereto, or if a request is made to remove such Restricted Securities Legend on
Capital Securities, the Capital Securities so issued shall bear the Restricted
Securities Legend, or the Restricted Securities Legend shall not be removed, as
the case may be, unless there is delivered to the Trust and the Property Trustee
such satisfactory evidence, which shall include an Opinion of Counsel, as may be
reasonably required by the Trust and the Property Trustee, that neither the
Restricted Securities Legend nor the restrictions on transfer set forth therein
are required to ensure that transfers thereof are made pursuant to an exception
from the registration requirements of the Securities Act or, with respect to
Restricted Securities, that such Securities are not "restricted" within the
meaning of Rule 144. Upon provision of such satisfactory evidence, the Property
Trustee, at the written direction of the Trust, shall authenticate and deliver
Capital Securities that do not bear the legend.
(b) Transfers After Effectiveness of a Registration Statement.
After the effectiveness of a Registration Statement with respect to any Capital
Securities, all requirements pertaining to legends on such Capital Securities
will cease to apply (other than the legend requiring that transfers of Capital
Securities be made in blocks having an aggregate liquidation amount of not less
than $100,000), and beneficial interests in the Global Capital Security without
legends will be available to transferees of such Capital Securities, upon
exchange of the transferring Holder's Restricted Definitive Capital Security or
directions to transfer such Holder's beneficial interest in the Global Capital
Security, as the case may be. No such transfer or exchange of a Restricted
Definitive Capital Security or of an interest in the Global Capital Security
shall be effective unless the transferor delivers to the Property Trustee a
certificate in a form substantially similar to that attached hereto as the form
of "Assignment" in Exhibit A-1. Except as otherwise provided in Section 9.2(m),
after the effectiveness of a Registration Statement, the Trust shall issue and
the Property Trustee, upon a written order of the Trust signed by one
Administrative Trustee, shall authenticate a Global Capital Security without the
Restricted Securities Legend (the "Unrestricted Global Capital Security") to
deposit with the Clearing Agency to evidence transfers of beneficial interests
from the (i) Global Capital Security and (ii) Restricted Definitive Capital
Securities.
(c) Transfer and Exchange of Definitive Capital Securities.
When Definitive Capital Securities are presented to the Registrar or
co-registrar:
(x) to register the transfer of such Definitive Capital
Securities; or
(y) to exchange such Definitive Capital Securities which
became mutilated, destroyed, defaced, stolen or lost, for an equal
number of Definitive Capital Securities,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided,
<PAGE>
however, that the Definitive Capital Securities surrendered for registration of
transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Trust and
the Registrar or co-registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing; and
(ii) in the case of Definitive Capital Securities that are
Restricted Definitive Capital Securities:
(A) if such Restricted Capital Securities are being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, certification(s) from
such Holder to that effect; or
(B) if such Restricted Capital Securities are being
transferred: (i) certification(s) in a form substantially
similar to that attached hereto as the form of "Assignment" in
Exhibit A-1, and (ii) if the Trust or Registrar so requests,
evidence reasonably satisfactory to them as to the compliance
with the restrictions set forth in the Restricted Securities
Legend.
(d) Restrictions on Transfer of a Definitive Capital Security
for a Beneficial Interest in the Global Capital Security. A Definitive Capital
Security may not be exchanged for a beneficial interest in the Global Capital
Security except upon satisfaction of the requirements set forth below. Upon
receipt by the Property Trustee of a Definitive Capital Security, duly endorsed
or accompanied by appropriate instruments of transfer, in form satisfactory to
the Property Trustee, together with:
(i) if such Definitive Capital Security is a Restricted
Capital Security, certification(s) in a form substantially similar to
that attached hereto as the form of "Assignment" in Exhibit A-1; and
(ii) whether or not such Definitive Capital Security is a
Restricted Capital Security, written instructions directing the
Property Trustee to make, or to direct the Clearing Agency to make, an
adjustment on its books and records with respect to the Global Capital
Security to reflect an increase in the number of the Capital Securities
represented by such Global Capital Security,
then the Property Trustee shall cancel such Definitive Capital Security and
cause, or direct the Clearing Agency to cause, the aggregate number of Capital
Securities represented by the Global Capital Security to be increased
accordingly. If the Global Capital Security is not then outstanding, the Trust
shall issue and the
<PAGE>
Property Trustee shall authenticate, upon written order of any Administrative
Trustee, a new Global Capital Security representing an appropriate number of
Capital Securities.
(e) Transfer and Exchange of the Global Capital Security.
Subject to Section 9.2(f), the transfer and exchange of Global Capital Security
or beneficial interests therein shall be effected through the Clearing Agency in
accordance with this Declaration (including applicable restrictions on transfer
set forth herein, if any) and the procedures of the Clearing Agency therefor.
(f) Transfer of a Beneficial Interest in the Global Capital
Security for a Definitive Capital Security.
(i) Any Person having a beneficial interest in the Global
Capital Security may upon request, but only upon 20 days prior notice
to the Property Trustee, and if accompanied by the information
specified below, exchange such beneficial interest for a Definitive
Capital Security representing the same number of Capital Securities.
Upon receipt by the Property Trustee from the Clearing Agency or its
nominee on behalf of any Person having a beneficial interest in the
Global Capital Security of written instructions or such other form of
instructions as is customary for the Clearing Agency or the Person
designated by the Clearing Agency as having such a beneficial interest
in a Restricted Capital Security and certification(s) from the
transferor in a form substantially similar to that attached hereto as
the form of "Assignment" in Exhibit A-1, which may be submitted by
facsimile, then the Property Trustee will cause the aggregate number of
Capital Securities represented by the Global Capital Security to be
reduced on its books and records and, following such reduction, the
Trust will execute and the Property Trustee will authenticate and make
available for delivery to the transferee a Definitive Capital Security.
(ii) Definitive Capital Securities issued in exchange for a
beneficial interest in the Global Capital Security pursuant to this
Section 9.2(f) shall be registered in such names and in such authorized
denominations as the Clearing Agency, pursuant to instructions from its
Clearing Agency Participants or indirect participants or otherwise,
shall instruct the Property Trustee in writing. The Property Trustee
shall deliver such Capital Securities to the Persons in whose names
such Capital Securities are so registered in accordance with such
instructions of the Clearing Agency.
(g) Restrictions on Transfer and Exchange of the Global
Capital Security. Notwithstanding any other provisions of this Declaration
(other than the provisions set forth in subsection (h) of this Section 9.2), the
Global Capital Security may not be transferred as a whole except by the Clearing
Agency to a nominee of the Clearing Agency or another nominee of the Clearing
Agency or by the Clearing
<PAGE>
Agency or any such nominee to a successor Clearing Agency or a nominee of such
successor Clearing Agency.
(h) Authentication of Definitive Capital Securities. If at any
time:
(i) a Default or an Event of Default has occurred and is
continuing,
(ii) the Trust, in its sole discretion, notifies the Property
Trustee in writing that it elects to cause the issuance of Definitive
Capital Securities under this Declaration, or
(iii) the Clearing Agency notifies the Sponsor that it is
unwilling or unable to continue as Clearing Agency for such Global
Capital Security or if at any time such Clearing Agency ceases to be a
"clearing agency" registered under the Exchange Act, and, in each case,
a clearing agency is not appointed by the Sponsor within 90 days of
receipt of such notice or of becoming aware of such condition,
then the Trust will execute, and the Property Trustee, upon receipt of a written
order of the Trust signed by one Administrative Trustee requesting the
authentication and delivery of Definitive Capital Securities to the Persons
designated by the Trust, will authenticate and make available for delivery
Definitive Capital Securities, equal in number to the number of Capital
Securities represented by the Global Capital Security, in exchange for such
Global Capital Security.
(i) Legend.
(i) Except as permitted by the following paragraph (ii), each
Capital Security Certificate evidencing the Global Capital Security and
each Definitive Capital Security (and all Capital Securities issued in
exchange therefor or substitution thereof) shall bear a legend (the
"Restricted Securities Legend") in substantially the following form:
THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS
CAPITAL SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
<PAGE>
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO
THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE
LAST DATE ON WHICH TELEBANC FINANCIAL CORPORATION (THE
"CORPORATION") OR ANY "AFFILIATE" OF THE CORPORATION WAS THE OWNER
OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL
SECURITY) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS CAPITAL SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"),
TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF TELEBANC CAPITAL TRUST I (THE "TRUST") AND THE
CORPORATION PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT
TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL,
<PAGE>
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (ii) PURSUANT TO CLAUSE (D) TO REQUIRE THAT THE TRANSFEROR
DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN
THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED JUNE 9, 1997.
SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS CAPITAL SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF ALSO
AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT,
INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT
TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,
AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S
INVESTMENT IN THE ENTITY AND NO PERSON INVESTING "PLAN ASSETS" OF
ANY PLAN MAY ACQUIRE OR HOLD THE CAPITAL SECURITIES OR ANY INTEREST
THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED
TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH
RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASE OR HOLDER OF THE
CAPITAL SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE
REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT
IS NOT A PLAN OR PLAN ASSET ENTITY OR (ii) THE ACQUISITION AND
HOLDING OF THIS CAPITAL SECURITY BY IT IS NOT PROHIBITED BY EITHER
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR IS EXEMPT FROM
ANY SUCH PROHIBITION.
<PAGE>
In all circumstances, each Capital Security Certificate shall
bear the following legend:
THE CAPITAL SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN
BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 (100
CAPITAL SECURITIES). ANY ATTEMPTED TRANSFER OF CAPITAL SECURITIES IN
A BLOCK HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH
PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH
CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO,
THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH
PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER
IN SUCH CAPITAL SECURITIES.
(ii) Upon any sale or transfer of a Restricted Capital
Security (including any Restricted Capital Security represented by the
Global Capital Security) pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144:
(A) in the case of any Restricted Capital Security
that is a Definitive Capital Security, the Registrar shall
permit the Holder thereof to exchange such Restricted Capital
Security for a Definitive Capital Security that does not bear
the Restricted Securities Legend and rescind any restriction
on the transfer of such Restricted Capital Security; and
(B) in the case of any Restricted Capital Security
that is represented by the Global Capital Security, the
Registrar shall permit the Holder of such Global Capital
Security to exchange such Global Capital Security for another
Global Capital Security that does not bear the Restricted
Securities Legend.
(j) Cancellation or Adjustment of Global Capital Security. At
such time as all beneficial interests in the Global Capital Security have either
been exchanged for Definitive Capital Securities to the extent permitted by this
Declaration or redeemed, repurchased or canceled in accordance with the terms of
this Declaration, such Global Capital Security shall be returned to the Clearing
Agency for cancellation or retained and canceled by the Property Trustee. At any
time prior to such cancellation, if any beneficial interest in the Global
Capital
<PAGE>
Security is exchanged for Definitive Capital Securities, Capital Securities
represented by such Global Capital Security shall be reduced and an adjustment
shall be made on the books and records of the Property Trustee and the Clearing
Agency or its nominee to reflect such reduction.
(k) Obligations with Respect to Transfers and Exchanges of
Capital Securities.
(i) To permit registrations of transfers and exchanges, the
Trust shall execute and the Property Trustee shall authenticate
Definitive Capital Securities and the Global Capital Security at the
Registrar's or co-registrar's request in accordance with the terms of
this Declaration.
(ii) Registrations of transfers or exchanges will be effected
without charge, but only upon payment (with such indemnity as the Trust
or the Sponsor may require) in respect of any tax or other governmental
charge that may be imposed in relation to it.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) Capital Securities during a
period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Capital
Securities for redemption and ending at the close of business on the
day of such mailing or (b) any Capital Security so selected for
redemption in whole or in part, except the unredeemed portion of any
Capital Security being redeemed in part.
(iv) Prior to the due presentation for registration of
transfer of any Capital Security, the Trust, the Property Trustee, the
Paying Agent, the Registrar or any co-registrar may deem and treat the
Person in whose name a Capital Security is registered as the absolute
owner of such Capital Security for the purpose of receiving
Distributions on such Capital Security and for all other purposes
whatsoever, and none of the Trust, the Property Trustee, the Paying
Agent, the Registrar or any co-registrar shall be affected by notice to
the contrary.
(v) All Capital Securities issued upon any registration of
transfer or exchange pursuant to the terms of this Declaration shall
evidence the same security and shall be entitled to the same benefits
under this Declaration as the Capital Securities surrendered upon such
registration of transfer or exchange.
(l) No Obligation of the Property Trustee.
(i) The Property Trustee shall have no responsibility or
obligation to any beneficial owner of the Global Capital Security, a
Participant in the
<PAGE>
Clearing Agency or other Person with respect to the accuracy of the
records of the Clearing Agency or its nominee or of any Participant
thereof, with respect to any ownership interest in the Capital
Securities or with respect to the delivery to any Participant,
beneficial owner or other Person (other than the Clearing Agency) of
any notice (including any notice of redemption) or the payment of any
amount, under or with respect to such Capital Securities. All notices
and communications to be given to the Holders and all payments to be
made to Holders under the Capital Securities shall be given or made
only to or upon the order of the registered Holders (which shall be the
Clearing Agency or its nominee in the case of the Global Capital
Security). The rights of beneficial owners in the Global Capital
Security shall be exercised only through the Clearing Agency subject to
the applicable rules and procedures of the Clearing Agency. The
Property Trustee may conclusively rely and shall be fully protected in
relying upon information furnished by the Clearing Agency or any agent
thereof with respect to its Participants and any beneficial owners.
(ii) The Property Trustee and the Registrar shall have no
obligation or duty to monitor, determine or inquire as to compliance
with any restrictions on transfer imposed under this Declaration or
under applicable law with respect to any transfer of any interest in
any Capital Security (including any transfers between or among Clearing
Agency Participants or beneficial owners in the Global Capital
Security) other than to require delivery of such Certificates and other
documentation or evidence as are expressly required by, and to do so if
and when expressly required by, the terms of this Declaration, and to
examine the same to determine substantial compliance as to form with
the express requirements hereof.
(m) Exchange of Series A Capital Securities for Series B
Capital Securities. The Series A Capital Securities shall be exchanged for
Series B Capital Securities pursuant to the terms of the Exchange Offer if the
following conditions are satisfied:
The Sponsor shall present the Property Trustee with an
Officers' Certificate certifying the following:
(A) upon issuance of the Series B
Capital Securities, the
transactions contemplated by the
Exchange Offer have been
consummated; and
(B) the number of Series A Capital
Securities properly tendered in the
Exchange Offer that are represented
by the Global Capital Security and
the number of Series A Capital
Securities properly tendered in the
Exchange Offer that are represented
by Definitive Capital
<PAGE>
Securities, the name of each Holder
of such Definitive Capital
Securities, the liquidation amount
of Capital Securities properly
tendered in the Exchange Offer by
each such Holder and the name and
address to which Definitive Capital
Securities for Series B Capital
Securities shall be registered and
sent for each such Holder.
The Property Trustee, upon receipt of (i) such Officers'
Certificate, (ii) an Opinion of Counsel (x) to the effect that the Series B
Capital Securities and the Series B Capital Securities Guarantee have been
registered under Section 5 of the Securities Act and that this Declaration and
the Series B Capital Securities Guarantee have been qualified under the Trust
Indenture Act and (y) with respect to the matters set forth in Section 3(p) of
the Registration Rights Agreement, shall authenticate (A) the Global Capital
Security, executed and delivered by the Trust to the Property Trustee, for
Series B Capital Securities in aggregate liquidation amount equal to the
aggregate liquidation amount of Series A Capital Securities represented by the
Global Capital Security indicated in such Officers' Certificate as having been
properly tendered and (B) Definitive Capital Securities, executed and delivered
by the Trust to the Property Trustee, representing Series B Capital Securities
registered in the names and in the liquidation amounts indicated in such
Officers' Certificate.
If, upon consummation of the Exchange Offer, less than all the
outstanding Series A Capital Securities shall have been properly tendered and
not withdrawn, the Property Trustee shall make an endorsement on the Global
Capital Security for Series A Capital Securities indicating the reduction in the
number and aggregate liquidation amount represented thereby as a result of the
Exchange Offer.
The Trust shall deliver such authenticated Definitive Capital
Securities for Series B Capital Securities to the Holders thereof as indicated
in such Officers' Certificate.
(n) Minimum Transfers. Series A Capital Securities and, if and
when issued, Series B Capital Securities may only be transferred in minimum
blocks of $100,000 aggregate liquidation amount. Any attempted transfer of
Series A Capital Securities or Series B Capital Securities in a block having an
aggregate liquidation amount of less than $100,000 shall be deemed to be voided
and of no legal effect whatsoever. Any such purported transferee shall be deemed
not to be a Holder of such Series A Capital Securities or Series B Capital
Securities for any purpose, including, but not limited to, the receipt of
Distributions on such Capital Securities, and such purported transferee shall be
deemed to have no interest whatsoever in such Capital Securities.
<PAGE>
SECTION 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Security
shall be registered on the books and records of the Trust as the sole owner and
Holder of such Security for purposes of receiving Distributions and for all
other purposes whatsoever and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such Security on the part of any
Person, whether or not the Trust shall have actual or other notice thereof.
SECTION 9.4 Book-Entry Interests.
The Global Capital Security shall initially be registered on
the books and records of the Trust in the name of Cede & Co., the nominee of the
Clearing Agency and no Capital Security Beneficial Owner will receive physical
delivery of a definitive Capital Security certificate (a "Capital Security
Certificate") representing such Capital Security Beneficial Owner's interests in
such Global Capital Security, except as provided in Section 9.2 and Section 7.9.
Unless and until Definitive Capital Securities have been issued to the Capital
Security Beneficial Owners pursuant to Section 9.2 or Section 7.9:
(a) the provisions of this Section 9.4 shall be in full force
and effect;
(b) the Trust and the Trustees shall be entitled to deal with
the Clearing Agency for all purposes of this Declaration (including the
payment of Distributions on the Global Capital Security and receiving
approvals, votes or consents hereunder) as the sole Holder of the
Global Capital Security and shall have no obligation to the Capital
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4
conflict with any other provisions of this Declaration, the provisions
of this Section 9.4 shall control; and
<PAGE>
(d) the rights of the Capital Security Beneficial Owners shall
be exercised only through the Clearing Agency and shall be limited to
those established by law and agreements between such Capital Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants, and the Clearing Agency shall receive and transmit
payments of Distributions on the Global Capital Security to such
Clearing Agency Participants; provided, however, that solely for the
purposes of determining whether the Holders of the requisite amount of
Capital Securities have voted on any matter provided for in this
Declaration, the Trustees, with respect to the Global Capital Security,
may conclusively rely on, and shall be protected in relying on, any
written instrument (including a proxy) delivered to the Trustees by the
Clearing Agency setting forth the Capital Security Beneficial Owners'
votes or assigning the right to vote on any matter to any other Persons
either in whole or in part; and the Clearing Agency will also make
book-entry transfers among the Clearing Agency Participants.
SECTION 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Capital
Security Holders is required to be given by a Trustee under this Declaration,
such Trustee shall give all such notices and communications specified herein to
be given to the Holder of the Global Capital Security to the Clearing Agency and
shall have no notice obligations to the Capital Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as
securities depositary with respect to the Capital Securities, the Administrative
Trustees may, in their sole discretion, appoint a successor Clearing Agency with
respect to such Capital Securities.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEE OR OTHERS
SECTION 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the
Securities Guarantees and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the
capital contributions (or any return thereon) of the Holders which
shall be made solely from assets of the Trust; and
<PAGE>
(ii) required to pay to the Trust or to any Holder any deficit
upon dissolution of the Trust or otherwise.
(b) The Sponsor shall be liable for all of the debts and
obligations of the Trust (other than in respect of the Securities) to the extent
not satisfied out of the Trust's assets.
(c) Pursuant to ss. 3803(a) of the Business Trust Act, the
Holders shall be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence (or, in
the case of the Property Trustee or the Delaware Trustee, 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 might properly be paid.
SECTION 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to any other Covered Person, an Indemnified Person acting under
this Declaration shall not be liable to the Trust or to any other Covered Person
for its good faith reliance on the provisions of this Declaration. The
provisions of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity
(other than the duties imposed on the
<PAGE>
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.
(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 10.4 Indemnification.
(a) (i) The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the Trust) by reason of the fact that he is
<PAGE>
or was a Company Indemnified Person, against expenses (including
attorneys' fees and expenses), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(ii) The Sponsor shall indemnify, to the full extent permitted
by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Trust to procure a judgment in
its favor by reason of the fact that he is or was a Company Indemnified
Person against expenses (including attorneys' fees and expenses)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Trust and except that no such indemnification shall be
made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust
unless and only to the extent that the Court of Chancery of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such Person is fairly and reasonably
entitled to indemnity for such expenses which such Court of Chancery or
such other court shall deem proper.
(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action
without prejudice or the settlement of an action without admission of
liability) in defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any
claim, issue or matter therein, he shall be indemnified, to the full
extent permitted by law, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the
Sponsor only as authorized in the specific case upon a determination
that indemnification of
<PAGE>
the Company Indemnified Person is proper in the circumstances because
he has met the applicable standard of conduct set forth in paragraphs
(i) and (ii). Such determination shall be made (1) by the
Administrative Trustees by a majority vote of a Quorum consisting of
such Administrative Trustees who were not parties to such action, suit
or proceeding, (2) if such a Quorum is not obtainable, or, even if
obtainable, if a Quorum of disinterested Administrative Trustees so
directs, by independent legal counsel in a written opinion, or (3) by
the Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees and expenses) incurred
by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to
in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the
Sponsor in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Company Indemnified Person to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Sponsor
as authorized in this Section 10.4(a). Notwithstanding the foregoing,
no advance shall be made by the Sponsor if a determination is
reasonably and promptly made (i) by the Administrative Trustees by a
majority vote of a Quorum of disinterested Administrative Trustees,
(ii) if such a Quorum is not obtainable, or, even if obtainable, if a
Quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion or (iii) by the Common
Security Holder of the Trust, that, based upon the facts known to the
Administrative Trustees, counsel or the Common Security Holder at the
time such determination is made, such Company Indemnified Person acted
in bad faith or in a manner that the Common Security Holder did not
believe to be in or not opposed to the best interests of the Trust, or,
with respect to any criminal proceeding, that such Company Indemnified
Person believed or had reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in instances where the
Administrative Trustees, independent legal counsel or Common Security
Holder reasonably determine that a Company Indemnified Person
deliberately breached his duty to the Trust or its Common or Capital
Security Holders.
(vi) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other paragraphs of this Section
10.4(a) shall not be deemed exclusive of any other rights to which
those seeking indemnification and advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested
directors of the Sponsor or Capital Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office. All rights to
indemnification under this Section 10.4(a) shall be deemed to be
provided by a contract between the Sponsor and each Company Indemnified
Person who serves in such capacity at any time while this Section
10.4(a) is
<PAGE>
in effect. Any repeal or modification of this Section 10.4(a) shall not
affect any rights or obligations then existing.
(vii) The Sponsor or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or
not the Debenture Issuer would have the power to indemnify him against
such liability under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to
"the Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Section 10.4(a) with respect to the resulting or
surviving entity as he would have with respect to such constituent
entity if its separate existence had continued.
(ix) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 10.4(a) shall, unless
otherwise provided when authorized or ratified, continue as to a Person
who has ceased to be a Company Indemnified Person and shall inure to
the benefit of the heirs, executors and administrators of such a
Person.
(b) The Sponsor agrees to indemnify the (i) Property Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee or the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Property Trustee or the Delaware Trustee (each of the Persons in (i) through
(iv), including the Property Trustee and the Delaware Trustee in their
respective individual capacities, being referred to as a "Fiduciary Indemnified
Person") for, and to hold each Fiduciary Indemnified Person harmless against,
any and all loss, liability, damage, claim or expense including taxes (other
than taxes based on the income of such Fiduciary Indemnified Person) incurred
without negligence or bad faith on the part of such Fiduciary Indemnified
Person, 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 against or investigating any
claim or liability in connection with the exercise or performance of any of the
powers or duties of such Fiduciary Indemnified Person hereunder. The obligation
to indemnify as set forth in this Section 10.4(b) shall survive the resignation
or removal of the Property Trustee or the Delaware Trustee and the satisfaction
and discharge of this Declaration.
<PAGE>
(c) The Sponsor agrees to pay the Property Trustee and the
Delaware Trustee, from time to time, such compensation for all services rendered
by the Property Trustee and the Delaware Trustee hereunder as may be mutually
agreed upon in writing by the Sponsor and the Property Trustee or the Delaware
Trustee, as the case may be, and, except as otherwise expressly provided herein,
to reimburse the Property Trustee and the Delaware Trustee upon its or their
request for all reasonable expenses (including counsel fees and expenses),
disbursements and advances incurred or made by the Property Trustee or the
Delaware Trustee, as the case may be, in accordance with the provisions of this
Declaration, except any such expense, disbursement or advance as may be
attributable to its or their negligence or bad faith.
SECTION 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Property Trustee may engage in or possess an interest in other business ventures
of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders shall
have no rights by virtue of this Declaration in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Trust, shall not be deemed wrongful
or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the
Property Trustee shall be obligated to present any particular investment or
other opportunity to the Trust even if such opportunity is of a character that,
if presented to the Trust, could be taken by the Trust, and any Covered Person,
the Sponsor, the Delaware Trustee and the Property Trustee shall have the right
to take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the
calendar year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
<PAGE>
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The 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 Administrative Trustees.
(b) The Administrative Trustees shall cause to be duly
prepared and delivered to each of the Holders any annual United States federal
income tax information statement required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrative Trustees shall
endeavor to deliver all such information statements within 30 days after the end
of each Fiscal Year of the Trust.
(c) The Administrative Trustees shall cause to be duly
prepared and filed with the appropriate taxing authority, an annual United
States federal income tax return, on a Form 1041 or such other form required by
United States federal income tax law, and any other annual income tax returns
required to be filed by the Administrative Trustees on behalf of the Trust with
any state or local taxing authority.
SECTION 11.3 Banking.
The Trust may maintain one or more bank accounts in the name
and for the sole benefit of the Trust; provided, however, that all payments of
funds in respect of the Debentures held by the Property Trustee shall be made
directly to the Property Trustee Account and no other funds of the Trust shall
be deposited in the Property Trustee Account. The sole signatories for such
accounts shall be designated by the Administrative Trustees; provided, however,
that the Property Trustee shall designate the signatories for the Property
Trustee Account.
SECTION 11.4 Withholding.
The Trust and the Administrative Trustees shall comply with
all withholding requirements under United States federal, state and local law.
The Trust shall request, and the Holders shall provide to the Trust, such forms
or certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its
<PAGE>
withholding obligations. The Administrative Trustees shall cause to be filed
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 claim of excess withholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
(a) Except as otherwise provided in this Declaration
(including Section 7 of Annex I hereto) or by any applicable terms of the
Securities, this Declaration may only be amended by a written instrument
approved and executed by:
(i) the Sponsor and the Administrative Trustees (or, if there
are more than two Administrative Trustees, a majority of the
Administrative Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property
Trustee; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware
Trustee.
(b) No amendment shall be made, and any such purported
amendment shall be void and ineffective:
(i) unless, 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:
<PAGE>
(A) an Officers' Certificate from each of the Trust
and the Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the
terms of the Securities); and
(B) an Opinion of Counsel (who may be counsel to the
Sponsor or the Trust) that such amendment is permitted by, and
conforms to, the terms of this Declaration (including the
terms of the Securities) and that all conditions precedent to
the execution and delivery of such amendment have been
satisfied;
provided, however, that the Property Trustee shall not be required to sign any
such amendment; and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be
classified for purposes of United States federal income
taxation as a grantor trust;
(B) reduce or otherwise adversely affect the powers
of the Property Trustee in contravention of the Trust
Indenture Act; or
(C) cause the Trust to be deemed to be an Investment
Company required to be registered under the Investment Company
Act;
(c) At such time after the Trust has issued any Securities
that remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder may be effected only with such
additional requirements as may be set forth in the terms of such Securities;
(d) Section 10.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders;
(e) Article Four shall not be amended without the consent of
the Holders of a Majority in liquidation amount of the Common Securities;
(f) The rights of the Holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove Trustees
shall not be amended without the consent of the Holders of a Majority in
liquidation amount of the Common Securities; and
(g) Notwithstanding Section 12.1(c), this Declaration may be
amended without the consent of the Holders to:
<PAGE>
(i) cure any ambiguity, correct or supplement any provision in
this Declaration that may be inconsistent with any other provision of
this Declaration or to make any other provisions with respect to
matters or questions arising under this Declaration which shall not be
inconsistent with the other provisions of the Declaration;
(ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the
Trust will be classified for United States federal income tax purposes
as a grantor trust at all times that any Securities are outstanding or
to ensure that the Trust will not be required to register as an
Investment Company under the Investment Company Act; and
(iii) to modify, eliminate or add any provisions of the
Declaration to such extent as shall be necessary to enable the Trust or
the Sponsor to conduct an Exchange Offer in the manner contemplated by
the Registration Rights Agreement;
provided, however, that in each such case, such action shall not adversely
affect in any material respect the interests of the Holders, and any amendments
of this Declaration shall become effective when notice thereof is given to the
Holders.
SECTION 12.2 Meetings of the Holders; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be
called at any time by the Administrative Trustees (or as provided in the terms
of the Securities) to consider and act on any matter on which Holders of such
class of Securities are entitled to act under the terms of this Declaration, the
terms of the Securities or the rules of any stock exchange on which the Capital
Securities are listed or admitted for trading. The Administrative Trustees shall
call a meeting of the Holders of such class if directed to do so by the Holders
of at least 10% in liquidation amount of such class of Securities. Such
direction shall be given by delivering to the Administrative Trustees one or
more notices in writing stating that the signing Holders wish to call a meeting
and indicating the general or specific purpose for which the meeting is to be
called. Any Holders calling a meeting shall specify in writing the Capital
Security Certificates held by the Holders exercising the right to call a meeting
and only those Securities specified shall be counted for purposes of determining
whether the required percentage set forth in the second sentence of this
paragraph has been met.
(b) Except to the extent otherwise provided in the terms of
the Securities, the following provisions shall apply to meetings of Holders:
(i) notice of any such meeting shall be given to all the
Holders having a right to vote thereat at least seven days and not more
than 60 days
<PAGE>
before the date of such meeting. Whenever a vote, consent or approval
of the Holders is permitted or required under this Declaration or the
rules of any stock exchange on which the Capital Securities are listed
or admitted for trading, such vote, consent or approval may be given at
a meeting of the Holders; any action that may be taken at a meeting of
the Holders may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders owning not
less than the minimum amount of Securities in liquidation amount that
would be necessary to authorize or take such action at a meeting at
which all Holders having a right to vote thereon were present and
voting; prompt notice of the taking of action without a meeting shall
be given to the Holders entitled to vote who have not consented in
writing; and the Administrative Trustees may specify that any written
ballot submitted to the Security Holder for the purpose of taking any
action without a meeting shall be returned to the Trust within the time
specified by the Administrative Trustees;
(ii) each Holder may authorize any Person to act for it by
proxy on all matters in which a Holder is entitled to participate,
including waiving notice of any meeting, or voting or participating at
a meeting; no proxy shall be valid after the expiration of eleven
months from the date thereof unless otherwise provided in the proxy;
every proxy shall be revocable at the pleasure of the Holder executing
it; and, except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the
General Corporation Law of the State of Delaware relating to proxies,
and judicial interpretations thereunder, as if the Trust were a
Delaware corporation and the Holders were stockholders of a Delaware
corporation;
(iii) each meeting of the Holders shall be conducted by the
Administrative Trustees or by such other Person that the Administrative
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Securities, the Trust Indenture Act or the listing rules
of any stock exchange on which the Capital Securities are then listed
or trading, otherwise provides, the Administrative Trustees, in their
sole discretion, shall establish all other provisions relating to
meetings of Holders, including notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any Holders,
waiver of any such notice, action by consent without a meeting, the
establishment of a record date, quorum requirements, voting in person
or by proxy or any other matter with respect to the exercise of any
such right to vote.
<PAGE>
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTE
SECTION 13.1 Representations and Warranties of Property Trustee.
The Trustee that acts as initial Property Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) the Property Trustee is a banking corporation, a national
banking association or a bank or trust company, duly organized, validly existing
and in good standing under the laws of the United States or the State of
Delaware, as the case may be, with corporate power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;
(b) the execution, delivery and performance by the Property
Trustee of this Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee; and this Declaration has been duly
executed and delivered by the Property Trustee and under Delaware law (excluding
any securities laws) constitutes a legal, valid and binding obligation of the
Property Trustee, enforceable against it in accordance with its terms, subject
to applicable bankruptcy, reorganization, moratorium, insolvency, and other
similar laws affecting creditors' rights generally and to general principles of
equity and the discretion of the court (regardless of whether the enforcement of
such remedies is considered in a proceeding in equity or at law);
(c) the execution, delivery and performance of this
Declaration by the Property Trustee does not conflict with or constitute a
breach of the charter or by-laws of the Property Trustee; and
(d) no consent, approval or authorization of, or registration
with or notice to, any federal or Delaware banking authority governing the trust
powers of the Property Trustee is required for the execution, delivery or
performance by the Property Trustee of this Declaration.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents
and warrants to the Trust and to the Sponsor at the date of this Declaration,
and each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee that:
<PAGE>
(a) the Delaware Trustee is a banking corporation, a national
banking association or a bank or trust company, duly organized, validly existing
and in good standing under the laws of the United States or the State of
Delaware, as the case may be, with corporate power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;
(b) the execution, delivery and performance by the Delaware
Trustee of this Declaration has been duly authorized by all necessary corporate
action on the part of the Delaware Trustee; and this Declaration has been duly
executed and delivered by the Delaware Trustee and under Delaware law (excluding
any securities laws) constitutes a legal, valid and binding obligation of the
Delaware Trustee, enforceable against it in accordance with its terms, subject
to applicable bankruptcy, reorganization, moratorium, insolvency, and other
similar laws affecting creditors' rights generally and to general principles of
equity and the discretion of the court (regardless of whether the enforcement of
such remedies is considered in a proceeding in equity or at law);
(c) the execution, delivery and performance of this
Declaration by the Delaware Trustee does not conflict with or constitute a
breach of the charter or by-laws of the Delaware Trustee; and
(d) no consent, approval or authorization of, or registration
with or notice to, any federal or Delaware banking authority governing the trust
powers of the Delaware Trustee is required for the execution, delivery or
performance by the Delaware Trustee of this Declaration; and
(e) the Delaware Trustee is a natural person who is a resident
of the State of Delaware or, if not a natural person, an entity which has its
principal place of business in the State of Delaware, and is a Person that
satisfies for the Trust Section 3807(a) of the Business Trust Act.
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights Agreement; Liquidated Damages.
The Holders of the Series A Capital Securities, the Series A Debentures
and the Series A Capital Securities Guarantee are entitled to the benefits of
the Registration Rights Agreement. In certain limited circumstances set forth in
the Registration Rights Agreement, the Debenture Issuer shall be required to pay
Liquidated Damages with respect to the Debentures. Unless otherwise stated, the
term "Distribution", as used in this Declaration, includes any and all
Liquidated Damages.
<PAGE>
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.
All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first class mail, overnight courier service or confirmed
telecopy, as follows:
(a) if given to the Trust, in care of the Administrative
Trustees at the Trust's mailing address set forth below (or such other address
as the Trust may give notice of to the Property Trustee, the Delaware Trustee
and the Holders):
TeleBanc Capital Trust I
c/o TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Telecopier: (703) 247-5456
Telephone: (703) 247-3700
Attention: Administrative Trustee
(b) if given to the Delaware Trustee, at the mailing address
set forth below (or such other address as Delaware Trustee may give notice of to
the Holders):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Telecopier: (302) 651-8882
Telephone: (302) 651-1000
Attention: Corporate Trust Administration
(c) if given to the Property Trustee, at the Property
Trustee's mailing address set forth below (or such other address as the Property
Trustee may give notice of to the Holders):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Telecopier: (302) 651-8882
<PAGE>
Telephone: (302) 651-1000
Attention: Corporate Trust Administration
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Telecopier: (703) 247-5456
Telephone: (703) 247-3700
Attention: Senior Vice President and Treasurer
(e) if given to any other Holder, at the address set forth on
the books and records of the Trust.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 15.2 Governing Law.
This Declaration and the rights of the parties hereunder shall
be governed by and construed in accordance with the laws of the State of
Delaware without regard to conflict of law principles thereof.
SECTION 15.3Intention of the Parties.
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust. The
provisions of this Declaration shall be interpreted to further this intention of
the parties.
SECTION 15.4 Headings.
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 15.5 Successors and Assigns.
<PAGE>
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Declaration by the
Sponsor and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 15.6 Partial Enforceability.
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Declaration, or the application of such provision to Persons
or circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 15.7 Counterparts.
This Declaration may contain more than one counterpart of the
signature page and this Declaration may be executed by the affixing of the
signature of each of the Trustees to one or more 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>
IN WITNESS WHEREOF, the undersigned has caused these presents
to be executed as of the day and year first above written.
/s/ David A. Smilow
-------------------------
David A. Smilow,
as Administrative Trustee
/s/ Mitchell H. Caplan
-------------------------
Mitchell H. Caplan,
as Administrative Trustee
/s/ Aileen Lopez Pugh
--------------------------
Aileen Lopez Pugh,
as Administrative Trustee
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By: /s/ Debra Eberly
----------------------------
Name: Debra Eberly
Title: Administrative Account Manager
WILMINGTON TRUST COMPANY,
as Property Trustee
By: /s/ Debra Eberly
----------------------------
Name: Debra Eberly
Title: Administrative Account Manager
TELEBANC FINANCIAL CORPORATION,
as Sponsor and Debenture Issuer
By: /s/ Mitchell Caplan
-------------------------------
Name: Mitchell Caplan
Title: Vice Chairman & President
<PAGE>
ANNEX I
TERMS OF
11.00% CAPITAL SECURITIES, SERIES A/SERIES B
11.00% COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of June 9, 1997 (as amended from time to time,
the "Declaration"), the designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Securities are set out below
(each capitalized term used but not defined herein has the meaning set forth in
the Declaration or, if not defined in such Declaration, as defined in the
Offering Memorandum referred to below in Section 2(c) of this Annex I):
1. Designation and Number.
(a) Capital Securities. 10,000 Series A Capital Securities of
the Trust and 10,000 Series B Capital Securities of the Trust, each series with
an aggregate liquidation amount with respect to the assets of the Trust of ten
million dollars ($10,000,000), and each with a liquidation amount with respect
to the assets of the Trust of $1,000 per security, are hereby designated for the
purposes of identification only as "11.00% Capital Securities, Series A" and
"11.00% Capital Securities, Series B", respectively (collectively, the "Capital
Securities"). The certificates evidencing the Capital Securities shall be
substantially in the form of Exhibit A-1 to the Declaration, with such changes
and additions thereto or deletions therefrom as may be required by ordinary
usage, custom or practice or to conform to the rules of any exchange or
quotation system on or in which the Capital Securities are listed, traded or
quoted.
(b) Common Securities. 310 Common Securities of the Trust with
an aggregate liquidation amount with respect to the assets of the Trust of three
hundred ten thousand dollars ($310,000) and a liquidation amount with respect to
the assets of the Trust of $1,000 per security, are hereby designated for the
purposes of identification only as "11.00% Common Securities" (collectively, the
"Common Securities"). The certificates evidencing the Common Securities shall be
substantially in the form of Exhibit A-2 to the Declaration, with such changes
and additions thereto or deletions therefrom as may be required by ordinary
usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed at a
rate per annum of 11.00% (the "Coupon Rate") of the liquidation amount of $1,000
per
<PAGE>
Security (the "Liquidation Amount"), such rate being the rate of interest
payable on the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one semi-annual period will bear additional Distributions
thereon compounded semi-annually at the Coupon Rate (to the extent permitted by
applicable law). Pursuant to the Registration Rights Agreement, in certain
limited circumstances the Debenture Issuer will be required to pay Liquidated
Damages (as defined in the Registration Rights Agreement) with respect to the
Debentures. The term "Distributions", as used herein, includes distributions of
any and all such interest and Liquidated Damages, if any, payable unless
otherwise stated. A Distribution is payable only to the extent that payments are
made in respect of the Debentures held by the Property Trustee and to the extent
the Property Trustee has funds legally available therefor.
(b) Distributions on the Securities will be cumulative, will
accumulate from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from June 9, 1997, and will be payable
semi-annually in arrears on June 1 and December 1 of each year, commencing
December 1, 1997 (each, a "Distribution Date"), except as otherwise described
below. Distributions will be computed on the basis of a 360-day year consisting
of twelve 30-day months. As long as no Event of Default has occurred and is
continuing under the Indenture, the Debenture Issuer has the right under the
Indenture to defer payments of interest by extending the interest payment period
at any time and from time to time on the Debentures for a period not exceeding
10 consecutive semi-annual periods, including the first such semi-annual period
during such period (each an "Extension Period"), during which Extension Period
no interest shall be due and payable on the Debentures, provided that no
Extension Period shall end on a date other than an Interest Payment Date for the
Debentures or extend beyond the Maturity Date of the Debentures. As a
consequence of such deferral, Distributions will also be deferred.
Notwithstanding such deferral, Distributions will continue to accumulate with
additional Distributions thereon (to the extent permitted by applicable law but
not at a rate greater than the rate at which interest is then accruing on the
Debentures) at the Coupon Rate compounded semi-annually during any such
Extension Period. Prior to the termination of any such Extension Period, the
Debenture Issuer may further defer payments of interest by further extending
such Extension Period, provided that such extension does not cause such
Extension Period, together with all such previous and further extensions within
such Extension Period, to exceed 10 consecutive semi-annual periods, including
the first semi-annual period during such Extension Period, end on a date other
than an Interest Payment Date for the Debentures or extend beyond the Maturity
Date of the Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Debenture Issuer may commence a new
Extension Period, subject to the above requirements.
(c) Distributions on the Securities will be payable to the
Holders thereof as they appear on the books and records of the Trust on the
close of business
<PAGE>
on the 15th day of the month immediately preceding the month in which the
relevant Distribution Date occurs, which Distribution Dates correspond to the
Interest Payment Dates for the Debentures. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment in respect
of the Capital Securities will be made as described under the heading
"Description of Capital Securities -- Form, Denomination, Book-Entry Procedures
and Transfer" in the Offering Memorandum dated June 9, 1997, of the Debenture
Issuer and the Trust relating to the Securities and the Debentures. The relevant
record dates for the Common Securities shall be the same as the record dates for
the Capital Securities. Distributions payable on any Securities that are not
punctually paid on any Distribution Date, as a result of the Debenture Issuer
having failed to make a payment under the Debentures, will cease to be payable
to the Holder on the relevant record date, and such defaulted Distribution will
instead be payable to the Person in whose name such Securities are registered on
the special record date or other specified date determined in accordance with
the Indenture. If any date on which Distributions are payable on the Securities
is not a Business Day, then payment of the Distributions 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), with the same force and
effect as if made on such date.
(d) In the event that there is any money or other property
held by or for the Trust that is not accounted for hereunder, such property
shall be distributed Pro Rata (as defined herein) among the Holders.
3. Liquidation Distribution Upon Dissolution.
In the event of any dissolution of the Trust, or if the
Sponsor otherwise gives notice of its election to liquidate the Trust pursuant
to Section 8.1(a)(iii) of the Declaration, the Trust shall be liquidated by the
Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing to the Holders, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, a Like
Amount (as defined below) of the Debentures, unless such distribution is
determined by the Property Trustee not to be practicable, in which event such
Holders will be entitled to receive out of the assets of the Trust legally
available for distribution to Holders, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, an amount equal to the
aggregate of the liquidation amount of $1,000 per Security plus accumulated and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution").
"Like Amount" means (i) with respect to a redemption of the
Securities, Securities having a Liquidation Amount equal to the principal amount
of Debentures to be paid in accordance with their terms and (ii) with respect to
a distribution of Debentures upon the liquidation of the Trust, Debentures
having a
<PAGE>
principal amount equal to the Liquidation Amount of the Securities of the Holder
to whom such Debentures are distributed.
If, upon any such liquidation, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets legally
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Securities shall be paid on a Pro
Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in part,
at maturity or otherwise (either at the option of the Debenture Issuer or
pursuant to a Special Event, as described below), the proceeds from such
repayment shall be simultaneously applied by the Property Trustee (subject to
the Property Trustee having received written notice no later than 45 days prior
to such repayment) to redeem a Like Amount of the Securities at a redemption
price equal to (i) in the case of the repayment of the Debentures on the
Maturity Date, the Maturity Redemption Price (as defined below), (ii) in the
case of the optional prepayment of the Debentures prior to the Initial Optional
Redemption Date and upon the occurrence and continuation of a Special Event, the
Special Event Redemption Price (as defined below) and (iii) in the case of the
optional prepayment of the Debentures on or after the Initial Optional
Redemption Date, the Optional Redemption Price (as defined below). The Maturity
Redemption Price, the Special Event Redemption Price and the Optional Redemption
Price are referred to collectively as the "Redemption Price". Holders will be
given not less than 30 nor more than 60 days' prior written notice of such
redemption.
(b) (i) The "Maturity Redemption Price", with respect to a
redemption of Securities, shall mean an amount equal to the principal of and
accrued and unpaid interest on the Debentures as of the Maturity Date thereof.
(ii) In the case of an optional redemption, if fewer than all
the outstanding Securities are to be so redeemed, the Common Securities and the
Capital Securities shall be redeemed Pro Rata and the Capital Securities to be
redeemed will be determined as described in Section 4(f)(ii) below. Upon the
entry of an order for the dissolution of the Trust by a court of competent
jurisdiction, the Debentures thereafter will be subject to optional redemption,
in whole, but not in part, on or after the Initial Optional Redemption Date.
The Debenture Issuer shall have the right (subject to the
conditions in the Indenture) to elect to redeem the Debentures, in whole or in
part, at any time on or after June 1, 2007 (the "Initial Optional Redemption
Date"), and, simultaneous with such redemption, to cause a Like Amount of the
Securities to be redeemed by the Trust at the Optional Redemption Price on a Pro
Rata basis.
<PAGE>
"Optional Redemption Price" shall mean a price equal to the percentage of the
liquidation amount of Securities to be redeemed plus accumulated and unpaid
Distributions thereon, if any, to the date of such redemption if redeemed during
the 12-month period beginning June 1 of the years indicated below:
Percentage of
Year Principal
-----------------
2007 105.500%
2008 104.950%
2009 104.440%
2010 103.850%
2011 103.300%
2012 102.750%
2013 102.200%
2014 101.650%
2015 101.100%
2016 100.550%
2017 and thereafter 100.000%
(c) If at any time a Tax Event or a Regulatory Capital Event
(each as defined below, and each a "Special Event") occurs, the Debenture Issuer
shall have the right (subject to the conditions set forth in the Indenture) at
any time prior to the Initial Optional Redemption Date, to redeem the Debentures
in whole, but not in part, within the 90 days following the occurrence of such
Special Event (the "90 Day Period"), and, simultaneous with such redemption, to
cause a Like Amount of the Securities to be redeemed by the Trust at the Special
Event Redemption Price on a Pro Rata basis.
"Make-Whole Amount" shall mean an amount equal to the greater
of (x) 100% of the principal of Debentures or (y) the sum, as determined by a
Quotation Agent (as defined in the Indenture), of the present values of the
remaining scheduled payments of principal and interest on the Debentures,
discounted to the redemption date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined in the Indenture), plus, in the case of each of clauses (x) and (y),
accrued and unpaid interest thereon, if any, to the date of redemption.
A "Tax Event" shall occur upon receipt by the Debenture Issuer
and the Trust of an opinion of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after June 9,
1997, there is more
<PAGE>
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) the interest
payable by the Debenture Issuer on the Debentures is not, or within 90 days of
the date of such opinion will not be, deductible by the Debenture Issuer, in
whole or in part, for United States federal income tax purposes, or (iii) the
Trust is, or will be within 90 days of the date of such opinion, subject to more
than a de minimis amount of other taxes, duties or other governmental charges.
"Regulatory Capital Event" shall mean the receipt by the
Debenture Issuer and the Trust of an opinion of independent bank regulatory
counsel experienced in such matters to the effect that the Corporation is
subject to the Holding Company Capital Rules (as defined in the Indenture) and
is not entitled to treat the Capital Securities as Tier 1 capital (or its then
equivalent) thereunder; provided, however, that the distribution of the
Debentures in connection with the liquidation of the Trust by the Debenture
Issuer shall not in and of itself constitute a Regulatory Capital Event unless
such liquidation shall have occurred in connection with a Tax Event.
"Special Event Redemption Price" shall mean, with respect to
any redemption of Securities following a Special Event, an amount in cash equal
to the Make-Whole Amount.
(d) On and from the date fixed by the Administrative Trustees
for any distribution of Debentures and liquidation of the Trust: (i) the
Securities will no longer be deemed to be outstanding, (ii) the Clearing Agency
or its nominee (or any successor Clearing Agency or its nominee), as the Holder
of the Capital Securities, will receive a registered global Certificate or
Certificates representing the Debentures to be delivered upon such distribution,
and (iii) any Certificates representing Securities not held by the Clearing
Agency or its nominee (or any successor Clearing Agency or its nominee) will be
deemed to represent beneficial interests in a Like Amount of Debentures until
such Certificates are presented to the Debenture Issuer or its agent for
transfer or reissue.
(e) The Trust may not redeem fewer than all the outstanding
Securities unless all accumulated and unpaid Distributions have been paid on all
Securities for all semi-annual Distribution periods terminating on or before the
date of redemption.
(f) The procedure with respect to redemptions or distributions
of Securities shall be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for, the Securities (a "Redemption/Distribution
Notice") will be
<PAGE>
given by the Trust by mail to each Holder to be redeemed or exchanged
not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will
be the date fixed for redemption of the Debentures. For purposes of the
calculation of the date of redemption or exchange and the dates on
which notices are given pursuant to this Section 4(f)(i), a Redemption/
Distribution Notice shall be deemed to be given on the day such notice
is first mailed by first-class mail, postage prepaid, to Holders. Each
Redemption/Distribution Notice shall be addressed to the Holders at the
address of each such Holder appearing in the books and records of the
Trust. No defect in the Redemption/Distribution Notice or in the
mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any
other Holder.
(ii) In the event that fewer than all the outstanding
Securities are to be redeemed, the particular Securities to be redeemed
shall be selected on a Pro Rata basis (based upon Liquidation Amounts)
not more than 60 nor less than 30 days prior to the date fixed for
redemption from the outstanding Securities not previously called for
redemption; provided, however, that with respect to Holders that would
be required to hold less than 100 but more than zero Securities as a
result of such redemption, the Trust shall redeem Securities of each
such Holder so that after such redemption such Holder shall hold either
100 Securities or such Holder no longer holds any Securities, and shall
use such method (including, without limitation, by lot) as the Trust
shall deem fair and appropriate; provided, further, that any such
redemption may be made on the basis of the aggregate Liquidation Amount
of Securities held by each Holder thereof and may be made by making
such adjustments as the Trust deems fair and appropriate in order that
fractional Securities shall not thereafter remain outstanding. In
respect of Capital Securities registered in the name of and held of
record by the Clearing Agency or its nominee (or any successor Clearing
Agency or its nominee) or any nominee, the distribution of the proceeds
of such redemption will be made to the Clearing Agency and disbursed by
such Clearing Agency in accordance with the procedures applied by such
agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice (which notice will be irrevocable), then
(A) with respect to Capital Securities issued in book-entry form, by
12:00 noon, New York City time, on the redemption date, provided that
the Debenture Issuer has paid the Property Trustee a sufficient amount
of cash in connection with the related redemption or maturity of the
Debentures by 10:00 a.m., New York City time, on the Maturity Date or
the date of redemption, as the case requires, the Property Trustee will
deposit irrevocably with the Clearing Agency or its nominee (or
successor Clearing Agency or its nominee) immediately available funds
sufficient to pay the
<PAGE>
applicable Redemption Price with respect to such Capital Securities and
will give the Clearing Agency irrevocable instructions and authority to
pay the Redemption Price to the relevant Clearing Agency Participants,
and (B) with respect to Capital Securities issued in certificated form
and Common Securities, provided that the Debenture Issuer has paid the
Property Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Debentures, the Property Trustee
will irrevocably deposit with the paying agent for the Capital
Securities (if other than the Property Trustee) funds sufficient to pay
the applicable Redemption Price to the Holders by check mailed to the
address of the relevant Holder appearing on the books and records of
the Trust on the redemption date, and provided further, that any such
payment shall become due only upon surrender by the Holder of the
related certificated Capital Securities. If a Redemption/ Distribution
Notice shall have been given and funds deposited as required, if
applicable, then immediately prior to the close of business on the date
of such deposit, or on the redemption date, as applicable,
Distributions will cease to accumulate on the Securities so called for
redemption and all rights of Holders so called for redemption will
cease, except the right of the Holders of such Securities to receive
the Redemption Price, but without interest on such Redemption Price,
and such Securities shall cease to be outstanding.
(iv) Payment of accumulated and unpaid Distributions on the
Redemption Date of the Securities will be subject to the rights of
Holders on the close of business on a regular record date in respect of
a Distribution Date occurring on or prior to such Redemption Date.
Neither the Administrative Trustees nor the Trust shall be
required to register or cause to be registered the transfer of (i) any
Securities beginning on the opening of business 15 days before the day of
mailing of a notice of redemption or any notice of selection of Securities for
redemption or (ii) any Securities selected for redemption except the unredeemed
portion of any Security being redeemed. If any date fixed for redemption of
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay). If payment
of the Redemption Price in respect of any Securities is improperly withheld or
refused and not paid either by the Property Trustee or by the Sponsor as
guarantor pursuant to the relevant Securities Guarantee, Distributions on such
Securities will continue to accumulate from the original redemption date to the
actual date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the Redemption Price.
(v) Redemption/Distribution Notices shall be sent by the
Property Trustee on behalf of the Trust to (A) in respect of Capital
Securities issued in book-entry form, the Clearing Agency or its
nominee (or any successor Clearing Agency or its nominee), (B) in
respect of Capital Securities issued in
<PAGE>
certificated form, to the Holders thereof, and (C) in respect of the
Common Securities, to the Holders thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws and banking
laws), the Sponsor or any of its subsidiaries may at any time and from
time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
5. Voting Rights - Capital Securities.
(a) Except as provided under Sections 5(b) and 7 and as
otherwise required by law and the Declaration, the Holders of the Capital
Securities will have no voting rights.
(b) So long as any Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
executing any trust or power conferred on such Debenture Trustee with respect to
the Debentures, (ii) waive any past default that is waivable under Section 5.07
of the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in liquidation amount
of all outstanding Capital Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Capital Securities except by subsequent vote of such Holders. The
Property Trustee shall notify each Holder of Capital Securities of any notice of
default with respect to the Debentures. In addition to obtaining the foregoing
approvals of such Holders of the Capital Securities, prior to taking any of the
foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that the Trust will continue to be classified as a
grantor trust for United States federal income tax purposes after taking any
such action into account.
If an Event of Default under the Declaration has occurred and
is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of or premium, if any, or interest on the Debentures on
the due date (or, in the case of redemption, on the redemption date), then a
Holder of Capital Securities may institute a proceeding directly against the
Debenture Issuer for enforcement of payment to such Holder of the principal of
or premium, if any, or interest on a Like Amount of Debentures (a "Direct
Action") on or after the
<PAGE>
respective due date specified in the Debentures. In connection with such Direct
Action, the rights of the Common Securities Holder will be subrogated to the
rights of such Holder of Capital Securities to the extent of any payment made by
the Debenture Issuer to such Holder of Capital Securities in such Direct Action.
Except as provided in the second preceding sentence, the Holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Debentures.
Any approval or direction of Holders of Capital Securities may
be given at a separate meeting of Holders of Capital Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which Holders of Capital Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Capital Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consent.
No vote or consent of the Holders of the Capital Securities
will be required for the Trust to redeem and cancel Capital Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Capital Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Capital Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b), 6(c), and 7 or as
otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) Unless a Debenture Event of Default shall have occurred
and be continuing, any Trustee may be removed at any time by the Holder of the
Common Securities. If a Debenture Event of Default has occurred and is
continuing, the Property Trustee and the Delaware Trustee may be removed at such
time by the Holders of a Majority in liquidation amount of the outstanding
Capital Securities. In no event will the Holders of the Capital Securities have
the right to vote to appoint, remove or replace the Administrative Trustees,
which voting rights are vested exclusively in the Sponsor as the Holder of the
Common Securities. No resignation or removal of a Trustee and no appointment of
a successor trustee shall
<PAGE>
be effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Declaration.
(c) So long as any Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on such Debenture Trustee with respect to
the Debentures, (ii) waive any past default that is waivable under Section 5.07
of the Indenture, (iii) exercise any right to rescind or annul a declaration of
acceleration of the maturity of the principal of the Debentures or (iv) consent
to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of a Majority in liquidation amount
of all outstanding Common Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior approval of each Holder of the Common Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of the Common Securities except by subsequent vote of such Holders. The Property
Trustee shall notify each Holder of Common Securities of any notice of default
with respect to the Debentures. In addition to obtaining the foregoing approvals
of such Holders of the Common Securities, prior to taking any of the foregoing
actions, the Trustees shall obtain an opinion of counsel experienced in such
matters to the effect that the Trust will continue to be classified as a grantor
trust for United States federal income tax purposes after taking any such action
into account.
If an Event of Default under the Declaration has occurred and
is continuing and such event is attributable to the failure of the Debenture
Issuer to pay principal of or premium, if any, or interest on the Debentures on
the due date (or in the case of redemption, on the redemption date), then a
Holder of Common Securities may institute a Direct Action directly against the
Debenture Issuer for enforcement of payment to such Holder of the principal of
or premium, if any, or interest on a Like Amount of Debentures on or after the
respective due date specified in the Debentures. In connection with such Direct
Action, the rights of the Common Securities Holder will be subordinated to the
rights of such Holder of Capital Securities in respect of any payment from the
Debenture Issuer in such Direct Action. Except as provided in the second
preceding sentence, the Holders of Common Securities will not be able to
exercise directly any other remedy available to the holders of the Debentures.
Any approval or direction of Holders of Common Securities may
be given at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which Holders of Common Securities are entitled to vote, or of
any matter upon
<PAGE>
which action by written consent of such Holders is to be taken, to be mailed to
each Holder of record of Common Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities
will be required for the Trust to redeem and cancel Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
7. Amendments to Declaration.
In addition to the requirements set out in Section 12.1 of the
Declaration, the Declaration may be amended from time to time by the Sponsor,
the Property Trustee and the Administrative Trustees without the consent of the
Holders (i) to cure any ambiguity, correct or supplement any provisions in the
Declaration that may be inconsistent with any other provisions, or to make any
other provisions with respect to matters or questions arising under the
Declaration which shall not be inconsistent with the other provisions of the
Declaration, (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Securities are outstanding or to ensure that the Trust
will not be required to register as an Investment Company under the Investment
Company Act or (iii) to modify, eliminate or add any provisions of the
Declaration to such extent as shall be necessary to enable the Trust or the
Sponsor to conduct an Exchange Offer in the manner contemplated by the
Registration Rights Agreement; provided, however, that in each case, such action
shall not adversely affect in any material respect the interests of any Holder,
and any amendments of the Declaration shall become effective when notice thereof
is given to the Holders. The Declaration may also be amended by the Trustees and
the Sponsor with (i) the consent of Holders representing a Majority in
liquidation amount of all outstanding Securities, and (ii) receipt by the
Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such amendment
will not affect the Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status as an Investment
Company under the Investment Company Act; provided, however, that, without the
consent of each Holder of Trust Securities, the Declaration may not be amended
to (i) change the amount or timing of any Distribution on, or the payment
required to be made in respect of, the Trust Securities as of a specified date
or (ii) restrict the right of a Holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
8. Pro Rata.
<PAGE>
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
according to the aggregate liquidation amount of the Securities held by the
relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate liquidation amount of Capital
Securities held by the relevant Holder relative to the aggregate liquidation
amount of all Capital Securities outstanding and then, only after satisfaction
of all amounts owed to the Holders of the Capital Securities, to each Holder of
Common Securities pro rata according to the aggregate liquidation amount of
Common Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Common Securities outstanding.
9. Ranking.
The Capital Securities rank pari passu with the Common
Securities and payment thereon shall be made Pro Rata with the Common
Securities, except that, if an Event of Default under the Declaration occurs and
is continuing, no payments in respect of Distributions on, or payments upon
liquidation, redemption or otherwise with respect to, the Common Securities
shall be made until the Holders of the Capital Securities shall be paid in full
the Distributions, Redemption Price, Liquidation Distribution and other payments
to which they are entitled at such time.
10. Acceptance of Capital Securities Guarantee, Common
Securities Guarantee, Indenture and Debentures.
Each Holder of Capital Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Capital Securities
Guarantee, the Common Securities Guarantee, the Indenture and the Debentures, as
applicable, including the subordination provisions therein.
11. No Preemptive Rights.
The issuance of Capital Securities and the issuance of Common
Securities is not subject to preemptive or other similar rights. The Holders
shall have no preemptive rights to subscribe for any additional securities.
12. Miscellaneous.
These terms constitute a part of the Declaration.
<PAGE>
The Sponsor will provide a copy of the Declaration, the
Capital Securities Guarantee or the Common Securities Guarantee, as applicable,
and the Indenture (including any supplemental indenture) to a Holder without
charge upon written request to the Sponsor at its principal place of business.
<PAGE>
EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[FORM OF FACE OF SECURITY]
[IF THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY,
INSERT: THIS CAPITAL SECURITY IS A GLOBAL CAPITAL SECURITY WITHIN THE MEANING OF
THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING
AGENCY. THIS CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS
CAPITAL SECURITY (OTHER THAN A TRANSFER OF THIS CAPITAL SECURITY AS A WHOLE BY
THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE
CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING
AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE CLEARING AGENCY TO THE TRUST OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL SECURITY ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE CLEARING AGENCY AND ANY PAYMENT HEREON IS MADE TO CEDE &
CO., 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.]
[THIS CAPITAL SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS CAPITAL
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS CAPITAL SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
<PAGE>
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH TELEBANC
FINANCIAL CORPORATION (THE "CORPORATION") OR ANY "AFFILIATE" OF THE CORPORATION
WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL
SECURITY) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS
CAPITAL SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
CAPITAL SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF
TELEBANC CAPITAL TRUST I (THE "TRUST") AND THE CORPORATION PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) PURSUANT TO CLAUSE (D) TO REQUIRE THAT
THE TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE SUBSTANTIALLY
IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED JUNE 9, 1997. SUCH
HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS CAPITAL
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.]
THE HOLDER OF THIS CAPITAL SECURITY BY ITS ACCEPTANCE HEREOF
ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT,
INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH
A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON
OF ANY PLAN'S INVESTMENT IN THE ENTITY AND NO PERSON INVESTING "PLAN ASSETS" OF
ANY PLAN MAY ACQUIRE OR HOLD THE CAPITAL SECURITIES OR ANY INTEREST THEREIN,
UNLESS SUCH PURCHASER OR
<PAGE>
HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF
LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14
WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY PURCHASE OR HOLDER OF THE CAPITAL
SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS
PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT A PLAN OR PLAN ASSET
ENTITY OR (ii) THE ACQUISITION AND HOLDING OF THIS CAPITAL SECURITY BY IT IS NOT
PROHIBITED BY EITHER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR IS
EXEMPT FROM ANY SUCH PROHIBITION.
THE CAPITAL SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED
ONLY IN BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000 (100
CAPITAL SECURITIES). ANY ATTEMPTED TRANSFER OF CAPITAL SECURITIES IN A BLOCK
HAVING A LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND
OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT
TO BE THE HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT
LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH
PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH
CAPITAL SECURITIES.
<PAGE>
Certificate Number:__________ Aggregate Liquidation Amount: $___________
CUSIP Number: _________________
Certificate Evidencing Capital Securities
of
TeleBanc Capital Trust I
11.00% Capital Securities, Series __ (liquidation amount
$1,000 per Capital Security)
TeleBanc Capital Trust I, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby certifies that
______________ (the "Holder") is the registered owner of [$_________ in
aggregate liquidation amount of Capital Securities of the Trust]1 [the aggregate
liquidation amount of Capital Securities of the Trust specified in Schedule A
hereto]2 representing undivided preferred beneficial interests in the assets of
the Trust designated the 11.00% Capital Securities, Series __ (liquidation
amount $1,000 per Capital Security) (the "Capital Securities"). The Capital
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities represented hereby are issued and shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust,
dated as of June 9, 1997, as the same may be amended from time to time (the
"Declaration"), including the designation of the terms of the Capital Securities
as set forth in Annex I to the Declaration. Capitalized terms used but not
defined
<PAGE>
herein shall have the meaning given them in the Declaration. The Sponsor will
provide a copy of the Declaration, the Capital Securities Guarantee and the
Indenture (including any supplemental indenture) to a Holder without charge upon
written request to the Trust at its principal place of business.
Upon receipt of this Certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Capital Securities Guarantee to the extent provided therein.
By acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Capital Securities as evidence of indirect beneficial ownership in the
Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate
this __ day of _________, ____.
TELEBANC CAPITAL TRUST I
By:________________________________
Name:
Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Capital Securities referred to in the
within-mentioned Declaration.
Dated: __________ __, ____
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely as Property Trustee
By:
----------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed
at a rate per annum of 11.00% (the "Coupon Rate") of the liquidation amount of
$1,000 per Capital Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one semi-annual period will bear interest thereon compounded semi-annually
at the Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any and
all such interest and Liquidated Damages, if any, payable unless otherwise
stated. A Distribution is payable only to the extent that payments are made in
respect of the Debentures held by the Property Trustee and to the extent the
Property Trustee has funds legally available therefor.
Distributions on the Capital Securities will be cumulative,
will accumulate from the most recent date to which Distributions have been paid
or, if no Distributions have been paid, from June 9, 1997 and will be payable
semi-annually in arrears, on June 1 and December 1 of each year, commencing
December 1, 1997, except as otherwise described below. Distributions will be
computed on the basis of a 360-day year consisting of twelve 30-day months. As
long as no Event of Default has occurred and is continuing under the Indenture,
the Debenture Issuer has the right under the Indenture to defer payments of
interest by extending the interest payment period at any time and from time to
time on the Debentures for a period not exceeding 10 consecutive calendar
semi-annual periods, including the first such semi-annual period during such
extension period (each an "Extension Period"), provided that no Extension Period
shall end on a date other than an Interest Payment Date for the Debentures or
extend beyond the Maturity Date of the Debentures. As a consequence of such
deferral, Distributions will also be deferred. Notwithstanding such deferral,
semi-annual Distributions will continue to accumulate with interest thereon (to
the extent permitted by applicable law, but not at a rate exceeding the rate of
interest then accruing on the Debentures) at the Coupon Rate compounded
semi-annually during any such Extension Period. Prior to the termination of any
Extension Period, the Debenture Issuer may further defer payments of interest by
further extending such Extension Period; provided that such Extension Period,
together with all such previous and further extensions within such Extension
Period, may not (i) exceed 10 consecutive semi-annual periods, including the
first semi-annual period during such Extension Period, (ii) end on a date other
than an Interest Payment Date for the Debentures or (iii) extend beyond the
Maturity Date of the Debentures. Payments of accumulated Distributions will be
payable to Holders as they appear on the books and records of the Trust on the
record date immediately preceding the end of the Extension Period. Upon the
termination of any Extension Period and the payment of all amounts then
<PAGE>
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.
Subject to receipt by the Sponsor of any and all required
regulatory approvals and to certain other conditions set forth in the
Declaration and the Indenture, the Property Trustee may, at the direction of the
Sponsor, at any time terminate the Trust and cause the Debentures to be
distributed to the holders of the Securities in liquidation of the Trust or,
simultaneously with any redemption of the Debentures, cause a Like Amount of the
Securities to be redeemed by the Trust.
The Capital Securities shall be redeemable as provided in the
Declaration.
<PAGE>
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
Certificate to:
------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- ------------------------------------------------------------------- -----
(Insert address and zip code of assignee)
and irrevocably appoints
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
___________________________________________________________ agent to transfer
this Capital Security Certificate on the books of the Trust. The agent may
substitute another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
Signature Guarantee3: ___________________________________
<PAGE>
[Include the following if the Capital Security bears a Restricted Securities
Legend --
In connection with any transfer of any of the Capital Securities evidenced by
this Certificate, the undersigned confirms that such Capital Securities are
being:
CHECK ONE BOX BELOW
(1) - exchanged for the undersigned's own account without
transfer; or
(2) - transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
(3) - transferred to an institutional "accredited investor" within
the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Securities Act of 1933 that is acquiring the
Capital Securities for its own account, or for the account of
such an institutional "accredited investor," for investment
purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the
Securities Act of 1933; or
(4) - transferred pursuant to another available exemption from
the registration requirements of the Securities Act of 1933;
or
(5) - transferred pursuant to an effective registration statement.
Unless one of the boxes is checked, the Registrar will refuse to register any of
the Capital Securities evidenced by this Certificate in the name of any Person
other than the Holder hereof; provided, however, that if box (3) or (4) is
checked, the Registrar may require, prior to registering any such transfer of
the Capital Securities, such legal opinions, certifications and other
information as the Trust has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act of 1933, such as the
exemption provided by Rule 144 under such Act; provided, further, that (i) if
box (2) is checked, by acceptance of this Certificate, the transferee shall be
deemed to have certified that it is a "qualified institutional buyer" (as
defined in Rule 144A) acquiring the Capital Securities for its own account or
for the account of another QIB over which it exercises sole investment
discretion and that it is aware that the Holder is relying upon the exemption
from registration afforded by Rule 144A in respect of the Holder's transfer of
Capital Securities to it or (ii) if box (3) is checked, the transferee must also
provide to the Registrar a Transferee Letter of Representation in the form
attached to the Offering Memorandum of the Trust dated June 9, 1997; provided,
further, that after the date that a registration statement has been filed and so
long as such Registration
<PAGE>
Statement continues to be effective, only then may the Registrar permit
transfers for which box (5) has been checked.
-----------
Signature
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH TELEBANC
FINANCIAL CORPORATION (THE "CORPORATION") OR ANY "AFFILIATE" OF THE CORPORATION
WAS THE OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL
SECURITY) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS
COMMON SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
COMMON SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF
TELEBANC CAPITAL TRUST I (THE "TRUST") AND THE CORPORATION PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) PURSUANT TO CLAUSE (D) TO
<PAGE>
REQUIRE THAT TRANSFEROR DELIVER TO THE TRUST A LETTER FROM THE TRANSFEREE
SUBSTANTIALLY IN THE FORM OF ANNEX A TO THE OFFERING MEMORANDUM DATED JUNE 9,
1997. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS COMMON SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.
<PAGE>
Certificate Evidencing Common Securities
of
TeleBanc Capital Trust I
11.00% Common Securities
(liquidation amount $1,000 per Common Security)
TeleBanc Capital Trust I, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby certifies that
TeleBanc Financial Corporation (the "Holder") is the registered owner of three
hundred ten (310) common securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the 11.00% Common
Securities (liquidation amount $1,000 per Common Security) (the "Common
Securities"). The Common Securities are transferable on the books and records of
the Trust, in person or by a duly authorized attorney, upon surrender of this
Certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of June 9, 1997, as the same may be amended from time to time
(the "Declaration"), including the designation of the terms of the Common
Securities as set forth in Annex I to the Declaration. Capitalized terms used
but not defined herein shall have the meaning given them in the Declaration. The
Sponsor will provide a copy of the Declaration, the Common Securities Guarantee
and the Indenture (including any supplemental indenture) to a Holder without
charge upon written request to the Sponsor at its principal place of business.
Upon receipt of this Certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder and to the benefits of
the Common Securities Guarantee to the extent provided therein.
By acceptance hereof, the Holder agrees to treat, for United
States federal income tax purposes, the Debentures as indebtedness and the
Common Securities as evidence of indirect beneficial ownership in the
Debentures.
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this day of
- --------, ----.
TELEBANC CAPITAL TRUST I
By:________________________________
Name:
Administrative Trustee
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at
a rate per annum of 11.00% (the "Coupon Rate") of the liquidation amount of
$1,000 per Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one semi-annual period will bear interest thereon compounded semi-annually
at the Coupon Rate (to the extent permitted by applicable law). Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Debenture
Issuer will be required to pay Liquidated Damages (as defined in the
Registration Rights Agreement) with respect to the Debentures. The term
"Distributions", as used herein, includes such cash distributions and any and
all such interest and Liquidated Damages, if any, payable unless otherwise
stated. A Distribution is payable only to the extent that payments are made in
respect of the Debentures held by the Property Trustee and to the extent the
Property Trustee has funds legally available therefor.
Distributions on the Common Securities will be cumulative,
will accrue from the most recent date to which Distributions have been paid or,
if no Distributions have been paid, from June 9, 1997 and will be payable
semi-annually in arrears, on June 1 and December 1 of each year, commencing
December 1, 1997, except as otherwise described below. Distributions will be
computed on the basis of a 360-day year consisting of twelve 30-day months. As
long as no Event of Default has occurred and is continuing under the Indenture,
the Debenture Issuer has the right under the Indenture to defer payments of
interest by extending the interest payment period at any time and from time to
time on the Debentures for a period not exceeding 10 consecutive calendar
semi-annual periods, including the first such semi-annual period during such
extension period (each an "Extension Period"), provided that no Extension Period
shall end on a date other than an Interest Payment Date for the Debentures or
extend beyond the Maturity Date of the Debentures. As a consequence of such
deferral, Distributions will also be deferred. Notwith-standing such deferral,
Distributions will continue to accumulate with interest thereon (to the extent
permitted by applicable law, but not at a rate exceeding the rate of interest
then accruing on the Debentures) at the Coupon Rate compounded semi-annually
during any such Extension Period. Prior to the termination of any Extension
Period, the Debenture Issuer may further defer payments of interest by further
extending such Extension Period; provided that such Extension Period, together
with all such previous and further extensions within such Extension Period, may
not (i) exceed 10 consecutive semi-annual periods, including the first
semi-annual period during such Extension Period, (ii) end on a date other than
an Interest Payment Date for the Debentures or (iii) extend beyond the Maturity
Date of the Debentures. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the record date
immediately preceding the end of the Extension Period. Upon the termination of
any Extension Period and the payment of all amounts then
<PAGE>
due, the Debenture Issuer may commence a new Extension Period, subject to the
above requirements.
Subject to the receipt by the Sponsor of any and all required
regulatory approvals and to certain other conditions set forth in the
Declaration and the Indenture, the Property Trustee may, at the direction of the
Sponsor, at any time terminate the Trust and cause the Debentures to be
distributed to the holders of the Securities in liquidation of the Trust or,
simultaneously with any redemption of the Debentures, cause a Like Amount of the
Securities to be redeemed by the Trust.
The Common Securities shall be redeemable as provided in the
Declaration.
Under certain circumstances, the right of the holders of the
Common Securities shall be subordinate to the rights of the holders of the
Capital Securities, as provided in the Declaration.
TELEBANC FINANCIAL CORPORATION
------------------------------
------------------------------
INDENTURE
DATED AS OF JUNE 9, 1997
------------------------------
WILMINGTON TRUST COMPANY
AS DEBENTURE TRUSTEE
------------------------------
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
<PAGE>
Tie Sheet of provisions of Trust Indenture Act of 1939 with Indenture
dated as of June 9, 1997 between TeleBanc Financial Corporation and Wilmington
Trust Company, as Debenture Trustee:
ACT SECTION INDENTURE SECTION
310(a)(1) 6.09
(a)(2) 6.09
310(a)(3) N/A
(a)(4) N/A
310(a)(5) 6.10, 6.11
310(b) N/A
310(c) 6.13
311(a) and (b) N/A
311(c) 4.01, 4.02(a)
312(a) 4.02
312(b) and (c) 4.04
313(a) 4.04
313(b)(1) 4.04
313(b)(2) 4.04
313(c) 4.04
313(d) 4.04
314(a) 4.03
314(b) N/A
314(c)(1) and (2) 6.07
314(c)(3) N/A
314(d) N/A
314(e) 6.07
314(f) N/A
315(a)(c) and (d) 6.01
315(b) 5.08
315(e) 5.09
316(a)(1) 5.07
316(a)(2) N/A
316(a) last sentence 2.09
316(b) 9.02
317(a) 5.05
317(b) 6.05
318(a) 13.08
- ------------------------------------
THIS TIE-SHEET IS NOT PART OF THE INDENTURE AS EXECUTED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Definitions.....................................................................................9
Additional Sums................................................................................................9
Adjusted Treasury Rate........................................................................................10
Affiliate.....................................................................................................10
Authenticating Agent..........................................................................................10
Bankruptcy Law................................................................................................10
Board of Directors............................................................................................10
Board Resolution..............................................................................................10
Business Day..................................................................................................11
Capital Securities............................................................................................11
Capital Securities Guarantee..................................................................................11
Commission....................................................................................................11
Common Securities.............................................................................................11
Common Securities Guarantee...................................................................................11
Common Stock..................................................................................................11
Comparable Treasury Issue.....................................................................................12
Comparable Treasury Price.....................................................................................12
Corporation...................................................................................................12
Corporation Request...........................................................................................12
Compounded Interest...........................................................................................12
Custodian.....................................................................................................12
Debenture.....................................................................................................12
Declaration...................................................................................................12
Default.......................................................................................................13
Deferred Interest.............................................................................................13
Definitive Securities.........................................................................................13
Depositary....................................................................................................13
Dissolution Event.............................................................................................13
Event of Default..............................................................................................13
Exchange Act..................................................................................................13
Exchange Offer................................................................................................13
Exchange Securities...........................................................................................13
Extended Interest Payment Period..............................................................................13
Federal Reserve...............................................................................................14
Global Security...............................................................................................14
Indebtedness..................................................................................................14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Indebtedness Ranking on a Parity with the Securities..........................................................14
Indebtedness Ranking Junior to the Securities.................................................................15
Indenture.....................................................................................................15
Initial Optional Prepayment Date..............................................................................15
Initial Securities............................................................................................15
Interest Payment Date.........................................................................................15
Liquidated Damages............................................................................................15
Make Whole Amount.............................................................................................15
Maturity Date.................................................................................................16
Non Book-Entry Capital Securities.............................................................................16
Officers......................................................................................................16
Officers' Certificate.........................................................................................16
Opinion of Counsel............................................................................................16
Optional Prepayment Price.....................................................................................16
Other Debentures..............................................................................................16
Other Guarantees..............................................................................................16
outstanding...................................................................................................16
Person........................................................................................................17
Predecessor Security..........................................................................................17
Prepayment Price..............................................................................................17
Principal Office of the Debenture Trustee.....................................................................17
Purchase Agreement............................................................................................17
Quotation Agent...............................................................................................17
Reference Treasury Dealer.....................................................................................17
Reference Treasury Dealer Quotations..........................................................................17
Registration Rights Agreement.................................................................................18
Regulatory Capital Event......................................................................................18
Responsible Officer...........................................................................................18
Restricted Security...........................................................................................18
Rule 144A.....................................................................................................18
Securities....................................................................................................18
Securityholder................................................................................................18
holder of Securities..........................................................................................18
Security Register.............................................................................................19
Senior Indebtedness...........................................................................................19
Special Event.................................................................................................19
Special Event Prepayment Price................................................................................19
Subsidiary....................................................................................................19
Tax Event.....................................................................................................19
TeleBanc Capital Trust........................................................................................20
Trust Securities..............................................................................................20
U.S. Government Obligations...................................................................................20
</TABLE>
ARTICLE II
<PAGE>
<TABLE>
<CAPTION>
SECURITIES
<S> <C>
SECTION 2.01. Forms Generally................................................................................21
SECTION 2.02. Execution and Authentication...................................................................21
SECTION 2.03. Form and Payment...............................................................................21
SECTION 2.04. Legends........................................................................................22
SECTION 2.05. Global Security................................................................................22
SECTION 2.06 Interest........................................................................................24
SECTION 2.07. Transfer and Exchange..........................................................................24
SECTION 2.08. Replacement Securities.........................................................................27
SECTION 2.09. Temporary Securities...........................................................................27
SECTION 2.10. Cancellation...................................................................................28
SECTION 2.11. Defaulted Interest.............................................................................28
SECTION 2.12. CUSIP Numbers..................................................................................29
ARTICLE III
PARTICULAR COVENANTS OF THE CORPORATION
SECTION 3.01. Payment of Principal, Premium and Interest.....................................................29
SECTION 3.02. Offices for Notices and Payments, etc..........................................................30
SECTION 3.03. Appointments to Fill Vacancies in Debenture Trustee'...........................................30
SECTION 3.04. Provision as to Paying Agent...................................................................30
SECTION 3.05. Certificate to Debenture Trustee...............................................................31
SECTION 3.06. Compliance with Consolidation Provisions.......................................................32
SECTION 3.07. Limitation on Dividends........................................................................32
SECTION 3.08. Covenants as to TeleBanc Capital Trust.........................................................33
SECTION 3.09. Payment of Expenses............................................................................33
SECTION 3.10. Payment Upon Resignation or Removal............................................................34
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS BY THE CORPORATION AND
THE DEBENTURE TRUSTEE
SECTION 4.01. Securityholders' Lists.........................................................................34
SECTION 4.02. Preservation and Disclosure of Lists...........................................................35
SECTION 4.03. Reports by the Corporation.....................................................................37
SECTION 4.04. Reports by the Debenture Trustee...............................................................38
ARTICLE V
REMEDIES OF THE DEBENTURE TRUSTEE AND SECURITY HOLDERS ON
EVENT OF DEFAULT
SECTION 5.01. Events of Default..............................................................................38
SECTION 5.02. Payment of Securities on Default; Suit Therefor................................................41
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 5.03. Application of Moneys Collected by Debenture Trustee...........................................43
SECTION 5.04. Proceedings by Securityholders.................................................................43
SECTION 5.05. Proceedings by Debenture Trustee...............................................................45
SECTION 5.06. Remedies Cumulative and Continuing.............................................................45
SECTION 5.07. Direction of Proceedings and Waiver of Defaults by M...........................................45
SECTION 5.08. Notice of Defaults.............................................................................46
SECTION 5.09. Undertaking to Pay Costs.......................................................................47
ARTICLE VI
CONCERNING THE DEBENTURE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Debenture Trustee...............................................47
SECTION 6.02. Reliance on Documents, Opinions, etc...........................................................49
SECTION 6.03. No Responsibility for Recitals, etc............................................................51
SECTION 6.04. Debenture Trustee, Authenticating Agent, Paying Agent..........................................51
SECTION 6.05. Moneys to be Held in Trust.....................................................................51
SECTION 6.06. Compensation and Expenses of Debenture Trustee.................................................51
SECTION 6.07. Officers' Certificate as Evidence..............................................................52
SECTION 6.08. Conflicting Interest of Debenture Trustee......................................................53
SECTION 6.09. Eligibility of Debenture Trustee...............................................................53
SECTION 6.10. Resignation or Removal of Debenture Trustee....................................................53
SECTION 6.11. Acceptance by Successor Debenture Trustee......................................................55
SECTION 6.12. Succession by Merger, etc......................................................................56
SECTION 6.13. Limitation on Rights of Debenture Trustee as a Creditor........................................56
SECTION 6.14. Authenticating Agents..........................................................................57
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders......................................................................58
SECTION 7.02. Proof of Execution by Securityholders..........................................................59
SECTION 7.03. Who Are Deemed Absolute Owners.................................................................59
SECTION 7.04. Securities Owned by Corporation Deemed Not Outstanding.........................................59
SECTION 7.05. Revocation of Consents; Future Holders Bound...................................................60
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings...........................................................................60
SECTION 8.02. Call of Meetings by Debenture Trustee..........................................................61
SECTION 8.03. Call of Meetings by Corporation or Securityholders.............................................61
SECTION 8.04. Qualifications for Voting......................................................................61
SECTION 8.05. Regulations....................................................................................62
SECTION 8.06. Voting.........................................................................................62
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders.............................................................63
SECTION 9.02. With Consent of Securityholders................................................................65
SECTION 9.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures.........................66
SECTION 9.04. Notation on Securities.........................................................................66
SECTION 9.05. Evidence of Compliance of Supplemental Indenture to be Furnished to Debentures Trustees........66
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Corporation May Consolidate, etc., on Certain Terms...........................................67
SECTION 10.02. Successor Corporation to be Substituted for Corporation.......................................67
SECTION 10.03. Opinion of Counsel to be Given Debenture Trustee..............................................68
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture........................................................................68
SECTION 11.02. Deposited Moneys and U.S. Government Obligations to
be Held in Trust by Debentures Trustees......................................................69
SECTION 11.03. Paying Agent to Repay Moneys Held.............................................................70
SECTION 11.04. Return of Unclaimed Moneys....................................................................70
SECTION 11.05. Defeasance Upon Deposit of Moneys or U.S. Government..........................................70
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely Corporate Obligation..........................................72
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors....................................................................................72
SECTION 13.02. Official Acts by Successor Corporation........................................................72
SECTION 13.03. Surrender of Corporation Powers...............................................................73
SECTION 13.04. Addresses for Notices, etc....................................................................73
SECTION 13.05. Governing Law.................................................................................73
SECTION 13.06. Evidence of Compliance with Conditions Precedent..............................................73
SECTION 13.07. Business Days.................................................................................74
SECTION 13.08. Trust Indenture Act to Control................................................................74
SECTION 13.09. Table of Contents, Headings, etc..............................................................74
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 13.10. Execution in Counterparts.....................................................................74
SECTION 13.11. Separability..................................................................................75
SECTION 13.12. Assignment....................................................................................75
SECTION 13.13. Acknowledgement of Rights.....................................................................75
ARTICLE XIV
PREPAYMENT OF SECURITIES; MANDATORY AND
OPTIONAL SINKING FUND
SECTION 14.01. Special Event Prepayment......................................................................76
SECTION 14.02. Optional Prepayment by Corporation............................................................76
SECTION 14.03. No Sinking Fund...............................................................................77
SECTION 14.04. Notice of Prepayment; Selection of Securities.................................................77
SECTION 14.05. Payment of Securities Called for Prepayment...................................................78
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate......................................................................79
SECTION 15.02. Default on Senior Indebtedness................................................................79
SECTION 15.03. Liquidation; Dissolution; Bankruptcy..........................................................80
SECTION 15.04. Subrogation...................................................................................82
SECTION 15.05. Debenture Trustee to Effectuate Subordination.................................................83
SECTION 15.06. Notice by the Corporation.....................................................................83
SECTION 15.07. Rights of the Debenture Trustee; Holders of Senior............................................84
SECTION 15.08. Subordination May Not Be Impaired.............................................................85
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period..........................................................85
SECTION 16.02. Notice of Extension...........................................................................86
</TABLE>
<PAGE>
THIS INDENTURE, dated as of June 9, 1997, between TeleBanc
Financial Corporation, a Delaware corporation (hereinafter sometimes called the
"Corporation"), and Wilmington Trust Company, a Delaware banking corporation, as
debenture trustee (hereinafter sometimes called the "Debenture Trustee").
W I T N E S S E T H :
In consideration of the premises, and the purchase of the
Securities (as defined below) by the holders thereof, the Corporation covenants
and agrees with the Debenture Trustee for the equal and proportionate benefit of
the respective holders from time to time of the Securities, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture shall have the respective meanings specified in this
Section 1.01. All other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or which
are by reference therein defined in the Securities Act of 1933, as amended (the
"Securities Act"), shall (except as herein otherwise expressly provided or
unless the context otherwise requires) have the meanings assigned to such terms
in said Trust Indenture Act and in said Securities Act as in force at the date
of this Indenture as originally executed. The following terms have the meanings
given to them in the Declaration: (i) Clearing Agency; (ii) Delaware Trustee;
(iii) Property Trustee; (iv) Administrative Trustees; (v) Initial Capital
Securities; (vi) Exchange Capital Securities; (vii) Direct Action; (viii)
Initial Capital Securities Guarantee; (ix) Exchange Capital Securities
Guarantee; and (x) Distributions. All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms in accordance
with generally accepted accounting principles, and the term "generally accepted
accounting principles" means such accounting principles as are generally
accepted at the time of any computation. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other subdivision. Headings are
used for convenience of reference only and do not affect interpretation. The
singular includes the plural and vice versa.
"Additional Sums" shall have the meaning set forth in Section
2.06(c).
<PAGE>
"Adjusted Treasury Rate" means, with respect to any prepayment
date pursuant to Section 14.01, the rate per annum equal to (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 maturity corresponding to
the Remaining Life, yields for the two published maturities most closely
corresponding to the Remaining Life shall be determined, and the Adjusted
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 Price for
such prepayment date, in each case calculated on the third Business Day
preceding the prepayment date, plus in each case (a) 4.100% if such prepayment
date occurs on or prior to June 1, 1998 and (b) 3.550% in all other cases.
"Affiliate" shall have the meaning given to that term in Rule 405
under the Securities Act or any successor rule thereunder.
"Authenticating Agent" shall mean any agent or agents of the
Debenture Trustee which at the time shall be appointed and acting pursuant to
Section 6.14.
"Bankruptcy Law" shall mean Title 11, U.S. Code, or any similar
federal or state law for the relief of debtors.
"Board of Directors" shall mean either the Board of Directors of
the Corporation or any duly authorized committee of that board.
"Board Resolution" shall mean a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Corporation to have been duly
adopted by the Board of Directors and to be in full force and effect on the date
of such certification, and delivered to the Debenture Trustee.
"Book-Entity Capital Securities" shall have the meaning set forth
in Section 2.05(a)(i).
<PAGE>
"Business Day" shall mean, with respect to any series of
Securities, any day other than a Saturday or a Sunday or a day on which banking
institutions in New York, New York, Wilmington, Delaware or Arlington, Virginia
are authorized or required by law or executive order to remain closed.
"Capital Securities" shall mean undivided beneficial interests in
the assets of the Trust which are designated as "Capital Securities" and rank
pari passu with the Common Securities issued by the Trust; provided, however,
that if an Event of Default has occurred and is continuing, no payments in
respect of Distributions on, or payments upon liquidation, redemption or
otherwise with respect to, the Common Securities shall be made until the holders
of the Capital Securities shall be paid in full the Distributions and the
liquidation, redemption and other payments to which they are entitled.
References to "Capital Securities" shall include collectively any Initial
Capital Securities and Exchange Capital Securities.
"Capital Securities Guarantee" shall mean any guarantee agreement
that the Corporation may enter into with Wilmington Trust Company or other
Persons that operates directly or indirectly for the benefit of holders of
Capital Securities and shall include the Initial Capital Securities Guarantee
and the Exchange Capital Securities Guarantee with respect to the Initial
Capital Securities and the Exchange Capital Securities, respectively.
"Commission" shall mean the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Securities" shall mean undivided beneficial interests in
the assets of the Trust which are designated as "Common Securities" and rank
pari passu with Capital Securities issued by the Trust; provided, however, that
if an Event of Default has occurred and is continuing, no payments in respect of
Distributions on, or payments upon liquidation, redemption or otherwise with
respect to, the Common Securities shall be made until the holders of the Capital
Securities shall be paid in full the Distributions and the liquidation,
prepayment and other payments to which they are then entitled.
"Common Securities Guarantee" shall mean any guarantee that the
Corporation may enter into that operates directly or indirectly for the benefit
of holders of Common Securities.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Corporation or any other class of stock resulting from changes or
<PAGE>
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
"Comparable Treasury Issue" shall mean the United States Treasury
security selected by the Quotation Agent as having a maturity comparable to the
Remaining Life of the Securities 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
of the Securities, provided that if no United States Treasury security has a
maturity which is within a period from three months before to three months after
the Remaining Life, the two most closely corresponding United States Treasury
securities shall be used as the Comparable Treasury Issue, and the Adjusted
Treasury Rate shall be interpolated or extrapolated on a straight-line basis,
rounding to the nearest month, using such securities.
"Comparable Treasury Price" shall mean, with respect to any
prepayment date pursuant to Section 14.01, (i) the average of three Reference
Treasury Dealer Quotations for such prepayment date, after excluding the highest
and lowest Reference Treasury Dealer Quotations, or (ii) if the Debenture
Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations.
"Corporation" shall mean TeleBanc Financial Corporation, a
Delaware corporation, and, subject to the provisions of Article X, shall include
its successors and assigns.
"Corporation Request" or "Corporation Order" shall mean a written
request or order signed in the name of the Corporation by an Officer and
delivered to the Debenture Trustee.
"Compounded Interest" shall have the meaning set forth in Section
16.01.
"Custodian" shall mean any receiver, trustee, assignee,
liquidator, or similar official under any Bankruptcy Law.
"Debenture Trustee" shall mean the Person identified as
"Debenture Trustee" in the first paragraph hereof, and, subject to the
provisions of Article VI hereof, shall also include its successors and assigns
as Debenture Trustee hereunder.
"Declaration" shall mean the Amended and Restated Declaration of
Trust of the Trust, dated as of June 9, 1997, as amended from time to time.
<PAGE>
"Default" shall mean any event, act or condition that with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulted Interest" shall have the same meaning set forth in
Section 2.11.
"Deferred Interest" shall have the meaning set forth in Section
16.01.
"Definitive Securities" shall mean those securities issued in
fully registered certificated form not otherwise in global form.
"Depositary" shall mean, with respect to the Securities for which
the Corporation shall determine that such Securities will be issued as a Global
Security, The Depository Trust Company, New York, New York, another clearing
agency, or any successor registered as a clearing agency under the Exchange Act
or other applicable statute or regulation, which, in each case, shall be
designated by the Corporation pursuant to Section 2.05(d).
"Dissolution Event" shall mean the liquidation of the Trust
pursuant to the Declaration, and the distribution of the Securities held by the
Property Trustee to the holders of the Trust Securities issued by the Trust pro
rata in accordance with the Declaration.
"Event of Default" shall mean any event specified in Section
5.01, continued for the period of time, if any, and after the giving of the
notice, if any, therein designated.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" shall mean the offer that may be made pursuant
to the Registration Rights Agreement (i) by the Corporation to exchange the
Exchange Securities for the Initial Securities and to execute the Exchange
Capital Securities Guarantee in respect of the Exchange Capital Securities and
(ii) by the Trust to exchange the Exchange Capital Securities for the Initial
Capital Securities.
"Exchange Securities" shall mean the Corporation's 11.00% Junior
Subordinated Deferrable Interest Debentures due June 1, 2027, Series B, as
authenticated and issued under this Indenture.
"Extended Interest Payment Period" shall have the meaning set
forth in Section 16.01.
<PAGE>
"Federal Reserve" shall mean the Board of Governors of the
Federal Reserve System.
"Global Security" shall mean, with respect to the Securities, a
Security executed by the Corporation and delivered by the Debenture Trustee to
the Depositary or pursuant to the Depositary's instruction, or if no
instructions are received then held by the Property Trustee, all in accordance
with the Indenture, which shall be registered in the name of the Depositary or
its nominee.
"Holding Company Capital Rules" shall mean the holding company
level capital adequacy guidelines of the Federal Reserve or similar guidelines.
"Indebtedness" shall mean (i) every obligation of the Corporation
for money borrowed; (ii) every obligation of the Corporation evidenced by bonds,
debentures, notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or businesses; (iii)
every reimbursement obligation of the Corporation with respect to letters of
credit, banker's acceptances or similar facilities issued for the account of the
Corporation; (iv) every obligation of the Corporation issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business); (v)
every capital lease obligation of the Corporation; (vi) all indebtedness of the
Corporation, whether incurred on or prior to the date of this Indenture or
hereafter incurred, for claims in respect of derivative products, including
interest rate, foreign exchange rate and commodity forward contracts, options
and swaps and similar arrangements; and (vii) every obligation of the type
referred to in clauses (i) through (vi) of another Person and all dividends of
another Person the payment of which, in either case, the Corporation has
guaranteed or is responsible or liable for, directly or indirectly, as obligor
or otherwise.
"Indebtedness Ranking on a Parity with the Securities" shall mean
(i) Indebtedness, whether outstanding on the date of execution of this Indenture
or hereafter created, assumed or incurred, to the extent such Indebtedness by
its terms ranks pari passu with and not prior to the Securities in the right of
payment upon the happening of the dissolution or winding-up or liquidation or
reorganization of the Corporation, and (ii) all other debt securities, and
guarantees in respect of those debt securities, issued to any trust other than
the Trust, or a trustee of such trust, partnership or other entity affiliated
with the Corporation, that is a financing vehicle of the Corporation (a
"financing entity") in connection with the issuance by such financing entity of
equity securities or other securities guaranteed by the Corporation pursuant to
an instrument that ranks pari passu with or junior in right of payment to the
Capital Securities Guarantee. The securing of any Indebtedness otherwise
constituting Indebtedness Ranking on a
<PAGE>
Parity with the Securities shall not be deemed to prevent such Indebtedness from
constituting Indebtedness Ranking on a Parity with the Securities.
"Indebtedness Ranking Junior to the Securities" shall mean any
Indebtedness, whether outstanding on the date of execution of this Indenture or
hereafter created, assumed or incurred, to the extent such Indebtedness by its
terms ranks junior to and not pari passu with or prior to the Securities (and
any other Indebtedness Ranking on a Parity with the Securities) in right of
payment upon the happening of the dissolution or winding-up or liquidation or
reorganization of the Corporation. The securing of any Indebtedness otherwise
constituting Indebtedness Ranking Junior to the Securities shall not be deemed
to prevent such Indebtedness from constituting Indebtedness Ranking Junior to
the Securities.
"Indenture" shall mean this instrument as originally executed or,
if amended as herein provided, as so amended.
"Initial Optional Prepayment Date" shall mean June 1, 2007.
"Initial Securities" shall mean the Corporation's 11.00% Junior
Subordinated Deferrable Interest Debentures due June 1, 2027, Series A, as
authenticated and issued under this Indenture.
"Interest Payment Date" shall have the meaning set forth in
Section 2.06(a).
"Like Amount" shall mean (i) with respect to a redemption of the
Trust Securities, Trust Securities having a liquidation amount equal to the
principal amount of Securities to be paid in accordance with their terms and
(ii) with respect to a distribution of Securities upon the liquidation of the
Trust, Securities having a principal amount equal to the liquidation amount of
the Trust Securities of the holder to whom Securities are distributed.
"Liquidated Damages" shall have the meaning set forth in the
Registration Rights Agreement.
"Make Whole Amount" shall mean an amount equal to the greater of
(x) 100% of the principal amount of Securities to be prepaid or (y) the sum, as
determined by a Quotation Agent, of the present values of the remaining
scheduled payments of principal and interest on such Securities, discounted to
the prepayment date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus, in the case of
each of clauses (x) and (y), accrued and unpaid interest thereon, including
Compounded Interest and Additional Sums, if any, to the date of such prepayment.
<PAGE>
"Maturity Date" shall mean June 1, 2027.
"Non Book-Entry Capital Securities" shall have the meaning set
forth in Section 2.05(a)(ii).
"Officers" shall mean any of the Chairman, the Chief Executive
Officer, the President, an Executive or Senior Vice President, a Vice President,
the Chief Financial Officer, the Secretary or an Assistant Secretary of the
Corporation.
"Officers' Certificate" shall mean a certificate signed by two
Officers and delivered to the Debenture Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who
may be an employee of the Corporation, and who shall be reasonably acceptable to
the Debenture Trustee.
"Optional Prepayment Price" shall have the meaning set forth in
Section 14.02(a).
"Other Debentures" shall mean all junior subordinated debentures
other than the Securities issued by the Corporation from time to time and sold
to trusts other than the Trust to be established by the Corporation (if any), in
each case similar to the Trust.
"Other Guarantees" shall mean all guarantees other than the
Capital Securities Guarantee and the Common Guarantee issued by the Corporation
with respect to preferred beneficial interests (if any) issued to trusts other
than the Trust to be established by the Corporation (if any), in each case
similar to the Trust.
The term "outstanding" when used with reference to the
Securities, shall mean, subject to the provisions of Section 7.04, as of any
particular time, all Securities authenticated and delivered by the Debenture
Trustee or the Authenticating Agent under this Indenture, except
(a) Securities theretofore cancelled by the Debenture Trustee or
the Authenticating Agent or delivered to the Debenture
Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or
prepayment of which moneys in the necessary amount shall
have been deposited in trust with the Debenture Trustee or
with any paying agent (other than the Corporation) or shall
have been set aside and segregated in trust by the
Corporation (if the
<PAGE>
Corporation shall act as its own paying agent); provided
that, if such Securities, or portions thereof, are to be
prepaid prior to maturity thereof, notice of such prepayment
shall have been given as set forth in Article XIV or
provision satisfactory to the Debenture Trustee shall have
been made for giving such notice; and
(c) Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered
pursuant to the terms of Section 2.08 unless proof
satisfactory to the Corporation and the Debenture Trustee is
presented that any such Securities are held by bona fide
holders in due course.
"Person" shall mean any individual, corporation, estate,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security shall mean
every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security authenticated and delivered under Section 2.08 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Prepayment Price" shall mean the Special Event Prepayment Price
or the Optional Prepayment Price, as the context requires.
"Principal Office of the Debenture Trustee", or other similar
term, shall mean the office of the Debenture Trustee, at which at any particular
time its corporate trust business shall be administered.
"Purchase Agreement" shall mean the Purchase Agreement dated June
9, 1997 among the Corporation, the Trust and the Initial Purchaser named
therein.
"Quotation Agent" shall mean the Reference Treasury Dealer
appointed by the Corporation.
"Reference Treasury Dealer" shall mean a nationally recognized
U.S. Government securities dealer in New York, New York selected by the
Corporation.
"Reference Treasury Dealer Quotations" shall mean, with respect
to each Reference Treasury Dealer and any prepayment date pursuant to Section
14.01, the average, as determined by the Debenture Trustee, of the bid and asked
<PAGE>
prices for the Comparable Treasury Issue (expressed in each case as a percentage
of its principal amount) quoted in writing to the Debenture Trustee by such
Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
Business Day preceding such prepayment date.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of June 9, 1997, among the Corporation, the Trust and
the initial purchaser named therein, as such agreement may be amended, modified
or supplemented from time to time.
"Regulatory Capital Event" shall mean the receipt by the
Corporation and the Trust of an opinion of independent bank regulatory counsel
experienced in such matters to the effect that the Corporation is subject to the
Holding Company Capital Rules and is not entitled to treat the Capital
Securities as Tier 1 capital (or its then equivalent) thereunder; provided,
however, that the distribution of the Securities in connection with the
liquidation of the Trust by the Corporation shall not in and of itself
constitute a Regulatory Capital Event unless such liquidation shall have
occurred in connection with a Tax Event.
"Remaining Life" shall mean the term of the Securities from any
prepayment date pursuant to Section 14.01 to the Maturity Date.
"Responsible Officer" shall mean any officer of the Debenture
Trustee's Corporate Trust Administration department with direct responsibility
for the administration of the Indenture and also means, with respect to a
particular corporate trust matter, any other officer of the Debenture Trustee to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Security" shall mean Securities that bear or are
required to bear the legends relating to transfer restrictions under the
Securities Act set forth in Exhibit A hereto.
"Rule 144A" shall mean Rule 144A under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Securities" shall mean, collectively, the Initial Securities and
the Exchange Securities.
"Securityholder of Securities", or other similar terms, shall
mean any Person in whose name at the time a particular Security is registered in
the Security Register kept by the Corporation or the Debenture Trustee for that
purpose in accordance with the terms hereof.
<PAGE>
"Security Register" shall mean (i) prior to a Dissolution Event,
the list of holders provided to the Debenture Trustee pursuant to Section 4.01,
and (ii) following a Dissolution Event, any security register maintained by a
security registrar for the Securities appointed by the Corporation following the
execution of a supplemental indenture providing for transfer procedures as
provided for in Section 2.07(a).
"Senior Indebtedness" shall mean all Indebtedness, whether
outstanding on the date of execution of this Indenture or hereafter created,
assumed or incurred, except Indebtedness Ranking on a Parity with the Securities
or Indebtedness Ranking Junior to the Securities, and any deferrals, renewals or
extensions of such Senior Indebtedness.
"Special Event" shall mean a Regulatory Capital Event or a Tax
Event, as the context requires.
"Special Event Prepayment Price" shall mean, with respect to any
prepayment of the Securities following a Special Event, an amount in cash equal
to the Make Whole Amount.
"Subsidiary" shall mean with respect to any Person, (i) any
corporation at least a majority of the outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any
general partnership, joint venture or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner. For the purposes of this
definition, "voting stock" means shares, interests, participations or other
equivalents in the equity interest (however designated) in such Person having
ordinary voting power for the election of a majority of the directors (or the
equivalent) of such Person, other than shares, interests, participations or
other equivalents having such power only by reason of the occurrence of a
contingency.
"Tax Event" shall mean the receipt by the Trust and the
Corporation of an opinion of counsel experienced in such matters to the effect
that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which pronouncement or decision is announced on or after June 9,
1997, there is more than an insubstantial
<PAGE>
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 Securities, (ii) the interest payable by the
Corporation on the Securities is not, or within 90 days of the date of such
opinion will not be, deductible by the Corporation, 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.
"TeleBanc Capital Trust" or the "Trust" shall mean TeleBanc
Capital Trust I, a Delaware business trust created for the purpose of issuing
its undivided beneficial interests in connection with the issuance of Securities
under this Indenture.
"Trust Securities" shall mean, collectively, the Capital
Securities and the Common Securities.
"U.S. Government Obligations" shall mean securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or prepayable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation or the specific payment of interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
SECTION 1.02. Business Day Certificate.
____________ On the date of execution and delivery of this Indenture (with
respect to the remainder of calendar year 1997) and thereafter, within 15 days
prior to the end of each calendar year while this Indenture remains in effect
(with respect to the succeeding calendar years), the Corporation shall deliver
to the Debenture Trustee an Officers' Certificate specifying the days on which
banking institutions or trust companies in New York, New York, Wilmington,
Delaware or Arlington, Virginia are then authorized or obligated by law or
executive order to remain closed.
<PAGE>
ARTICLE II
SECURITIES
SECTION 2.01. Forms Generally.
The Securities and the Debenture Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, the terms of
which are incorporated in and made a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Corporation is subject or usage. Each Security shall be
dated the date of its authentication.
SECTION 2.02. Execution and Authentication.
An Officer shall sign the Securities for the Corporation by
manual or facsimile signature. If an Officer whose signature is on a Security no
longer holds that office at the time the Security is authenticated, the Security
shall nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Debenture Trustee. The signature of the Debenture Trustee shall
be conclusive evidence that the Security has been authenticated under this
Indenture.
The Debenture Trustee shall, upon a Corporation Order,
authenticate for original issue up to, and the aggregate principal amount of
Securities outstanding at any time may not exceed, $10,310,000 aggregate
principal amount of the Securities, except as provided in Sections 2.07, 2.08,
2.09 and 14.05. The series of Securities to be initially issued hereunder shall
be the Initial Securities.
SECTION 2.03. Form and Payment.
Except as provided in Section 2.05, the Securities shall be
issued in fully registered certificated form without interest coupons. Principal
of and premium, if any, and interest on the Securities issued in certificated
form will be payable, the transfer of such Securities will be registrable and
such Securities will be exchangeable for Securities bearing identical terms and
provisions at the office or agency of the Corporation maintained for such
purpose under Section 3.02; provided, however, that payments of interest may be
made at the option of the Corporation (i) by check mailed to the holder at such
address as shall appear in the Security Register or (ii) by transfer to an
account maintained by the Person entitled thereto, provided that proper transfer
instructions have been received in writing by the relevant record date.
Notwithstanding the foregoing, so long as the holder of any Securities is the
Property Trustee, the payment of the principal of and
<PAGE>
premium, if any, and interest (including Compounded Interest and Additional
Sums, if any) and Liquidated Damages, if any, on such Securities held by the
Property Trustee will be made at such place and to such account as may be
designated by the Property Trustee.
SECTION 2.04. Legends.
(a) Except as permitted by subsection (b) of this Section 2.04 or
as otherwise determined by the Corporation in accordance with applicable law,
each Security shall bear the applicable legends relating to restrictions on
transfer pursuant to the Securities Act and any other applicable securities laws
in substantially the form set forth on Exhibit A hereto.
(b) In the event of an Exchange Offer, the Corporation shall
issue and the Debenture Trustee, upon Corporation Order, shall authenticate
Exchange Securities in exchange for Initial Securities accepted for exchange in
the Exchange Offer, which Exchange Securities shall not bear the legends
required by subsection (a) above, in each case unless the holder of such Initial
Securities is either (A) a broker-dealer who purchased such Initial Securities
directly from the Corporation for resale pursuant to Rule 144A or any other
available exemption under the Securities Act, (B) a Person participating in the
distribution of the Initial Securities or (C) a Person who is an Affiliate of
the Corporation or the Trust.
SECTION 2.05. Global Security.
(a) In connection with a Dissolution Event,
(i) if any Capital Securities are held in
book-entry form ("Book-Entry Capital Securities"), a Like Amount
of Definitive Securities shall be presented to the Debenture
Trustee (if an arrangement with the Depositary has been
maintained) by the Property Trustee in exchange for one or more
Global Securities (as may be required pursuant to Section 2.07),
to be registered in the name of the Depositary, or its nominee,
and delivered by the Debenture Trustee to the Depositary for
crediting to the accounts of its participants pursuant to the
instructions of the Administrative Trustees; the Corporation upon
any such presentation shall execute one or more Global Securities
in such aggregate principal amount and deliver the same to the
Debenture Trustee for authentication and delivery in accordance
with this Indenture; and payments on the Securities issued as a
Global Security will be made to the Depositary; and
(ii) if any Capital Securities are held in
certificated form, the related Definitive Securities may be
presented to the Debenture Trustee by the Property Trustee and
any Capital Security certificates which represent
<PAGE>
Capital Securities other than Book-Entry Capital Securities ("Non
Book-Entry Capital Securities") will be deemed to represent
beneficial interests in Securities presented to the Debenture
Trustee by the Property Trustee having an aggregate principal
amount equal to the aggregate liquidation amount of the Non
Book-Entry Capital Securities until such Capital Security
certificates are presented to the security registrar for the
Securities for transfer or reissuance, at which time such Capital
Security certificates will be cancelled and a Security in a Like
Amount, registered in the name of the holder of the Capital
Security certificate or the transferee of the holder of such
Capital Security certificate, as the case may be, will be
executed by the Corporation and delivered to the Debenture
Trustee for authentication and delivery in accordance with this
Indenture; and upon the issuance of such Securities, Securities
with an equivalent aggregate principal amount that were presented
by the Property Trustee to the Debenture Trustee will be
cancelled.
(b) The Global Securities shall represent the aggregate amount of
outstanding Securities from time to time endorsed thereon; provided, however,
that the aggregate principal amount of outstanding Securities represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and prepayments. Any endorsement of a Global Security to
reflect the amount of any increase or decrease in the aggregate principal amount
of outstanding Securities represented thereby shall be made by the Debenture
Trustee, in accordance with instructions given by the Corporation as required by
this Section 2.05.
(c) The Global Securities may be transferred, in whole but not in
part, only to the Depositary, to another nominee of the Depositary, or to a
successor Depositary selected or approved by the Corporation or to a nominee of
such successor Depositary.
(d) If at any time the Depositary notifies the Corporation that
it is unwilling or unable to continue as Depositary or the Depositary has ceased
to be a clearing agency registered under the Exchange Act, and, in each case, a
successor Depositary is not appointed by the Corporation within 90 days after
the Corporation receives such notice or becomes aware of such condition, as the
case may be, the Corporation will execute, and the Debenture Trustee, upon
receipt of a Corporation Order, will authenticate and make available for
delivery the Definitive Securities, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global Security,
in exchange for such Global Security. If there is a Default or an Event of
Default, the Depositary shall have the right to exchange the Global Securities
for Definitive Securities. In addition, the Corporation may at any time
determine that the Securities shall no longer be represented by a Global
Security. In the event of such an Event of Default or such a determination, the
Corporation shall execute, and subject to Section 2.07, the
<PAGE>
Debenture Trustee, upon receipt of an Officers' Certificate evidencing such
determination by the Corporation and a Corporation Order, will authenticate and
make available for delivery the Definitive Securities, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security, in exchange for such Global Security. Upon the
exchange of the Global Security for such Definitive Securities, in authorized
denominations, the Global Security shall be cancelled by the Debenture Trustee.
Such Definitive Securities issued in exchange for the Global Security shall be
registered in such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Debenture Trustee. The Debenture Trustee shall deliver such
Definitive Securities to the Depositary for delivery to the Persons in whose
names such Definitive Securities are so registered.
SECTION 2.06 Interest.
(a) Each Security will bear interest at the rate of 11.00% per
annum (the "Coupon Rate") from the most recent date to which interest has been
paid or duly provided for or, if no interest has been paid or duly provided for,
from June 9, 1997, until the principal thereof becomes due and payable, and at
the Coupon Rate on any overdue principal (and premium, if any) and (to the
extent that payment of such interest is enforceable under applicable law) on any
overdue installment of interest, compounded semi-annually, payable (subject to
the provisions of Article XVI) semi-annually in arrears on June 1 and December 1
of each year, commencing December 1, 1997 (each, an "Interest Payment Date"), to
the Person in whose name such Security or any predecessor Security is
registered, at the close of business on the regular record date for such
interest installment, which shall be the 15th day of the month immediately
preceding the month in which the relevant Interest Payment Date falls.
(b) Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
(c) During such time as the Property Trustee is the holder of any
Securities, the Corporation shall pay any additional amounts on the Securities
as may be necessary in order that the amount of Distributions then due and
payable by the Trust on the outstanding Trust Securities shall not be reduced as
a result of any additional taxes, duties and other governmental charges to which
the Trust has become subject as a result of a Tax Event ("Additional Sums").
SECTION 2.07. Transfer and Exchange.
(a) Transfer Restrictions. (i) The Initial Securities, and those
Exchange Securities with respect to which any Person described in Section
2.04(b)(A), (B) or (C) is the beneficial owner, may not be transferred except in
<PAGE>
compliance with the legend contained in Exhibit A unless otherwise determined by
the Corporation in accordance with applicable law. Upon any distribution of the
Securities following a Dissolution Event, the Corporation and the Debenture
Trustee shall enter into a supplemental indenture pursuant to Section 9.01 to
provide for the transfer restrictions and procedures with respect to the
Securities substantially similar to those contained in the Declaration to the
extent applicable in the circumstances existing at such time.
(ii) The Securities will be issued and may be transferred only
in blocks having an aggregate principal amount of not less than $100,000 and in
multiples of $1,000 in excess thereof. Any attempted transfer of the Securities
in a block having an aggregate principal amount of less than $100,000 shall be
deemed to be voided and of no legal effect whatsoever. Any such purported
transferee shall be deemed not to be a holder of such Securities for any
purpose, including, but not limited to the receipt of payments on such
Securities, and such purported transferee shall be deemed to have no interest
whatsoever in such Securities.
(b) General Provisions Relating to Transfers and Exchanges. To
permit registrations of transfers and exchanges, the Corporation shall execute
and the Debenture Trustee shall authenticate Definitive Securities and Global
Securities at the request of the security registrar for the Securities. All
Definitive Securities and Global Securities issued upon any registration of
transfer or exchange of Definitive Securities or Global Securities shall be the
valid obligations of the Corporation, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Definitive Securities or Global
Securities surrendered upon such registration of transfer or exchange.
No service charge shall be made to a holder for any registration
of transfer or exchange, but the Corporation may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith.
The Corporation shall not be required to: (i) issue, register the
transfer of or exchange Securities during a period beginning at the opening of
business 15 days before the day of mailing of a notice of prepayment or any
notice of selection of Securities for prepayment under Article XIV hereof and
ending at the close of business on the day of such mailing; or (ii) register the
transfer of or exchange any Security so selected for prepayment in whole or in
part, except the nonprepaid portion of any Security being prepaid in part.
Prior to due presentment for the registration of a transfer of
any Security, the Debenture Trustee, the Corporation and any agent of the
Debenture Trustee or the Corporation may deem and treat the Person in whose name
any Security is registered as the absolute owner of such Security for the
purpose of
<PAGE>
receiving payment of principal of and premium, if any, and interest on such
Securities, and none of the Debenture Trustee, the Corporation and any agents of
the Debenture Trustee or the Corporation shall be affected by notice to the
contrary.
(c) Exchange of Initial Securities for Exchange Securities.
The Initial Securities may be exchanged for Exchange Securities pursuant to the
terms of the Exchange Offer. The Debenture Trustee shall make the exchange as
follows:
The Corporation shall present the Debenture Trustee with an
Officers' Certificate certifying the following:
(A) upon issuance of the Exchange Securities, the
transactions contemplated by the Exchange Offer have
been consummated; and
(B) the principal amount of Initial Securities properly
tendered in the Exchange Offer that are represented
by a Global Security, the principal amount of Initial
Securities properly tendered in the Exchange Offer
that are represented by Definitive Securities, the
name of each holder of such Definitive Securities,
the principal amount properly tendered in the
Exchange Offer by each such holder and the name and
address to which Definitive Securities for Exchange
Securities shall be registered and sent for each such
holder.
The Debenture Trustee, upon receipt of (i) such Officers'
Certificate, (ii) an Opinion of Counsel (x) to the effect that the Exchange
Securities have been registered under Section 5 of the Securities Act and the
Indenture has been qualified under the Trust Indenture Act and (y) with respect
to the matters set forth in Section 3(q) of the Registration Rights Agreement
and (iii) a Corporation Order, shall authenticate (A) a Global Security
representing Exchange Securities in aggregate principal amount equal to the
aggregate principal amount of Initial Securities represented by a Global
Security indicated in such Officers' Certificate as having been properly
tendered and (B) Definitive Securities representing Exchange Securities
registered in the names of, and in the principal amounts indicated in, such
Officers' Certificate.
If the principal amount of the Global Security for the Exchange
Securities is less than the principal amount of the Global Security for the
Initial Securities, the Debenture Trustee shall make an endorsement on such
Global Security for Initial Securities indicating a reduction in the principal
amount represented thereby.
<PAGE>
The Debenture Trustee shall deliver such Definitive Securities
representing Exchange Securities to the holders thereof as indicated in such
Officers' Certificate.
SECTION 2.08. Replacement Securities.
If any mutilated Security is surrendered to the Debenture
Trustee, or the Corporation and the Debenture Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Security, the Corporation
shall issue and the Debenture Trustee shall authenticate a replacement Security
if the Debenture Trustee's requirements for replacements of Securities are met.
An indemnity bond must be supplied by the holder that is sufficient in the
judgment of the Debenture Trustee and the Corporation to protect the
Corporation, the Debenture Trustee, any agent thereof or any authenticating
agent from any loss that any of them may suffer if a Security is replaced. The
Corporation or the Debenture Trustee may charge for its expenses in replacing a
Security.
Every replacement Security is an obligation of the Corporation
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
SECTION 2.09. Temporary Securities.
Pending the preparation of Definitive Securities, the Corporation
may execute, and upon Corporation Order the Debenture Trustee shall authenticate
and make available for delivery, temporary Securities that are printed,
lithographed, typewritten, mimeographed or otherwise reproduced, in any
authorized denomination, substantially of the tenor of the Definitive Securities
in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the Officers executing such
Securities may determine, as conclusively evidenced by their execution of such
Securities.
If temporary Securities are issued, the Corporation shall cause
Definitive Securities to be prepared without unreasonable delay. The Definitive
Securities shall be printed, lithographed or engraved, or provided by any
combination thereof, or in any other manner permitted by the rules and
regulations of any applicable securities exchange, all as determined by the
Officers executing such Definitive Securities. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at the office
or agency maintained by the Corporation for such purpose pursuant to Section
3.02 hereof, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities, the Corporation shall execute, and the
Debenture Trustee shall authenticate and make available for delivery, in
exchange therefor the same aggregate principal amount of
<PAGE>
Definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as Definitive Securities.
SECTION 2.10. Cancellation.
The Corporation at any time may deliver Securities to the
Debenture Trustee for cancellation. The Debenture Trustee and no one else shall
cancel all Securities surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall retain or destroy cancelled
Securities in accordance with its normal practices (subject to the record
retention requirement of the Exchange Act) unless the Corporation directs them
to be returned to it. The Corporation may not issue new Securities to replace
Securities that have been prepaid or paid or that have been delivered to the
Debenture Trustee for cancellation.
SECTION 2.11. Defaulted Interest.
Any interest on any Security that is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the holder
on the relevant regular record date by virtue of having been such holder; and
such Defaulted Interest shall be paid by the Corporation, at its election, as
provided in clause (a) or clause (b) below:
(a) The Corporation may make payment of any Defaulted Interest on
Securities to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered at the close of
business on a special record date for the payment of such Defaulted
Interest, which shall be fixed in the following manner: the Corporation
shall notify the Debenture Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each such Security and the
date of the proposed payment, and at the same time the Corporation
shall deposit with the Debenture Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Debenture
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause provided.
Thereupon the Debenture Trustee shall fix a special record date for the
payment of such Defaulted Interest which shall not be more than 15 nor
less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Debenture Trustee of the
notice of the proposed payment. The Debenture Trustee shall promptly
notify the Corporation of such special record date and, in the name and
at the expense of the Corporation, shall cause notice of the proposed
payment of such Defaulted Interest and the
<PAGE>
special record date therefor to be mailed, first class postage prepaid,
to each Securityholder at his or her address as it appears in the
Security Register, not less than 10 days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names such
Securities (or their respective Predecessor Securities) are registered
on such special record date and shall be no longer payable pursuant to
the following clause (b).
(b) The Corporation may make payment of any Defaulted Interest on
any Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Corporation to the Debenture Trustee of the
proposed payment pursuant to this clause, such manner of payment shall
be deemed practicable by the Debenture Trustee.
SECTION 2.12. CUSIP Numbers.
The Corporation in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Debenture Trustee shall use "CUSIP"
numbers in notices of prepayment as a convenience to Securityholders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a prepayment and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such prepayment shall
not be affected by any defect in or omission of such numbers. The Corporation
will promptly notify the Debenture Trustee of any change in the CUSIP numbers.
ARTICLE III
PARTICULAR COVENANTS OF THE CORPORATION
SECTION 3.01. Payment of Principal, Premium and Interest.
The Corporation covenants and agrees for the benefit of the
holders of the Securities that it will duly and punctually pay or cause to be
paid the principal of and premium, if any, and interest on the Securities at the
place, at the respective times and in the manner provided herein. The
Corporation further covenants to pay any and all amounts due in respect of the
Securities, including, without limitation, Additional Sums, as may be required
pursuant to Section 2.06(c), Liquidated Damages, if any, on the dates and in the
manner required under the Registration Rights Agreement and Compounded Interest,
as may be required pursuant to Section 16.01.
<PAGE>
SECTION 3.02. Offices for Notices and Payments, etc.
So long as any of the Securities remain outstanding, the
Corporation will maintain in Wilmington, Delaware an office or agency where the
Securities may be presented for payment, an office or agency where the
Securities may be presented for registration of transfer and for exchange as in
this Indenture provided and an office or agency where notices and demands to or
upon the Corporation in respect of the Securities or this Indenture may be
served. The Corporation will give to the Debenture Trustee written notice of the
location of any such office or agency and of any change of location thereof.
Until otherwise designated from time to time by the Corporation in a notice to
the Debenture Trustee, any such office or agency for all of the above purposes
shall be the Principal Office of the Debenture Trustee. In case the Corporation
shall fail to maintain any such office or agency in Wilmington, Delaware or
shall fail to give such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices may be served at the
Principal Office of the Debenture Trustee.
In addition to any such office or agency, the Corporation may
from time to time designate one or more offices or agencies outside Wilmington,
Delaware where the Securities may be presented for payment, for registration of
transfer and for exchange and where notices and demands to or upon the
Corporation in respect of the Securities or this Indenture may be served in the
manner provided in this Indenture, and the Corporation may from time to time
rescind such designation, as the Corporation may deem desirable or expedient;
provided, however, that no such designation or rescission shall in any manner
relieve the Corporation of its obligation to maintain any such office or agency
in Wilmington, Delaware for the purposes above mentioned. The Corporation will
give to the Debenture Trustee prompt written notice of any such designation or
rescission thereof.
SECTION 3.03. Appointments to Fill Vacancies in Debenture
Trustee' Office.
The Corporation, whenever necessary to avoid or fill a vacancy in
the office of Debenture Trustee, will appoint, in the manner provided in Section
6.10, a Debenture Trustee, so that there shall at all times be a Debenture
Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent.
(a) If the Corporation shall appoint a paying agent other than
the Debenture Trustee with respect to the Securities, it
will cause
<PAGE>
such paying agent to execute and deliver to the Debenture
Trustee an instrument in which such agent shall agree with
the Debenture Trustee, subject to the provision of this
Section 3.04,
(1) that it will hold all sums held by it as such agent
for the payment of the principal of and premium, if
any, or interest on the Securities (whether such sums
have been paid to it by the Corporation or by any
other obligor on the Securities) in trust for the
benefit of the holders of the Securities; and
(2) that it will give the Debenture Trustee notice of any
failure by the Corporation (or by any other obligor
on the Securities) to make any payment of the
principal of and premium or interest (including
Additional Sums and Compounded Interest, if any) and
Liquidated Damages, if any, on the Securities when
the same shall be due and payable.
(b) If the Corporation shall act as its own paying agent, it
will, on or before each due date of the principal of and
premium, if any, or interest on the Securities, set aside,
segregate and hold in trust for the benefit of the holders
of the Securities a sum sufficient to pay such principal,
premium or interest so becoming due and will notify the
Debenture Trustee of any failure to take such action and of
any failure by the Corporation (or by any other obligor
under the Securities) to make any payment of the principal
of and premium, if any, or interest on the Securities when
the same shall become due and payable.
(c) Anything in this Section 3.04 to the contrary
notwithstanding, the Corporation may, at any time, for the
purpose of obtaining a satisfaction and discharge with
respect to the Securities hereunder, or for any other
reason, pay or cause to be paid to the Debenture Trustee
all sums held in trust for such Securities by the Debenture
Trustee or any paying agent hereunder, as required by this
Section 3.04, such sums to be held by the Debenture Trustee
upon the trusts herein contained.
(d) Anything in this Section 3.04 to the contrary
notwithstanding, the agreement to hold sums in trust as
provided in this Section 3.04 is subject to Sections 11.03
and 11.04.
SECTION 3.05. Certificate to Debenture Trustee.
<PAGE>
The Corporation will deliver to the Debenture Trustee on or
before 120 days after the end of each fiscal year in each year, commencing with
the first fiscal year ending after the date hereof, so long as Securities are
outstanding hereunder, an Officers' Certificate, one of the signers of which
shall be the principal executive, principal financial or principal accounting
officer of the Corporation, stating that in the course of the performance by the
signers of their duties as officers of the Corporation they would normally have
knowledge of any Default by the Corporation in the performance of any covenants
contained herein, stating whether or not they have knowledge of any such Default
and, if so, specifying each such Default of which the signers have knowledge and
the nature thereof.
SECTION 3.06. Compliance with Consolidation Provisions.
The Corporation will not, while any of the Securities remain
outstanding, consolidate with, or merge into, or merge into itself, or sell or
convey all or substantially all of its property to any other Person unless the
provisions of Article X hereof are complied with.
SECTION 3.07. Limitation on Dividends.
The Corporation will not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Corporation's capital stock, (ii) make any payment
of principal of or premium, if any, or interest on or repay, repurchase or
redeem any debt securities of the Corporation (including Other Debentures) that
rank pari passu with or junior in right of payment to the Securities or (iii)
make any guarantee payments with respect to any guarantee (other than the
Capital Securities Guarantee) by the Corporation of the debt securities of any
Subsidiary of the Corporation (including Other Guarantees) if such guarantee
ranks pari passu with or junior in right of payment to the Securities (other
than (a) dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, Common Stock, (b) any declaration of a
dividend in connection with the implementation of a stockholder's rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) as a result of a
reclassification of the Corporation's capital stock or the exchange or
conversion of one class or series of the Corporation's capital stock for another
class or series of the Corporation's capital stock, (d) the purchase of
fractional interests in shares of the Corporation's capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged and (e) purchases of Common Stock related to the
issuance of Common Stock or rights under any of the Corporation's benefit or
compensation plans for its directors, officers or employees or any of the
Corporation's dividend reinvestment plans), if at such time (1) there shall have
occurred any event of
<PAGE>
which the Corporation has actual knowledge that (a) is a Default or an Event of
Default and (b) in respect of which the Corporation shall not have taken
reasonable steps to cure, (2) if such Securities are held by the Property
Trustee, the Corporation shall be in default with respect to its payment of any
obligations under the Capital Securities Guarantee or (3) the Corporation shall
have given notice of its election to exercise its right to commence an Extended
Interest Payment Period and shall not have rescinded such notice, and such
Extended Interest Payment Period or any extension thereof shall have commenced
and be continuing.
SECTION 3.08. Covenants as to TeleBanc Capital Trust
In the event Securities are issued to the Trust or a trustee of
such trust in connection with the issuance of Trust Securities by the Trust, for
so long as such Trust Securities remain outstanding, the Corporation (i) will
maintain 100% direct or indirect ownership of the Common Securities of the
Trust; provided, however, that any successor of the Corporation, permitted
pursuant to Article X, may succeed to the Corporation's ownership of such Common
Securities, (ii) will use commercially reasonable efforts to cause the Trust (a)
to remain a business trust, except in connection with a distribution of
Securities to the holders of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (b)
to otherwise continue to be classified as a grantor trust and not an association
taxable as a corporation for United States federal income tax purposes, (iii)
will use commercially reasonable efforts to cause each holder of the Trust
Securities to be treated as owning an undivided beneficial interest in the
Securities and (iv) will not cause, as sponsor of the Trust, or permit, as
holder of the Common Securities, the dissolution, winding-up or termination of
the Trust, except as provided in the Declaration.
SECTION 3.09. Payment of Expenses.
In connection with the offering, sale and issuance of the
Securities to the Trust and in connection with the sale of the Trust Securities
by the Trust, the Corporation, in its capacity as borrower with respect to the
Securities, shall:
(a) pay all costs and expenses relating to the offering, sale and
issuance of the Securities, including commissions to the initial purchaser
payable pursuant to the Purchase Agreement, fees and expenses in connection with
any Exchange Offer, filing of a shelf registration statement or other action to
be taken pursuant to the Registration Rights Agreement and compensation of the
Debenture Trustee in accordance with the provisions of Section 6.06;
(b) pay all costs and expenses of the Trust (including, but not
limited to, costs and expenses relating to the organization of the Trust, the
offering,
<PAGE>
sale and issuance of the Trust Securities (including commissions to the initial
purchaser in connection therewith), the fees and expenses of the Property
Trustee and the Delaware Trustee, the costs and expenses relating to the
operation of the Trust, including without limitation, costs and expenses of
accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing, and disposition of assets of the Trust;
(c) be primarily and fully liable for any indemnification
obligations arising with respect to the Declaration;
(d) pay any and all taxes (other than United States withholding
taxes attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust; and
(e) pay all other fees, expenses, debts and obligations (other
than in respect of the Trust Securities) related to the Trust.
SECTION 3.10. Payment Upon Resignation or Removal.
Upon termination of this Indenture or the removal or resignation
of the Debenture Trustee, unless otherwise stated, the Corporation shall pay to
the Debenture Trustee all amounts accrued and owing to the date of such
termination, removal or resignation. Upon termination of the Declaration or the
removal or resignation of the Delaware Trustee or the Property Trustee, as the
case may be, pursuant to Section 5.7 of the Declaration, the Corporation shall
pay to the Delaware Trustee or the Property Trustee, as the case may be, all
amounts accrued and owing to the date of such termination, removal or
resignation.
ARTICLE IV
SECURITYHOLDERS' LISTS AND REPORTS
BY THE CORPORATION AN THE DEBENTURE TRUSTEE
SECTION 4.01. Securityholders' Lists.
The Corporation covenants and agrees that it will furnish or
cause to be furnished to the Debenture Trustee:
(a) on a semi-annual basis on each regular record date for the
Securities, a list, in such form as the Debenture Trustee
may
<PAGE>
reasonably require, of the names and addresses of the
Securityholders as of such record date; and
(b) at such other times as the Debenture Trustee may request in
writing, within 30 days after the receipt by the
Corporation, of any such request, a list of similar form
and content as of a date not more than 15 days prior to the
time such list is furnished,
except that, no such lists need be furnished so long as the
Debenture Trustee is in possession thereof by reason of its
acting as security registrar for the Securities.
SECTION 4.02. Preservation and Disclosure of Lists.
(a) The Debenture Trustee shall preserve, in as current a form
as is reasonably practicable, all information as to the
names and addresses of the holders of the Securities (1)
contained in the most recent list furnished to it as
provided in Section 4.01 or (2) received by it in the
capacity of security registrar (if so acting) hereunder.
The Debenture Trustee may destroy any list furnished to it
as provided in Section 4.01 upon receipt of a new list so
furnished.
(b) In case three or more holders of Securities (hereinafter
referred to as "applicants") apply in writing to the
Debenture Trustee and furnish to the Debenture Trustee
reasonable proof that each such applicant has owned a
Security for a period of at least six months preceding the
date of such application, and such application states that
the applicants desire to communicate with other holders of
Securities or with holders of all Securities with respect
to their rights under this Indenture and is accompanied by
a copy of the form of proxy or other communication which
such applicants propose to transmit, then the Debenture
Trustee shall within 5 Business Days after the receipt of
such application, at its election, either:
(1) afford such applicants access to the information
preserved at the time by the Debenture Trustee in
accordance with the provisions of subsection (a)
of this Section 4.02, or
(2) inform such applicants as to the approximate
number of holders of all Securities whose names
and addresses appear in the information preserved
<PAGE>
at the time by the Debenture Trustee in
accordance with the provisions of subsection (a)
of this Section 4.02, and as to the approximate
cost of mailing to such Securityholders the form
of proxy or other communication, if any,
specified in such application.
If the Debenture Trustee shall elect not to afford
such applicants access to such information, the Debenture
Trustee shall, upon the written request of such applicants,
mail to each Securityholder whose name and address appear
in the information preserved at the time by the Debenture
Trustee in accordance with the provisions of subsection (a)
of this Section 4.02 a copy of the form of proxy or other
communication which is specified in such request with
reasonable promptness after a tender to the Debenture
Trustee of the material to be mailed and of payment, or
provision for the payment, of the reasonable expenses of
mailing, unless within five Business Days after such
tender, the Debenture Trustee shall mail to such applicants
and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect
that, in the opinion of the Debenture Trustee, such mailing
would be contrary to the best interests of the holders of
Securities or would be in violation of applicable law. Such
written statement shall specify the basis of such opinion.
If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed,
shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining
one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the
objections so sustained have been met and shall enter an
order so declaring, the Debenture Trustee shall mail copies
of such material to all such Securityholders with
reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Debenture Trustee
shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Each and every holder of Securities, by receiving and
holding the same, agrees with the Corporation and the
Debenture Trustee that neither the Corporation nor the
Debenture Trustee nor any paying agent shall be held
accountable by reason of the disclosure of any such
information as to the names and addresses of the holders of
Securities in accordance with the provisions of subsection
(b) of this Section 4.02, regardless of the
<PAGE>
source from which such information was derived, and that
the Debenture Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made
under said subsection (b).
SECTION 4.03. Reports by the Corporation.
(a) The Corporation covenants and agrees to file with the
Debenture Trustee, within 15 days after the date on which
the Corporation is required to file the same with the
Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such
portions of any of the foregoing as said Commission may
from time to time by rules and regulations prescribe) which
the Corporation may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Corporation is not required to file
information, documents or reports pursuant to either of
such sections, then to provide to the Debenture Trustee,
such of the supplementary and periodic information,
documents and reports which would have been required
pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities
exchange as may be prescribed from time to time in such
rules and regulations.
(b) The Corporation covenants and agrees to file with the
Debenture Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by
said Commission, such additional information, documents and
reports with respect to compliance by the Corporation with
the conditions and covenants provided for in this Indenture
as may be required from time to time by such rules and
regulations.
(c) The Corporation covenants and agrees to transmit by mail to
all holders of Securities, as the names and addresses of
such holders appear upon the Security Register, within 30
days after the filing thereof with the Debenture Trustee,
such summaries of any information, documents and reports
required to be filed by the Corporation pursuant to
subsections (a) and (b) of this Section 4.03 as may be
required by rules and regulations prescribed from time to
time by the Commission.
(d) Delivery of such reports, information and documents to the
Debenture Trustee is for informational purposes only and
the
<PAGE>
Debenture Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or
determinable from information contained therein, including
the Corporation's compliance with any of its covenants
hereunder (as to which the Debenture Trustee is entitled to
rely exclusively on Officers' Certificates).
(e) So long as is required for an offer or sale of the
Securities to qualify for an exemption under Rule 144A
under the Securities Act, the Corporation shall, upon
request, provide the information required by clause (d)(4)
thereunder to each Securityholder and to each beneficial
owner and prospective purchaser of Securities identified by
each Securityholder of Restricted Securities, unless such
information is furnished to the Commission pursuant to
Section 13 or 15(d) of the Exchange Act.
SECTION 4.04. Reports by the Debenture Trustee.
(a) The Debenture Trustee shall transmit to Securityholders
such reports concerning the Debenture Trustee and its
actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner
provided pursuant thereto. If required by Section 313(a) of
the Trust Indenture Act, the Debenture Trustee shall,
within sixty days after each June 1 following the date of
this Indenture, commencing June 1, 1998, deliver to
Securityholders a brief report, dated as of such June 1,
which complies with the provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Debenture
Trustee with each stock exchange, if any, upon which the
Securities are listed, with the Commission and with the
Corporation. The Corporation will promptly notify the
Debenture Trustee when the Securities are listed on any
stock exchange.
ARTICLE V
REMEDIES OF THE DEBENTURE TRUSTEE
AND SECURITYHOLDERS ON EVENT OF DEFAULT
SECTION 5.01. Events of Default.
<PAGE>
One or more of the following events of default shall constitute
an Event of Default hereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in the payment of any interest (including
Compounded Interest and Additional Sums, if any) or
Liquidated Damages, if any, on the Securities or any Other
Debentures when due, and continuance of such default for a
period of 30 days; provided, however, that a valid
extension of an interest payment period by the Corporation
in accordance with the terms hereof or thereof shall not
constitute a default in the payment of interest for this
purpose; or
(b) default in the payment of any principal of (or premium, if
any, on) the Securities or any Other Debentures when due,
whether at maturity, upon prepayment, by declaration of
acceleration of maturity or otherwise; or
(c) default in the performance, or breach, of any covenant or
warranty of the Corporation in this Indenture (other than a
covenant or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for
a period of 90 days after there has been given, by
registered or certified mail, to the Corporation by the
Debenture Trustee or to the Corporation and the Debenture
Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Securities a written
notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(d) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Corporation in
an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect,
or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the
Corporation or for any substantial part of its property, or
ordering the winding-up or liquidation of its affairs and
such decree or order shall remain unstayed and in effect
for a period of 90 consecutive days; or
<PAGE>
(e) the Corporation shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under any such law,
or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or shall make
any general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due.
If an Event of Default with respect to Securities at the time
outstanding occurs and is continuing, then in every such case the Debenture
Trustee or the holders of not less than 25% in aggregate principal amount of the
Securities then outstanding may declare the principal amount of all Securities
to be due and payable immediately, by a notice in writing to the Corporation
(and to the Debenture Trustee if given by the holders of the outstanding
Securities), and upon any such declaration the same shall become immediately due
and payable.
The foregoing provisions, however, are subject to the condition
that if, at any time after the principal of the Securities shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, (i)
the Corporation shall pay or shall deposit with the Debenture Trustee a sum
sufficient to pay (A) all matured installments of interest (including Compounded
Interest and Additional Sums, if any) and Liquidated Damages, if any, on all the
Securities and the principal of and premium, if any, on any and all Securities
which shall have become due otherwise than by acceleration (with interest upon
such principal and premium, if any, and, to the extent that payment of such
interest is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of interest specified in the Securities
to the date of such payment or deposit) and (B) such amount as shall be
sufficient to cover compensation due to the Debenture Trustee and each
predecessor Debenture Trustee, their respective agents, attorneys and counsel,
pursuant to Section 6.06, and (ii) any and all Events of Default under the
Indenture, other than the non-payment of the principal of the Securities which
shall have become due solely by such declaration of acceleration, shall have
been cured, waived or otherwise remedied as provided herein, then, in every such
case, the holders of a majority in aggregate principal amount of the Securities
then outstanding, by written notice to the Corporation and to the Debenture
Trustee, may rescind and annul such declaration and its consequences, but no
such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.
<PAGE>
In case the Debenture Trustee shall have proceeded to enforce any
right under this Indenture and such proceedings shall have been discontinued or
abandoned because of such rescission or annulment or for any other reason or
shall have been determined adversely to the Debenture Trustee, then and in every
such case the Corporation, the Debenture Trustee and the holders of the
Securities shall be restored respectively to their several positions and rights
hereunder, and all rights, remedies and powers of the Corporation, the Debenture
Trustee and the holders of the Securities shall continue as though no such
proceeding had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor.
The Corporation covenants that (a) in case default shall be made
in the payment of any installment of interest (including Compounded Interest and
Additional Sums, if any) and Liquidated Damages, if any, on any of the
Securities as and when the same shall become due and payable, and such default
shall have continued for a period of 30 days, or (b) in case default shall be
made in the payment of the principal of or premium, if any, on any of the
Securities as and when the same shall have become due and payable, whether at
maturity of the Securities or upon prepayment or by declaration or otherwise,
then, upon demand of the Debenture Trustee, the Corporation will pay to the
Debenture Trustee, for the benefit of the holders of the Securities, the whole
amount that then shall have become due and payable on all such Securities for
principal and premium, if any, or interest (including Compounded Interest and
Additional Sums, if any) and Liquidated Damages, if any, or both, as the case
may be, with interest upon the overdue principal and premium, if any, and (to
the extent that payment of such interest is enforceable under applicable law
and, if the Securities are held by the Trust or a trustee of such trust, without
duplication of any other amounts paid by the Trust or a trustee in respect
thereof) upon the overdue installments of interest (including Compounded
Interest and Additional Sums, if any) and Liquidated Damages, if any, at the
rate borne by the Securities; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation to the Debenture Trustee, its agents, attorneys and
counsel, and any other amount due to the Debenture Trustee pursuant to Section
6.06.
In case the Corporation shall fail forthwith to pay such amounts
upon such demand, the Debenture Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the
Corporation or any other obligor on the Securities and collect in the manner
provided by law out of the property of the
<PAGE>
Corporation or any other obligor on the Securities, wherever situated, the
moneys adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Corporation or any other obligor on the Securities
under Title 11, United States Code, or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of the
Corporation or such other obligor, or in the case of any other similar judicial
proceedings relative to the Corporation or other obligor upon the Securities, or
to the creditors or property of the Corporation or such other obligor, the
Debenture Trustee, irrespective of whether the principal of the Securities shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Debenture Trustee shall have made any demand
pursuant to the provisions of this Section 5.02, shall be entitled and
empowered, by intervention in such proceedings or otherwise, to file and prove a
claim or claims for the whole amount of principal and interest owing and unpaid
in respect of the Securities and, in case of any judicial proceedings, to file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Debenture Trustee (including any
claim for amounts due to the Debenture Trustee pursuant to 6.06) and of the
Securityholders allowed in such judicial proceedings relative to the Corporation
or any other obligor on the Securities, or to the creditors or property of the
Corporation or such other obligor, unless prohibited by applicable law and
regulations, to vote on behalf of the holders of the Securities in any election
of a trustee or a standby trustee in arrangement, reorganization, liquidation or
other bankruptcy or insolvency proceedings or person performing similar
functions in comparable proceedings, and to collect and receive any moneys or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of its charges and expenses; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of the
Securityholders to make such payments to the Debenture Trustee, and, in the
event that the Debenture Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Debenture Trustee such amounts as
shall be sufficient to cover reasonable compensation to the Debenture Trustee,
each predecessor Debenture Trustee and their respective agents, attorneys and
counsel, and all other amounts due to the Debenture Trustee pursuant to Section
6.06.
Nothing herein contained shall be construed to authorize the
Debenture Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any holder thereof or to
authorize the Debenture Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
<PAGE>
All rights of action and of asserting claims under this
Indenture, or under any of the Securities, may be enforced by the Debenture
Trustee without the possession of any of the Securities, or the production
thereof on any trial or other proceeding relative thereto, and any such suit or
proceeding instituted by the Debenture Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall be for the
ratable benefit of the holders of the Securities.
In any proceedings brought by the Debenture Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Debenture Trustee shall be a party), the Debenture Trustee shall be
held to represent all the holders of the Securities, and it shall not be
necessary to make any holders of the Securities parties to any such proceedings.
SECTION 5.03. Application of Moneys Collected
by Debenture Trustee.
Any moneys collected by the Debenture Trustee shall be applied in
the following order, at the date or dates fixed by the Debenture Trustee for the
distribution of such moneys, upon presentation of the Securities in respect of
which moneys have been collected, and stamping thereon the payment, if only
partially paid, and upon surrender thereof if fully paid:
First: To the payment of costs and expenses of collection
applicable to the Securities and all other amounts due to the Debenture Trustee
under Section 6.06;
Second: To the payment of all Senior Indebtedness of the
Corporation if and to the extent required by Article XV;
Third: To the payment of the amounts then due and unpaid upon
Securities for principal of (and premium, if any) and interest (including
Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any,
on the Securities, in respect of which or for the benefit of which money has
been collected, ratably, without preference of priority of any kind, according
to the amounts due on such Securities for principal (and premium, if any) and
interest, respectively; and
Fourth: To the Corporation.
SECTION 5.04. Proceedings by Securityholders.
No holder of any Security shall have any right by virtue of or by
availing of any provision of this Indenture to institute any suit, action or
proceeding
<PAGE>
in equity or at law upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
such holder previously shall have given to the Debenture Trustee written notice
of an Event of Default and of the continuance thereof with respect to the
Securities specifying such Event of Default, as hereinbefore provided, and
unless also the holders of not less than 25% in aggregate principal amount of
the Securities then outstanding shall have made written request upon the
Debenture Trustee to institute such action, suit or proceeding in its own name
as Debenture Trustee hereunder and shall have offered to the Debenture Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Debenture Trustee for 60
days after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action, suit or proceeding, it being understood and
intended, and being expressly covenanted by the taker and holder of every
Security with every other taker and holder and the Debenture Trustee, that no
one or more holders of Securities shall have any right in any manner whatever by
virtue of or by availing of any provision of this Indenture to affect, disturb
or prejudice the rights of any other holder of Securities, or to obtain or seek
to obtain priority over or preference to any other such holder, or to enforce
any right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Securities.
Notwithstanding any other provisions in this Indenture, however,
the right of any holder of any Security to receive payment of the principal of
(and premium, if any) and interest on (including Compounded Interest and
Additional Sums, if any) and Liquidated Damages, if any, on such Security, on or
after the same shall have become due and payable, or to institute suit for the
enforcement of any such payment, shall not be impaired or affected without the
consent of such holder and by accepting a Security hereunder it is expressly
understood, intended and covenanted by the taker and holder of every Security
with every other such taker and holder and the Debenture Trustee, that no one or
more holders of Securities shall have any right in any manner whatsoever by
virtue or by availing of any provision of this Indenture to affect, disturb or
prejudice the rights of the holders of any other Securities, or to obtain or
seek to obtain priority over or preference to any other such holder, or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and common benefit of all holders of Securities. For the
protection and enforcement of the provisions of this Section, each and every
Securityholder and the Debenture Trustee shall be entitled to such relief as can
be given either at law or in equity.
The Corporation and the Debenture Trustee acknowledge that
pursuant to the Declaration, the holders of Capital Securities are entitled, in
the circumstances and subject to the limitations set forth therein, to commence
a Direct
<PAGE>
Action with respect to any Event of Default referred to in clause (a) or (b) of
Section 5.01.
SECTION 5.05. Proceedings by Debenture Trustee.
In case an Event of Default occurs with respect to Securities and
is continuing, the Debenture Trustee may in its discretion proceed to protect
and enforce the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Debenture Trustee shall deem most effectual to
protect and enforce any of such rights, either by suit in equity or by action at
law or by proceeding in bankruptcy or otherwise, whether for the specific
enforcement of any covenant or agreement contained in this Indenture or in aid
of the exercise of any power granted in this Indenture, or to enforce any other
legal or equitable right vested in the Debenture Trustee by this Indenture or by
law.
SECTION 5.06. Remedies Cumulative and Continuing.
All powers and remedies given by this Article V to the Debenture
Trustee or to the Securityholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any other powers and remedies available
to the Debenture Trustee or the holders of the Securities, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture or otherwise established
with respect to the Securities, and no delay or omission of the Debenture
Trustee or of any holder of any of the Securities to exercise any right or power
accruing upon any Event of Default occurring and continuing as aforesaid shall
impair any such right or power, or shall be construed to be a waiver of any such
default or an acquiescence therein; and, subject to the provisions of Section
5.04, every power and remedy given by this Article V or by law to the Debenture
Trustee or to the Securityholders may be exercised from time to time, and as
often as shall be deemed expedient, by the Debenture Trustee or by the
Securityholders.
SECTION 5.07. Direction of Proceedings and Waiver of Defaults
by Majority of Securityholders.
The holders of a majority in aggregate principal amount of the
Securities at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Debenture Trustee, or exercising any trust or power conferred on the Debenture
Trustee; provided, however, that (subject to the provisions of Section 6.01) the
Debenture Trustee shall have the right to decline to follow any such direction
if the Debenture Trustee shall determine that the action so directed would be
unjustly prejudicial to the holders not taking part in such direction or if the
Debenture Trustee being advised by counsel determines that the action or
proceeding so directed may not
<PAGE>
lawfully be taken or if the Debenture Trustee in good faith by one of its
Responsible Officers shall determine that the action or proceedings so directed
would involve the Debenture Trustee in personal liability. Prior to any
declaration accelerating the maturity of the Securities, the holders of a
majority in aggregate principal amount of the Securities at the time outstanding
may on behalf of the holders of all of the Securities waive any past Default or
Event of Default and its consequences except a Default (a) in the payment of
principal of (or premium, if any,) or interest on (including Compounded Interest
and Additional Sums, if any) or Liquidated Damages, if any, on any of the
Securities (unless such default has been cured and a sum sufficient to pay all
matured installments of interest (including Compounded Interest and Additional
Sums, if any) (and premium, if any) and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or (b) in respect of
covenants or provisions hereof which cannot be modified or amended without the
consent of the holder of each Security affected; provided, however, that if the
Securities are held by the Property Trustee, such waiver or modification to such
waiver shall not be effective until the holders of a majority in aggregate
liquidation amount of Trust Securities shall have consented to such waiver or
modification to such waiver; provided, further, that if the consent of the
holder of each outstanding Security is required, such waiver shall not be
effective until each holder of the Trust Securities shall have consented to such
waiver. Upon any such waiver, the Default covered thereby shall be deemed to be
cured for all purposes of this Indenture and the Corporation, the Debenture
Trustee and the holders of the Securities shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon. Whenever
any Default or Event of Default hereunder shall have been waived as permitted by
this Section 5.07, said Default or Event of Default shall for all purposes of
the Securities and this Indenture be deemed to have been cured and to be not
continuing.
SECTION 5.08. Notice of Defaults.
(a) The Debenture Trustee shall, within 90 days after the
occurrence of a Default with respect to the Securities actually known to a
Responsible Officer of the Debenture Trustee, mail to all Securityholders, as
the names and addresses of such holders appear upon the Security Register,
notice of all Defaults known to the Debenture Trustee, unless such Default shall
have been cured before the giving of such notice (the term "Default" for the
purpose of this Section 5.08 being hereby defined to be any of the events
specified in clauses (a), (b), (c), (d) and (e) of Section 5.01, not including
periods of grace, if any, provided for therein, and irrespective of the giving
of written notice specified in clause (c) of Section 5.01); provided, however,
that, except in the case of Default in the payment of the principal of (or
premium, if any) or interest (including Compounded Interest or Additional Sums,
if any) or Liquidated Damages, if any, on any of the Securities, the Debenture
Trustee shall be protected in withholding such notice if and so long as the
board of directors,
<PAGE>
the executive committee, or a trust committee of directors and/or Responsible
Officers of the Debenture Trustee in good faith determines that the withholding
of such notice is in the interests of the Securityholders; provided, further,
that in the case of any Default of the character specified in Section 5.01(c),
no such notice to Securityholders shall be given until at least 60 days after
the occurrence thereof, but shall be given within 90 days after such occurrence.
(b) Within ten Business Days after the occurrence of any Event of
Default actually known to a Responsible Officer of the Debenture Trustee, the
Debenture Trustee shall transmit notice of such Event of Default to all
Securityholders as their names and addresses appear on the Security Register,
unless such Event of Default shall have been cured or waived.
SECTION 5.09. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Debenture
Trustee for any action taken or omitted by it as Debenture Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section 5.09
shall not apply to any suit instituted by the Debenture Trustee, to any suit
instituted by any Securityholder, or group of Securityholders, holding in the
aggregate more than 10% in aggregate principal amount of the Securities
outstanding, or to any suit instituted by any Securityholder for the enforcement
of the payment of the principal of (or premium, if any) or interest (including
Compounded Interest and Additional Sums, if any) or Liquidated Damages, if any,
on any Security against the Corporation on or after the same shall have become
due and payable.
ARTICLE VI
CONCERNING THE DEBENTURE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Debenture Trustee.
With respect to the holders of the Securities issued hereunder,
the Debenture Trustee, prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (which has not
been cured or
<PAGE>
waived), the Debenture 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 person would exercise or use under the
circumstances in the conduct of his or her own affairs.
No provision of this Indenture shall be construed to relieve the
Debenture Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may
have occurred,
(1) the duties and obligations of the Debenture Trustee
shall be determined solely by the express provisions
of this Indenture, and the Debenture Trustee shall
not be liable except for the performance of such
duties and obligations as are specifically set forth
in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against
the Debenture Trustee; and
(2) in the absence of bad faith on the part of the
Debenture Trustee, the Debenture 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 Debenture Trustee and conforming to the
requirements of this Indenture; but, in the case of
any such certificates or opinions which by any
provision hereof are specifically required to be
furnished to the Debenture Trustee, the Debenture
Trustee shall be under a duty to examine the same to
determine whether or not they conform to the
requirements of this Indenture;
(b) the Debenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or
Responsible Officers, unless it shall be proved that the
Debenture Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Debenture Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Securityholders
pursuant to Section 5.07, relating to the time, method and
place of conducting any proceeding for any remedy available
to the
<PAGE>
Debenture Trustee, or exercising any trust or power
conferred upon the Debenture Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require
the Debenture 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 reasonably believes that the
repayment of such funds or liability is not reasonably assured to it under the
terms of this Indenture or adequate indemnity against such risk is not
reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc.
Except as otherwise provided in Section 6.01:
(a) the Debenture Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, note, debenture or
other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or
parties;
(b) any request, direction, order or demand of the Corporation
mentioned herein may be sufficiently evidenced by an
Officers' Certificate (unless other evidence in respect
thereof be herein specifically prescribed); and any Board
Resolution may be evidenced to the Debenture Trustee by a
copy thereof certified by the Secretary or an Assistant
Secretary of the Corporation;
(c) the Debenture Trustee may consult with counsel of its
selection and any advice or Opinion of Counsel shall be
full and complete authorization and protection in respect
of any action taken or suffered omitted by it hereunder in
good faith and in accordance with such advice or Opinion of
Counsel;
(d) the Debenture Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request, order or direction of any of the
Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered
to the Debenture Trustee reasonable and sufficient security
or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;
<PAGE>
(e) the Debenture Trustee shall not be liable for any action
taken or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers
conferred upon it by this Indenture; nothing contained
herein shall, however, relieve the Debenture Trustee of the
obligation, upon the occurrence of an Event of Default
(that has not been cured or waived), to exercise such of
the rights and powers vested in it by this Indenture, and
to use the same degree of care and skill in their exercise,
as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(f) the Debenture Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond,
debenture, coupon or other paper or document, unless
requested in writing to do so by the holders of a majority
in aggregate principal amount of the outstanding
Securities; provided, however, that if the payment within a
reasonable time to the Debenture Trustee of the costs,
expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the
Debenture Trustee, not reasonably assured to the Debenture
Trustee by the security afforded to it by the terms of this
Indenture, the Debenture Trustee may require reasonable
indemnity against such expense or liability as a condition
to so proceeding;
(g) the Debenture Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents (including any
Authenticating Agent) or attorneys, and the Debenture
Trustee shall not be responsible for any misconduct or
negligence on the part of any such agent or attorney
appointed by it with due care;
(h) the Debenture Trustee shall not be charged with knowledge
of any Default or Event of Default with respect to the
Securities unless (1) such Default or Event of Default
falls within Section 5.01(a) (other than a default with
respect to the payment of Compounded Interest, Liquidated
Damages or Additional Sums) or 5.01(b) of the Indenture,
(2) a Responsible Officer shall have actual knowledge of
such Default or Event of Default or (3) written notice of
such Default or Event of Default shall have been given to
the Debenture Trustee by the Corporation or any other
obligor on the Securities or by any holder of the
Securities; and
<PAGE>
(i) the Debenture Trustee shall not be liable for any action
taken, suffered or omitted by it in good faith, without
negligence or willful misconduct and believed by it to be
authorized or within the discretion or rights or powers
conferred upon it by this Indenture.
SECTION 6.03. No Responsibility for Recitals, etc.
The recitals contained herein and in the Securities (except in
the certificate of authentication of the Debenture Trustee or the Authenticating
Agent) shall be taken as the statements of the Corporation, and the Debenture
Trustee and the Authenticating Agent assume no responsibility for the
correctness of the same. The Debenture Trustee and the Authenticating Agent make
no representations as to the validity or sufficiency of this Indenture or of the
Securities. The Debenture Trustee and the Authenticating Agent shall not be
accountable for the use or application by the Corporation of any Securities or
the proceeds of any Securities authenticated and delivered by the Debenture
Trustee or the Authenticating Agent in conformity with the provisions of this
Indenture.
SECTION 6.04. Debenture Trustee, Authenticating Agent, Paying
Agents, Transfer Agents or Registrar May
Own Securities.
The Debenture Trustee or any Authenticating Agent or any paying
agent or any transfer agent or any security registrar for the Securities, in its
individual or any other capacity, may become the owner or pledgee of Securities
with the same rights it would have if it were not Debenture Trustee,
Authenticating Agent, paying agent, transfer agent or security registrar for the
Securities.
SECTION 6.05. Moneys to be Held in Trust.
Subject to the provisions of Section 11.04, all moneys received
by the Debenture Trustee or any paying agent shall, until used or applied as
herein provided, be held in trust for the purpose for which they were received,
but need not be segregated from other funds except to the extent required by
law. The Debenture Trustee and any paying agent shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed in
writing with the Corporation. So long as no Event of Default shall have occurred
and be continuing, all interest allowed on any such moneys shall be paid from
time to time upon the written order of the Corporation, signed by an Officer
thereof.
SECTION 6.06. Compensation and Expenses of Debenture Trustee.
<PAGE>
The Corporation, as issuer of Securities under this Indenture,
covenants and agrees to pay to the Debenture Trustee from time to time, and the
Debenture Trustee shall be entitled to, such compensation as shall be agreed to
in writing between the Corporation and the Debenture Trustee (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust), and the Corporation will pay or reimburse the Debenture Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Debenture Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ), except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Corporation also covenants to indemnify each of
the Debenture Trustee (including in its individual capacity) and any predecessor
Debenture Trustee (and its officers, agents, directors and employees) for, and
to hold it harmless against, any and all loss, damage, claim, liability or
expense including taxes (other than taxes based on the income of the Debenture
Trustee) incurred without negligence or bad faith on the part of the Debenture
Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Corporation under this Section 6.06 to compensate and indemnify the Debenture
Trustee and to pay or reimburse the Debenture Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Debenture
Trustee as such, except funds held in trust for the benefit of the holders of
particular Securities.
When the Debenture Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(d) or Section
5.01(e), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for its services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the resignation or
removal of the Debenture Trustee and the defeasance or other termination of this
Indenture.
SECTION 6.07. Officers' Certificate as Evidence.
Except as otherwise provided in Sections 6.01 and 6.02, whenever
in the administration of the provisions of this Indenture the Debenture Trustee
shall deem it necessary or desirable that a matter be proved or established
prior to taking or omitting any action hereunder, such matter (unless other
evidence in respect thereof is herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Debenture Trustee, be
deemed to be conclusively proved and
<PAGE>
established by an Officers' Certificate delivered to the Debenture Trustee, and
such Officers' Certificate, in the absence of negligence or bad faith on the
part of the Debenture Trustee, shall be full warrant to the Debenture Trustee
for any action taken or omitted by it under the provisions of this Indenture
upon the faith thereof.
SECTION 6.08. Conflicting Interest of Debenture Trustee.
If the Debenture Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Debenture Trustee and the Corporation shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 6.09. Eligibility of Debenture Trustee.
The Debenture Trustee hereunder shall at all times be a
corporation organized and doing business under the laws of the United States of
America or any state or territory thereof or of the District of Columbia, or a
corporation or other Person permitted to act as trustee by the Commission
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least 50 million U.S. dollars ($50,000,000) and
subject to supervision or examination by federal, state, territorial, or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 6.09 the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published.
The Corporation may not, nor may any Person directly or
indirectly controlling, controlled by, or under common control with the
Corporation, serve as Debenture Trustee.
In case at any time the Debenture Trustee shall cease to be
eligible in accordance with the provisions of this Section 6.09, the Debenture
Trustee shall resign immediately in the manner and with the effect specified in
Section 6.10.
SECTION 6.10. Resignation or Removal of Debenture Trustee.
(a) The Debenture Trustee, or any trustee or trustees hereafter
appointed, may at any time resign by giving written notice
of such resignation to the Corporation and by mailing
notice thereof to the holders of the Securities at their
addresses as they shall appear on the Security register.
Upon receiving such notice of resignation, the Corporation
shall promptly appoint a successor trustee or trustees by
written instrument, in
<PAGE>
duplicate, one copy of which instrument shall be delivered
to the resigning Debenture Trustee and one copy to the
successor trustee. If no successor trustee shall have been
so appointed and have accepted appointment within 60 days
after the mailing of such notice of resignation to the
affected Securityholders, the resigning Debenture Trustee
may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Securityholder
who has been a bona fide holder of a Security for at least
six months may, subject to the provisions of Section 5.09,
on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if
any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Debenture Trustee shall fail to comply with the
provisions of Section 6.08 after written request
therefor by the Corporation or by any Securityholder
who has been a bona fide holder of a Security or
Securities for at least six months, or
(2) the Debenture Trustee shall cease to be eligible in
accordance with the provisions of Section 6.09 and
shall fail to resign after written request therefor
by the Corporation or by any such Securityholder, or
(3) the Debenture Trustee shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent,
or a receiver of the Debenture Trustee or of its
property shall be appointed, or any public officer
shall take charge or control of the Debenture Trustee
or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Corporation may remove the
Debenture Trustee and appoint a successor trustee by
written instrument, in duplicate, one copy of which
instrument shall be delivered to the Debenture Trustee so
removed and one copy to the successor trustee, or, subject
to the provisions of Section 5.09, any Securityholder who
has been a bona fide holder of a Security for at least six
months may, on behalf of himself and all others similarly
situated, petition any court of competent
<PAGE>
jurisdiction for the removal of the Debenture Trustee and
the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper
and prescribe, remove the Debenture Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Securities at the time outstanding may at any time
remove the Debenture Trustee and nominate a successor
trustee, which shall be deemed appointed as successor
trustee unless within 10 days after written notification of
such nomination the Corporation objects thereto, or if no
successor trustee shall have been so appointed and shall
have accepted appointment within 30 days after such
removal, in which case the Debenture Trustee so removed or
any Securityholder, upon the terms and conditions and
otherwise as in subsection (a) of this Section 6.10
provided, may petition any court of competent jurisdiction
for an appointment of a successor trustee.
(d) Any resignation or removal of the Debenture Trustee and
appointment of a successor trustee pursuant to any of the
provisions of this Section 6.10 shall become effective upon
acceptance of appointment by the successor trustee as
provided in Section 6.11.
SECTION 6.11. Acceptance by Successor Debenture Trustee.
Any successor trustee appointed as provided in Section 6.10 shall
execute, acknowledge and deliver to the Corporation and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the retiring trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as trustee herein; but,
nevertheless, on the written request of the Corporation or of the successor
trustee, the trustee ceasing to act shall, upon payment of all amounts then due
it pursuant to the provisions of Section 6.06, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the trustee
so ceasing to act and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring trustee thereunder. Upon
request of any such successor trustee, the Corporation shall execute any and all
instruments in writing for more fully and certainly vesting in and confirming to
such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.06.
<PAGE>
No successor trustee shall accept appointment as provided in this
Section 6.11 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 6.08 and eligible under the
provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided
in this Section 6.11, the Corporation shall mail notice of the succession of
such trustee hereunder to the holders of Securities at their addresses as they
shall appear on the Security register. If the Corporation fails to mail such
notice within 10 days after the acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Corporation.
SECTION 6.12. Succession by Merger, etc.
Any corporation into which the Debenture Trustee may be merged or
with which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Debenture Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Debenture Trustee, shall be the successor of the Debenture
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto.
In case at the time such successor to the Debenture Trustee shall
succeed to the trusts created by this Indenture any Securities shall have been
authenticated but not delivered, any such successor to the Debenture Trustee may
adopt the certificate of authentication of any predecessor trustee, and deliver
such Securities so authenticated; and in case at that time any of the Securities
shall not have been authenticated, any successor to the Debenture Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor trustee; and in all such cases such certificates
shall have the full force which the Securities or this Indenture elsewhere
provides that the certificate of the Debenture Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Debenture Trustee or authenticate Securities in the name of any
predecessor Debenture Trustee shall apply only to its successor or successors by
merger or consolidation.
SECTION 6.13. Limitation on Rights of Debenture Trustee
as a Creditor.
The Debenture Trustee shall comply with Section 311(a) of the
Trust Indenture Act, excluding any creditor relationship described in Section
311(b) of the Trust Indenture Act. A Debenture Trustee who has resigned or been
removed shall
<PAGE>
be subject to Section 311(a) of the Trust Indenture Act to the extent included
therein.
SECTION 6.14. Authenticating Agents.
There may be one or more Authenticating Agents appointed by the
Debenture Trustee upon the request of the Corporation with power to act on its
behalf and subject to its direction in the authentication and delivery of
Securities issued upon exchange or transfer thereof as fully to all intents and
purposes as though any such Authenticating Agent had been expressly authorized
to authenticate and deliver Securities; provided, however, that the Debenture
Trustee shall have no liability to the Corporation for any acts or omissions of
the Authenticating Agent with respect to the authentication and delivery of
Securities. Any such Authenticating Agent shall at all times be a corporation
organized and doing business under the laws of the United States or of any state
or territory thereof or of the District of Columbia authorized under such laws
to act as Authenticating Agent, having a combined capital and surplus of at
least $5,000,000 and being subject to supervision or examination by federal,
state, territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually pursuant to law or the
requirements of such authority, then for the purposes of this Section 6.14 the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect herein specified in this Section.
Any corporation into which any Authenticating Agent may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which any Authenticating Agent shall be a party, or
any corporation succeeding to the corporate trust business of any Authenticating
Agent, shall be the successor of such Authenticating Agent hereunder, if such
successor corporation is otherwise eligible under this Section 6.14 without the
execution or filing of any paper or any further act on the part of the parties
hereto or such Authenticating Agent.
Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Debenture Trustee and to the Corporation. The
Debenture Trustee may at any time terminate the agency of any Authenticating
Agent by giving written notice of termination to such Authenticating Agent and
to the Corporation. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time any Authenticating Agent shall cease to be
eligible under this Section 6.14, the Debenture Trustee may, and upon the
request of the Corporation shall, promptly appoint a successor Authenticating
Agent
<PAGE>
eligible under this Section 6.14, shall give written notice of such appointment
to the Corporation and shall mail notice of such appointment to all
Securityholders as the names and addresses of such holders appear on the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all rights, powers, duties and
responsibilities of its predecessor hereunder, with like effect as if originally
named as Authenticating Agent herein.
The Corporation, as issuer of the Securities, agrees to pay to
any Authenticating Agent from time to time reasonable compensation for its
services. Any Authenticating Agent shall have no responsibility or liability for
any action taken by it as such in accordance with the directions of the
Debenture Trustee.
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Action by Securityholders.
Whenever in this Indenture it is provided that the holders of a
specified percentage in aggregate principal amount of the Securities may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action), the fact that at
the time of taking any such action the holders of such specified percentage have
joined therein may be evidenced (a) by any instrument (including by way of
electronic transmission) or any number of instruments of similar tenor executed
by such Securityholders in person or by agent or proxy appointed in writing, or
(b) by the record of such holders of Securities voting in favor thereof at any
meeting of such Securityholders duly called and held in accordance with the
provisions of Article VIII, or (c) by a combination of such instrument or
instruments and any such record of such a meeting of such Securityholders.
If the Corporation shall solicit from the Securityholders any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Corporation may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for the determination of
Securityholders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other action, but the Corporation shall have no
obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the Securityholders of record at the
close of business on the record date shall be deemed to be Securityholders for
the purposes of determining whether Securityholders of the requisite proportion
of outstanding Securities have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the outstanding Securities shall be computed
<PAGE>
as of the record date; provided, however, that no such authorization, agreement
or consent by such Securityholders on the record date shall be deemed effective
unless it shall become effective pursuant to the provisions of this Indenture
not later than six months after the record date.
SECTION 7.02. Proof of Execution by Securityholders.
Subject to the provisions of Section 6.01, 6.02 and 8.05, proof
of the execution of any instrument by a Securityholder or his agent or proxy
shall be sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Debenture Trustee or in such manner as
shall be satisfactory to the Debenture Trustee. The ownership of Securities
shall be proved by the Security Register or by a certificate of the security
registrar for the Securities. The Debenture Trustee may require such additional
proof of any matter referred to in this Section as it shall deem necessary.
The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.06.
SECTION 7.03. Who Are Deemed Absolute Owners.
Prior to due presentment for registration of transfer of any
Security, the Corporation, the Debenture Trustee, any Authenticating Agent, any
paying agent, any transfer agent and any security registrar for the Securities
may deem the person in whose name such Security shall be registered upon the
Security Register to be, and may treat him as, the absolute owner of such
Security (whether or not such Security shall be overdue) for the purpose of
receiving payment of or on account of the principal of and premium, if any, and
(subject to Section 2.06) interest on such Security and for all other purposes;
and neither the Corporation nor the Debenture Trustee nor any Authenticating
Agent nor any paying agent nor any transfer agent nor any security registrar for
the Securities shall be affected by any notice to the contrary. All such
payments so made to any holder for the time being or upon his order shall be
valid and, to the extent of the sum or sums so paid, effectual to satisfy and
discharge the liability for moneys payable upon any such Security.
SECTION 7.04. Securities Owned by Corporation Deemed
Not Outstanding.
In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Corporation or
any other obligor on the Securities or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Corporation or
<PAGE>
any other obligor on the Securities shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided, however, that
for the purposes of determining whether the Debenture Trustee shall be protected
in relying on any such direction, consent or waiver, only Securities which a
Responsible Officer of the Debenture Trustee actually knows are so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as outstanding for the purposes of this Section 7.04 if the pledgee
shall establish to the satisfaction of the Debenture Trustee the pledgee's right
to vote such Securities and that the pledgee is not the Corporation or any such
other obligor or Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Corporation or any such other
obligor. In the case of a dispute as to such right, any decision by the
Debenture Trustee taken upon the advice of counsel shall be full protection to
the Debenture Trustee.
SECTION 7.05. Revocation of Consents; Future Holders Bound.
At any time prior to (but not after) the evidencing to the
Debenture Trustee, as provided in Section 7.01, of the taking of any action by
the holders of the percentage in aggregate principal amount of the Securities
specified in this Indenture in connection with such action, any holder of a
Security (or any Security issued in whole or in part in exchange or substitution
therefor), subject to Section 7.01, the serial number of which is shown by the
evidence to be included in the group of Securities the holders of which have
consented to such action, may, by filing written notice with the Debenture
Trustee at its principal office and upon proof of holding as provided in Section
7.02, revoke such action so far as concerns such Security (or so far as concerns
the principal amount represented by any exchanged or substituted Security).
Except as aforesaid, any such action taken by the holder of any Security shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Security, and of any Security issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon such Security or any Security issued in exchange or substitution therefor.
ARTICLE VIII
SECURITYHOLDERS' MEETINGS
SECTION 8.01. Purposes of Meetings.
A meeting of Securityholders may be called at any time and from
time to time pursuant to the provisions of this Article VIII for any of the
following purposes:
<PAGE>
(a) to give any notice to the Corporation or to the Debenture
Trustee, or to give any directions to the Debenture
Trustee, or to consent to the waiving of any Default
hereunder and its consequences, or to take any other action
authorized to be taken by Securityholders pursuant to any
of the provisions of Article V;
(b) to remove the Debenture Trustee and nominate a successor
trustee pursuant to the provisions of Article VI;
(c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section
9.02; or
(d) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal
amount of such Securities under any other provision of this
Indenture or under applicable law.
SECTION 8.02. Call of Meetings by Debenture Trustee.
The Debenture Trustee may at any time call a meeting of
Securityholders to take any action specified in Section 8.01, to be held at such
time and at such place in Wilmington, Delaware as the Debenture Trustee shall
determine. Notice of every meeting of the Securityholders, setting forth the
time and the place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed to holders of Securities at their
addresses as they shall appear on the Securities Register. Such notice shall be
mailed not less than 20 nor more than 180 days prior to the date fixed for the
meeting.
SECTION 8.03. Call of Meetings by Corporation or Securityholders.
In case at any time the Corporation, pursuant to a resolution of
the Board of Directors, or the holders of at least 10% in aggregate principal
amount of the Securities then outstanding, shall have requested the Debenture
Trustee to call a meeting of Securityholders, by written request setting forth
in reasonable detail the action proposed to be taken at the meeting, and the
Debenture Trustee shall not have mailed the notice of such meeting within 20
days after receipt of such request, then the Corporation or such Securityholders
may determine the time and the place in Wilmington, Delaware for such meeting
and may call such meeting to take any action authorized in Section 8.01, by
mailing notice thereof as provided in Section 8.02.
SECTION 8.04. Qualifications for Voting.
<PAGE>
To be entitled to vote at any meeting of Securityholders, a
Person shall be (a) a holder of one or more Securities or (b) a Person appointed
by an instrument in writing as proxy by a holder of one or more Securities. The
only Persons who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the Persons entitled to vote at such meeting and their
counsel and any representatives of the Debenture Trustee and its counsel and any
representatives of the Corporation and its counsel.
SECTION 8.05. Regulations.
Notwithstanding any other provisions of this Indenture, the
Debenture Trustee may make such reasonable regulations as it may deem advisable
for any meeting of Securityholders, in regard to proof of the holding of
Securities and of the appointment of proxies, and in regard to the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Debenture Trustee shall, by an instrument in writing, appoint
a temporary chairman of the meeting, unless the meeting shall have been called
by the Corporation or by Securityholders as provided in Section 8.03, in which
case the Corporation or the Securityholders calling the meeting, as the case may
be, shall in like manner appoint a temporary chairman. A permanent chairman and
a permanent secretary of the meeting shall be elected by majority vote of the
meeting.
Subject to the provisions of Section 8.04, at any meeting each
holder of Securities or proxy therefor shall be entitled to one vote for each
$1,000 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
Security challenged as not outstanding and ruled by the chairman of the meeting
to be not outstanding. The chairman of the meeting shall have no right to vote
other than by virtue of Securities held by him or instruments in writing as
aforesaid duly designating him as the person to vote on behalf of other
Securityholders. Any meeting of Securityholders duly called pursuant to the
provisions of Section 8.02 or 8.03 may be adjourned from time to time by a
majority of those present, and the meeting may be held as so adjourned without
further notice.
SECTION 8.06. Voting.
The vote upon any resolution submitted to any meeting of holders
of Securities shall be by written ballots on which shall be subscribed the
signatures of such holders or of their representatives by proxy and the serial
number or numbers of the Securities held or represented by them. The permanent
chairman of the
<PAGE>
meeting shall appoint two inspectors of votes who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in triplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Securityholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was mailed as provided in Section 8.02. The record
shall show the serial numbers of the Securities voting in favor of or against
any resolution. The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Corporation and the other to the Debenture Trustee to be
preserved by the Debenture Trustee, the latter to have attached thereto the
ballots voted at the meeting. The holders of the Initial Securities and the
Exchange Securities shall vote for all purposes as a single class.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Securityholders.
The Corporation and the Debenture Trustee may from time to time
and at any time amend this Indenture, without the consent of the
Securityholders, for one or more of the following purposes:
(a) to evidence the succession of another Person to the
Corporation, or successive successions, and the assumption
by the successor Person of the covenants, agreements and
obligations of the Corporation pursuant to Article X
hereof;
(b) to add to the covenants of the Corporation such further
covenants, restrictions or conditions for the protection of
the Securityholders as the Board of Directors and the
Debenture Trustee shall consider to be for the protection
of the Securityholders, and to make the occurrence, or the
occurrence and continuance, of a default in any of such
additional covenants, restrictions or conditions a Default
or an Event of Default permitting the enforcement of all or
any of the remedies provided in this Indenture as herein
set forth; provided, however, that in respect of any such
additional covenant, restriction or condition such
amendment may provide for a
<PAGE>
particular period of grace after default (which period may
be shorter or longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement upon
such default or may limit the remedies available to the
Debenture Trustee upon such default;
(c) to provide for the issuance under this Indenture of
Securities in coupon form (including Securities registrable
as to principal only) and to provide for exchangeability of
such Securities with the Securities issued hereunder in
fully registered form and to make all appropriate changes
for such purpose;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture
which may be defective or inconsistent with any other
provision contained herein or in any supplemental
indenture; or to make such other provisions in regard to
matters or questions arising under this Indenture, provided
that any such action shall not materially adversely affect
the interests of the holders of the Securities;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the
Securities;
(f) to make provision for transfer procedures, certification,
book-entry provisions, the form of restricted securities
legends, if any, to be placed on Securities, and all other
matters required pursuant to Section 2.07 or otherwise
necessary, desirable or appropriate in connection with the
issuance of Securities to holders of Capital Securities in
the event of a distribution of Securities by the Trust
following a Dissolution Event, provided that any such
action shall not materially adversely affect the interests
of the holders of the Securities;
(g) to qualify or maintain qualification of this Indenture
under the Trust Indenture Act; or
(h) to make any change that does not adversely affect the
rights of any Securityholder in any material respect.
The Debenture Trustee is hereby authorized to join with the
Corporation in the execution of any supplemental indenture to effect such
amendment, to make any further appropriate agreements and stipulations which may
be therein contained and to accept the conveyance, transfer and assignment of
any property thereunder, but the Debenture Trustee shall not be obligated to,
but
<PAGE>
may in its discretion, enter into any such supplemental indenture which affects
the Debenture Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Any amendment to this Indenture authorized by the provisions of
this Section 9.01 may be executed by the Corporation and the Debenture Trustee
without the consent of the holders of any of the Securities at the time
outstanding, notwithstanding any of the provisions of Section 9.02.
SECTION 9.02. With Consent of Securityholders.
With the consent (evidenced as provided in Section 7.01) of the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding, the Corporation, when authorized by a Board Resolution, and
the Debenture Trustee may from time to time and at any time amend this Indenture
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the holders of the Securities; provided, however, that no
such amendment shall, without the consent of the holders of each Security then
outstanding and affected thereby (i) change the Maturity Date of any Security,
or reduce the rate or extend the time of payment of interest thereon (except as
contemplated by Article XVI), or reduce the principal amount thereof, or change
any prepayment provisions, or make the principal thereof or any interest or
premium thereon payable in any coin or currency other than U.S. dollars, or
impair or affect the right of any Securityholder to institute suit for payment
thereof, or (ii) reduce the aforesaid percentage of Securities, the holders of
which are required to consent to any such amendment to the Indenture; provided,
however, that if the Securities are held by the Trust, such amendment shall not
be effective until the holders of a majority in liquidation amount of Trust
Securities shall have consented to such amendment; provided, further, that if
the consent of the holder of each outstanding Security is required, such
amendment shall not be effective until each holder of the Trust Securities shall
have consented to such amendment.
Upon the request of the Corporation accompanied by a copy of a
resolution of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any supplemental indenture affecting such
amendment, and upon the filing with the Debenture Trustee of evidence of the
consent of Securityholders as aforesaid, the Debenture Trustee shall join with
the Corporation in the execution of such supplemental indenture unless such
supplemental indenture affects the Debenture Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Debenture
Trustee may in its discretion, but shall not be obligated to, enter into such
supplemental indenture.
<PAGE>
Promptly after the execution by the Corporation and the Debenture
Trustee of any supplemental indenture pursuant to the provisions of this
Section, the Debenture Trustee shall transmit by mail, first class postage
prepaid, a notice, prepared by the Corporation, setting forth in general terms
the substance of such supplemental indenture, to the Securityholders as their
names and addresses appear upon the Security Register. Any failure of the
Debenture Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.
It shall not be necessary for the consent of the Securityholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
SECTION 9.03. Compliance with Trust Indenture Act;
Effect of Supplmental Indentures.
Any supplemental indenture executed pursuant to the provisions of
this Article IX shall comply with the Trust Indenture Act. Upon the execution of
any supplemental indenture pursuant to the provisions of this Article IX, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Debenture Trustee, the Corporation
and the holders of Securities shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and amendments,
and all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any and
all purposes.
SECTION 9.04. Notation on Securities.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article IX may bear a
notation in form approved by the Debenture Trustee as to any matter provided for
in such supplemental indenture. If the Corporation or the Debenture Trustee
shall so determine, new Securities so modified as to conform, in the opinion of
the Debenture Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may be prepared and
executed by the Corporation, authenticated by the Debenture Trustee or the
Authenticating Agent and delivered in exchange for the Securities then
outstanding.
SECTION 9.05. Evidence of Compliance of Supplemental Indenture
to be Furnished to Debenture Trustee.
<PAGE>
The Debenture Trustee, subject to the provisions of Sections 6.01
and 6.02, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article IX.
ARTICLE X
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 10.01. Corporation May Consolidate, etc., on Certain
Terms.
Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of the Corporation with or into any
other Person (whether or not affiliated with the Corporation, as the case may
be), or successive consolidations or mergers in which the Corporation or its
successor or successors, as the case may be, shall be a party or parties, or
shall prevent any sale, conveyance, transfer or lease of the property of the
Corporation, or its successor or successors as the case may be, as an entirety,
or substantially as an entirety, to any other Person (whether or not affiliated
with the Corporation, or its successor or successors, as the case may be)
authorized to acquire and operate the same, provided that (a) the Corporation is
the surviving Person, or the Person formed by or surviving any such
consolidation or merger (if other than the Corporation) or to which such sale,
conveyance, transfer or lease of property is made is a Person organized and
existing under the laws of the United States or any State thereof or the
District of Columbia, and (b) upon any such consolidation, merger, sale,
conveyance, transfer or lease, the due and punctual payment of the principal of
(and premium, if any) and interest on the Securities according to their tenor
and the due and punctual performance and observance of all the covenants and
conditions of this Indenture to be kept or performed by the Corporation shall be
expressly assumed, by supplemental indenture (which shall conform to the
provisions of the Trust Indenture Act as then in effect) satisfactory in form to
the Debenture Trustee executed and delivered to the Debenture Trustee by the
Person formed by such consolidation, or into which the Corporation shall have
been merged, or by the Person which shall have acquired such property, as the
case may be, and (c) after giving effect to such consolidation, merger, sale,
conveyance, transfer or lease, no Default or Event of Default shall have
occurred and be continuing.
SECTION 10.02. Successor Corporation to be Substituted
for Corporation.
In case of any such consolidation, merger, sale, conveyance, or
lease and upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Debenture Trustee and satisfactory in
form to the
<PAGE>
Debenture Trustee, of the obligation of due and punctual payment of the
principal of (and premium, if any,) and interest on all of the Securities and
the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed or observed by the Corporation,
such successor Person shall succeed to and be substituted for the Corporation,
with the same effect as if it had been named herein as a party hereto, and the
Corporation thereupon shall be relieved of any further liability or obligation
hereunder or upon the Securities. Such successor Person thereupon may cause to
be signed, and may issue either in its own name or in the name of TeleBanc
Financial Corporation, any or all of the Securities issuable hereunder which
theretofore shall not have been signed by the Corporation and delivered to the
Debenture Trustee or the Authenticating Agent; and, upon the order of such
successor Person instead of the Corporation and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Debenture Trustee
or the Authenticating Agent shall authenticate and deliver any Securities which
previously shall have been signed and delivered by any Officer of the
Corporation to the Debenture Trustee or the Authenticating Agent for
authentication, and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Debenture Trustee or the Authenticating
Agent for that purpose. All the Securities so issued shall in all respects have
the same legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Securities had been issued at the date of the execution
hereof.
SECTION 10.03. Opinion of Counsel to be Given Debenture Trustee.
The Debenture Trustee, subject to the provisions of Sections 6.01
and 6.02, may receive an Opinion of Counsel as conclusive evidence that any
consolidation, merger, sale, conveyance, transfer or lease, and any assumption,
permitted or required by the terms of this Article X complies with the
provisions of this Article X.
ARTICLE XI
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 11.01. Discharge of Indenture.
When (a) the Corporation shall deliver to the Debenture Trustee
for cancellation all Securities theretofore authenticated (other than any
Securities which shall have been destroyed, lost or stolen and which shall have
been replaced as provided in Section 2.08) and not theretofore cancelled, or (b)
all the Securities not theretofore cancelled or delivered to the Debenture
Trustee for cancellation shall have become due and payable, or are by their
terms to become due and payable within one year or are to be called for
prepayment within one year under
<PAGE>
arrangements satisfactory to the Debenture Trustee for the giving of notice of
prepayment, and the Corporation shall deposit with the Debenture Trustee, in
trust, funds sufficient to pay on the Maturity Date or upon prepayment all of
the Securities (other than any Securities which shall have been destroyed, lost
or stolen and which shall have been replaced as provided in Section 2.08) not
theretofore cancelled or delivered to the Debenture Trustee for cancellation,
including principal (and premium, if any) and interest (including Compounded
Interest and Additional Sums, if any) and Liquidated Damages, if any, due or to
become due to the Maturity Date or prepayment date, as the case may be, but
excluding, however, the amount of any moneys for the payment of principal of (or
premium, if any) or interest (including Compounded Interest and Additional Sums,
if any) or Liquidated Damages, if any, on the Securities (1) theretofore repaid
to the Corporation in accordance with the provisions of Section 11.04, or (2)
paid to any State or to the District of Columbia pursuant to its unclaimed
property or similar laws, and if, in either case the Corporation shall also pay
or cause to be paid all other sums payable hereunder by the Corporation, then
this Indenture shall cease to be of further effect except for the provisions of
Sections 2.02, 2.07, 2.08, 3.01, 3.02, 3.04, 6.06, 6.10 and 11.04 hereof, which
shall survive until such Securities shall mature and be paid. Thereafter,
Sections 6.06, 6.10 and 11.04 shall survive, and the Debenture Trustee, on
demand of the Corporation accompanied by any Officers' Certificate and an
Opinion of Counsel and at the cost and expense of the Corporation, shall execute
proper instruments acknowledging satisfaction of and discharging this Indenture;
the Corporation, however, hereby agrees to reimburse the Debenture Trustee for
any costs or expenses thereafter reasonably and properly incurred by the
Debenture Trustee in connection with this Indenture or the Securities.
SECTION 11.02. Deposited Moneys and U.S. Government
Obligations to be Held in Trust by
Debenture Trustee.
Subject to the provisions of Section 11.04, all moneys and U.S.
Government Obligations deposited with the Debenture Trustee pursuant to Sections
11.01 or 11.05 shall be held in trust and applied by it to the payment, either
directly or through any paying agent (including the Corporation if acting as its
own paying agent), to the holders of the particular Securities for the payment
of which such moneys or U.S. Government Obligations have been deposited with the
Debenture Trustee, of all sums due and to become due thereon for principal,
premium, if any, and interest.
The Corporation shall pay and indemnify the Debenture Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 11.05 or the principal and
<PAGE>
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the holders of outstanding Securities.
SECTION 11.03. Paying Agent to Repay Moneys Held.
Upon the satisfaction and discharge of this Indenture all moneys
then held by any paying agent of the Securities (other than the Debenture
Trustee) shall, upon written demand of the Corporation, be repaid to it or paid
to the Debenture Trustee, and thereupon such paying agent shall be released from
all further liability with respect to such moneys.
SECTION 11.04. Return of Unclaimed Moneys.
Any moneys deposited with or paid to the Debenture Trustee or any
paying agent for payment of the principal of (or premium, if any) or interest
(including Compounded Interest and Additional Sums, if any) or Liquidated
Damages, if any, on Securities and not applied but remaining unclaimed by the
holders of Securities for two years after the date upon which the principal of
(or premium, if any) or interest (including Compounded Interest and Additional
Sums, if any) or Liquidated Damages, if any, on such Securities, as the case may
be, shall have become due and payable, shall be repaid to the Corporation by the
Debenture Trustee or such paying agent; and the holder of any of the Securities
shall thereafter look only to the Corporation for any payment which such holder
may be entitled to collect and all liability of the Debenture Trustee or such
paying agent with respect to such moneys shall thereupon cease.
SECTION 11.05. Defeasance Upon Deposit of Moneys
or U.S. Governmen Obligations.
The Corporation shall be deemed to have been Discharged (as
defined below) from its obligations with respect to the Securities on the 91st
day after the applicable conditions set forth below have been satisfied:
(1) the Corporation shall have deposited or caused to be
deposited irrevocably with the Debenture Trustee or the
Defeasance Agent (as defined below) as trust funds in
trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Securities (i)
money in an amount, or (ii) U.S. Government Obligations
which through the payment of interest and principal in
respect thereof in accordance with their terms will
provide, not later than one day before the due date of any
payment, money in an amount, or (iii) a combination of (i)
and (ii), sufficient, in the opinion (with respect to (ii)
and (iii)) of a nationally recognized firm of independent
public accountants
<PAGE>
expressed in a written certification thereof delivered to
the Debenture Trustee and the Defeasance Agent, if any, to
pay and discharge each installment of principal of and
interest and premium, if any, on the outstanding Securities
on the dates such installments of principal, interest or
premium are due;
(2) if the Securities are then listed on any national
securities exchange, the Corporation shall have delivered
to the Debenture Trustee and the Defeasance Agent, if any,
an Opinion of Counsel to the effect that the exercise of
the option under this Section 11.05 would not cause such
Securities to be delisted from such exchange;
(3) no Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the
date of such deposit; and
(4) the Corporation shall have delivered to the Debenture
Trustee and the Defeasance Agent, if any, an Opinion of
Counsel to the effect that holders of the Securities will
not recognize income, gain or loss for United States
federal income tax purposes as a result of the exercise of
the option under this Section 11.05 and will be subject to
United States federal income tax on the same amount and in
the same manner and at the same times as would have been
the case if such option had not been exercised.
"Discharged" means that the Corporation shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Securities and to have satisfied all the obligations under this
Indenture relating to the Securities (and the Debenture Trustee, at the expense
of the Corporation, shall execute proper instruments acknowledging the same),
except (A) the rights of holders of Securities to receive, from the trust fund
described in clause (1) above, payment of the principal of and the interest and
premium, if any, on the Securities when such payments are due; (B) the
Corporation's obligations with respect to the Securities under Sections 2.07,
2.08, 5.02 and 11.04; and (C) the rights, powers, trusts, duties and immunities
of the Debenture Trustee hereunder.
"Defeasance Agent" means another financial institution which is
eligible to act as Debenture Trustee hereunder and which assumes all of the
obligations of the Debenture Trustee necessary to enable the Debenture Trustee
to act hereunder. In the event such a Defeasance Agent is appointed pursuant to
this Section, the following conditions shall apply:
<PAGE>
(1) the Debenture Trustee shall have approval rights over the
document appointing such Defeasance Agent and the document
setting forth such Defeasance Agent's rights and
responsibilities; and
(2) the Defeasance Agent shall provide verification to the
Debenture Trustee acknowledging receipt of sufficient money
and/or U. S. Government Obligations to meet the applicable
conditions set forth in this Section 11.05.
ARTICLE XII
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS,OFFICERS AND DIRECTORS
SECTION 12.01. Indenture and Securities Solely
Corporate Obligations.
No recourse for the payment of the principal of or premium, if
any, or interest (including Compounded Interest and Additional Sums, if any) or
Liquidated Damages, if any, on any Security, or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Corporation in this Indenture, or in any Security,
or because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, officer or director, as such,
past, present or future, of the Corporation or of any successor Person to the
Corporation, either directly or through the Corporation or any successor Person
to the Corporation, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issuance of the Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors.
All the covenants, stipulations, promises and agreements in this
Indenture contained by the Corporation shall bind its successors and assigns
whether so expressed or not.
SECTION 13.02. Official Acts by Successor Corporation.
<PAGE>
Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or
officer of the Corporation shall and may be done and performed with like force
and effect by the like board, committee or officer of any corporation that shall
at the time be the lawful sole successor of the Corporation.
SECTION 13.03. Surrender of Corporation Powers.
The Corporation by instrument in writing executed by authority of
2/3 (two-thirds) of its Board of Directors and delivered to the Debenture
Trustee may surrender any of the powers reserved to the Corporation, and
thereupon such power so surrendered shall terminate both as to the Corporation,
as the case may be, and as to any successor Person.
SECTION 13.04. Addresses for Notices, etc.
Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Debenture Trustee or by the
holders of Securities on the Corporation may be given or served by being
deposited postage prepaid by first class mail, registered or certified mail,
overnight courier service or conformed telecopy addressed (until another address
is filed by the Corporation with the Debenture Trustee for the purpose) to the
Corporation at 1111 North Highland Street, Arlington, Virginia, 22201,
Attention: Administrative Trustee. Any notice, direction, request or demand by
any Securityholder to or upon the Debenture Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made in writing at the
office of the Debenture Trustee, Wilmington Trust Company, Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Administration (unless another address is provided by the Debenture
Trustee to the Corporation for such purpose). Any notice or communication to a
Securityholder shall be mailed by first class mail to his or her address shown
on the Security Register kept by the security registrar for the Securities.
SECTION 13.05. Governing Law.
This Indenture and each Security shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State without
regard to conflict of law principles thereof.
SECTION 13.06. Evidence of Compliance with Conditions Precedent.
<PAGE>
Upon any application or demand by the Corporation to the
Debenture Trustee to take any action under any of the provisions of this
Indenture, the Corporation shall furnish to the Debenture Trustee an Officers'
Certificate stating that in the opinion of the signers all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Debenture Trustee with respect to compliance with a condition
or covenant provided for in this Indenture (except certificates delivered
pursuant to Section 3.05) shall include (1) a statement that the Person making
such certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 13.07. Business Days.
In any case where the date of payment of principal of (or
premium, if any) or interest on the Securities is not a Business Day, the
payment of such principal of (or premium, if any) or interest on the Securities
will not be made on such date but will be made on the next succeeding Business
Day, with the same force and effect as if made on the original date of payment,
and no interest shall accrue for the period from and after such date.
SECTION 13.08. Trust Indenture Act to Control.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 318,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 13.09. Table of Contents, Headings, etc.
The table of contents and the titles and headings of the articles
and sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 13.10. Execution in Counterparts.
<PAGE>
This Indenture may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
SECTION 13.11. Separability.
In case any one or more of the provisions contained in this
Indenture or in the Securities shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
the Securities, but this Indenture and the Securities shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
SECTION 13.12. Assignment.
The Corporation will have the right at all times to assign any of
its respective rights or obligations under this Indenture to a direct or
indirect wholly owned Subsidiary of the Corporation, provided that, in the event
of any such assignment, the Corporation will remain liable for all such
obligations. Subject to the foregoing, this Indenture is binding upon and inures
to the benefit of the parties thereto and their respective successors and
assigns. This Indenture may not otherwise be assigned by the parties thereto.
SECTION 13.13. Acknowledgement of Rights.
The Corporation acknowledges that, with respect to any Securities
held by the Trust or a trustee of such trust, if the Property Trustee of such
Trust fails to enforce its rights under this Indenture as the holder of the
Securities held as the assets of the Trust, any holder of Capital Securities may
institute legal proceedings directly against the Corporation to enforce such
Property Trustee's rights under this Indenture without first instituting any
legal proceedings against such Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Corporation to
pay principal of (or premium, if any) or interest on the Securities when due,
the Corporation acknowledges that a holder of Capital Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of (or premium, if any) or interest on the Securities having an
aggregate principal amount equal to the aggregate liquidation amount of the
Capital Securities of such holder on or after the respective due date specified
in the Securities.
ARTICLE XIV
<PAGE>
PREPAYMENT OF SECURITIES;
MANDATORY AND OPTIONAL SINKING FUND
SECTION 14.01. Special Event Prepayment.
If, prior to the Initial Optional Prepayment Date, a Special
Event has occurred and is continuing, then notwithstanding Section 14.02(a) but
subject to Section 14.02(c), the Corporation shall have the right, at any time
within 90 days following the occurrence of such Special Event, upon (i) not less
than 45 days written notice to the Debenture Trustee and (ii) not less than 30
days nor more than 60 days' written notice to the Securityholders, to prepay the
Securities, in whole (but not in part), at the Special Event Prepayment Price.
Following a Special Event, the Corporation shall take such action as is
necessary to promptly determine the Special Event Prepayment Price, including,
without limitation, the appointment of a Quotation Agent. The Special Event
Prepayment Price shall be paid prior to 12:00 noon, New York City time, on the
date of such prepayment or such earlier time as the Corporation determines,
provided that the Corporation shall deposit with the Debenture Trustee an amount
sufficient to pay the Special Event Prepayment Price by 10:00 a.m., New York
City time, on the date such Special Event Prepayment Price is to be paid.
SECTION 14.02. Optional Prepayment by Corporation.
(a) Subject to Sections 14.02(b) and (c), the Corporation shall
have the right to prepay the Securities, in whole or in part, at any time on or
after the Initial Optional Prepayment Date, upon not less than 30 days and not
more than 60 days' written notice, at the prepayment prices set forth below
plus, in each case, accrued and unpaid interest thereon (including Compounded
Interest and Additional Sums, if any) and Liquidated Damages, if any, to the
applicable date of prepayment (the "Optional Prepayment Price") if prepaid
during the 12-month period beginning June 1 of the years indicated below.
Percentage
Year of Principal
------------------------------------------------------
2007 105.500%
2008 104.950%
2009 104.440%
2010 103.850%
2011 103.300%
2012 102.750%
2013 102.200%
2014 101.650%
2015 101.100%
2016 100.550%
<PAGE>
2017 and thereafter 100.000%
If the Securities are only partially prepaid pursuant to this
Section 14.02, the Securities to be prepaid shall be selected on a pro rata
basis not more than 60 days prior to the date fixed for prepayment from the
outstanding Securities not previously called for prepayment; provided, however,
that with respect to Securityholders that would be required to hold Securities
with an aggregate principal amount of less than $100,000 but more than an
aggregate principal amount of zero as a result of such pro rata prepayment, the
Corporation shall prepay Securities of each such Securityholder so that after
such prepayment such Securityholder shall hold Securities either with an
aggregate principal amount of at least $100,000 or such Securityholder no longer
holds any Securities, and shall use such method (including, without limitation,
by lot) as the Corporation shall deem fair and appropriate; provided, further,
that any such proration may be made on the basis of the aggregate principal
amount of Securities held by each Securityholder and may be made by making such
adjustments as the Corporation deems fair and appropriate in order that only
Securities in denominations of $1,000 or integral multiples thereof shall be
prepaid. The Optional Prepayment Price shall be paid prior to 12:00 noon, New
York City time, on the date of such prepayment or at such earlier time as the
Corporation determines, provided that the Corporation shall deposit with the
Debenture Trustee an amount sufficient to pay the Optional Prepayment Price by
10:00 a.m., New York City time, on the date such Optional Prepayment Price is to
be paid.
(b) Notwithstanding the first sentence of Section 14.02(a), upon
the entry of an order for dissolution of the Trust by a court of competent
jurisdiction, the Securities thereafter will be subject to optional prepayment,
in whole only, but not in part, on or after the Initial Optional Prepayment
Date, at the applicable Optional Prepayment Prices and otherwise in accordance
with this Article XIV.
(c) Any prepayment of Securities pursuant to Section 14.01 or
Section 14.02 shall be subject to the Corporation obtaining any and all required
regulatory approvals.
SECTION 14.03. No Sinking Fund.
The Securities are not entitled to the benefit of any sinking
fund.
SECTION 14.04. Notice of Prepayment; Selection of Securities.
In case the Corporation shall desire to exercise the right to
prepay all, or, as the case may be, any part of the Securities in accordance
with their terms, it shall fix a date for prepayment and shall mail a notice of
such prepayment at least 30 and not more than 60 days prior to the date fixed
for prepayment to the holders
<PAGE>
of Securities to be so prepaid as a whole or in part at their last addresses as
the same appear on the Security Register. Such mailing shall be by first class
mail. The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice. In any case, failure to give such notice by mail or any defect in the
notice to the holder of any Security designated for prepayment as a whole or in
part shall not affect the validity of the proceedings for the prepayment of any
other Security.
Each such notice of prepayment shall specify the CUSIP number of
the Securities to be prepaid, the date fixed for prepayment, the prepayment
price at which the Securities are to be prepaid (or the method by which such
prepayment price is to be calculated), the place or places of payment that
payment will be made upon presentation and surrender of the Securities, that
interest accrued to the date fixed for prepayment will be paid as specified in
said notice, and that on and after said date interest thereon or on the portions
thereof to be prepaid will cease to accrue. If less than all the Securities are
to be prepaid, the notice of prepayment shall specify the numbers of the
Securities to be prepaid. In case any Security is to be prepaid in part only,
the notice of prepayment shall state the portion of the principal amount thereof
to be prepaid and shall state that on and after the date fixed for prepayment,
upon surrender of such Security, a new Security or Securities in principal
amount equal to the portion thereof that has not been prepaid will be issued.
By 10:00 a.m., New York City time, on the prepayment date
specified in the notice of prepayment given as provided in this Section, the
Corporation will deposit with the Debenture Trustee or with one or more paying
agents an amount of money sufficient to prepay on the prepayment date all the
Securities so called for prepayment at the appropriate Prepayment Price,
together with interest accrued thereon to the date fixed for prepayment.
SECTION 14.05. Payment of Securities Called for Prepayment.
If notice of prepayment has been given as provided in Section
14.04, the Securities or portions of Securities with respect to which such
notice has been given shall become due and payable on the date and at the place
or places stated in such notice at the applicable Prepayment Price, together
with interest accrued thereon to the date fixed for prepayment (subject to the
rights of holders of Securities at the close of business on a regular record
date in respect of an Interest Payment Date occurring on or prior to the
prepayment date), and on and after said date (unless the Corporation shall
default in the payment of such Securities at the Prepayment Price, together with
interest accrued thereon to said date) interest (including Compounded Interest
and Additional Sums, if any) and Liquidated Damages, if any, on the Securities
or portions of Securities so called for prepayment shall cease to accrue. On
presentation and surrender of such Securities at a place
<PAGE>
of payment specified in said notice, the said Securities or the specified
portions thereof shall be paid and prepaid by the Corporation at the applicable
Prepayment Price, together with interest (including Compounded Interest and
Additional Sums, if any) and Liquidated Damages, if any, accrued thereon to the
date fixed for prepayment (subject to the rights of holders of Securities on the
close of business on a regular record date in respect of an Interest Payment
Date occurring on or prior to the prepayment date).
Upon presentation of any Security prepaid in part only, the
Corporation shall execute and the Debenture Trustee shall authenticate and make
available for delivery to the holder thereof, at the expense of the Corporation,
a new Security or Securities of authorized denominations, in principal amount
equal to the portion of the Security so presented that has not been prepaid.
ARTICLE XV
SUBORDINATION OF SECURITIES
SECTION 15.01. Agreement to Subordinate.
The Corporation covenants and agrees, and each holder of
Securities issued hereunder likewise covenants and agrees, that the Securities
shall be issued subject to the provisions of this Article XV; and each holder of
a Security, whether upon original issue or upon transfer or assignment thereof,
accepts and agrees to be bound by such provisions.
The payment by the Corporation of the principal of, premium, if
any, and interest (including Compounded Interest and Additional Sums, if any)
and Liquidated Damages, if any, on all Securities issued hereunder shall, to the
extent and in the manner hereinafter set forth, be subordinated and junior in
right of payment to all Senior Indebtedness, whether outstanding at the date of
this Indenture or thereafter incurred.
No provision of this Article XV shall prevent the occurrence of
any Default or Event of Default hereunder.
SECTION 15.02. Default on Senior Indebtedness.
In the event and during the continuation of any default by the
Corporation in the payment of principal, premium, interest or any other payment
due on any Senior Indebtedness, or in the event that the maturity of any Senior
Indebtedness has been accelerated because of a default, then, in either case, no
payment shall be made by the Corporation with respect to the principal
(including prepayment payments) of (or premium, if any) or interest on the
Securities
<PAGE>
(including Compounded Interest and Additional Sums (if any) and Liquidated
Damages, if any, or any other amounts which may be due on the Securities
pursuant to the terms hereof or thereof).
In the event of the acceleration of the maturity of the
Securities, then no payment shall be made by the Corporation with respect to the
principal (including prepayment payments) of (or premium, if any) or interest on
the Securities (including Compounded Interest and Additional Sums (if any) and
Liquidated Damages, if any, or any other amounts which may be due on the
Securities pursuant to the terms hereof or thereof) until the holders of all
Senior Indebtedness outstanding at the time of such acceleration shall receive
payment in full of such Senior Indebtedness (including any amounts due upon
acceleration).
In the event that, notwithstanding the foregoing, any payment
shall be received by the Debenture Trustee when such payment is prohibited by
the preceding paragraphs of this Section 15.02, such payment shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior Indebtedness
may have been issued, as their respective interests may appear, but only to the
extent that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Debenture Trustee in writing within 90
days of such payment of the amounts then due and owing on such Senior
Indebtedness, and only the amounts specified in such notice to the Debenture
Trustee shall be paid to the holders of such Senior Indebtedness.
SECTION 15.03. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Corporation or distribution of assets of
the Corporation of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution, winding-up, liquidation or
reorganization of the Corporation, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, the holders of all
Senior Indebtedness of the Corporation will first be entitled to receive payment
in full of such Senior Indebtedness, before any payment is made by the
Corporation on account of the principal of (or premium, if any) or interest on
the Securities (including Compounded Interest and Additional Sums (if any) and
Liquidated Damages, if any, or any other amounts which may be due on the
Securities pursuant to the terms hereof or thereof); and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by the
Corporation, or distribution of assets of the Corporation of any kind or
character, whether in cash, property or securities, which the Securityholders or
the Debenture Trustee would be entitled to receive from the Corporation, except
for the provisions of this Article XV, shall be paid by the Corporation or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or
<PAGE>
other Person making such payment or distribution, or by the Securityholders or
by the Debenture Trustee under the Indenture if received by them or it, directly
to the holders of Senior Indebtedness of the Corporation (pro rata to such
holders on the basis of the respective amounts of Senior Indebtedness held by
such holders, as calculated by the Corporation) or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
such Senior Indebtedness in full, in money or money's worth, after giving effect
to any concurrent payment or distribution to or for the holders of such Senior
Indebtedness, before any payment or distribution is made to the Securityholders
or to the Debenture Trustee.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Corporation of any kind or character prohibited by
the foregoing, whether in cash, property or securities, shall be received by the
Debenture Trustee before all Senior Indebtedness is paid in full, or provision
is made for such payment in money in accordance with its terms, such payment or
distribution shall be held in trust for the benefit of and shall be paid over or
delivered to the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Corporation, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness.
For purposes of this Article XV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Corporation as
reorganized or readjusted, or securities of the Corporation or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this Article
XV with respect to the Securities to the payment of Senior Indebtedness that may
at the time be outstanding, provided that (i) such Senior Indebtedness is
assumed by the new corporation, if any, resulting from any such reorganization
or readjustment, and (ii) the rights of the holders of such Senior Indebtedness
are not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Corporation with, or the merger of the
Corporation into, another Person or the liquidation or dissolution of the
Corporation following the sale, conveyance, transfer or lease of its property as
an entirety, or substantially as an entirety, to another Person upon the terms
and conditions provided for in Article X of this Indenture shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 15.03 if such other Person shall, as a part of such consolidation,
merger, sale, conveyance, transfer or lease, comply with the conditions stated
in Article X of
<PAGE>
this Indenture. Nothing in Section 15.02 or in this Section 15.03 shall apply to
claims of, or payments to, the Debenture Trustee under or pursuant to Section
6.06 of this Indenture.
SECTION 15.04. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the
rights of the Securityholders shall be subrogated to the rights of the holders
of such Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Corporation, as the case may be, applicable to
such Senior Indebtedness until the principal of (and premium, if any) and
interest on the Securities shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the Securityholders or
the Debenture Trustee would be entitled except for the provisions of this
Article XV, and no payment over pursuant to the provisions of this Article XV to
or for the benefit of the holders of such Senior Indebtedness by Securityholders
or the Debenture Trustee, shall, as between the Corporation, its creditors other
than holders of Senior Indebtedness of the Corporation, and the holders of the
Securities, be deemed to be a payment by the Corporation to or on account of
such Senior Indebtedness. It is understood that the provisions of this Article
XV are and are intended solely for the purposes of defining the relative rights
of the holders of the Securities, on the one hand, and the holders of such
Senior Indebtedness on the other hand.
Nothing contained in this Article XV or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Corporation, its creditors other than the holders of Senior Indebtedness of the
Corporation, and the holders of the Securities, the obligation of the
Corporation, which is absolute and unconditional, to pay to the holders of the
Securities the principal of (and premium, if any) and interest (including
Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any,
on the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Securities and creditors of the Corporation, as the
case may be, other than the holders of Senior Indebtedness of the Corporation,
as the case may be, nor shall anything herein or therein prevent the Debenture
Trustee or the holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under the Indenture, subject to the
rights, if any, under this Article XV of the holders of such Senior Indebtedness
in respect of cash, property or securities of the Corporation, as the case may
be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Corporation
referred to in this Article XV, the Debenture Trustee, subject to the provisions
of Article VI of this Indenture, and the Securityholders shall be entitled to
conclusively rely
<PAGE>
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered to
the Debenture Trustee or to the Securityholders, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other indebtedness of the Corporation, as the
case may be, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
XV.
SECTION 15.05. Debenture Trustee to Effectuate Subordination.
Each Securityholder by such Securityholder's acceptance thereof
authorizes and directs the Debenture Trustee on such Securityholder's behalf to
take such action (as the Debenture Trustee, in its discretion, deems necessary
or appropriate, upon instruction or otherwise) to effectuate the subordination
provided in this Article XV and appoints the Debenture Trustee such Security
holder's attorney-in-fact for any and all such purposes.
SECTION 15.06. Notice by the Corporation.
The Corporation shall give prompt written notice to a Responsible
Officer of the Debenture Trustee of any fact known to the Corporation that would
prohibit the making of any payment of monies to or by the Debenture Trustee in
respect of the Securities pursuant to the provisions of this Article XV.
Notwithstanding the provisions of this Article XV or any other provision of this
Indenture, the Debenture Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment of monies
to or by the Debenture Trustee in respect of the Securities pursuant to the
provisions of this Article XV, unless and until a Responsible Officer of the
Debenture Trustee shall have received written notice thereof from the
Corporation or a holder or holders of Senior Indebtedness or from any trustee
therefor; and before the receipt of any such written notice, the Debenture
Trustee, subject to the provisions of Article VI of this Indenture, shall be
entitled in all respects to assume that no such facts exist; provided, however,
that if the Debenture Trustee shall not have received the notice provided for in
this Section 15.06 at least two Business Days prior to the date upon which by
the terms hereof any money may become payable for any purpose (including,
without limitation, the payment of the principal of (or premium, if any) or
interest (including Compounded Interest and Additional Sums, if any) and
Liquidated Damages, if any, on any Security), then, anything herein contained to
the contrary notwithstanding, the Debenture Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary that
may be received by it within two Business Days prior to such date.
<PAGE>
The Debenture Trustee, subject to the provisions of Article VI of
this Indenture, shall be entitled to conclusively rely on a written notice
delivered to it by a Person representing himself to be a holder of Senior
Indebtedness of the Corporation (or a trustee on behalf of such holder), as the
case may be, to establish that such notice has been given by a holder of such
Senior Indebtedness or a trustee on behalf of any such holder or holders. In the
event that the Debenture Trustee determines in good faith that further evidence
is required with respect to the right of any Person as a holder of such Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article XV, the Debenture Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Debenture Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XV, and, if such
evidence is not furnished, the Debenture Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
Upon any payment or distribution of assets of the Corporation
referred to in this Article XV, the Debenture Trustee and the Securityholders
shall be entitled to rely upon any order or decree entered by any court of
competent jurisdiction in which such insolvency, bankruptcy, receivership,
liquidation, reorganization, dissolution, winding-up or similar case or
proceeding is pending, or a certificate of the trustee in bankruptcy,
liquidating trustee, custodian, receiver, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
Debenture Trustee or to the Securityholders, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other indebtedness of the Corporation, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article XV.
SECTION 15.07. Rights of the Debenture Trustee;
Holders of Senior Indebtedness.
The Debenture Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article XV in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Debenture
Trustee of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of the
Corporation, the Debenture Trustee undertakes to perform or to observe only such
of its covenants and obligations as are specifically set forth in this Article
XV, and no implied covenants or obligations with respect to the holders of such
Senior
<PAGE>
Indebtedness shall be read into this Indenture against the Debenture Trustee.
The Debenture Trustee shall not be deemed to owe any fiduciary duty to the
holders of such Senior Indebtedness and, subject to the provisions of Article VI
of this Indenture, the Debenture Trustee shall not be liable to any holder of
such Senior Indebtedness if it shall pay over or deliver to Securityholders, the
Corporation or any other Person money or assets to which any holder of such
Senior Indebtedness shall be entitled by virtue of this Article XV or otherwise.
Nothing in this Article XV shall apply to claims of, or payments
to, the Debenture Trustee under or pursuant to Section 6.06.
SECTION 15.08. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior
Indebtedness of the Corporation to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Corporation, as the case may be, or by any act or failure
to act, in good faith, by any such holder, or by any noncompliance by the
Corporation, as the case may be, with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Corporation may, at any
time and from time to time, without the consent of or notice to the Debenture
Trustee or the Securityholders, without incurring responsibility to the
Securityholders and without impairing or releasing the subordination provided in
this Article XV or the obligations hereunder of the holders of the Securities to
the holders of such Senior Indebtedness, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, such Senior Indebtedness, or otherwise amend or
supplement in any manner such Senior Indebtedness or any instrument evidencing
the same or any agreement under which such Senior Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing such Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of such Senior Indebtedness; and
(iv) exercise or refrain from exercising any rights against the Corporation, as
the case may be, and any other Person.
ARTICLE XVI
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 16.01. Extension of Interest Payment Period.
So long as no Event of Default has occurred and is continuing,
the Corporation shall have the right, at any time and from time to time during
the term
<PAGE>
of the Securities, to defer payments of interest by extending the interest
payment period of such Securities for a period not exceeding 10 consecutive
semi-annual periods, including the first such semi-annual period during such
extension period (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable, provided that no
Extended Interest Payment Period shall end on a date other than an Interest
Payment Date or extend beyond the Maturity Date. To the extent permitted by
applicable law, interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section 16.01, will
bear interest thereon at the Coupon Rate compounded semi-annually for each
semi-annual period during the Extended Interest Payment Period ("Compounded
Interest"). At the end of the Extended Interest Payment Period, the Corporation
shall pay all interest accrued and unpaid on the Securities, including any
Additional Sums and Compounded Interest (together, "Deferred Interest"), that
shall be payable to the holders of the Securities in whose names the Securities
are registered in the Security Register on the record date immediately preceding
the end of the Extended Interest Payment Period. Before the termination of any
Extended Interest Payment Period, the Corporation may further defer payments of
interest by further extending such Extended Interest Payment Period, provided
that such Extended Interest Payment Period, together with all such previous and
further extensions within such Extended Interest Payment Period, shall not (i)
exceed 10 consecutive semi-annual periods, including the first such semi-annual
period during such Extended Interest Payment Period, (ii) end on a date other
than an Interest Payment Date or (iii) extend beyond the Maturity Date of the
Securities. Upon the termination of any Extended Interest Payment Period and the
payment of all amounts then due, the Corporation may commence a new Extended
Interest Payment Period, subject to the foregoing requirements. No interest
shall be due and payable during an Extended Interest Payment Period, except at
the end thereof, but the Corporation may prepay at any time all or any portion
of the interest accrued during an Extended Interest Payment Period.
SECTION 16.02. Notice of Extension.
(a) If the Property Trustee is the only holder of the Securities
at the time the Corporation elects to commence an Extended Interest Payment
Period, the Corporation shall give written notice to the Administrative
Trustees, the Property Trustee and the Debenture Trustee of its election to
commence such Extended Interest Payment Period at least five Business Days
before the earlier of (i) the next succeeding date on which Distributions on the
Trust Securities would have been payable, or (ii) the date the Property Trustee
is required to give notice of the record date, or the date such Distributions
are payable, to any national securities exchange or to holders of the Capital
Securities, but in any event at least five Business Days before such record
date.
<PAGE>
(b) If the Property Trustee is not the only holder of the
Securities at the time the Corporation elects to commence an Extended Interest
Payment Period, the Corporation shall give the holders of the Securities and the
Debenture Trustee written notice of its selection of such Extended Interest
Payment Period at least 10 Business Days before the earlier of (i) the next
succeeding Interest Payment Date, or (ii) the date the Debenture Trustee is
required to give notice of the record or payment date of such interest payment
to any national securities exchange.
(c) The semi-annual period in which any notice is given pursuant
to paragraphs (a) or (b) of this Section 16.02 shall be counted as one of the 10
semi-annual periods permitted in the maximum Extended Interest Payment Period
permitted under Section 16.01.
<PAGE>
Wilmington Trust Company hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed by their respective officers thereunto duly authorized, as
of the day and year first above written.
TELEBANC FINANCIAL CORPORATION
By /s/ David A. Smilow
-------------------------------------------
Name: David A. Smilow
Title:
WILMINGTON TRUST COMPANY,
as Debenture Trustee
By /s/ W. Chris Sponenberg
-------------------------------------------
Name: W. Chris Sponenberg
Title: Senior Financial Servicers Officer
<PAGE>
EXHIBIT A
---------
(FORM OF FACE OF SECURITY)
[IF THIS SECURITY IS A GLOBAL SECURITY, INSERT: THIS SECURITY IS
A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR A
NOMINEE OF DTC. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE
OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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 IN AS MUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH TELEBANC FINANCIAL
CORPORATION (THE "CORPORATION") OR ANY
<PAGE>
"AFFILIATE" OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE
CORPORATION PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D)
OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR
OTHER INFORMATION SATISFACTORY TO THE CORPORATION, AND (ii) PURSUANT TO CLAUSE
(D) TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE
REVERSE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
CORPORATION. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.]
THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN
BLOCKS HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. ANY
ATTEMPTED TRANSFER OF SECURITIES IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT
OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT
WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER
OF SUCH SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT OF
PRINCIPAL, PREMIUM (IF ANY) OR INTEREST OF SUCH SECURITIES, AND SUCH PURPORTED
TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH SECURITIES.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT IT IS NOT AN
<PAGE>
EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT
SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS
INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY AND NO
PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR
ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION
CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 0R 84-14 WITH RESPECT TO SUCH PURCHASE
OR HOLDING. 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) IT IS NOT A PLAN OR PLAN ASSET ENTITY OR (ii) THE ACQUISITION AND
HOLDING OF THIS SECURITY BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF ERISA
OR SECTION 4975 OF THE CODE OR IS EXEMPT FORM ANY SUCH PROHIBITION.
No. CUSIP No. *
TELEBANC FINANCIAL CORPORATION
11.00% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE JUNE 1, 2027, Series A
TeleBanc Financial Corporation, a Delaware corporation (the
"Corporation", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_________________________ or registered assigns, the principal sum of $ Dollars
on June 9 2027 (the "Maturity Date"), unless previously prepaid, and to pay
interest on the outstanding principal amount hereof from June 9, 1997, or from
the most recent interest payment date (each such date, an "Interest Payment
Date") to which interest has been paid or duly provided for, semi-annually
(subject to deferral as set forth herein) in arrears on June 1 and December 1 of
each year, commencing December 1, 1997, at the rate of 11.00% per annum until
the principal hereof shall have become due and payable, and on any overdue
principal and premium, if any, and (without duplication and to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the same rate per annum compounded semi-annually
("Compounded Interest"). The amount of interest payable on any Interest Payment
Date shall be computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which the principal of (or premium, if any) or
interest on this Security is payable is
<PAGE>
not a Business Day (as defined in the Indenture), then the payment payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), with the
same force and effect as if made on such date. Pursuant to the Indenture, in
certain circumstances the Corporation will be required to pay Additional Sums
(as defined in the Indenture) with respect to this Security. Pursuant to the
Registration Rights Agreement, in certain limited circumstances the Corporation
will be required to pay Liquidated Damages (as defined in the Registration
Rights Agreement) with respect to this Security.
The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be at the
close of business on the 15th day of the month immediately preceeding the month
in which the relevant Interest Payment Date falls. Any such interest installment
not punctually paid or duly provided for shall forthwith cease to be payable to
the holders on such regular record date and may be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a special record date to be fixed by the Debenture Trustee
for the payment of such defaulted interest, notice whereof shall be given to the
holders of Securities not less than 10 days prior to such special record date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Indenture.
The principal of (and premium, if any) and interest (including
Compounded Interest and Additional Sums, if any) and Liquidated Damages, if any,
on this Security shall be payable at the office or agency of the Debenture
Trustee maintained for that purpose in any coin or currency of the United States
of America that at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Corporation by (i) check mailed to the holder at such address as
shall appear in the Security Register or (ii) transfer to an account maintained
by the Person entitled thereto, provided that proper written transfer
instructions have been received by the relevant record date. Notwithstanding the
foregoing, so long as the Holder of this Security is the Property Trustee of
TeleBanc Capital Trust I, the payment of the principal of (and premium, if any)
and interest (including Compounded Interest and Additional Sums, if any) and
Liquidated Damages, if any, on this Security will be made at such place and to
such account as may be designated by such Property Trustee.
<PAGE>
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Debenture Trustee on his or her
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Debenture Trustee
his or her attorney-in-fact for any and all such purposes. Each holder hereof,
by his or her acceptance hereof, hereby waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
This Security shall not be entitled to any benefit under the
Indenture or be valid or become obligatory for any purpose until the Certificate
of Authentication hereon shall have been signed by or on behalf of the Debenture
Trustee.
The provisions of this Security are continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to
be duly executed and sealed this __ day of ____, ____.
TELEBANC FINANCIAL CORPORATION
By:
-----------------------------------------
Name:
Title:
Attest:
By:
------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely
as Debenture Trustee
By:
-----------------------------------------
Authorized Signatory
<PAGE>
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Corporation (herein
sometimes referred to as the "Securities"), specified in the Indenture, all
issued or to be issued under and pursuant to an Indenture, dated as of June 9,
1997 (the "Indenture"), duly executed and delivered between the Corporation and
Wilmington Trust Company, as Debenture Trustee (the "Debenture Trustee"), to
which Indenture reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Debenture Trustee, the Corporation and the holders of the Securities.
Upon the occurrence and continuation of a Special Event (as
defined in the Indenture) prior to June 1, 2007 (the "Initial Optional
Prepayment Date"), the Corporation shall have the right, at any time within 90
days following the occurrence of such Special Event, to prepay this Security in
whole (but not in part) at the Special Event Prepayment Price. "Special Event
Prepayment Price" shall mean, with respect to any prepayment of this Security
following a Special Event, an amount in cash equal to the Make Whole Amount. The
"Make Whole Amount" shall mean an amount equal to the greater of (i) 100% of the
principal amount to be prepaid or (ii) the sum, as determined by a Quotation
Agent (as defined in the Indenture), of the present values of remaining
scheduled payments of principal and interest hereon, discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined in the
Indenture), plus, in the case of each of clauses (i) and (ii), any accrued and
unpaid interest (including Compounded Interest and Additional Sums, if any) and
Liquidated Damages, if any, thereon to the date of such prepayment.
In addition, the Corporation shall have the right to prepay this
Security, in whole or in part, at any time on or after the Initial Optional
Prepayment Date (an "Optional Prepayment"), at the prepayment prices set forth
below plus, in each case, accrued and unpaid interest (including Additional Sums
and Compounded Interest, if any) and Liquidated Damages, if any, thereon to the
applicable date of prepayment (the "Optional Prepayment Price"), if prepaid
during the 12-month period beginning June 1 of the years indicated below.
Percentage
Year of Principal
----------------------------------------------------
2007 105.500%
2008 104.950%
2009 104.440%
2010 103.850%
2011 103.300%
2012 102.750%
<PAGE>
2013 102.200%
2014 101.650%
2015 101.100%
2016 100.550%
2017 and thereafter 100.000%
The Optional Prepayment Price or the Special Event Prepayment
Price, as the case requires, shall be paid prior to 12:00 noon, New York City
time, on the date of such prepayment or at such earlier time as the Corporation
determines, provided, that the Corporation shall deposit with the Debenture
Trustee an amount sufficient to pay the applicable Prepayment Price by 10:00
a.m., New York City time, on the date such Prepayment Price is to be paid. Any
prepayment pursuant to this paragraph will be made upon not less than 30 days
nor more than 60 days' prior written notice.
If the Securities are only partially prepaid by the Corporation
pursuant to an Optional Prepayment, the particular Securities to be prepaid
shall be selected on a pro rata basis from the outstanding Securities not
previously called for prepayment; provided, however, that with respect to
Securityholders that would be required to hold Securities with an aggregate
principal amount of less than $100,000 but more than an aggregate principal
amount of zero as a result of such pro rata prepayment, the Corporation shall
prepay Securities of each such Securityholder so that after such prepayment such
Securityholder shall hold Securities either with an aggregate principal amount
of at least $100,000 or such Securityholder no longer holds any Securities and
shall use such method (including, without limitation, by lot) as the Corporation
shall deem fair and appropriate; provided, further, that any such proration may
be made on the basis of the aggregate principal amount of Securities held by
each Securityholder thereof and may be made by making such adjustments as the
Corporation deems fair and appropriate in order that only Securities in
denominations of $1,000 or integral multiples thereof shall be prepaid. In the
event of prepayment of this Security in part only, a new Security or Securities
for the portion hereof that has not been prepaid will be issued in the name of
the holder hereof upon the cancellation hereof.
Notwithstanding the foregoing, any prepayment of Securities by
the Corporation shall be subject to the receipt of any and all required
regulatory approvals.
In case an Event of Default (as defined in the Indenture) shall
have occurred and be continuing, the principal of all of the Securities may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Corporation and
the Debenture Trustee, with the consent of the holders of a majority in
aggregate
<PAGE>
principal amount of the Securities at the time outstanding (as defined in the
Indenture), to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of modifying in any manner the rights of the holders of the
Securities; provided, however, that no such supplemental indenture shall,
without the consent of each holder of Securities then outstanding and affected
thereby, (i) change the Maturity Date of any Security, or reduce the rate or
extend the time of payment of interest thereon (subject to Article XVI of the
Indenture), or reduce the principal amount thereof, or change any of the
prepayment provisions or make the principal thereof or any interest or premium
thereon payable in any coin or currency other than U.S. dollars, or impair or
affect the right of any holder of Securities to institute suit for payment
thereof, or (ii) reduce the aforesaid percentage of Securities the holders of
which are required to consent to any such supplemental indenture. The Indenture
also contains provisions permitting the holders of a majority in aggregate
principal amount of the Securities at the time outstanding affected thereby, on
behalf of all of the holders of the Securities, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture, and its consequences, except a default in the payment
of the principal of or premium, if any, or interest on any of the Securities or
a default in respect of any covenant or provision under which the Indenture
cannot be modified or amended without the consent of each holder of Securities
then outstanding. Any such consent or waiver by the holder of this Security
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such Holder and upon all future holders and owners of this Security and of
any Security issued in exchange herefor or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest (including Compounded Interest and Additional
Sums, if any) and Liquidated Damages, if any, on this Security at the time and
place and at the rate and in the money herein prescribed.
So long as no Event of Default shall have occurred and be
continuing, the Corporation shall have the right, at any time and from time to
time during the term of the Securities, to defer payments of interest by
extending the interest payment period (an "Extended Interest Payment Period") of
such Securities for a period not (i) exceeding 10 consecutive semi-annual
periods, including the first such semi-annual period during such extension
period, (ii) extending beyond the Maturity Date of the Securities or (iii)
ending on a date other than an Interest Payment Date, at the end of which period
the Corporation shall pay all interest then accrued and unpaid (together with
interest thereon at the rate specified for the
<PAGE>
Securities to the extent that payment of such interest is enforceable under
applicable law). Before the termination of any such Extended Interest Payment
Period, the Corporation may further defer payments of interest by further
extending such Extended Interest Payment Period, provided that such Extended
Interest Payment Period, together with all such previous and further extensions
within such Extended Interest Payment Period, (i) shall not exceed 10
consecutive semi-annual periods, including the first semi-annual period during
such Extended Interest Payment Period, (ii) shall not end on any date other than
an Interest Payment Date, and (iii) shall not extend beyond the Maturity Date of
the Securities. Upon the termination of any such Extended Interest Payment
Period and the payment of all accrued and unpaid interest and any additional
amounts then due, the Corporation may commence a new Extended Interest Payment
Period, subject to the foregoing requirements. No interest shall be due and
payable during an Extended Interest Payment Period, except at the end thereof,
but the Corporation may prepay at any time all or any portion of the interest
accrued during an Extended Interest Payment Period.
The Corporation has agreed that it will not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Corporation's capital stock,
(ii) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities (including other Debentures) of
the Corporation that rank pari passu with or junior in right of payment to the
Securities or (iii) make any guarantee payments with respect to any guarantee
(other than the Capital Securities Guarantee, as defined in the Indenture) by
the Corporation of the debt securities of any Subsidiary of the Corporation
(including Other Guarantees) if such guarantee ranks pari passu with or junior
in right of payment to the Securities (other than (a) dividends or distributions
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) as a result of a
reclassification of the Corporation's capital stock or the exchange or
conversion of one class or series of the Corporation's capital stock for another
class or series of the Corporation's capital stock, (d) the purchase of
fractional interests in shares of the Corporation's capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged, and (e) purchases of Common Stock related to the
issuance of Common Stock or rights under any of the Corporation's benefit or
compensation plans for its directors, officers or employees or any of the
Corporation's dividend reinvestment plans), if at such time (1) there shall have
occurred any event of which the Corporation has actual knowledge that (a) is, or
with the giving of notice or the lapse of time, or both, would constitute, an
Event of Default and (b) in respect of which the Corporation shall not have
taken reasonable steps to cure, (2)
<PAGE>
if such Securities are held by the Property Trustee of TeleBanc Capital Trust I,
the Corporation shall be in default with respect to its payment of any
obligations under the Capital Securities Guarantee or (3) the Corporation shall
have given notice of its election to exercise its right to commence an Extended
Interest Payment Period, and shall not have rescinded such Notice, and such
Extended Interest Payment Period or any extension thereof shall have commenced
and be continuing.
Subject to (i) the Corporation having received any required
regulatory approvals and (ii) the Administrative Trustees of Telebank Capital
Trust I having received an opinion of counsel to the effect that such
distribution will not cause the holders of Capital Securities to recognize gain
or loss for federal income tax purposes, the Corporation will have the right at
any time to liquidate the Trust and, after satisfaction of liabilities of
creditors of the Trust as required by applicable law, to cause the Securities to
be distributed to the holders of the Trust Securities in liquidation of the
Trust.
The Securities are issuable only in registered form without
coupons in minimum denominations of $100,000 and multiples of $1,000 in excess
thereof. As provided in the Indenture and subject to the transfer restrictions
limitations as may be contained herein and therein from time to time, this
Security is transferable by the holder hereof on the Security Register of the
Corporation, upon surrender of this Security for registration of transfer at the
office or agency of the Corporation in The City of New York accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Corporation or the Debenture Trustee duly executed by the holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
made for any such registration of transfer, but the Corporation may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in relation thereto.
Prior to due presentment for registration of transfer of this
Security, the Corporation, the Debenture Trustee, any authenticating agent, any
paying agent, any transfer agent and the security registrar may deem and treat
the holder hereof as the absolute owner hereof (whether or not this Security
shall be overdue and notwithstanding any notice of ownership or writing hereon
made by anyone other than the security registrar for the Securities) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and (subject to the Indenture) interest due hereon and for all
other purposes, and neither the Corporation nor the Debenture Trustee nor any
authenticating agent nor any paying agent nor any transfer agent nor any
security registrar shall be affected by any notice to the contrary.
<PAGE>
No recourse shall be had for the payment of the principal of or
premium, if any, or interest (including Compounded Interest and Additional Sums,
if any) or Liquidated Damages, if any, on this Security, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect of the
Indenture, against any incorporator, stockholder, employee, officer or director,
past, present or future, as such, of the Corporation or of any predecessor or
successor Person, whether by virtue of any constitution, statute or rule of law,
or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for
the issuance hereof, expressly waived and released.
All terms used in this Security that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAW PRINCIPLES THEREOF
EXHIBIT 4.3
CERTIFICATE OF TRUST
OF
TELEBANC CAPITAL TRUST I
This Certificate of Trust of TeleBanc Capital Trust I is being executed
and filed by the undersigned, as trustees, for the purpose of forming a business
trust pursuant to the Delaware Business Trust Act (12 Del. C. ss.ss. 3801 et
seq.).
1. The name of the business trust formed hereby is "TeleBanc Capital
Trust I" (the "Trust").
2. Delaware Trustee. The name and business address of the trustee of
the Trust that has its principal place of business in the State of Delaware are
as follows:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the trustees of the
Trust, have duly executed this Certificate of Trust.
WILMINGTON TRUST COMPANY
as Delaware Trustee
By: /s/ Norma P. Closs
-------------------------
Name: Norma P. Closs
By: /s/ David Smilow
-------------------------
Name: David Smilow
as Administrative Trustee
By: /s/ Aileen Lopez Pugh
--------------------------
Name: Aileen Lopez Pugh
as Administrative Trustee
By: /s/ Mitchell Caplan
--------------------------
Name: Mitchell Caplan
as Administrative Trustee
EXHIBIT 4.4
DECLARATION OF TRUST
OF
TELEBANC CAPITAL TRUST I
THIS DECLARATION OF TRUST is made as of June 2, 1997 (this
"Declaration"), by and among TeleBanc Financial Corporation, a Delaware
corporation, as sponsor (the "Sponsor"), Wilmington Trust Company, a Delaware
banking corporation, as Delaware trustee (the "Delaware Trustee") and Aileen
Lopez Pugh, David Smilow, and Mitchell Caplan, as administrative trustees (the
"Administrative Trustees", and, together with the Delaware Trustee, the
"Trustees"). The Sponsor and the Trustees hereby agree as follows:
1. The trust created hereby shall be known as "TeleBanc
Capital Trust I" (the "Trust"), in which name the Trustees or the Sponsor, to
the extent provided herein, may conduct the business of the Trust, make and
execute contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets
over to the Trustees the sum of $10. The Trustees hereby acknowledge receipt of
such amount in trust from the Sponsor, which amount shall constitute the initial
trust estate. The Trustees hereby declare that they will hold the trust estate
in trust for the Sponsor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12 of
the Delaware Code, 12 Del. C. ss. 3801, et seq. (the "Business Trust Act"), and
that this document constitute the governing instrument of the Trust. The
Trustees are hereby authorized and directed to execute and file a certificate of
trust with the Delaware Secretary of State in such form as the Trustees may
approve.
3. The Sponsor and the Trustees will enter into an amended and
restated Declaration of Trust satisfactory to each such party to provide for the
contemplated operation of the Trust created hereby and the issuance of the
Capital Securities and Common Securities referred to therein. Prior to the
execution and delivery of such amended and restated Declaration of Trust (i) the
Delaware Trustee shall not have any duty or obligation hereunder or with respect
to the trust estate, except as otherwise required by applicable law, and (ii)
the Administrative Trustees and the Sponsor shall take any action as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. Notwithstanding the
foregoing, the Trustees may take all actions deemed proper as are necessary to
effect the transactions contemplated herein.
4. The Sponsor hereby agrees to (i) reimburse the Trustees for
all reasonable expenses (including reasonable fees and expenses of counsel and
other experts), (ii) indemnify, defend and hold harmless the Trustees and any of
the
<PAGE>
officers, directors employees and agent of the Trustees (collectively, including
the Delaware Trustee in its individual capacity, the "Indemnified Persons") from
and against any and all losses, damages, liabilities, claims, actions, suits,
costs, expenses, disbursements (including the reasonable fees and expenses of
counsel), taxes and penalties of any kind and nature whatsoever (collectively,
"Expenses"), to the extent that such Expenses arise out of or are imposed upon
or asserted at any time against such Indemnified Persons with respect to the
performance of this Declaration, the creation, operation, administration or
termination of the Trust, or the transactions contemplated hereby; provided,
however, that the Sponsor shall not be required to indemnify an Indemnified
Person for Expenses to the extent such Expenses result from the willful
misconduct, bad faith or gross negligence of such Indemnified Person, and (iii)
advance to each Indemnified Person Expenses (including reasonable legal fees)
incurred by such Indemnified Person in defending any claim, demand, action, suit
or proceeding prior to the final disposition of such claim, demand, action, suit
or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of
the Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified therefor under this Section
4.
5. The Sponsor, as sponsor of the Trust, and each
Administrative Trustee is hereby authorized, in its discretion, (i) to prepare
and distribute one or more offering memoranda in preliminary and final form,
including any necessary or desirable amendments, relating to the offering and
sale of Capital Securities of the Trust in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), and such forms or filings as may be required by the 1933 Act, the
Securities Exchange Act of 1934, as amended, or the Trust Indenture Act of 1939,
as amended, in each case relating to the Capital Securities of the Trust; (ii)
to prepare, execute and file on behalf of the Trust, such applications, reports,
surety bonds, irrevocable consents, appointments of attorney for service of
process and other papers and documents that shall be necessary or desirable to
register or establish the exemption from registration of the Capital Securities
of the Trust under the securities or "Blue Sky" laws of such jurisdictions as
the Sponsor, on behalf of the Trust, may deem necessary or desirable; (iii) to
prepare, execute and file an application, and all other applications,
statements, certificates, agreements and other instruments that shall be
necessary or desirable, to have the Capital Securities listed on the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market and,
if and at such time as determined by the Sponsor, with the New York Stock
Exchange or any other national stock exchange or the Nasdaq National Market for
listing or quotation of the Capital Securities of the Trust; (iv) to prepare,
execute and deliver letters or documents to, or instruments for filing with, a
depository relating to the Capital Securities of the Trust; (v) to negotiate,
execute, deliver and perform on behalf of the Trust one or more purchase
agreements, registration rights agreements, dealer/manager agreements, escrow
agreements, subscription agreements and other similar or related agreements
providing for or relating to the sale and issuance of the Capital Securities of
the Trust and/or any other interests in the Trust; and (vi) to prepare, execute
and deliver on
<PAGE>
behalf of the Trust any and all documents, papers and instruments as may be
desirable in connection with any of the foregoing. Any power of the
Administrative Trustees hereunder to execute any document or take other action
on behalf of the Trust may be exercised by one Administrative Trustee acting
alone or by two or more Administrative Trustees acting together.
In the event that any filing referred to in this Section 5 is
required by the rules and regulations of Securities and Exchange Commission (the
"Commission"), PORTAL or state securities or Blue Sky laws to be executed on
behalf of the Trust by one or more Trustees, each Trustee, in its capacity as a
trustee of the Trust, so required to execute such filings is hereby authorized
and directed to join in any such filing and to execute on behalf of the Trust
any and all of the foregoing, it being understood that a Trustee, in its
capacity as a trustee of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required to do
so by the rules and regulations of the Commission, PORTAL or applicable state
securities or Blue Sky laws.
6. The Delaware Trustee shall take such action or refrain from
taking such action under this Declaration as it may be directed in writing by
the Sponsor from time to time; provided, however, that the Delaware Trustee
shall not be required to take or refrain from taking any such action if it shall
have determined, or shall have been advised by counsel, that such performance is
likely to involve the Delaware Trustee in personal liability or is contrary to
the terms of this Declaration or of any document contemplated hereby to which
the Trust or the Delaware Trustee is a party or is otherwise contrary to law. If
at any time the Delaware Trustee determines that it requires or desires guidance
regarding the application of any provision of this Declaration or any other
document, then the Delaware Trustee may deliver a notice to the Sponsor
requesting written instructions as to the course of action desired by the
Sponsor, and such instructions shall constitute full and complete authorization
and protection for actions taken by the Delaware Trustee in reliance thereon. If
the Delaware Trustee does not receive such instructions within five (5) business
days after it has delivered to the Sponsor such notice requesting instructions,
or such shorter period of time as may be set forth in such notice, it shall
refrain from taking any action with respect to the matters described in such
notice to the Sponsor.
7. This Declaration may be executed in one or more
counterparts.
8. The number of trustees of the Trust initially shall be four
(4) and thereafter the number of trustees of the Trust shall be such number as
shall be fixed from time to time by a written instrument signed by the Sponsor
which may increase or decrease the number of trustees of the Trust; provided,
however, that to the extent required by the Business Trust Act, one trustee of
the Trust shall either be a natural person who is a resident of the State of
Delaware or, if not a natural person, an entity which has its principal place of
business in the State of Delaware and otherwise
<PAGE>
meets the requirements of applicable law. Subject to the foregoing, the Sponsor
is entitled to appoint or remove without cause any trustee of the Trust at any
time. Any trustee of the Trust may resign upon thirty days' prior notice to the
Sponsor.
9. This Declaration shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Declaration of Trust to be duly executed as of the day and year first above
written.
TELEBANC FINANCIAL CORPORATION, as Sponsor
By: /s/ Mitchell Caplan
-----------------------
Name: Mitchell Caplan
Title: President
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Delaware
Trustee of the Trust
By: /s/ Debra Eberly
-----------------------
Name: Debra Eberly
Title: Administrative Account
Manager
Aileen Lopez Pugh, not in her
individual capacity but solely as
Administrative Trustee of the Trust
/s/ Aileen Lopez Pugh
-----------------------
David Smilow, not in his individual
capacity but solely as Administrative
Trustee of the Trust
/s/ David Smilow
-----------------------
Mitchell Caplan, not in his
individual capacity but solely as
Administrative Trustee of the Trust
/s/ Mitchell Caplan
-----------------------
EXHIBIT 4.7
========================================
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
TELEBANC FINANCIAL CORPORATION
Dated as of June 9, 1997
========================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation............................151
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application..........................155
SECTION 2.2 Lists of Holders of Securities............................155
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee.......156
SECTION 2.4 Periodic Reports to Capital Securities Guarantee
Trust.....................................................156
SECTION 2.5 Evidence of Compliance with Conditions Precedent..........156
SECTION 2.6 Waiver of Events of Default...............................156
SECTION 2.7 Notice of Events of Default...............................157
SECTION 2.8 Conflicting Interests.....................................157
ARTICLE III
POWERS, DUTIES AND RIGHTS
OFCAPITAL SECURITIES GUARANTE
SECTION 3.1 Powers and Duties of the Capital Securities
Guarantee.................................................157
SECTION 3.2 Certain Rights of Capital Securities Guarantee
Trustee...................................................160
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A.....162
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility.........162
SECTION 4.2 Appointment, Removal and Resignation of Capital
Secu......................................................163
ARTICLE V
GUARANTEE
SECTION 5.1
Guarantee.....................................................164
SECTION 5.2 Waiver of Notice and Demand...............................164
<PAGE>
SECTION 5.3 Obligations Not Affected..................................165
SECTION 5.4 Rights of Holders.........................................166
SECTION 5.5 Guarantee of Payment......................................166
SECTION 5.6 Subrogation...............................................166
SECTION 5.7 Independent Obligations...................................167
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions................................167
SECTION 6.2 Ranking...................................................168
ARTICLE VII
TERMINATION
SECTION 7.1 Termination...............................................168
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation...............................................169
SECTION 8.2 Compensation and Indemnification..........................169
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns....................................170
SECTION 9.2 Amendments................................................170
SECTION 9.3 Notices...................................................170
SECTION 9.4 Exchange Offer............................................171
SECTION 9.5 Benefit...................................................172
SECTION 9.6 Governing Law.............................................172
<PAGE>
SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT
This SERIES A CAPITAL SECURITIES GUARANTEE AGREEMENT (the
"Series A Capital Securities Guarantee"), dated as of June 9, 1997, is executed
and delivered by TeleBanc Financial Corporation, a Delaware corporation (the
"Guarantor"), and Wilmington Trust Company, as trustee (the "Capital Securities
Guarantee Trustee" or "Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Series A Capital Securities (as defined herein)
of TeleBanc Capital Trust I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of June 9, 1997, among the trustees of the
Issuer, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer (i) is
issuing on the date hereof 10,000 capital securities, having an aggregate
liquidation amount of $10,000,000, such capital securities being designated the
11.00% Capital Securities, Series A (collectively the "Series A Capital
Securities") and (ii) in connection with an Exchange Offer (as defined in the
Declaration), will execute and deliver the Series B Capital Securities Guarantee
(as defined in the Declaration) for the benefit of Holders of the Series B
Capital Securities (as defined in the Declaration).
WHEREAS, as incentive for the Holders to purchase the Series A
Capital Securities, the Guarantor desires irrevocably and unconditionally to
agree, to the extent set forth in this Series A Capital Securities Guarantee, to
pay the Guarantee Payments (as defined below) to the Holders of the Series A
Capital Securities, and the Guarantor agrees to make certain other payments on
the terms and conditions set forth herein.
WHEREAS, the Guarantor is executing and delivering a guarantee
agreement (the "Common Securities Guarantee"), for the benefit of the holders of
the Common Securities (as defined herein), the terms of which provide that if an
Event of Default (as defined in the Declaration) has occurred and is continuing,
the rights of holders of the Common Securities to receive Guarantee Payments
under the Common Securities Guarantee are subordinated, to the extent and in the
manner set forth in the Common Securities Guarantee, to the rights of Holders of
Series A Capital Securities and the Series B Capital Securities to receive
Guarantee Payments under the Series A Capital Securities Guarantee and this
Series B Capital Securities Guarantee, as the case may be.
NOW, THEREFORE, in consideration of the purchase by each
Holder of Series A Capital Securities, which purchase the Guarantor hereby
acknowledges shall benefit the Guarantor, the Guarantor executes and delivers
this Series A Capital Securities Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Series A Capital Securities Guarantee, unless the
context otherwise requires:
(a) capitalized terms used in this Series A Capital Securities
Guarantee but not defined in the preamble above have the respective meanings
assigned to them in this Section 1.1;
(b) terms defined in the Declaration as at the date of
execution of this Series A Capital Securities Guarantee have the same meaning
when used in this Series A Capital Securities Guarantee unless otherwise defined
in this Series A Capital Securities Guarantee;
(c) a term defined anywhere in this Series A Capital
Securities Guarantee has the same meaning throughout;
(d) all references to "the Series A Capital Securities
Guarantee" or "this Series A Capital Securities Guarantee" are to this Series A
Capital Securities Guarantee as modified, supplemented or amended from time to
time;
(e) all references in this Series A Capital Securities
Guarantee to Articles and Sections are to Articles and Sections of this Series A
Capital Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same
meaning when used in this Series A Capital Securities Guarantee, unless
otherwise defined in this Series A Capital Securities Guarantee or unless the
context otherwise requires; and
(g) a reference to the singular includes the plural and vice
versa.
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act of 1933, as amended, or any successor rule
thereunder.
"Business Day" shall mean any day other than a Saturday or a
Sunday, or a day on which banking institutions in The City of New York,
Wilmington, Delaware or Arlington, Virginia are authorized or required by law or
executive order to close.
<PAGE>
"Capital Securities Guarantee Trustee" shall mean Wilmington
Trust Company, until a Successor Capital Securities Guarantee Trustee has been
appointed and has accepted such appointment pursuant to the terms of this Series
A Capital Securities Guarantee and thereafter means each such Successor Capital
Securities Guarantee Trustee.
"Common Securities" shall mean the securities representing
common undivided beneficial interests in the assets of the Issuer.
"Corporate Trust Office" shall mean the office of the Capital
Securities Guarantee Trustee at which the corporate trust business of the
Capital Securities Guarantee Trustee shall, at any particular time, be
principally administered, which office at the date of execution of this
Agreement is located at Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001.
"Covered Person" shall mean any Holder or beneficial owner of
Series A Capital Securities.
"Debentures" shall mean the series of subordinated debt
securities of the Guarantor designated the 11.00% Junior Subordinated Deferrable
Interest Debentures due June 1, 2027, Series A, held by the Property Trustee (as
defined in the Declaration) of the Issuer.
"Event of Default" shall mean a default by the Guarantor on
any of its payment or other obligations under this Series A Capital Securities
Guarantee; provided, however, that, except with respect to default in respect of
any Guarantee Payment, no default by the Guarantor hereunder shall constitute an
Event of Default unless the Guarantor shall have received written notice of the
default and shall not have cured such default within 60 days after receipt
thereof.
"Guarantee Payments" shall mean the following payments or
distributions, without duplication, with respect to the Series A Capital
Securities, to the extent not paid or made by or on behalf of the Issuer: (i)
any accumulated and unpaid Distributions (as defined in the Declaration) that
are required to be paid on such Series A Capital Securities, to the extent the
Issuer has funds legally available therefor at such time, (ii) the redemption
price, including all accumulated and unpaid Distributions to the date of
redemption (the "Redemption Price"), to the extent the Issuer has funds legally
available therefor at such time, with respect to any Series A Capital Securities
called for redemption, and (iii) upon a voluntary or involuntary dissolution,
winding up or termination of the Issuer (other than in connection with the
distribution of Debentures to the Holders in exchange for Series A Capital
Securities or in connection with the redemption of the Series A Capital
Securities, in each case as provided in the Declaration), the lesser of (a) the
aggregate of the liquidation amount and all accumulated and unpaid Distributions
<PAGE>
on the Series A Capital Securities to the date of payment, to the extent the
Issuer has funds legally available therefor at such time, and (b) the amount of
assets of the Issuer remaining available for distribution to Holders after
satisfaction of liabilities to creditors of the Issuer as required by applicable
law (in either case, the "Liquidation Distribution"). If an Event of Default has
occurred and is continuing, no Guarantee Payments under the Common Securities
Guarantee with respect to the Common Securities or any guarantee payment under
the Common Securities Guarantee or any Other Common Securities Guarantee shall
be made until the Holders of Series A Capital Securities shall be paid in full
the Guarantee Payments to which they are entitled under this Series A Capital
Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Series A Capital Securities; provided, however,
that, in determining whether the holders of the requisite percentage of Series A
Capital Securities have given any request, notice, consent or waiver hereunder,
"Holder" shall not include the Guarantor or any Person actually known to a
Responsible Officer of the Capital Securities Guarantee Trustee to be an
Affiliate of the Guarantor.
"Indemnified Person" shall mean the Capital Securities
Guarantee Trustee (including in its individual capacity), any Affiliate of the
Capital Securities Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Capital Securities Guarantee Trustee.
"Indenture" shall mean the Indenture, dated as of June 9,
1997, between TeleBanc Financial Corporation , as issuer of Debentures (the
"Debenture Issuer"), and Wilmington Trust Company, as trustee, pursuant to which
the Debentures are to be issued to the Property Trustee of the Issuer.
"Majority in liquidation amount of the Series A Capital
Securities" shall mean, except as provided by the Trust Indenture Act, a vote by
Holder(s) of Series A Capital Securities, voting separately as a class, of more
than 50% of the aggregate liquidation amount (including the 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 Series A Capital Securities.
"Officers' Certificate" shall mean, with respect to any
person, a certificate signed by the chairman, a vice chairman, the chief
executive officer, the president, an executive or senior vice president, a vice
president, the treasurer or an assistant treasurer of the Guarantor. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Series A Capital Securities Guarantee shall
include:
<PAGE>
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the definitions relating
thereto;
(b) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(c) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Other Common Securities Guarantees" shall have the same
meaning as "Other Guarantees" in the Common Securities Guarantee.
"Other Debentures" shall mean all junior subordinated
debentures, other than the Debentures and the Series B Debentures (as defined in
the Indenture), issued by the Guarantor from time to time and sold to trusts
other than the Issuer to be established by the Guarantor (if any), in each case
similar to the Issuer.
"Other Guarantees" shall mean all guarantees, other than this
Series A Capital Securities Guarantee and the Series B Capital Securities
Guarantee, to be issued by the Guarantor with respect to capital securities (if
any) similar to the Series A Capital Securities issued by trusts other than the
Issuer to be established by the Guarantor (if any), in each case similar to the
Issuer.
"Person" shall mean a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of June 9, 1997, by and among the Guarantor, the
Issuer and the Initial Purchaser named therein, as such agreement may be
amended, modified or supplemented from time to time.
"Responsible Officer" shall mean, with respect to the Capital
Securities Guarantee Trustee, any officer within the Corporate Trust Office of
the Capital Securities Guarantee Trustee with direct responsibility for the
administration of this Series A Capital Securities Guarantee and also means,
with respect to a particular corporate trust matter, any other officer of the
Capital Securities Guarantee Trustee to whom such matter is referred because of
that officer's knowledge of and familiarity with the particular subject.
<PAGE>
"Successor Capital Securities Guarantee Trustee" shall mean a
successor Capital Securities Guarantee Trustee possessing the qualifications to
act as Capital Securities Guarantee Trustee under Section 4.1.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended.
"Trust Securities" shall mean the Common Securities and the
Series A Capital Securities and Series B Capital Securities, collectively.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Series A Capital Securities Guarantee is subject to
the provisions of the Trust Indenture Act that are required to be part of this
Series A Capital Securities Guarantee and shall, to the extent applicable, be
governed by such provisions.
(b) If and to the extent that any provision of this Series A
Capital Securities Guarantee limits, qualifies or conflicts with the duties
imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such
imposed duties shall control.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Capital Securities
Guarantee Trustee (unless the Capital Securities Guarantee Trustee is otherwise
the registrar of the Capital Securities) with a list, in such form as the
Capital Securities Guarantee Trustee may reasonably require, of the names and
addresses of the Holders of the Series A Capital Securities ("List of Holders")
as of such date, (i) within fourteen (14) days after June 1 and December 1 of
each year, and (ii) at any other time within 30 days of receipt by the Guarantor
of a written request for a List of Holders as of a date no more than 14 days
before such List of Holders is given to the Capital Securities Guarantee
Trustee; provided, however, that the Guarantor shall not be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Capital Securities Guarantee Trustee by
the Guarantor. The Capital Securities Guarantee Trustee may destroy any List of
Holders previously given to it on receipt of a new List of Holders.
<PAGE>
(b) The Capital Securities Guarantee Trustee shall comply with
its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust
Indenture Act.
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee
Within 60 days after June 1 of each year, commencing June 1,
1998, the Capital Securities Guarantee Trustee shall provide to the Holders of
the Series A Capital Securities such reports as are required by Section 313 of
the Trust Indenture Act, if any, in the form and in the manner provided by
Section 313 of the Trust Indenture Act. The Capital Securities Guarantee Trustee
shall also comply with the requirements of Section 313(d) of the Trust Indenture
Act.
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Truste
The Guarantor shall provide to the Capital Securities
Guarantee Trustee such documents, reports and information as are required by
Section 314 (if any) and the compliance certificate required by Section 314 of
the Trust Indenture Act in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act. Delivery of such reports, information
and documents to the Capital Securities Guarantee Trustee is for informational
purposes only and the Capital Securities Guarantee Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Guarantor's
compliance with any of its covenants hereunder (as to which the Capital
Securities Guarantee Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Capital Securities
Guarantee Trustee such evidence of compliance with the conditions precedent, if
any, provided for in this Series A Capital Securities Guarantee that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Waiver of Events of Default
The Holders of a Majority in liquidation amount of Series A
Capital Securities may, by vote, on behalf of the Holders of all of the Series A
Capital Securities, waive any past Event of Default and its consequences. Upon
such waiver, any such Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Series A Capital Securities Guarantee, but no such waiver shall extend
to any
<PAGE>
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 2.7 Notice of Events of Default
(a) The Capital Securities Guarantee Trustee shall, within 10
Business Days after the occurrence of an Event of Default with respect to this
Capital Securities Guarantee actually known to a Responsible Officer of the
Capital Securities Guarantee Trustee, transmit by mail, first class postage
prepaid, to all Holders of the Series A Capital Securities, notices of all such
Events of Default, unless such Events of Default have been cured before the
giving of such notice; provided, that, except in the case of an Event of Default
arising from the non-payment of any Guarantee Payment, the Capital Securities
Guarantee Trustee shall be protected in withholding such notice if and so long
as a Responsible Officer of the Capital Securities Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
holders of the Series A Capital Securities.
(b) The Capital Securities Guarantee Trustee shall not be
deemed to have knowledge of any Event of Default unless the Capital Securities
Guarantee Trustee shall have received written notice, or a Responsible Officer
of the Capital Securities Guarantee Trustee charged with the administration of
the Declaration shall have obtained actual knowledge, of such Event of Default.
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described
in this Series A Capital Securities Guarantee for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTE TRUSTEE
SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee
(a) This Series A Capital Securities Guarantee shall be held
by the Capital Securities Guarantee Trustee for the benefit of the Holders of
the Series A Capital Securities, and the Capital Securities Guarantee Trustee
shall not transfer this Series A Capital Securities Guarantee to any Person
except a Holder of Series A Capital Securities exercising his or her rights
pursuant to Section 5.4(b) or to a Successor Capital Securities Guarantee
Trustee on acceptance by such Successor Capital Securities Guarantee Trustee of
its appointment to act as
<PAGE>
Successor Capital Securities Guarantee Trustee. The right, title and interest of
the Capital Securities Guarantee Trustee shall automatically vest in any
Successor Capital Securities Guarantee Trustee, and such vesting and succession
of title shall be effective whether or not conveyancing documents have been
executed and delivered pursuant to the appointment of such Successor Capital
Securities Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible
Officer of the Capital Securities Guarantee Trustee has occurred and is
continuing, the Capital Securities Guarantee Trustee shall enforce this Series A
Capital Securities Guarantee for the benefit of the Holders of the Series A
Capital Securities.
(c) The Capital Securities Guarantee Trustee, before the
occurrence of any Event of Default and after the curing of all Events of Default
that may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Series A Capital Securities Guarantee, and no
implied covenants or obligations shall be read into this Series A Capital
Securities Guarantee against the Capital Securities Guarantee Trustee. In case
an Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) and is actually known to a Responsible Officer of the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Series A Capital
Securities Guarantee, and use the same degree of care and skill in its exercise
thereof, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(d) No provision of this Series A Capital Securities Guarantee
shall be construed to relieve the Capital Securities Guarantee Trustee from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default
and after the curing or waiving of all such Events of Default
that may have occurred:
(A) the duties and obligations of the
Capital Securities Guarantee Trustee shall be
determined solely by the express provisions of this
Series A Capital Securities Guarantee, and the
Capital Securities Guarantee Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this
Series A Capital Securities Guarantee, and no implied
covenants or obligations shall be read into this
Series A Capital Securities Guarantee against the
Capital Securities Guarantee Trustee; and
<PAGE>
(B) in the absence of bad faith on the part
of the Capital Securities Guarantee Trustee, the
Capital Securities Guarantee Trustee may conclusively
rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Capital
Securities Guarantee Trustee and conforming to the
requirements of this Series A Capital Securities
Guarantee; provided, however, that in the case of any
such certificates or opinions that by any provision
hereof are specifically required to be furnished to
the Capital Securities Guarantee Trustee, the Capital
Securities Guarantee Trustee shall be under a duty to
examine the same to determine whether or not on their
face they conform to the requirements of this Series
A Capital Securities Guarantee;
(ii) the Capital Securities Guarantee Trustee shall
not be liable for any error of judgment made in good faith by
a Responsible Officer of the Capital Securities Guarantee
Trustee, unless it shall be proved that the Capital Securities
Guarantee Trustee or such Responsible Officer was negligent in
ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Capital Securities Guarantee Trustee shall
not be liable with respect to any action taken or omitted to
be taken by it in good faith in accordance with the direction
of the Holders of a Majority in liquidation amount of the
Series A Capital Securities relating to the time, method and
place of conducting any proceeding for any remedy available to
the Capital Securities Guarantee Trustee, or exercising any
trust or power conferred upon the Capital Securities Guarantee
Trustee under this Series A Capital Securities Guarantee; and
(iv) no provision of this Series A Capital Securities
Guarantee shall require the Capital Securities Guarantee
Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if
the Capital Securities Guarantee Trustee shall have reasonable
grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of
this Series A Capital Securities Guarantee or indemnity,
reasonably satisfactory to the Capital Securities Guarantee
Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee
<PAGE>
(a) Subject to the provisions of Section 3.1:
(i) the Capital Securities Guarantee Trustee may
conclusively rely, and shall be fully protected in acting or
refraining from acting, upon any resolution, certificate,
statement instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed
by it to be genuine and to have been signed, sent or presented
by the proper party or parties;
(ii) any direction or act of the Guarantor
contemplated by this Series A Capital Securities Guarantee may
be sufficiently evidenced by an Officers' Certificate;
(iii) whenever, in the administration of this Series
A Capital Securities Guarantee, the Capital Securities
Guarantee Trustee shall deem it desirable that a matter be
proved or established before taking, suffering or omitting any
action hereunder, the Capital Securities Guarantee Trustee
(unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and
conclusively rely upon an Officers' Certificate which, upon
receipt of such request, shall be promptly delivered by the
Guarantor;
(iv) the Capital Securities Guarantee Trustee shall
have no duty to see to any recording, filing or registration
of any instrument or other document (or any rerecording,
refiling or registration thereof);
(v) the Capital Securities Guarantee Trustee may
consult with counsel of its selection, and the advice or
opinion of such counsel with respect to legal matters shall be
full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion; and such
counsel may be counsel to the Guarantor or any of its
Affiliates and may include any of its employees. The Capital
Securities Guarantee Trustee shall have the right at any time
to seek instructions concerning the administration of this
Series A Capital Securities Guarantee from any court of
competent jurisdiction;
(vi) the Capital Securities Guarantee Trustee shall
be under no obligation to exercise any of the rights or powers
vested in it by this Series A Capital Securities Guarantee at
the request or direction of any Holder, unless such Holder
shall have provided to the Capital Securities Guarantee
Trustee such security and indemnity, reasonably satisfactory
to the Capital Securities Guarantee Trustee, against the
costs, expenses (including attorneys' fees and expenses and
the
<PAGE>
expenses of the Capital Securities Guarantee Trustee's agents,
nominees or custodians) and liabilities that might be incurred
by it in complying with such request or direction, including
such reasonable advances as may be requested by the Capital
Securities Guarantee Trustee; provided, however, that nothing
contained in this Section 3.2(a)(vi) shall be taken to relieve
the Capital Securities Guarantee Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Series A Capital
Securities Guarantee;
(vii) the Capital Securities Guarantee Trustee shall
have no obligation to make any investigation into the facts or
matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Capital
Securities Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as
it may see fit;
(viii) the Capital Securities Guarantee Trustee may
execute any of the trusts or powers hereunder or perform any
duties hereunder either directly or by or through agents,
nominees, custodians or attorneys, and the Capital Securities
Guarantee Trustee shall not be responsible for any misconduct
or negligence on the part of any such person appointed with
due care by it hereunder;
(ix) any action taken by the Capital Securities
Guarantee Trustee or its agents hereunder shall bind the
Holders of the Series A Capital Securities, and the signature
of the Capital Securities Guarantee 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 Capital Securities Guarantee Trustee to
so act or as to its compliance with any of the terms and
provisions of this Series A Capital Securities Guarantee, both
of which shall be conclusively evidenced by the Capital
Securities Guarantee Trustee's or its agent's taking such
action;
(x) whenever in the administration of this Series A
Capital Securities Guarantee the Capital Securities Guarantee
Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other
action hereunder, the Capital Securities Guarantee Trustee (i)
may request instructions from the Holders of a Majority in
liquidation amount of the Series A Capital Securities, (ii)
may refrain from enforcing such remedy or right or taking such
other action until such instructions are received, and (iii)
<PAGE>
shall be protected in conclusively relying on or acting in
accordance with such instructions; and
(xi) the Capital Securities Guarantee Trustee shall
not be liable for any action taken, suffered, or omitted to be
taken by it in good faith, without negligence, and reasonably
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Series A Capital
Securities Guarantee.
(b) No provision of this Series A Capital Securities Guarantee
shall be deemed to impose any duty or obligation on the Capital Securities
Guarantee Trustee to perform any act or acts or exercise any right, power, duty
or obligation conferred or imposed on it in any jurisdiction in which it shall
be illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Capital Securities Guarantee
Trustee shall be construed to be a duty.
SECTION 3.3. Not Responsible for Recitals or Issuance of Series A Capital
Securities Guarantee
The recitals contained in this Series A Capital Securities
Guarantee shall be taken as the statements of the Guarantor, and the Capital
Securities Guarantee Trustee does not assume any responsibility for their
correctness. The Capital Securities Guarantee Trustee makes no representation as
to the validity or sufficiency of this Series A Capital Securities Guarantee.
ARTICLE IV
CAPITAL SECURITIES GUARANTEE TRUSTEE
SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility
(a) There shall at all times be a Capital Securities
Guarantee Trustee that shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation or other Person 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
Securities and Exchange Commission to act as an indenture
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),
<PAGE>
and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority; it being
understood that if such corporation or other Person publishes
reports of condition at least annually, pursuant to law or to
the requirements of the supervising or examining authority
referred to above, then, for the purposes of this Section
4.1(a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Capital Securities Guarantee Trustee
shall cease to be eligible to so act under Section 4.1(a), the Capital
Securities Guarantee Trustee shall immediately resign in the manner and with the
effect set out in Section 4.2(c).
(c) If the Capital Securities Guarantee Trustee has or shall
acquire any "conflicting interest" within the meaning of Section 310(b) of the
Trust Indenture Act, the Capital Securities Guarantee Trustee and Guarantor
shall in all respects comply with the provisions of Section 310(b) of the Trust
Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Capital Secuities
Guarantee Trustee
(a) Subject to Section 4.2(b), the Capital Securities
Guarantee Trustee may be appointed or removed without cause at any time by the
Guarantor except during an Event of Default.
(b) The Capital Securities Guarantee Trustee shall not be
removed in accordance with Section 4.2(a) until a Successor Capital Securities
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Capital Securities Guarantee
Trustee and delivered to the Guarantor.
(c) The Capital Securities Guarantee Trustee shall hold office
until a Successor Capital Securities Guarantee Trustee shall have been appointed
or until its removal or resignation. The Capital Securities Guarantee Trustee
may resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Capital Securities Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Capital Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Capital Securities Guarantee Trustee.
(d) If no Successor Capital Securities Guarantee Trustee shall
have been appointed and accepted appointment as provided in this Section 4.2
<PAGE>
within 60 days after delivery of an instrument of removal or resignation, the
Capital Securities Guarantee Trustee resigning or being removed may petition any
court of competent jurisdiction for appointment of a Successor Capital
Securities Guarantee Trustee. Such court may thereupon, after prescribing such
notice, if any, as it may deem proper, appoint a Successor Capital Securities
Guarantee Trustee.
(e) No Capital Securities Guarantee Trustee shall be liable
for the acts or omissions to act of any Successor Capital Securities Guarantee
Trustee.
(f) Upon termination of this Series A Capital Securities
Guarantee or removal or resignation of the Capital Securities Guarantee Trustee
pursuant to this Section 4.2, the Guarantor shall pay to the Capital Securities
Guarantee Trustee all amounts due to the Capital Securities Guarantee Trustee
accrued to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim that the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this
Series A Capital Securities Guarantee and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first against the Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the
Guarantor under this Series A Capital Securities Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of the
following:
<PAGE>
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or implied
agreement, covenant, term or condition relating to the Series A Capital
Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all
or any portion of the Distributions, Redemption Price, Liquidation Distribution
or any other sums payable under the terms of the Series A Capital Securities or
the extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Series A Capital Securities;
(c) any failure, omission, delay or lack of diligence on the
part of the Holders to enforce, assert or exercise any right, privilege, power
or remedy conferred on the Holders pursuant to the terms of the Series A Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Issuer or any of the
assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Series
A Capital Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred;
(g) the consummation of the Exchange Offer (subject to Section
7.1 hereof); or
(h) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor;
it being the intent of this Section 5.3 that the obligations of the Guarantor
with respect to the Guarantee Payments shall be absolute and unconditional under
any and all circumstances.
There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 Rights of Holders
<PAGE>
(a) The Holders of a Majority in liquidation amount of the
Series A Capital Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Capital Securities
Guarantee Trustee in respect of this Series A Capital Securities Guarantee or
exercising any trust or power conferred upon the Capital Securities Guarantee
Trustee under this Series A Capital Securities Guarantee.
(b) If the Capital Securities Guarantee Trustee fails to
enforce this Series A Capital Securities Guarantee, any Holder of Series A
Capital Securities may institute a legal proceeding directly against the
Guarantor to enforce the Capital Securities Guarantee Trustee's rights under
this Series A Capital Securities Guarantee, without first instituting a legal
proceeding against the Issuer, the Capital Securities Guarantee Trustee or any
other person or entity. The Guarantor waives any right or remedy to require that
any action be brought first against the Issuer or any other person or entity
before proceeding directly against the Guarantor.
SECTION 5.5 Guarantee of Payment
This Series A Capital Securities Guarantee creates a guarantee
of payment and not of collection.
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all (if any) rights of
the Holders of Series A Capital Securities against the Issuer in respect of any
amounts paid to such Holders by the Guarantor under this Series A Capital
Securities Guarantee; provided, however, that the Guarantor shall not (except to
the extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Series A Capital Securities Guarantee, if, at the time of any such payment, any
amounts are due and unpaid under this Series A Capital Securities Guarantee. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Series A
Capital Securities, and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this Series
A
<PAGE>
Capital Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Series B Capital Securities remain outstanding,
the Guarantor shall not (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the Guarantor's capital stock, (ii) make any payment of principal of or interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Guarantor (including Other Debentures) that rank pari passu with or junior in
right of payment to the Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Guarantor of the debt securities of any
subsidiary of the Guarantor (including Other Guarantees) if such guarantee ranks
pari passu with or junior in right of payment to the Debentures (other than (a)
dividends or distributions in shares of, or options, warrants, rights to
subscribe for or purchase shares of, common stock of the Guarantor, (b) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under this Series A Capital Securities Guarantee and the Series B
Capital Securities Guarantee, (d) as a result of a reclassification of the
Guarantor's capital stock or the exchange or the conversion of one class or
series of the Guarantor's capital stock for another class or series of the
Guarantor's capital stock, (e) the purchase of fractional interests in shares of
the Guarantor's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, and (f)
purchases of common stock related to the issuance of common stock or rights
under any of the Guarantor's benefit or compensation plans for its directors,
officers or employees or any of the Guarantor's dividend reinvestment plans) if
at such time (1) there shall have occurred any event of which the Guarantor has
actual knowledge that (A) is, or with the giving of notice or the lapse of time,
or both, would be, an Event of Default and (B) in respect of which the Guarantor
shall not have taken reasonable steps to cure, (2) if such Debentures are held
by the Property Trustee, the Guarantor shall be in default with respect to its
payment of any obligations under this Series A Capital Securities Guarantee or
(3) the Guarantor shall have given notice of its election of the exercise of its
right to commence an Extended Interest Payment Period as provided in the
Indenture and shall not have rescinded such notice, and such Extended Interest
Payment Period, or an extension thereof, shall have commenced and be continuing.
SECTION 6.2 Ranking
<PAGE>
This Series A Capital Securities Guarantee will constitute an
unsecured obligation of the Guarantor and will rank (i) subordinate and junior
in right of payment to Senior Indebtedness (as defined in the Indenture), to the
same extent and in the same manner that the Debentures are subordinated to
Senior Indebtedness pursuant to the Indenture, it being understood that the
terms of Article XV of the Indenture shall apply to the obligations of the
Guarantor under this Series A Capital Securities Guarantee as if such Article XV
were set forth herein in full, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Guarantor and with the Series B
Capital Securities Guarantee, any Other Guarantee and, except to the extent set
forth therein, the Common Securities Guarantee, any Other Common Securities
Guarantee, and any guarantee now or hereafter entered into by the Guarantor in
respect of any preferred or preference stock of any Affiliate of the Guarantor,
and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Series A Capital Securities Guarantee shall terminate and
be of no further force and effect upon (i) full payment of the Redemption Price
of all Series A Capital Securities, (ii) the exchange of all Series A Capital
Securities for Series B Capital Securities pursuant to the Exchange Offer, or
(iii) dissolution, winding up or termination of the Issuer, immediately
following the full payment of the amounts payable in accordance with the
Declaration or the distribution of all of the Debentures to the Holders of the
Trust Securities. Notwithstanding the foregoing, this Series A Capital
Securities Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any Holder of Series A Capital Securities must
restore payment of any sums paid under the Series A Capital Securities or under
this Series A Capital Securities Guarantee.
ARTICLE VIII
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 or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith in accordance with this Series
A Capital Securities Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
<PAGE>
Indemnified Person by this Series A Capital Securities Guarantee or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Series A Capital
Securities might properly be paid.
SECTION 8.2 Compensation and Indemnification
The Guarantor agrees to pay to the Capital Securities
Guarantee Trustee such compensation for its services as shall be mutually agreed
upon by the Guarantor and the Capital Securities Guarantee Trustee. The
Guarantor shall reimburse the Capital Securities Guarantee Trustee upon request
for all reasonable out-of-pocket expenses incurred by it, including the
reasonable compensation and expenses of the Capital Securities Guarantee
Trustee's agents and counsel, except any expense as may be attributable to the
negligence or bad faith of the Capital Securities Guarantee Trustee.
The Guarantor agrees to indemnify each Indemnified Person for,
and to hold each Indemnified Person harmless against, any and all loss,
liability, damage, claim or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The provisions of this
Section 8.2 shall survive the termination of this Series A Capital Securities
Guarantee and shall survive the resignation or removal of the Capital Securities
Guarantee Trustee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Series A
Capital Securities Guarantee shall bind the successors, assigns, receivers,
trustees
<PAGE>
and representatives of the Guarantor and shall inure to the benefit of the
Holders of the Series A Capital Securities then outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not materially
adversely affect the rights of Holders (in which case no consent of Holders will
be required), this Series A Capital Securities Guarantee may only be amended
with the prior approval of the Holders of a Majority in liquidation amount of
the Securities. The provisions of Section 12.2 of the Declaration with respect
to meetings of Holders of the Securities apply to the giving of such approval.
This Series A Capital Securities Guarantee may not be amended, and no amendment
hereof that affects the Capital Securities Guarantee Trustee's rights, duties or
immunities hereunder or otherwise, shall be effective, unless such amendment is
executed by the Capital Securities Guarantee Trustee (which shall have no
obligation to execute any such amendment, but may do so in its sole discretion).
SECTION 9.3 Notices
All notices provided for in this Series A Capital Securities
Guarantee shall be in writing, duly signed by the party giving such notice, and
shall be delivered, telecopied or mailed by first class mail, as follows:
(a) If given to the Issuer, in care of the Administrative
Trustee at the Issuer's mailing address set forth below (or such other address
as the Issuer may give notice of to the Capital Securities Guarantee Trustee and
the Holders of the Series A Capital Securities):
TeleBanc Capital Trust I
c/o TeleBanc Financial Corporation
111 North Highland Street
Arlington, Virginia 22201
Attention: Administrative Trustee
Telecopy: (703) 247-5456
(b) If given to the Capital Securities Guarantee Trustee, at
the Capital Securities Guarantee Trustee's mailing address set forth below (or
such other address as the Capital Securities Guarantee Trustee may give notice
of to the Holders of the Series A Capital Securities):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
<PAGE>
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
(c) If given to the Guarantor, at the Guarantor's mailing
address set forth below (or such other address as the Guarantor may give notice
of to the Capital Securities Guarantee Trustee and the Holders of the Series A
Capital Securities):
TeleBanc Financial Corporation
111 North Highland Street
Arlington, Virginia 22201
Attention: Administrative Trustee
Telecopy: (703) 247-5456
(d) If given to any Holder of Series A Capital Securities, at
the address set forth on the books and records of the Issuer.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 9.4 Exchange Offer
In the event an Exchange Offer Registration Statement (as
defined in the Registration Rights Agreement) becomes effective and the Issuer
exchanges any Series B Capital Securities for Series A Capital Securities in the
Exchange Offer, the Guarantor will enter into the Series B Capital Securities
Guarantee, which will be in substantially the same form as this Series A Capital
Securities Guarantee, with respect to the Series B Capital Securities.
SECTION 9.5 Benefit
This Series A Capital Securities Guarantee is solely for the
benefit of the Holders of the Series A Capital Securities and, subject to
Section 3.1(a), is not separately transferable from the Series A Capital
Securities.
SECTION 9.6 Governing Law
THIS SERIES A CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.
<PAGE>
THIS SERIES A CAPITAL SECURITIES GUARANTEE is executed as of
the day and year first above written.
TELEBANC FINANCIAL CORPORATION,
as Guarantor
By:/s/ Mitchell H. Caplan
-------------------------------
Name: Mitchell H. Caplan
Title: Vice Chairman & President
WILMINGTON TRUST COMPANY, as Capital
Securities Guarantee Trustee
By:/s/ Debra Eberly
-----------------------------
Name: Debra Eberly
Title: Administrative Account Manager
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
Dated as of June 9, 1997
among
TELEBANC FINANCIAL CORPORATION
TELEBANC CAPITAL TRUST I
and
SANDLER O'NEILL & PARTNERS, L.P.
as Initial Purchaser
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of June 9, 1997 among TELEBANC FINANCIAL CORPORATION, a
Delaware corporation (the "Company"), TELEBANC CAPITAL TRUST I, a business trust
formed under the laws of the state of Delaware (the "Trust"), and SANDLER
O'NEILL & PARTNERS, L.P. (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement
dated June 9, 1997 (the "Purchase Agreement"), among the Company, as issuer of
the 11.00% Junior Subordinated Deferrable Interest Debentures due June 1, 2027
Series A (the "Subordinated Debentures"), the Trust and the Initial Purchaser,
which provides for, among other things, the sale by the Trust to the Initial
Purchaser of 10,000 of the Trust's 11.00% Capital Securities, Series A,
liquidation amount $1,000 per Capital Security (the "Capital Securities"), the
proceeds of which will be used by the Trust, together with the proceeds from the
sale of the Trust's Common Securities to the Company, to purchase Subordinated
Debentures. The Capital Securities, together with the Subordinated Debentures
and the Company's guarantee agreement in respect of the Capital Securities (the
"Capital Securities Guarantee"), are collectively referred to as the
"Securities". In order to induce the Initial Purchaser to enter into the
Purchase Agreement, the Company and the Trust have agreed to provide to the
Initial Purchaser and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Additional Distributions" shall have the meaning set forth in
Section 2(e) hereof.
"Advice" shall have the meaning set forth in the last paragraph
of Section 3 hereof.
"Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act or any successor rule thereunder.
"Applicable Period" shall have the meaning set forth in Section
3(u) hereof.
"Business Day" means any day other than a Saturday, a Sunday, or
a day on which banking institutions in New York, New York, Wilmington, Delaware
or
<PAGE>
Arlington, Virginia are authorized or required by law or executive order to
remain closed.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble to
this Agreement and also includes the Company's successors and permitted assigns.
"Declaration" or "Declaration of Trust" shall mean the Amended
and Restated Declaration of Trust of TeleBanc Capital Trust I, dated as of the
Closing Time, by the trustees named therein and the Company as sponsor.
"Debentures" shall collectively mean the Subordinated Debentures
and the Exchange Debentures.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Trust; provided, however, that such depositary
must have an address in the Borough of Manhattan, in The City of New York.
"Effectiveness Period" shall have the meaning set forth in
Section 2(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Exchange Offer" shall mean the offer by the Company and the
Trust to the Holders to exchange all of the Registrable Securities (other than
Private Exchange Securities) for a like amount of Exchange Securities pursuant
to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all exhibits
thereto and all documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section
2(a) hereof.
"Exchange Securities" shall mean (i) with respect to the
Subordinated Debentures, the 11.00% Junior Subordinated Deferrable Interest
Debentures due June 1, 2027, Series B (the "Exchange Debentures") containing
terms
<PAGE>
substantially identical to the Subordinated Debentures (except
that they will not contain terms with respect to the transfer restrictions under
the Securities Act (other than requiring minimum transfers thereof to be in
blocks of $100,000 aggregate principal amount) and will not provide for any
Liquidated Damages thereon), (ii) with respect to the Capital Securities, the
Trust's 11.00% Capital Securities, Series B, liquidation amount $1,000 per
Capital Security (the "Exchange Capital Securities") containing terms
substantially identical to the Capital Securities (except they will not contain
terms with respect to transfer restrictions under the Securities Act (other than
requiring minimum transfers thereof to be in blocks of $100,000 aggregate
liquidation amount) and will not provide for any increase in Additional
Distributions thereon) and (iii) with respect to the Capital Securities
Guarantee, the Company's guarantee agreement in respect of the Exchange Capital
Securities (the "Exchange Capital Securities Guarantee") containing terms
substantially identical to the Capital Securities Guarantee.
"Holder" shall mean the Initial Purchaser, for so long as it owns
any Registrable Securities, and each of its respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities under the Indenture or Declaration of Trust.
"Indenture" shall mean the Indenture relating to the Subordinated
Debentures and the Exchange Debentures, dated as of the Closing Time, between
the Company, as issuer, and Wilmington Trust Company, as trustee, as the same
may be amended from time to time in accordance with the terms thereof.
"Initial Purchaser" shall have the meaning set forth in the
preamble to this Agreement.
"Inspectors" shall have the meaning set forth in Section 3(o)
hereof.
"Issue Date" shall mean June 9, 1997, the date of original
issuance of the Securities.
"Liquidated Damages" shall have the meaning set forth in Section
2(e) hereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate liquidation amount of outstanding Capital Securities and Exchange
Capital Securities.
"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(u) hereof.
<PAGE>
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, limited liability corporation, or a
government or agency or political subdivision thereof.
"Private Exchange" shall have the meaning set forth in Section
2(a) hereof.
"Private Exchange Securities" shall have the meaning set forth in
Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all documents incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Records" shall have the meaning set forth in Section 3(o)
hereof.
"Registrable Securities" shall mean the Securities and, if
issued, the Private Exchange Securities; provided, however, that Securities or
Private Exchange Securities, as the case may be, shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such Securities or
Private Exchange Securities for the exchange or resale thereof, as the case may
be, shall have been declared effective under the Securities Act and such
Securities or Private Exchange Securities, as the case may be, shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities or
Private Exchange Securities, as the case may be, shall have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144A) under the Securities Act or are eligible to be sold without
restriction as contemplated by Rule 144(k), (iii) such Securities or Private
Exchange Securities, as the case may be, shall have ceased to be outstanding or
(iv) with respect to the Securities, such Securities shall have been exchanged
for Exchange Securities upon consummation of the Exchange Offer and are
thereafter freely tradeable by the holder thereof (other than an Affiliate of
the Company).
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees, including, if applicable, the
fees and expenses of any "qualified independent underwriter" (and its counsel)
that is
<PAGE>
required to be retained by any Holder of Registrable Securities in accordance
with the rules and regulations of the NASD, (ii) all fees and expenses incurred
in connection with compliance with state securities or blue sky laws (including
reasonable fees and disbursements of one counsel for all underwriters or Holders
as a group in connection with blue sky qualification of any of the Exchange
Securities or Registrable Securities) and compliance with the rules of the NASD,
(iii) all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any Prospectus
and any amendments or supplements thereto, and in preparing or assisting in
preparing, printing and distributing any underwriting agreements, securities
sales agreements and other documents relating to the performance of and
compliance with this Agreement, (iv) all rating agency fees, (v) the fees and
disbursements of counsel for the Company and of the independent certified public
accountants of the Company, including the expenses of any "cold comfort" letters
required by or incident to the performance of and compliance with this
Agreement, (vi) the reasonable fees and expenses of the Trustees and their
counsel and any exchange agent or custodian, and (vii) the reasonable fees and
expenses of any special experts retained by the Company in connection with any
Registration Statement.
"Registration Statement" shall mean any registration statement of
the Company and the Trust which covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all documents incorporated by reference
therein.
"Rule 144(k) Period" shall mean the period of two years (or such
shorter period as may hereafter be referred to in Rule 144(k) under the
Securities Act (or similar successor rule)) commencing on the Issue Date.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall have the meaning set forth in the preamble to
this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"Shelf Registration" shall mean a registration effected pursuant
to Section 2(b) hereof.
"Shelf Registration Event" shall have the meaning set forth in
Section 2(b) hereof.
<PAGE>
"Shelf Registration Event Date" shall have the meaning set forth
in Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company and the Trust pursuant to the provisions of Section
2(b) hereof which covers all of the Registrable Securities or all of the Private
Exchange Securities, as the case may be, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the SEC,
and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all documents incorporated by reference
therein.
"TIA" shall have the meaning set forth in Section 3(l) hereof.
"Trustees" shall mean any and all trustees under the Declaration,
the Indenture, the Capital Securities Guarantee or the Exchange Capital
Securities Guarantee.
2. Registration Under the Securities Act.
(a) Exchange Offer. Except as set forth in Section 2(b) below,
the Company and the Trust shall, for the benefit of the Holders, at the
Company's cost, use commercially reasonable efforts to (i) cause to be filed
with the SEC within 140 days after the Issue Date an Exchange Offer Registration
Statement on an appropriate form under the Securities Act relating to the
Exchange Offer, (ii) cause such Exchange Offer Registration Statement to be
declared effective under the Securities Act by the SEC not later than the date
which is 180 days after the Issue Date, and (iii) keep such Exchange Offer
Registration Statement effective for not less than 30 calendar days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the Holders. Promptly after the effectiveness of the Exchange Offer
Registration Statement, the Company and the Trust shall commence the Exchange
Offer, it being the objective of such Exchange Offer to enable each Holder
eligible and electing to exchange Registrable Securities for a like principal
amount of Exchange Debentures or a like liquidation amount of Exchange Capital
Securities, together with the Exchange Guarantee, as applicable (provided that
such Holder (i) is not an Affiliate of the Trust or the Company, (ii) is not a
broker-dealer tendering Registrable Securities acquired directly from the Trust
or the Company, (iii) acquires the Exchange Securities in the ordinary course of
such Holder's business and (iv) has no arrangements or understandings with any
Person to participate in the Exchange Offer for the purpose of distributing the
Exchange Securities), to transfer such Exchange Securities from and after their
receipt without any limitations or restrictions under the Securities Act and
under state securities or blue sky laws (other than requiring minimum transfers
in blocks having an aggregate principal or liquidation amount, as the case may
be, of $100,000).
<PAGE>
In connection with the Exchange Offer, the Company and the Trust
shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not
less than 30 days after the date notice thereof is mailed to the Holders (or
longer if required by applicable law) (such period referred to herein as the
"Exchange Period");
(iii) utilize the services of the Depositary for the Exchange Offer
with respect to Capital Securities represented by a global certificate;
(iv) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last Business Day of the
Exchange Period, by sending to the institution specified in the notice to
Holders, a telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the amount of Securities delivered for exchange, and a
statement that such Holder is withdrawing his election to have such Securities
exchanged;
(v) notify each Holder that any Security not tendered by such Holder
in the Exchange Offer will remain outstanding and continue to accrue interest or
accumulate distributions, as the case may be, but will not retain any rights
under this Agreement (except in the case of the Initial Purchaser and
Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If the Initial Purchaser determines upon advice of its outside counsel
that it is not eligible to participate in the Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment in the
initial placement, as soon as practicable upon receipt by the Company and the
Trust of a written request from such Initial Purchaser, the Company and the
Trust, as applicable, shall issue and deliver to the Initial Purchaser in
exchange (the "Private Exchange") for the Securities held by the Initial
Purchaser a like liquidation amount of Exchange Capital Securities of the Trust
or, in the event the Trust is liquidated and Subordinated Debentures are
distributed, a like principal amount of the Exchange Debentures of the Company,
together with the Exchange Capital Securities Guarantee, in each case that are
identical (except that such securities may bear a customary legend with respect
to restrictions on transfer pursuant to the Securities Act) to the Exchange
Securities (the "Private
<PAGE>
Exchange Securities") and which are issued pursuant to the Indenture or the
Declaration (which provides that the Exchange Securities will not be subject to
the transfer restrictions set forth in the Indenture or the Declaration, as
applicable (other than requiring minimum transfers in blocks having an aggregate
principal or liquidation amount, as the case may be, of $100,000), and that the
Exchange Securities, the Private Exchange Securities and the Securities will
vote and consent together on all matters as one class and that none of the
Exchange Securities, the Private Exchange Securities or the Securities will have
the right to vote or consent as a separate class on any matter). The Private
Exchange Securities shall be of the same series as the Exchange Securities and
the Company and the Trust will seek to cause the CUSIP Service Bureau to issue
the same CUSIP numbers for the Private Exchange Securities as for the Exchange
Securities issued pursuant to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer and,
if applicable, the Private Exchange, the Company and the Trust, as the case
requires, shall:
(i) accept for exchange all Securities or portions thereof tendered
and not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(ii) deliver, or cause to be delivered, to the applicable Trustee for
cancellation all Securities or portions thereof so accepted for exchange by the
Company and the Trust; and
(iii) issue, and cause the applicable Trustee under the Indenture or
the Declaration, as applicable, to promptly authenticate and deliver to each
Holder, new Exchange Securities or Private Exchange Securities, as applicable,
equal in principal amount to the principal amount of the Subordinated Debentures
or equal in liquidation amount to the liquidation amount of the Capital
Securities as are surrendered by such Holder, and will execute, and cause the
applicable Trustee to execute, the Exchange Capital Securities Guarantee.
Distributions on each Exchange Capital Security and interest on
each Exchange Debenture and Private Exchange Security issued pursuant to the
Exchange Offer and in the Private Exchange will accrue from the last date on
which a distribution or interest was paid on the Capital Security or the
Subordinated Debenture surrendered in exchange therefor or, if no distribution
or interest has been paid on such Capital Security or Subordinated Debenture,
from the Issue Date. To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, the Company and the Trust shall use
commercially reasonable efforts to complete the Exchange Offer as provided
above, and shall comply with the applicable requirements of the Securities Act,
the Exchange Act and other applicable laws in connection with the Exchange
Offer. The Exchange Offer shall not be subject to any conditions other than the
<PAGE>
conditions referred to in Section 2(b)(i) and (ii) below and those conditions
that are customary in similar exchange offers. Each Holder of Registrable
Securities who wishes to exchange such Registrable Securities for Exchange
Securities in the Exchange Offer will be required to make certain customary
representations in connection therewith, including, in the case of any Holder of
Capital Securities, representations that (i) it is not an Affiliate of the Trust
or the Company, (ii) it is not a broker-dealer tendering Registrable Securities
acquired directly from the Trust or Company, (iii) the Exchange Securities to be
received by it were acquired in the ordinary course of its business and (iv) at
the time of the Exchange Offer, it has no arrangements or understandings with
any Person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Capital Securities. The Company and the Trust
shall inform the Initial Purchaser, after consultation with the applicable
Trustees, of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchaser shall have the right to contact such Holders
in order to facilitate the tender of Registrable Securities in the Exchange
Offer.
Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities and Exchange Securities held by Participating
Broker-Dealers, and the Company and the Trust shall have no further obligation
to register the Registrable Securities (other than Private Exchange Securities)
held by any Holder pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. In the event that (i) the Company or the
Trust reasonably determine, after conferring with counsel (which may be in-house
counsel), that the Exchange Offer Registration provided in Section 2(a) above is
not available under applicable law and regulations and currently prevailing
interpretations of the staff of the SEC, (ii) the Company shall determine in
good faith that there is a reasonable likelihood that, or a material uncertainty
exists as to whether, consummation of the Exchange Offer would result in (x) the
Trust becoming subject to federal income tax with respect to income received or
accrued on the Debentures, (y) the interest payable by the Company on the
Debentures not being deductible by the Company for United States federal income
tax purposes or (z) the Trust becoming subject to more than a de minimis amount
of other taxes, duties or governmental charges, (iii) the Exchange Offer
Registration Statement is not declared effective within 180 days of the Issue
Date or (iv) upon the request of the Initial Purchaser with respect to any
Registrable Securities held by it, if such Initial Purchaser is not permitted,
in the reasonable opinion of Brown & Wood LLP, pursuant to applicable law or
applicable interpretations of the staff of the SEC, to participate in the
Exchange Offer and thereby receive securities that are freely tradeable without
restriction under the Securities Act and applicable blue sky or state securities
laws (any of the events specified in (i), (ii), (iii) or (iv) being
<PAGE>
a "Shelf Registration Event", and the date of occurrence thereof, the "Shelf
Registration Event Date"), then in addition to or in lieu of conducting the
Exchange Offer contemplated by Section 2(a), as the case may be, the Company and
the Trust shall, at their cost, use commercially reasonable efforts to cause to
be filed as promptly as practicable after such Shelf Registration Event Date, as
the case may be, and, in any event, within 45 days after such Shelf Registration
Event Date (provided that in no event shall such filing date be required to be
earlier than 75 days after the Issue Date), a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities, and
shall use commercially reasonable efforts to have such Shelf Registration
Statement declared effective by the SEC as soon as practicable. No Holder of
Registrable Securities shall be entitled to include any of its Registrable
Securities in any Shelf Registration pursuant to this Agreement unless and until
such Holder agrees in writing to be bound by all of the provisions of this
Agreement applicable to such Holder and furnishes to the Company and the Trust
in writing, within 15 days after receipt of a request therefor, such information
as the Company and the Trust may, after conferring with counsel with regard to
information relating to Holders that would be required by the SEC to be included
in such Shelf Registration Statement or Prospectus included therein, reasonably
request for inclusion in any Shelf Registration Statement or Prospectus included
therein. Each Holder as to which any Shelf Registration is being effected agrees
to furnish to the Company and the Trust all information with respect to such
Holder necessary to make the information previously furnished to the Company by
such Holder not materially misleading.
The Company and the Trust agree to use commercially reasonable
efforts to keep the Shelf Registration Statement continuously effective and
usable for resales for (a) the Rule 144(k) Period in the case of a Shelf
Registration Statement filed pursuant to Section 2(b)(i), (ii) or (iii) or (b)
270 days in the case of a Shelf Registration Statement filed pursuant to Section
2(b)(iv) (subject in each case to extension pursuant to the last paragraph of
Section 3 hereof), or for such shorter period which will terminate when all of
the Securities covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement or cease to be Registrable
Securities (the "Effectiveness Period"). The Company and the Trust shall not
permit any securities other than Registrable Securities to be included in the
Shelf Registration. The Company and the Trust will, in the event a Shelf
Registration Statement is declared effective, provide to each Holder a
reasonable number of copies of the Prospectus which is a part of the Shelf
Registration Statement, notify each such Holder when the Shelf Registration has
become effective and take certain other actions as are required to permit
certain unrestricted resales of the Registrable Securities. The Company and the
Trust further agree, if necessary, to supplement or amend the Shelf Registration
Statement, if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration Statement
or by the Securities Act or by any other rules and
<PAGE>
regulations thereunder for shelf registrations, and the Company and the Trust
agree to furnish to the Holders of Registrable Securities copies of any such
supplement or amendment promptly after its being used or filed with the SEC.
(c) Expenses. The Company, as issuer of the Subordinated
Debentures, shall pay all Registration Expenses in connection with any
Registration Statement filed pursuant to Section 2(a) and/or 2(b) hereof and
will reimburse the Initial Purchaser for the fees and disbursements of Brown &
Wood LLP, counsel for the Initial Purchaser, incurred in connection with the
Exchange Offer and, if applicable, the Private Exchange, and either Brown & Wood
LLP or any other single counsel designated in writing by the Majority Holders to
act as counsel for the Holders of the Registrable Securities in connection with
a Shelf Registration Statement, which other counsel shall be reasonably
satisfactory to the Company. Except as provided herein, each Holder shall pay
all expenses of its counsel, underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
that if, after it has been declared effective, the offering of Registrable
Securities pursuant to such Exchange Offer Registration Statement or Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Exchange Offer Registration Statement or Shelf Registration Statement will be
deemed not to have been effective during the period of such interference, until
the offering of Registrable Securities pursuant to such Registration Statement
may legally resume. The Company and the Trust will be deemed not to have used
commercially reasonable efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if either of them voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or that would result in the Holders of Registrable Securities
covered thereby not being able to exchange or offer and sell such Registrable
Securities during that period, unless such action is required by applicable law.
(e) Liquidated Damages and Additional Distributions. In the event
that:
(i) neither the Exchange Offer Registration Statement is filed
with the SEC on or prior to the 140th day after the Issue Date nor a Shelf
Registration Statement is filed with the SEC on or prior to the 45th day after
the Shelf Registration Event Date in respect of a Shelf Registration Event
<PAGE>
attributable to any of the events set forth in Sections 2(b)(i), (ii) and (iii)
(provided that in no event shall such filing date be required to be earlier than
75 days after the Issue Date), then commencing on the day after the applicable
required filing date, liquidated damages ("Liquidated Damages") shall accrue on
the principal amount of the Subordinated Debentures, and additional
distributions ("Additional Distributions") shall accumulate on the liquidation
amount of the Trust Securities (as such term is defined in the Declaration),
each at a rate of 0.25% per annum; or
(ii) neither the Exchange Offer Registration Statement is
declared effective by the SEC on or prior to the 180th day after the Issue Date
nor a Shelf Registration Statement is declared effective by the SEC on or prior
to the later of (A) the 40th day after the date such Shelf Registration
Statement was required to be filed and (B) the 180th day after the Issue Date,
in respect of a Shelf Registration Event attributable to any of the events set
forth in Sections 2(b)(i), (ii) and (iii)), then, commencing on the day after
the applicable required effectiveness date, Liquidated Damages shall accrue on
the principal amount of the Subordinated Debentures, and Additional
Distributions shall accumulate on the liquidation amount of the Trust
Securities, each at a rate of 0.25% per annum;
(iii) (A) the Trust has not exchanged Exchange Capital
Securities for all Capital Securities or the Company has not exchanged Exchange
Debentures for all Subordinated Debentures, validly tendered, or executed the
Exchange Capital Securities Guarantee in respect of the Exchange Capital
Securities, in accordance with the terms of the Exchange Offer on or prior to
the 45th day after the date on which the Exchange Offer Registration Statement
was declared effective or (B) if applicable, the Shelf Registration Statement in
respect of Shelf Registration Event attributable to any of the events set forth
in Sections 2(b)(i), (ii) and (iii) has been declared effective and such Shelf
Registration Statement ceases to be effective or usable for resales (whether as
a result of an event contemplated by Section 3(e) or otherwise) at any time
prior to the expiration of the Rule 144(k) Period (other than after such time as
all Securities have been disposed of thereunder or otherwise cease to be
Registered Securities), then Liquidated Damages shall accrue on the principal
amount of Subordinated Debentures, and Additional Distributions shall accumulate
on the liquidation amount of the Trust Securities, each at a rate of 0.25% per
annum commencing on (x) the 46th day after such effective date, in the case of
(A) above, or (y) the day such Shelf Registration Statement ceases to be
effective or usable for resales, in the case of (B) above;
provided, however, that neither the Liquidated Damages rate on the Subordinated
Debentures, nor the Additional Distribution rate on the liquidation amount of
the Trust Securities, may exceed in the aggregate 0.25% per annum; provided,
further, however, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of clause (i) above),
(2)
<PAGE>
upon the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Capital Securities and Exchange Debentures for all Capital
Securities and Subordinated Debentures validly tendered and execution of the
Exchange Capital Securities Guarantee (in the case of clause (iii)(A) above), or
at such time as the Shelf Registration Statement which had ceased to remain
effective or usable for resales again becomes effective and usable for resales
(in the case of clause (iii)(B) above), Liquidated Damages on the principal
amount of the Subordinated Debentures, and Additional Distributions on the
liquidation amount of the Trust Securities, as a result of such clause (or the
relevant subclause thereof) shall cease to accrue and accumulate, as the case
may be.
Any amounts of Liquidated Damages and Additional Distributions due
pursuant to Section 2(e)(i), (ii) or (iii) above will be payable in cash on the
next succeeding June 1 or December 1, as the case may be, to Holders on the
relevant record dates for the payment of interest and distributions pursuant to
the Indenture and the Declaration, respectively.
(f) Specific Enforcement. Without limiting the remedies available
to the Holders, the Company and the Trust acknowledge that any failure by the
Company or the Trust to comply with its obligations under Section 2(a) and
Section 2(b) hereof may result in material irreparable injury to the Holders for
which there is no adequate remedy at law, that it would not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, any Holder may obtain such relief as may be required to specifically
enforce the Company's and the Trust's obligations under Section 2(a) and Section
2(b) hereof.
(g) Distribution of Subordinated Debentures. Notwithstanding any
other provisions of this Agreement, in the event that Subordinated Debentures
are distributed to holders of Capital Securities in liquidation of the Trust
pursuant to the Declaration, (i) all references in this Section 2 and in Section
3 to Securities, Registrable Securities and Exchange Securities shall not
include the Capital Securities and Capital Securities Guarantee or the Exchange
Capital Securities and Exchange Capital Securities Guarantee issued or to be
issued in exchange therefor in the Exchange Offer and (ii) all requirements for
any action to be taken by the Trust in this Section 2 and in Section 3 shall
cease to apply and all requirements for any action to be taken by the Company in
this Section 2 and in Section 3 shall apply to the Subordinated Debentures and
Exchange Debentures issued or to be issued in exchange therefor in the Exchange
Offer.
3. Registration Procedures. In connection with the obligations of
the Company and the Trust with respect to the Registration Statements pursuant
to Sections 2(a) and 2(b) hereof, the Company and the Trust shall use
commercially reasonable efforts to:
<PAGE>
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof
within the relevant time period specified in Section 2 hereof on the
appropriate form under the Securities Act, which form (i) shall be
selected by the Company and the Trust, (ii) shall, in the case of a
Shelf Registration, be available for the sale of the Registrable
Securities by the selling Holders thereof and, in the case of an
Exchange Offer, be available for the exchange of Registrable
Securities, and (iii) shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith; and use
commercially reasonable efforts to cause such Registration Statement to
become effective and remain effective (and, in the case of a Shelf
Registration Statement, usable for resales) in accordance with Section
2 hereof; provided, however, that if (1) such filing is pursuant to
Section 2(b), or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities, before filing any Registration
Statement or Prospectus or any amendments or supplements thereto, the
Company and the Trust shall furnish to and afford the Holders of the
Registrable Securities and each such Participating Broker-Dealer, as
the case may be, covered by such Registration Statement, their counsel
and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents
to be incorporated by reference therein and all exhibits thereto)
proposed to be filed. The Company and the Trust shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an opportunity
to review prior to the filing of such document if the Majority Holders
or such Participating Broker-Dealer, as the case may be, their counsel
or the managing underwriters, if any, shall reasonably object in a
timely manner;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
Effectiveness Period or the Applicable Period, as the case may be; and
cause each Prospectus to be supplemented, if so determined by the
Company or the Trust or requested by the SEC, by any required
prospectus supplement and as so supplemented to be filed pursuant to
Rule 424 (or any similar provision then in force) under the Securities
Act, and comply with the provisions of the Securities Act, the Exchange
Act and the rules and regulations promulgated thereunder applicable to
it with respect to the disposition of all securities covered by each
Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in
<PAGE>
accordance with the intended method or methods of distribution by the
selling Holders thereof described in this Agreement (including sales by
any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities included in the Shelf Registration
Statement, at least three Business Days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is
being filed and advising such Holder that the distribution of
Registrable Securities will be made in accordance with the method
selected by the Majority Holders; and (ii) furnish to each Holder of
Registrable Securities included in the Shelf Registration Statement and
to each underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement
thereto, and such other documents as such Holder or underwriter may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) consent to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities included in the Shelf
Registration Statement in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
(d) in the case of a Shelf Registration, register or qualify
the Registrable Securities under all applicable state securities or
"blue sky" laws of such jurisdictions by the time the applicable
Registration Statement is declared effective by the SEC as any Holder
of Registrable Securities covered by a Registration Statement and each
underwriter of an underwritten offering of Registrable Securities shall
reasonably request in writing in advance of such date of effectiveness,
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Holder and underwriter to
consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that
the Company and the Trust shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this
Section 3(d), (ii) file any general consent to service of process in
any jurisdiction where it would not otherwise be subject to such
service of process or (iii) subject itself to taxation in any such
jurisdiction if it is not then so subject;
(e) (1) in the case of a Shelf Registration or (2) if
Participating Broker-Dealers from whom the Company or the Trust has
received prior written notice that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as
provided in Section 3(u) hereof,
<PAGE>
are seeking to sell Exchange Securities and are required to deliver
Prospectuses, promptly notify each Holder of Registrable Securities, or
such Participating Broker-Dealers, as the case may be, their counsel
and the managing underwriters, if any, and promptly confirm such notice
in writing (i) when a Registration Statement has become effective and
when any post-effective amendments thereto become effective, (ii) of
any request by the SEC or any state securities authority for amendments
and supplements to a Registration Statement or Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the qualification of the Registrable
Securities or the Exchange Securities to be offered or sold by any
Participating Broker-Dealer in any jurisdiction described in paragraph
3(d) hereof or the initiation of any proceedings for that purpose, (iv)
in the case of a Shelf Registration, if, between the effective date of
a Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company and the Trust contained in any purchase agreement, securities
sales agreement or other similar agreement cease to be true and correct
in all material respects, (v) of the happening of any event or the
failure of any event to occur or the discovery of any facts, during the
Effectiveness Period, which makes any statement made in such
Registration Statement or the related Prospectus untrue in any material
respect or which causes such Registration Statement or Prospectus to
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, and (vi) of the reasonable determination of the Company
and the Trust that a post-effective amendment to the Registration
Statement would be appropriate;
(f) obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement at the earliest possible
moment;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities included within the coverage of such
Shelf Registration Statement, without charge, at least one conformed
copy of each Registration Statement relating to such Shelf Registration
and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends (other
than with respect to restrictions requiring minimum transfers in blocks
having an aggregate principal or liquidation amount, as the case may
be, of $100,000) and in such
<PAGE>
denominations (consistent with the provisions of the Indenture and the
Declaration) and registered in such names as the selling Holders or the
underwriters may reasonably request at least two Business Days prior to
the closing of any sale of Registrable Securities pursuant to such
Shelf Registration Statement;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, promptly after the occurrence of any event specified in
Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, prepare a
supplement or post-effective amendment to such Registration Statement
or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such
Prospectus will not include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and to notify each Holder to suspend use of the Prospectus
as promptly as practicable after the occurrence of such an event, and
each Holder hereby agrees to suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) in the case of a Shelf Registration, a reasonable time
prior to the filing of any document which is to be incorporated by
reference into a Registration Statement or a Prospectus after the
initial filing of a Registration Statement, provide a reasonable number
of copies of such document to the Holders; and make such of the
representatives of the Company and the Trust as shall be reasonably
requested by the Holders of Registrable Securities or the Initial
Purchaser on behalf of such Holders available for discussion of such
document;
(k) obtain a CUSIP number for all Exchange Capital Securities
and the Capital Securities (and, if the Trust has made a distribution
of the Subordinated Debentures to the Holders of the Capital
Securities, the Subordinated Debentures or the Exchange Debentures), as
the case may be, not later than the effective date of a Registration
Statement, and provide the applicable Trustee with certificates for the
Exchange Securities or the Registrable Securities, as the case may be,
in a form eligible for deposit with the Depositary;
(l) cause the Indenture, the Declaration, the Capital
Securities Guarantee (in the case of a Shelf Registration) and the
Exchange Capital Securities Guarantee (in the case of an Exchange Offer
Registration) to be qualified under the Trust Indenture Act of 1939, as
amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be, and
effect such changes to such documents
<PAGE>
as may be required for them to be so qualified in accordance with the
terms of the TIA and execute, and cause the applicable Trustee to
execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to
enable such documents to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) as are customary in
underwritten offerings and take all such other appropriate actions in
connection therewith as are reasonably requested by the Holders of at
least 25% in aggregate principal or liquidation amount, as the case may
be, of the Registrable Securities in order to expedite or facilitate
the registration or the disposition or the Registrable Securities;
(n) in the case of a Shelf Registration, whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration, if requested by (x) the
Initial Purchaser, in the case where the Initial Purchaser holds
Securities acquired by it as part of its initial placement and (y)
Holders of at least 25% in aggregate principal or liquidation amount,
as the case may be, of the Registrable Securities covered thereby: (i)
make such representations and warranties to Holders of such Registrable
Securities and the underwriters (if any), with respect to the business
of the Trust, the Company and the subsidiaries of the Company as then
conducted and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in
each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested;
(ii) obtain opinions of counsel to the Company and the Trust and
updates thereof (which may be in the form of a reliance letter) in form
and substance reasonably satisfactory to the managing underwriters (if
any) and the Holders of a majority in amount of the Registrable
Securities being sold, addressed to each selling Holder and the
underwriters (if any) covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such underwriters (it being agreed that
the matters to be covered by such opinion may be subject to customary
qualifications and exceptions); (iii) obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the
managing underwriters from the independent certified public accountants
of the Company and the Trust (and, if necessary, any other independent
certified public accountants of any business acquired by the Company
and the Trust for which financial statements and financial data are, or
are required to be, included in the Registration Statement), addressed
to each of the underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings
<PAGE>
and such other matters as reasonably requested by such underwriters in
accordance with Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those
set forth in Section 4 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal or
liquidation amount, as the case may be, of Registrable Securities
covered by such Registration Statement and the managing underwriters)
customary for such agreements with respect to all parties to be
indemnified pursuant to said Section (including, without limitation,
such underwriters and selling Holders); and in the case of an
underwritten registration, the above requirements shall be satisfied at
each closing under the related underwriting agreement or as and to the
extent required thereunder;
(o) if (1) a Shelf Registration is filed pursuant to Section
2(b) or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2(a) is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Securities during the Applicable Period, make
reasonably available for inspection by any selling Holder or
Registrable Securities or Participating Broker-Dealer, as applicable,
who certifies to the Company and the Trust that it has a current
intention to sell Registrable Securities pursuant to the Shelf
Registration, any underwriter participating in any such disposition of
Registrable Securities, if any, and any attorney, accountant or other
agent retained by any such selling Holder, Participating Broker-Dealer,
as the case may be, or underwriter (collectively, the "Inspectors"), at
the offices where normally kept, during the Company's normal business
hours, all financial and other records, pertinent corporate documents
and properties of the Trust, the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities,
and cause the officers, directors and employees of the Trust, the
Company and its subsidiaries to supply all relevant information in each
case reasonably requested by any such Inspector in connection with such
Registration Statement; records and information which the Company and
the Trust determine, in good faith, to be confidential and any Records
and information which it notifies the Inspectors are confidential shall
not be disclosed to any Inspector except where (i) the disclosure of
such Records or information is necessary to avoid or correct a material
misstatement or omission in such Registration Statement, (ii) the
release of such Records or information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or is
necessary in connection with any action, suit or proceeding or (iii)
such Records or information previously has been made generally
available to the public; each selling Holder of such Registrable
Securities and each such Participating Broker-Dealer will be required
to agree in
<PAGE>
writing that Records and information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as
the basis for any market transactions in the securities of the Trust or
the Company unless and until such is made generally available to the
public through no fault of an Inspector or a selling Holder; and each
selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to further agree in
writing that it will, upon learning that disclosure of such Records or
information is sought in a court of competent jurisdiction, or in
connection with any action, suit or proceeding, give notice to the
Company and allow the Company at its expense to undertake appropriate
action to prevent disclosure of the Records and information deemed
confidential;
(p) comply with all applicable rules and regulations of the
SEC so long as any provision of this Agreement shall be applicable and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods, provided that the obligations under this paragraph (p) shall
be satisfied by the timely filing of quarterly and annual reports on
Forms 10-Q and 10-K under the Exchange Act;
(q) upon consummation of an Exchange Offer or a Private
Exchange, if requested by a Trustee, obtain an opinion of counsel to
the Company addressed to the Trustee for the benefit of all Holders of
Registrable Securities participating in the Exchange Offer or the
Private Exchange, as the case may be, substantially to the effect that
(i) each of the Company and the Trust, as the case requires, has duly
authorized, executed and delivered the Exchange Securities and Private
Exchange Securities, and (ii) each of the Exchange Securities or the
Private Exchange Securities, as the case may be, constitutes a validly
issued, fully paid and nonassessable undivided beneficial ownership
interest in the assets of the Trust (in the case of an Exchange Capital
Security) or a legal, valid and binding obligation of the Company,
enforceable against the Company, in accordance with its respective
terms (in the case of an Exchange Debenture and the Exchange Capital
Securities Guarantee), as the case may be (in each case, with customary
exceptions);
<PAGE>
(r) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to
the Company or the Trust, as applicable (or to such other Person as
directed by the Company or the Trust, respectively), in exchange for
the Exchange Securities or the Private Exchange Securities, as the case
may be, the Company or the Trust, as applicable, shall mark, or cause
to be marked, on such Registrable Securities delivered by such Holders
that such Registrable Securities are being cancelled in exchange for
the Exchange Securities or the Private Exchange Securities, as the case
may be; it being understood that in no event shall such Registrable
Securities be marked as paid or otherwise satisfied;
(s) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be
made with the NASD;
(t) take all other steps necessary to effect the registration
of the Registrable Securities covered by a Registration Statement
contemplated hereby;
(u) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," which section shall be
reasonably acceptable to the Initial Purchaser or another
representative of the Participating Broker-Dealers, and which shall
contain a summary statement of the positions taken or policies made by
the staff of the SEC with respect to the potential "underwriter" status
of any broker-dealer that holds Registrable Securities acquired for its
own account as a result of market-making activities or other trading
activities (a "Participating Broker-Dealer") and that will be the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of
Exchange Securities to be received by such broker-dealer in the
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in
the reasonable judgment of the Initial Purchaser or such other
representative, represent the prevailing views of the staff of the SEC,
including a statement that any such broker-dealer who receives Exchange
Securities for Registrable Securities pursuant to the Exchange Offer
may be deemed a statutory underwriter and must deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such Exchange Securities, (ii) furnish to each Participating
Broker-Dealer who has delivered to the Company the notice referred to
in Section 3(e), without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary Prospectus, and any amendment or supplement thereto, as
such Participating Broker-Dealer
<PAGE>
may reasonably request (each of the Company and the Trust hereby
consents to the use of the Prospectus forming part of the Exchange
Offer Registration Statement or any amendment or supplement thereto by
any Person subject to the prospectus delivery requirements of the
Securities Act, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Exchange Securities covered
by the Prospectus or any amendment or supplement thereto), (iii) use
their best efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement the Prospectus contained therein
in order to permit such Prospectus to be lawfully delivered by all
Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such Persons must comply with
such requirements under the Securities Act and applicable rules and
regulations in order to resell the Exchange Securities; provided,
however, that such period shall not be required to exceed 90 days (or
such longer period if extended pursuant to the last sentence of Section
3 hereof) (the "Applicable Period"), and (iv) include in the
transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the
following provision:
"If the exchange offeree is a broker-dealer holding
Registrable Securities acquired for its own account as a
result of market-making activities or other trading
activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of Exchange Securities received in respect of such
Registrable Securities pursuant to the Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer will
not be deemed to admit that it is an underwriter within the meaning of the
Securities Act; and
(B) in the case of any Exchange Offer Registration Statement,
the Company and the Trust agree to deliver to the Initial Purchaser or
to another representative of the Participating Broker-Dealers, if
requested by the Initial Purchaser or such other representative of
Participating Broker-Dealers, on behalf of the Participating
Broker-Dealers upon consummation of the Exchange Offer (i) an opinion
of counsel in form and substance reasonably satisfactory to the Initial
Purchaser or such other representative of the Participating
Broker-Dealers, covering the matters customarily covered in opinions
requested in connection with Exchange Offer Registration Statements and
such other matters as may be reasonably requested (it being agreed that
the matters to be covered by such opinion may be subject to customary
qualifications and exceptions), (ii) an officers' certificate
containing certifications substantially similar to those set forth
<PAGE>
in Section 5(f) of the Purchase Agreement and such additional
certifications as are customarily delivered in a public offering of
debt securities and (iii) as well as upon the effectiveness of the
Exchange Offer Registration Statement, a comfort letter, in each case,
in customary form if permitted by Statement on Auditing Standards No.
72.
The Company or the Trust may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company or the Trust, as applicable, such information regarding such
seller as may be required by the staff of the SEC to be included in a
Registration Statement. The Company or the Trust may exclude from such
registration the Registrable Securities of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
The Company shall have no obligation to register under the Securities Act the
Registrable Securities of a seller who so fails to furnish such information.
In the case of a Shelf Registration Statement, or if
Participating Broker-Dealers who have notified the Company and the Trust that
they will be utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in this Section 3(u) hereof, are seeking to
sell Exchange Securities and are required to deliver Prospectuses, each Holder
agrees that, upon receipt of any notice from the Company or the Trust of the
occurrence of any event specified in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or
3(e)(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(i) hereof or until it is advised in writing (the "Advice") by the
Company and the Trust that the use of the applicable Prospectus may be resumed,
and, if so directed by the Company and the Trust, such Holder will deliver to
the Company or the Trust (at the Company's or the Trust's expense, as the case
requires) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities or Exchange Securities, as the case may be, current at
the time of receipt of such notice. If the Company or the Trust shall give any
such notice to suspend the disposition of Registrable Securities or Exchange
Securities, as the case may be, pursuant to a Registration Statement, the
Company and the Trust shall use commercially reasonable efforts to file and have
declared effective (if an amendment) as soon as practicable after the resolution
of the related matters an amendment or supplement to the Registration Statement
and shall extend the period during which such Registration Statement is required
to be maintained effective and usable for resales pursuant to this Agreement by
the number of days in the period from and including the date of the giving of
such notice to and including the date when the Company and the Trust shall have
made available to the Holders (x) copies of the supplemented or amended
Prospectus necessary to resume such dispositions or (y) the Advice.
<PAGE>
4. Indemnification and Contribution. (a) In connection with
any Registration Statement, the Company and the Trust shall, jointly and
severally, indemnify and hold harmless the Initial Purchaser, each Holder, each
underwriter who participates in an offering of the Registrable Securities, each
Participating Broker-Dealer, each Person, if any, who controls any of such
parties within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act and each of their respective directors, officers, employees and
agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto),
covering Registrable Securities or Exchange Securities, as applicable,
or the omission or alleged omission therefrom of a material fact
required to be stated therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 4(d) hereof) any such settlement is effected
with the prior written consent of the Company and the Trust; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by such Holder,
such Participating Broker-Dealer, or any underwriter (except to the
extent otherwise expressly provided in Section 4(c) hereof)),
reasonably incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) of this Section 4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished in writing to the Company or the
Trust by the Initial Purchaser or such Holder, underwriter or Participating
Broker-Dealer for use in a Registration Statement (or any amendment thereto) or
any Prospectus (or any amendment or supplement thereto).
<PAGE>
(b) The Initial Purchaser and each Holder, underwriter or
Participating Broken-Dealer agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors and officers (including each officer of
the Company and the Trust who signed the Registration Statement), the Trust,
each of the Trustees and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 4(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in a Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company or the
Trust by such Holder expressly for use in such Registration Statement (or any
amendment thereto), or any such Prospectus (or any amendment or supplement
thereto); provided, however, that in the case of a Shelf Registration Statement,
no such Holder shall be liable for any claims hereunder in excess of the amount
of net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have under this Section 4 to the extent that it is
not materially prejudiced by such failure as a result thereof, and in any event
shall not relieve it from liability which it may have otherwise on account of
this indemnity agreement. In the case of parties indemnified pursuant to Section
4(a) or (b) above, counsel to the indemnified parties shall be selected by such
parties. An indemnifying party may participate at its own expense in the defense
of such action; provided, however, that counsel to the indemnifying party shall
not (except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for the
fees and expenses of more than one counsel (in addition to local counsel),
separate from their own counsel, for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 4 (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional written release of each indemnified party from all liability
arising out of such litigation, investigation,
<PAGE>
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) If at any time an indemnified party shall have validly
requested an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 4(a)(ii) effected without
its written consent if (i) such settlement is entered into more than 45 days
after receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unenforceable by an indemnified party
although applicable in accordance with its terms, the Company, the Trust, and
the Holders shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, the Trust, and the Holders, as incurred; provided,
however, that no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any Person that was not guilty of such fraudulent misrepresentation. As between
the Company, the Trust, and the Holders, such parties shall contribute to such
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect the relative fault of the Company and Trust, on the one
hand, and the Holders, on the other hand, with respect to the statements or
omissions which resulted in such loss, liability, claim, damage or expense, or
action in respect thereof, as well as any other relevant equitable
considerations. The relative fault of the Company and the Trust, on the one
hand, and of the Holders, on the other hand, 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 or the Trust, on the one hand, or
by or on behalf of the Holders, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Trust and the Holders of the Registrable
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 4 were to be determined by pro rata allocation or by
any other method of allocation that does not take into account the relevant
equitable considerations. For purposes of this Section 4, each Affiliate of a
Holder, and each director, officer and employee and Person, if any, who controls
a Holder or such Affiliate within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such Holder, and each
<PAGE>
director of the Company, each Trustee of the Trust and each Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
each of the Company or the Trust.
5. Participation in an Underwritten Registration. No Holder
may participate in an underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in the
underwriting arrangement 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 reasonably required under the terms of such underwriting
arrangements.
6. Selection of Underwriters. The Holders of Registrable
Securities covered by the Shelf Registration Statement who desire to do so may
sell the Securities covered by such Shelf Registration in an underwritten
offering, subject to the provisions of Section 3(m) hereof. In any such
underwritten offering, the underwriter or underwriters and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal or liquidation amount, as applicable, of the Registrable
Securities included in such offering; provided, however, that such underwriters
and managers must be reasonably satisfactory to the Company and the Trust.
7. Miscellaneous.
(a) Rule 144 and Rule 144A. For so long as the Company is
subject to the reporting requirements of Section 13 or 15 of the Exchange Act
and any Registrable Securities remain outstanding, the Company will file the
reports required to be filed by it under the Securities Act and Section 13(a) or
15(d) of the Exchange Act and the rules and regulations adopted by the SEC
thereunder; provided, however, that if the Company ceases to be so required to
file such reports, it will, upon the request of any Holder of Registrable
Securities (a) make publicly available such information as is necessary to
permit sales of its securities pursuant to Rule 144 under the Securities Act,
(b) deliver such information to a prospective purchaser as is necessary to
permit sales of its securities pursuant to Rule 144A under the Securities Act,
and (c) take such further action that is reasonable in the circumstances, in
each case, to the extent required from time to time to enable such Holder to
sell its Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time, (ii) Rule 144A
under the Securities Act, as such rule may be amended from time to time, or
(iii) any similar rules or regulations hereafter adopted by the SEC. Upon the
request of any Holder of Registrable Securities, the Company will
<PAGE>
deliver to such Holder a written statement as to whether it has complied with
such requirements.
(b) No Inconsistent Agreements. The Company or the Trust has
not entered into, nor will the Company or the Trust on or after the date of this
Agreement enter into, any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. 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 or the Trust's other issued and
outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to 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 in aggregate principal or liquidation amount of
the outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure; provided that no amendment, modification or
supplement or waiver or consent to the departure with respect to the provisions
of Section 4 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities. Notwithstanding the foregoing sentence, (i) this Agreement may be
amended, without the consent of any Holder of Registrable Securities, by written
agreement signed by the Company, the Trust and the Initial Purchaser, to cure
any ambiguity, correct or supplement any provision of this Agreement that may be
inconsistent with any other provision of this Agreement or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with other provisions of this Agreement, (ii)
this Agreement may be amended, modified or supplemented, and waivers and
consents to departures from the provisions hereof may be given, by written
agreement signed by the Company, the Trust and the Initial Purchaser to the
extent that any such amendment, modification, supplement, waiver or consent is,
in their reasonable judgment, necessary or appropriate to comply with applicable
law (including any interpretation of the Staff of the SEC) or any change therein
and (iii) to the extent any provision of this Agreement relates to the Initial
Purchaser, such provision may be amended, modified or supplemented, and waivers
or consents to departures from such provisions may be given, by written
agreement signed by the Initial Purchaser, the Company and the Trust.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company or the Trust by means of a notice given in accordance with the
<PAGE>
provisions of this Section 7(d), which address initially is, with respect to the
Initial Purchaser, the address set forth in the Purchase Agreement; and (ii) if
to the Company or the Trust, initially at the Company's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 7(d).
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 is 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.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchaser, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement, the
Declaration or the Indenture. If any transferee of any Holder shall acquire
Registrable Securities, in any manner, whether by operation of law or otherwise,
such Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiaries. Each Holder and any
Participating Broker-Dealer shall be third party beneficiaries of the agreements
made hereunder among the Initial Purchaser, the Company and the Trust, and the
Initial Purchaser shall have the right to enforce such agreements directly to
the extent it deems such enforcement necessary or advisable to protect its
rights or the rights of Holders hereunder.
(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.
<PAGE>
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. EACH OF THE
PARTIES HERETO AGREES TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY
DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(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) Securities Held by the Company, the Trust or its
Affiliates. Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company, the Trust or any Affiliates shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TELEBANC FINANCIAL CORPORATION
By: /s/ Mitchell H. Caplan
---------------------------
Name: Mitchell H. Caplan
Title: Vice Chairman & President
TELEBANC CAPITAL TRUST I
By: /s/ Mitchell H. Caplan
----------------------------
Name: Mitchell H. Caplan
Administrative Trustee
Confirmed and accepted as of
the date first above
written:
SANDLER O'NEILL & PARTNERS, L.P.
By: SANDLER O'NEILL & PARTNERS CORP.,
the sole general partner
By: /s/ Catherine A. Last
---------------------------
Authorized Signatory
EXHIBIT 4.9
LIQUIDATED DAMAGES AGREEMENT
THIS LIQUIDATED DAMAGES AGREEMENT (the "Agreement") is made
and entered into as of June 9, 1997 among TELEBANC FINANCIAL CORPORATION, a
Delaware corporation (the "Company"), TELEBANC CAPITAL TRUST I, a business trust
formed under the laws of the state of Delaware (the "Trust"), and SANDLER
O'NEILL & PARTNERS, L.P. ("Sandler O'Neill" or the "Initial Purchaser").
WHEREAS, as an inducement to the Initial Purchaser to enter
into the Purchase Agreement, dated June 9, 1997 (the "Purchase Agreement"),
among the Company, the Trust and the Initial Purchaser (providing for, among
other things, the sale by the Trust to the Initial Purchaser of 10,000 of the
Trust's 11.00% Capital Securities, Series A, liquidation amount of $1,000 per
Capital Security (the "Capital Securities"), the proceeds of which will be used
by the Trust to purchase 11.00% Junior Subordinated Deferrable Interest
Debentures due June 1, 2027, Series A, of the Company (the "Subordinated
Debentures")), and as a condition to the several obligations of the Initial
Purchaser thereunder, the Company and the Trust have agreed to provide to the
Initial Purchaser and its direct and indirect transferees certain registration
and related rights pursuant to and in accordance with the terms of the
Registration Rights Agreement, dated the date hereof (the "Registration Rights
Agreement"), among the Company, the Trust and the Initial Purchaser; and
WHEREAS, notwithstanding the fact that the Company and the
Trust have consummated or will consummate an Exchange Offer, pursuant to Section
2(b) of the Registration Rights Agreement, the Initial Purchaser may, under
certain circumstances, require the Company and the Trust to file a Shelf
Registration Statement for the resale of certain Registrable Securities held by
it;
WHEREAS, the Registration Rights Agreement contains certain
provisions concerning the time within which the Company and the Trust must file
the Shelf Registration Statement and the period for which such Shelf
Registration Statement must remain effective and usable for resales; and
WHEREAS, the Company, the Trust and the Initial Purchaser
desire to provide for the payment of liquidated damages by the Company directly
to the Initial Purchase in the event that the Company and the Trust fail to
comply with such contractual provisions, as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Definitions. Capitalized terms used (including in the
foregoing recitals) but not defined herein shall have the meanings given to such
terms in the Registration Rights Agreement, except that (a) the term "Shelf
Registration Statement" shall refer only to a Shelf Registration Statement filed
by the Company and the Trust pursuant to Section 2(b) of the Registration Rights
Agreement, and (b) the term "Registrable Securities" shall refer only to those
Registrable Securities held at such time by the Initial Purchaser.
2. Payment of Liquidated Damages. (a) In the event that (i)
the Shelf Registration Statement is not filed with the SEC on or prior to the
45th day after a request for such filing is made by the Initial Purchaser
(provided that in no event shall such date be required to be earlier than 75
days after the Issue Date), or (ii) the Shelf Registration Statement is not
declared effective by the SEC on or prior to the later of the 40th day after the
date such Shelf Registration Statement was required to be filed pursuant to the
terms of the Registration Rights Agreement and the 180th date after the Issue
date, or (iii) the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be continuously effective or usable
for resales (whether as a result of an event contemplated by Section 3(e) of the
Registration Rights Agreement or otherwise) at any time during the 180-day
period (and any extensions of such period pursuant to the last paragraph of
Section 3 of the Registration Rights Agreement) immediately following the date
on which the Shelf Registration Statement is first declared effective (other
than after such time as all Registrable Securities have been disposed of
thereunder or otherwise cease to be Registrable Securities pursuant to the terms
of the Registration Rights Agreement), then in each case the Company shall pay
liquidated damages to the Initial Purchaser, at a rate of 0.25% per annum in
respect of the aggregate liquidation amount of Capital Securities held by the
Initial Purchaser or, in the event that the Trust is liquidated and Subordinated
Debentures are distributed to holders of Capital Securities, the aggregate
principal amount of Subordinated Debentures held by the Initial Purchaser, as
the case may be, in respect of the period (x) commencing on the 46th day after
such request for the filing of a Shelf Registration Statement is made by the
Initial Purchaser (provided that in no event shall such date be required to be
earlier than 76 days after the Issue Date) and terminating upon the filing of
the Shelf Registration Statement (in the case of clause (i) above), (y)
commencing on the later of the 41st day after the date the Shelf Registration
Statement was required to be filed and the 181st day after the Issue Date and
terminating upon the effectiveness of the Shelf Registration Statement (in the
case of clause (ii) above), or (z) commencing on the day the Shelf Registration
Statement ceases to be effective or usable for resales and terminating at such
time as the Shelf Registration Statement again becomes effective and usable for
resales (in the case of clause (iii) above).
(c) Any amounts of liquidated damages payable by the Company
pursuant to this Section 2 shall be paid in cash directly to the Initial
Purchaser on the next succeeding June 1 or December 1, as the case may be,
following the period
<PAGE>
in respect of which such Liquidated Damages have become due and payable
hereunder.
3. General.
(a) 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.
(b) Amendments. This Agreement may be amended by the parties
hereto by a written instrument duly executed on behalf of each of the parties
hereto.
(c) Entire Agreement. This Agreement and the Registration
Rights Agreement constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to any applicable conflicts of law.
(e) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered to the parties at the
addresses set forth in, and in a manner contemplated by, the Registration Rights
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
TELEBANC FINANCIAL CORPORATION
By: /s/ Mitchell H. Caplan
-----------------------------
Name: Mitchell H. Caplan
Title: Vice Chairman & President
TELEBANC CAPITAL TRUST I
By: /s/ Mitchell H. Caplan
----------------------------
Name: Mitchell H. Caplan
Title: Administrative Trustee
SANDLER O'NEILL & PARTNERS, L.P.
By: SANDLER O'NEILL
& PARTNERS, CORP.
the sole general partner
<PAGE>
By: /s/ Catherine A. Last
December __, 1997
Board of Directors
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, VA 22201
Ladies and Gentlemen:
We are acting as special counsel to TeleBanc Financial Corporation, a
Delaware corporation (the "Corporation"), and Sponsor of TeleBanc Capital Trust
I, a Delaware statutory business trust (the "Trust"), in connection with the
registration statement on Form S-4, as amended (File Nos. 333-40399 and
333-40399-01, and hereinafter referred to as the "Registration Statement"),
filed with the Securities and Exchange Commission, relating to (i) the issuance
by the Trust of up to and including $10.0 million aggregate Liquidation Amount
of 11.00% Capital Securities, Series B (the "Exchange Capital Securities"), in
exchange for up to and including $10.0 million aggregate Liquidation Amount of
its outstanding 11.00% Capital Securities, Series A (the "Original Capital
Securities"); (ii) the issuance by the Corporation to the Trust, in an aggregate
principal amount corresponding to the aggregate Liquidation Amount of the
Exchange Capital Securities, of the Corporation's 11.00% Junior Subordinated
Deferrable Interest Debentures due June 1, 2027, Series B (the "Exchange Junior
Subordinated Debentures"), in exchange for a comparable aggregate principal
amount of the Corporation's outstanding 11.00% Junior Subordinated Deferrable
Interest Debentures due June 1, 2027, Series A (the "Original Junior
Subordinated Debentures"); and (iii) the guarantee by the Corporation (the
"Exchange Guarantee") in connection with the 11.00% Exchange Capital Securities.
This opinion letter is furnished to you at your request to enable you to fulfill
the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. ss.
229.601(b)(5), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Amended and Restated Certificate of Incorporation of the
Corporation, as certified by the Secretary of the
Corporation on the date hereof as then being complete,
accurate and in effect.
<PAGE>
Board of Directors
TeleBanc Financial Corporation
December ___, 1997
Page 2
3. The Bylaws of the Corporation, as certified by the Secretary
of the Corporation on the date hereof as then being
complete, accurate and in effect.
4. The Indenture, dated as of June 9, 1997, between the
Corporation and the Wilmington Trust Company ("WTC"), as
debenture trustee (the "Indenture"), pursuant to which the
Exchange Junior Subordinated Debentures will be issued.
5. The Amended and Restated Declaration of Trust for the Trust,
dated as of June 1, 1997, among the Corporation, as Sponsor,
WTC, and the Administrative Trustees named therein, pursuant
to which the Exchange Capital Securities will be issued.
6. The Exchange Guarantee.
7. The form of Exchange Capital Security.
8. The form of Exchange Junior Subordinated Debenture.
9. The Registration Rights Agreement, dated as of June 1, 1997,
among the Trust, the Corporation and the Initial Purchasers
named therein.
10. Resolutions of the Board of Directors of the Corporation
adopted on May 27, 1997, and Resolutions adopted by the
Special Committee of the Corporation on June 4, 1997, both
as certified by the Secretary of the Corporation on the date
hereof as then being complete, accurate and in effect,
relating to, among other things, the Exchange Offering.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter is
given, and all statements herein are made, in the context of the foregoing.
<PAGE>
Board of Directors
TeleBanc Financial Corporation
December ___, 1997
Page 3
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware and the contract law of the
State of New York. We express no opinion herein as to any other laws, statutes,
regulations, or ordinances.
Based upon, subject to, and limited by the foregoing, we are
of the opinion that:
(i) following effectiveness of the Registration Statement and when
executed and authenticated in the manner provided for in the Indenture
and delivered against surrender and cancellation of a like aggregate
principal amount of Original Junior Subordinated Debentures as
contemplated in the Registration Rights Agreement, the Exchange Junior
Subordinated Debentures will constitute binding obligations of the
Corporation enforceable in accordance with their terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights (including, without limitation,
the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) and as
may be limited by the exercise of judicial discretion and the
application of principles of equity including, without limitation,
requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether the Exchange Junior Subordinated
Debentures are considered in a proceeding in equity or at law); and
(ii) following effectiveness of the Registration Statement and when
executed by the Corporation and WTC, as Guarantee Trustee, and
delivered as contemplated in the Registration Rights Agreement, the
Exchange Guarantee will constitute binding obligations of the
Corporation enforceable in accordance with their terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights (including, without limitation,
the effect of statutory and other law regarding fraudulent
conveyances, fraudulent transfers and preferential transfers) and as
may be limited by the exercise of judicial discretion and the
application of principles of equity including, without limitation,
requirements of good faith, fair dealing, conscionability and
materiality (regardless of whether the Exchange Guarantee is
considered in a proceeding in equity or at law).
<PAGE>
Board of Directors
TeleBanc Financial Corporation
December ___, 1997
Page 4
The above opinions shall be understood to mean only that if there is a
default in performance of an obligation, (i) if a failure to pay or other damage
can be shown and (ii) if the defaulting party can be brought into a court which
will hear the case and apply the governing law, then, subject to the
availability of defenses, and to the exceptions set forth above, the court will
provide a money damage (or perhaps injunctive or specific performance) remedy.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Validity of the Exchange Securities" in the prospectus constituting a
part of the Registration Statement. In giving this consent, we do not thereby
admit that we are an "expert" within the meaning of the Securities Act of 1933,
as amended.
Very truly yours,
HOGAN & HARTSON L.L.P.
EXHIBIT 5.2
[LETTERHEAD OF MORRIS, JAMES, HITCHENS & WILLIAMS]
__________________, 1997
TeleBanc Capital Trust I
c/o TeleBanc Financial Corporation
1111 North Highland Street
Arlington, VA 22201
Re: TeleBanc Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for TeleBanc Capital Trust I,
a Delaware business trust (the "Trust"), in connection with the matters set
forth herein. This opinion is being furnished to you at your request.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies furnished to us of the following:
(a) The Declaration of Trust of the Trust, dated as of June 2, 1997,
between TeleBanc Financial Corporation ("TeleBanc") and the trustees of the
Trust named therein;
(b) The Certificate of Trust of the Trust, as filed in the office of the
Secretary of State of the State of Delaware (the "Secretary of State") on June
3, 1997 (the "Certificate");
(c) The Amended and Restated Declaration of Trust of the Trust, dated as
of June 9, 1997 (including Annex I and Exhibits A-1 and A-2 attached thereto)
(the "Declaration"), among TeleBanc, as Sponsor, the trustees of the Trust named
<PAGE>
therein and the holders, from time to time, of undivided beneficial interests in
the assets of the Trust;
(d) The Form S-4 Registration Statement (Registration No. 333-___) (the
"Registration Statement"), including a prospectus (the "Prospectus"), relating
to the 11.00% Exchange Capital Securities (Liquidation Amount $1,000 per
Exchange Capital Security) of the Trust (each, an "Exchange Capital Security"
and collectively, the "Exchange Capital Securities"); and
(e) A Certificate of Good Standing for the Trust, dated __________,
1997, obtained from the Secretary of State.
Unless otherwise defined herein, all capitalized terms used in this
opinion letter shall have the respective meanings provided in the Declaration,
except that reference herein to any document shall mean such document as in
effect on the date hereof.
For the purposes of this opinion letter, we have not reviewed any
documents other than the documents listed in paragraphs (a) through (e) above.
In particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (e) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that 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 letter, 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 the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent provided in paragraph 1 below, the due creation, due formation or
due organization, 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, formation or organization, (iii) the legal capacity of
each natural person who is a party to the documents examined by us, (iv) that
each of the parties to the documents examined by us has the power and authority
to execute and deliver, and to perform its
<PAGE>
obligations under, such documents, (v) that each of the parties to the documents
examined by us has duly authorized, executed and delivered such documents, (vi)
the receipt by each Person to whom an Exchange Capital Security is to be issued
in the Exchange Offer by the Trust (the "Exchange Capital Securities Holders")
of a certificate in the form attached as Exhibit A-1 to the Declaration for such
Exchange Capital Security and the exchange by such Exchange Capital Security
Holders of their validly issued and outstanding 11.00% Capital Securities
(Liquidation Amount $1,000 per Capital Security) of the Trust (the "Original
Capital Securities") accepted in exchange therefor in the Exchange Offer, in
accordance with the Declaration and the Registration Statement, (vii) that the
Exchange Capital Securities are duly exchanged for Original Capital Securities
and are issued to the Exchange Capital Securities Holders in accordance with the
Declaration and the Registration Statement, and (viii) that Exchange Capital
Securities constitute Series B Capital Securities and Original Capital
Securities constitute Series A Capital Securities. We have not participated in
the preparation of the Registration Statement and assume no responsibility for
its contents.
The opinions in this letter are 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.
Based upon the foregoing, and subject to the assumptions,
qualifications, limitations and exceptions set forth herein, we are of the
opinion that:
1. The Trust has been duly formed and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12 Del. C.
ss. 3801, et seq. (the "Act").
2. The Exchange Capital Securities, when duly issued, executed and
authenticated in accordance with the Declaration and duly issued in exchange for
the Original Capital Securities pursuant to the Exchange Offer in accordance
with the Declaration and the Registration Statement, will be 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 Exchange Capital Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Exchange Capital
Security Holders may be obligated to make payments as provided in the
Declaration.
We consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and we consent
to the use of our name under the heading "Validity of Exchange Securities" in
the Prospectus. In giving the foregoing
<PAGE>
consent, we do not hereby admit that we come within the category of Persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder. Except as stated above, without our prior written consent, this
opinion letter may not be furnished or quoted to, or relied upon by, any other
Person for any purpose.
Very truly yours,
[LETTERHEAD HOGAN & HARTSON]
December 8, 1997
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
RE: TELEBANC CAPITAL TRUST I
11% CAPITAL SECURITIES, SERIES B
Ladies and Gentlemen:
We have acted as special counsel to TeleBanc Financial
Corporation, a Delaware corporation (the "Corporation") and sponsor of TeleBanc
Capital Trust I, a statutory business trust organized under the Delaware
Business Trust Act, 12 Del. C. ss. 3801 et seq (the "Trust"), in connection with
a Registration Statement on Form S-4 (the "Registration Statement"), filed by
the Corporation and the Trust on November 17, 1997 with the Securities and
Exchange Commission, and amended on December 8, 1997, relating to the exchange
of up to $10,000,000.00 aggregate liquidation amount of the Trust's 11.00%
Capital Securities, Series B (the "Exchange Capital Securities") for a like
liquidation amount of the Trust's 11.00% Capital Securities, Series A (the
"Original Capital Securities") (the "Exchange Offer"). Pursuant to the Exchange
Offer, the Company is offering to exchange (i) up to $10,000,000.00 aggregate
principal amount of its 11.00% Junior Subordinated Deferrable Interest
Debentures, Series B (the "Exchange Junior Subordinated Debentures") for a like
aggregate principal amount of its 11.00% Junior Subordinated Deferrable Interest
Debentures, Series A (the "Original Junior Subordinated Debentures"), and (ii)
its guarantee of payments of cash distributions and payments on liquidation of
the Trust or redemption of the Exchange Capital Securities (the "Exchange
Guarantee") for a like guarantee in respect of the Original Capital Securities
(the "Original Guarantee"). Capitalized terms used in this letter and not
otherwise defined herein shall have the meaning set forth in the prospectus
("Prospectus") included as part of the Registration Statement.
The opinion set forth in this letter is based on relevant
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury
<PAGE>
HOGAN & HARTSON L.L.P.
TeleBanc Financial Corporation
December 8, 1997
Page 2
Regulations thereunder (including proposed and temporary Treasury Regulations),
and interpretations of the foregoing as expressed in court decisions,
administrative determinations (including administrative explanations of proposed
and final Treasury Regulations), and legislative history as of the date hereof.
These provisions and interpretations are subject to changes, which may or may
not be retroactive in effect, that might result in material modifications of our
opinion.
In rendering the following opinion, we have examined such
statutes, regulations, records, certificates and other documents as we have
considered necessary or appropriate as a basis for such opinions, including the
following: (i) the Trust Agreement; (ii) the Registration Statement; (iii) the
form of the Capital Securities; (iv) the Indenture; and (v) other documents we
have deemed necessary to render the opinion set forth in this letter.
In our review, we have assumed that all of the representations
and statements set forth in such documents are true and correct, and all of the
obligations imposed by any such documents on the parties thereto have been and
will continue to be performed or satisfied in accordance with their terms. We
also have assumed the genuineness of all signatures, the proper execution of all
documents, the authenticity of all documents submitted to us as originals, the
conformity to originals of documents submitted to us as copies, and the
authenticity of the originals from which any copies were made.
For purposes of rendering our opinion, we have not made an
independent investigation of the facts set forth in any of the above-referenced
documents, including the Prospectus and the Trust Agreement. We have
consequently relied upon representations and information presented in such
documents.
Based upon, and subject to, the foregoing, we are of the
opinion that the information in the Prospectus under the caption "Certain
Federal Income Tax Consequences," to the extent that such information
constitutes matters of law or legal conclusions or purports to describe certain
provisions of the U.S. federal income tax laws, has been reviewed by us and is a
correct summary in all material respects of the matters discussed therein.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the caption
"Certain Federal Income Tax Consequences" in the Prospectus. In giving such
consent, we
<PAGE>
HOGAN & HARTSON L.L.P.
TeleBanc Financial Corporation
December 8, 1997
Page 3
do not admit that we are in the category of person whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
-----------------------------------
Hogan & Hartson L.L.P.
EXHIBIT 23.3
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 14, 1997
(except with respect to the matters discussed in Note 20, as to which the date
is February 28, 1997) included in the Corporation's Annual Report on Form 10-K,
as amended, for the year ended December 31, 1996 and to all references to our
Firm included in this registration statement.
EXHIBIT 25.1
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
TELEBANC FINANCIAL CORPORATION
TELEBANC CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
Delaware
Delaware
(State of incorporation) (I.R.S. employer identification no.)
1111 North Highland Street
Arlington, Virginia 22201
(Address of principal executive offices) (Zip Code)
Exchange Capital Securities of Telebanc Capital Trust I
(Title of the indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor is not an
affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which includes
the certificate of authority of Wilmington Trust Company to
commence business and the authorization of Wilmington Trust
Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b)
of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 13th day
of November, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Donald G. MacKelcan
------------------------
By: /s/ Norma P. Closs
--------------------
Assistant Secretary
Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE>
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of
the General Assembly of the State of Delaware, entitled "An Act to Incorporate
the Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the
name of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment
filed in the Office of the Secretary of State on March 18, A.D. 1903, and the
Charter or Act of Incorporation of which company has been from time to time
amended and changed by merger agreements pursuant to the corporation law for
state banks and trust companies of the State of Delaware, does hereby alter and
amend its Charter or Act of Incorporation so that the same as so altered and
amended shall in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of Delaware
is at Rodney Square North, in the City of Wilmington, County of New
Castle; the name of its resident agent is WILMINGTON TRUST COMPANY
whose address is Rodney Square North, in said City. In addition to such
principal office, the said corporation maintains and operates branch
offices in the City of Newark, New Castle County, Delaware, the Town of
Newport, New Castle County, Delaware, at Claymont, New Castle County,
Delaware, at Greenville, New Castle County Delaware, and at Milford
Cross Roads, New Castle County, Delaware, and shall be empowered to
open, maintain and operate branch offices at Ninth and Shipley Streets,
418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in
the City of Wilmington, New Castle County, Delaware, and such other
branch offices or places of business as may be authorized from time to
time by the agency or agencies of the government of the State of
Delaware empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this Corporation
are to do any or all of the things herein mentioned as fully and to the
same extent as natural persons might or could do and in any part of the
world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter the
seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
<PAGE>
to appoint such officers and agents as the business of the
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of this
State, to discount bills, notes or other evidences of debt, to
receive deposits of money, or securities for money, to buy
gold and silver bullion and foreign coins, to buy and sell
bills of exchange, and generally to use, exercise and enjoy
all the powers, rights, privileges and franchises incident to
a corporation which are proper or necessary for the
transaction of the business of the Corporation hereby created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or claims,
adverse to his interest therein, and to prepare and give
certificates of title for any lands or premises in the State
of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds, leases,
conveyances, mortgages, bonds and legal papers of every
description, and to carry on the business of conveyancing in
all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property of
every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other persons
and individuals, and from all corporations whether state,
municipal, corporate or private, and to rent boxes, safes,
vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage, bond
or other instrument issued by any state, municipality, body
politic, corporation, association or person, either alone or
in conjunction with any other person or persons, corporation
or corporations.
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to
<PAGE>
become surety for any person, or persons, for the faithful
performance of any trust, office, duty, contract or agreement,
either by itself or in conjunction with any other person, or
persons, corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment, suit,
order, or decree to be entered in any court of record within
the State of Delaware or elsewhere, or which may now or
hereafter be required by any law, judge, officer or court in
the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as trustee,
trustee in bankruptcy, receiver, assignee, assignee in
bankruptcy, executor, administrator, guardian, bailee, or in
any other trust capacity in the receiving, holding, managing,
and disposing of any and all estates and property, real,
personal or mixed, and to be appointed as such trustee,
trustee in bankruptcy, receiver, assignee, assignee in
bankruptcy, executor, administrator, guardian or bailee by any
persons, corporations, court, officer, or authority, in the
State of Delaware or elsewhere; and whenever this Corporation
is so appointed by any person, corporation, court, officer or
authority such trustee, trustee in bankruptcy, receiver,
assignee, assignee in bankruptcy, executor, administrator,
guardian, bailee, or in any other trust capacity, it shall not
be required to give bond with surety, but its capital stock
shall be taken and held as security for the performance of the
duties devolving upon it by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or be
called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to receive
a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to receive,
collect, receipt for, and dispose of interest, dividends and
income upon and from any of the bonds, mortgages, debentures,
notes, shares of capital stock, securities, obligations,
contracts, evidences of indebtedness and other property held
and owned by it, and to exercise in respect of all such bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of indebtedness
and other property, any and all the rights, powers and
privileges of individual owners thereof, including the right
to vote thereon; to invest and deal in and with any of the
moneys of the Corporation upon such securities and in such
manner as it may think fit and proper, and from time to time
to vary or realize such investments; to issue bonds and secure
the same by pledges or deeds of trust or mortgages of or upon
the whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds,
<PAGE>
as and when the Board of Directors shall determine, and in the
promotion of its said corporate business of investment and to
the extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest
therein.
(b) In furtherance of, and not in limitation, of the powers conferred
by the laws of the State of Delaware, it is hereby expressly provided
that the said Corporation shall also have the following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and franchises
and to undertake the whole or any part of the assets and
liabilities of any person, firm, association or corporation,
and to pay for the same in cash, stock of this Corporation,
bonds or otherwise; to hold or in any manner to dispose of the
whole or any part of the property so purchased; to conduct in
any lawful manner the whole or any part of any business so
acquired, and to exercise all the powers necessary or
convenient in and about the conduct and management of such
business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or corporation,
and, without limit as to amount, to draw, make, accept,
endorse, discount, execute and issue promissory notes, drafts,
bills of exchange, warrants, bonds, debentures, and other
negotiable or transferable instruments.
(5) To have one or more offices, to carry on all or any of its
operations and businesses, without restriction to the same
extent as natural persons might or could do, to purchase or
otherwise acquire, to hold, own, to mortgage, sell, convey or
otherwise dispose of, real and personal property, of every
class and description, in any State, District, Territory or
Colony of the United States, and in any foreign country or
place.
(6) It is the intention that the objects, purposes and powers
specified and clauses contained in this paragraph shall
(except where otherwise expressed in said paragraph) be nowise
limited or restricted by reference to or inference from the
terms of any other clause of this or any other paragraph in
this charter, but that the objects, purposes and powers
specified in each of the clauses of this paragraph shall be
regarded as independent objects, purposes and powers.
<PAGE>
FOURTH: - (a) The total number of shares of all classes of stock which
the Corporation shall have authority to issue is forty-one million
(41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as "Preferred
Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of
Directors each of said series to be distinctly designated. All shares
of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative. The
voting powers and the preferences and relative, participating, optional
and other special rights of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of
any and all other series at any time outstanding; and, subject to the
provisions of subparagraph 1 of Paragraph (c) of this Article FOURTH,
the Board of Directors of the Corporation is hereby expressly granted
authority to fix by resolution or resolutions adopted prior to the
issuance of any shares of a particular series of Preferred Stock, the
voting powers and the designations, preferences and relative, optional
and other special rights, and the qualifications, limitations and
restrictions of such series, including, but without limiting the
generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the number
of shares thereof then outstanding) from time to time by like
action of the Board of Directors;
(2) The rate and times at which, and the terms and conditions
on which, dividends, if any, on Preferred Stock of such series
shall be paid, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other
class or classes, or series of the same or other class of
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same for,
shares of any other class or classes or of any series of the
same or any other class or classes of stock of the Corporation
and the terms and conditions of such conversion or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on
which, Preferred Stock of such series may be redeemed.
<PAGE>
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the generality
of the foregoing include the right, voting as a series or by
itself or together with other series of Preferred Stock or all
series of Preferred Stock as a class, to elect one or more
directors of the Corporation if there shall have been a
default in the payment of dividends on any one or more series
of Preferred Stock or under such circumstances and on such
conditions as the Board of Directors may determine.
(c) (1) After the requirements with respect to preferential dividends
on the Preferred Stock (fixed in accordance with the provisions of
section (b) of this Article FOURTH), if any, shall have been met and
after the Corporation shall have complied with all the requirements, if
any, with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts (fixed in accordance with the
provisions of section (b) of this Article FOURTH), and subject further
to any conditions which may be fixed in accordance with the provisions
of section (b) of this Article FOURTH, then and not otherwise the
holders of Common Stock shall be entitled to receive such dividends as
may be declared from time to time by the Board of Directors.
(2) After distribution in full of the preferential amount, if
any, (fixed in accordance with the provisions of section (b)
of this Article FOURTH), to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation, the holders of the Common
Stock shall be entitled to receive all of the remaining assets
of the Corporation, tangible and intangible, of whatever kind
available for distribution to stockholders ratably in
proportion to the number of shares of Common Stock held by
them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be adopted
by the Board of Directors pursuant to section (b) of this
Article FOURTH, each holder of Common Stock shall have one
vote in respect of each share of Common Stock held on all
matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or
series of stock or of other securities of the Corporation shall have
any preemptive right to purchase or subscribe for any unissued
<PAGE>
stock of any class or series or any additional shares of any class or
series to be issued by reason of any increase of the authorized capital
stock of the Corporation of any class or series, or bonds, certificates
of indebtedness, debentures or other securities convertible into or
exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class
or series of stock or securities convertible into or exchangeable for
stock, or carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors to such
persons, firms, corporations or associations, whether such holders or
others, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case, be
as fixed from time to time by the Board of Directors in the resolution
or resolutions adopted pursuant to authority granted in section (b) of
this Article FOURTH and the consent, by class or series vote or
otherwise, of the holders of such of the series of Preferred Stock as
are from time to time outstanding shall not be required for the
issuance by the Board of Directors of any other series of Preferred
Stock whether or not the powers, preferences and rights of such other
series shall be fixed by the Board of Directors as senior to, or on a
parity with, the powers, preferences and rights of such outstanding
series, or any of them; provided, however, that the Board of Directors
may provide in the resolution or resolutions as to any series of
Preferred Stock adopted pursuant to section (b) of this Article FOURTH
that the consent of the holders of a majority (or such greater
proportion as shall be therein fixed) of the outstanding shares of such
series voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series of
Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the Board
of Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a majority
of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of directors
constituting the entire Board shall be not less than five nor more than
twenty-five as fixed from time to time by vote of a majority of the
whole Board, provided, however, that the number of directors shall not
<PAGE>
be reduced so as to shorten the term of any director at the time in
office, and provided further, that the number of directors constituting
the whole Board shall be twenty-four until otherwise fixed by a
majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office for
a term expiring at the next succeeding annual meeting, directors of the
second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting and directors of the third class shall
be elected to hold office for a term expiring at the third succeeding
annual meeting. Any vacancies in the Board of Directors for any reason,
and any newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a
majority of the directors then in office, although less than a quorum,
and any directors so chosen shall hold office until the next annual
election of directors. At such election, the stockholders shall elect a
successor to such director to hold office until the next election of
the class for which such director shall have been chosen and until his
successor shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the By-Laws of the Corporation), any
director or the entire Board of Directors of the Corporation may be
removed at any time without cause, but only by the affirmative vote of
the holders of two-thirds or more of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting
of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing,
delivered or mailed by first class United States mail, postage prepaid,
to the Secretary of the Corporation not less than 14 days nor more than
50 days prior to any meeting of the stockholders called for the
election of directors; provided, however, that if less than 21 days'
notice of the meeting is given to stockholders, such written notice
shall be delivered or mailed, as prescribed, to the Secretary of the
Corporation not later than the close of the seventh day following the
day on which notice of the meeting was mailed to stockholders. Notice
of nominations which are proposed by the Board of Directors shall be
given by the Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of
such nominee and (iii) the number of shares of stock of the Corporation
which are beneficially owned by each such nominee.
<PAGE>
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance
with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be
disregarded.
(g) No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
SIXTH: - The Directors shall choose such officers, agent and servants
as may be provided in the By-Laws as they may from time to time find
necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority of
the whole Board, may designate any of their number to constitute an
Executive Committee, which Committee, to the extent provided in said
resolution, or in the By-Laws of the Company, shall have and may
exercise all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, and shall have power to
authorize the seal of the Corporation to be affixed to all papers which
may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation by a
vote of the majority of the entire Board. The stockholders may make,
alter or repeal any By-Law whether or not adopted by them, provided
however, that any such additional By-Laws, alterations or repeal may be
adopted only by the affirmative vote of the holders of two-thirds or
more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for
this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
<PAGE>
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be from
time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by law,
and except as otherwise expressly provided in sections (b) and (c) of
this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation, would
be an Affiliate (as hereinafter defined) of an Interested
Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair market
value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate
fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any similar transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder, or any Affiliate of any Interested
Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
<PAGE>
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through
(E) of paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business combination
and such business combination shall require only such
affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any Subsidiary)
who or which as of the record date for the determination of
stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time within
two years prior thereto was the beneficial owner, directly or
indirectly, of not less than 10% of the then outstanding
voting Shares, or
(C) is an assignee of or has otherwise succeeded in any share
of capital stock of the Corporation which were at any time
within two years prior thereto beneficially owned by any
Interested Stockholder, and such assignment or succession
shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and Associates
(as hereafter defined) beneficially own, directly or
indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
<PAGE>
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of capital stock of the
Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights, warrants or options or otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1981.
(6) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect in December 31, 1981) is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Investment Stockholder set forth in paragraph (2) of this section
(c), the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty to
determine for the purposes of this Article FIFTEENTH on the
basis of information known to them, (1) the number of Voting
Shares beneficially owned by any person (2) whether a person
is an Affiliate or Associate of another, (3) whether a person
has an agreement, arrangement or understanding with another as
to the matters referred to in paragraph (3) of section (c), or
(4) whether the assets subject to any business combination or
the consideration received for the issuance or transfer of
securities by the Corporation, or any Subsidiary has an
aggregate fair market value of $1,00,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or Act
of Incorporation or the By-Laws of the Corporation (and in addition to
any other vote that may be required by law, this Charter or Act of
Incorporation by the By-Laws), the affirmative vote of the holders of
at least two-thirds of the outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) shall be required to amend,
alter or repeal any provision of Articles FIFTH, THIRTEENTH, FIFTEENTH
or SIXTEENTH of this Charter or Act of Incorporation.
<PAGE>
SEVENTEENTH: (a) a Director of this Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware
General Corporation Laws as the same exists or may hereafter be
amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect to
any act or omission occurring prior to the time of such repeal
or modification."
<PAGE>
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on
the third Thursday in April each year at the principal office at the Company or
at such other date, time, or place as may be designated by resolution by the
Board of Directors.
Section 2. Special meetings of all stockholders may be called
at any time by the Board of Directors, the Chairman of the Board or the
President.
Section 3. Notice of all meetings of the stockholders shall be
given by mailing to each stockholder at least ten (10) days before said meeting,
at his last known address, a written or printed notice fixing the time and place
of such meeting.
Section 4. A majority in the amount of the capital stock of
the Company issued and outstanding on the record date, as herein determined,
shall constitute a quorum at all meetings of stockholders for the transaction of
any business, but the holders of a small number of shares may adjourn, from time
to time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of
Directors shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two
(72) years shall be nominated for election to the Board of Directors of the
Company, provided, however, that this limitation shall not apply to any person
who was serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office
for three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be
managed and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Board of Directors or the President.
<PAGE>
Section 6. Special meetings of the Board of Directors may be
called at any time by the Chairman of the Board of Directors or by the
President, and shall be called upon the written request of a majority of the
directors.
Section 7. A majority of the directors elected and qualified
shall be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each
director of any special meeting of the Board of Directors, and of any change in
the time or place of any regular meeting, stating the time and place of such
meeting, which shall be mailed not less than two days before the time of holding
such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after
its election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove,
with or without cause, any member of any Committee appointed by it or any
associate director or officer elected by it and may appoint or elect his
successor.
Section 12. The Board of Directors may designate an officer to
be in charge of such of the departments or division of the Company as it may
deem advisable.
ARTICLE III
COMMITTEES
Section I. Executive Committee
(A) The Executive Committee shall be composed of not more
than nine members who shall be selected by the Board of Directors from its own
members and who shall hold office during the pleasure of the Board.
<PAGE>
(B) The Executive Committee shall have all the powers of the
Board of Directors when it is not in session to transact all business for and in
behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall
be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct the
disposal of the same, in accordance with such rules and regulations as the Board
of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than
thirteen members who shall be selected by the Board of Directors, a majority of
whom shall be members of the Board of Directors and who shall hold office during
the pleasure of the Board.
<PAGE>
(B) The Trust Committee shall have general supervision over
the Trust Department and the investment of trust funds, in all matters, however,
being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall be
kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members
who shall be selected by the Board of Directors from its own members, none of
whom shall be an officer of the Company, and shall hold office at the pleasure
of the Board.
(B) The Audit Committee shall have general supervision over
the Audit Division in all matters however subject to the approval of the Board
of Directors; it shall consider all matters brought to its attention by the
officer in charge of the Audit Division, review all reports of examination of
the Company made by any governmental agency or such independent auditor employed
for that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the
majority of its members shall deem it to be proper for the transaction of its
business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not more
than five (5) members who shall be selected by the Board of Directors from its
own members who are not officers of the Company and who shall hold office during
the pleasure of the Board.
(B) The Compensation Committee shall in general advise upon
all matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters,
<PAGE>
including salaries and employee benefits and specifically shall administer the
Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at
any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected
by the Board of Directors as an associate director, to serve during the pleasure
of the Board.
(B) An associate director shall be entitled to attend all
directors meetings and participate in the discussion of all matters brought to
the Board, with the exception that he would have no right to vote. An associate
director will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a
Committee
(A) In the absence or disqualification of any member of any
Committee created under Article III of the By-Laws of this Company, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall
preside at all meetings of the Board and shall have such further authority and
powers and shall perform such duties as the Board of Directors may from time to
time confer and direct. He shall also exercise such powers and perform such
duties as may from time to time be agreed upon between himself and the President
of the Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman
of the Board of Directors shall preside at all meetings of the Board of
Directors at which the Chairman of the Board shall not be present and shall have
such further authority and powers and shall perform such duties as the Board of
Directors or the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties
pertaining to the office of the President conferred or imposed upon him by
statute or assigned to him by the Board of Directors in the absence of the
Chairman of the Board the President shall have the powers and duties of the
Chairman of the Board.
<PAGE>
Section 4. The Chairman of the Board of Directors or the
President as designated by the Board of Directors, shall carry into effect all
legal directions of the Executive Committee and of the Board of Directors, and
shall at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice
of meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over
all assets and liabilities of the Company. He shall be custodian of and
responsible for all monies, funds and valuables of the Company and for the
keeping of proper records of the evidence of property or indebtedness and of all
the transactions of the Company. He shall have general supervision of the
expenditures of the Company and shall report to the Board of Directors at each
regular meeting of the condition of the Company, and perform such other duties
as may be assigned to him from time to time by the Board of Directors of the
Executive Committee.
Section 8. There may be a Controller who shall exercise
general supervision over the internal operations of the Company, including
accounting, and shall render to the Board of Directors at appropriate times a
report relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to
be in charge of the Audit Division of the Company with such title as the Board
of Directors shall prescribe, shall report to and be directly responsible only
to the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
<PAGE>
Section 10. There may be one or more officers, subordinate in
rank to all Vice Presidents with such functional titles as shall be determined
from time to time by the Board of Directors, who shall ex officio hold the
office Assistant Secretary of this Company and who may perform such duties as
may be prescribed by the officer in charge of the department or division to whom
they are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books
of the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of
the President or any Vice President, however denominated by the Board of
Directors and countersigned by the Secretary or Treasurer or an Assistant
Secretary, and the seal of the corporation shall be engraved thereon. Each
certificate shall recite that the stock represented thereby is transferrable
only upon the books of the Company by the holder thereof or his attorney, upon
surrender of the certificate properly endorsed. Any certificate of stock
surrendered to the Company shall be cancelled at the time of transfer, and
before a new certificate or certificates shall be issued in lieu thereof.
Duplicate certificates of stock shall be issued only upon giving such security
as may be satisfactory to the Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized
to fix in advance a record date for the determination of the stockholders
entitled to notice of, and to vote at, any meeting of stockholders and any
adjournment thereof, or entitled to receive payment of any dividend, or to any
allotment or rights, or to exercise any rights in respect of any change,
conversion or exchange of capital stock, or in connection with obtaining the
consent of stockholders for any purpose, which record date shall not be more
than 60 nor less than 10 days proceeding the date of any meeting of stockholders
or the date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of capital stock
shall go into effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words
<PAGE>
"Wilmington Trust Company" within the inner
circle the words "Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the
calendar year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any
Vice President, however denominated by the Board of Directors, shall have full
power and authority to enter into, make, sign, execute, acknowledge and/or
deliver and the Secretary or any Assistant Secretary shall have full power and
authority to attest and affix the corporate seal of the Company to any and all
deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company,
other than salaried officers of the Company, shall be paid such reasonable
honoraria or fees for attending meetings of the Board of Directors as the Board
of Directors may from time to time determine. Directors and associate directors
who serve as members of committees, other than salaried employees of the
Company, shall be paid such reasonable honoraria or fees for services as members
of committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a
<PAGE>
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of expenses,
under this Article X is not paid in full within ninety days after a written
claim therefor has been received by the Corporation the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In any
such action the Corporation shall have the burden of proving that the claimant
was not entitled to the requested indemnification of payment of expenses under
applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions
of this Article X shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed,
in whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
<PAGE>
EXHIBIT C
SECTION 321(B) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: November 13, 1997
By: /s/ Norma P. Closs
------------------
Name: Norma P. Closs
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks
with state publication requirements. It has not been approved by any
state banking authorities. Refer to your appropriate state banking
authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
<TABLE>
<CAPTION>
WILMINGTON TRUST COMPANY of WILMINGTON
<S> <C> <C> <C>
Name of Bank City
in the State of DELAWARE , at the close of business on September 30, 1997.
ASSETS
Thousands of dollars Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency and coins................................................206,619
Interest-bearing balances.............................................................................. 0
Held-to-maturity securities............................................................................... 364,899
Available-for-sale securities.............................................................................1,038,826
Federal funds sold and securities purchased under agreements to resell......................................126,000
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,830,772
LESS: Allowance for loan and lease losses. . . . . . 55,936
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve.................................3,774,836
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................118,895
Other real estate owned...................................................................................... 1,830
Investments in unconsolidated subsidiaries and associated companies............................................ 34
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets ............................................................................................5,215
Other assets .......................................................................................... 91,240
Total assets..............................................................................................5,728,394
CONTINUED ON NEXT PAGE
<PAGE>
LIABILITIES
Deposits:
In domestic offices................................................................................................
3,980,001
Noninterest-bearing . . . . . . . . 859,817
Interest-bearing. . . . . . . . . . 3,120,184
Federal funds purchased and Securities sold under agreements to repurchase................................. 327,543
Demand notes issued to the U.S. Treasury.....................................................................89,508
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less.........................................................734,000
With original maturity of more than one year........................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 104,674
Total liabilities ........................................................................................5,278,726
EQUITY CAPITAL
Perpetual preferred stock and related surplus.....................................................................0
Common Stock ..............................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................380,993
Net unrealized holding gains (losses) on available-for-sale securities........................................6,057
Total equity capital...............................................................................................
449,668
Total liabilities, limited-life preferred stock, and equity capital.......................................5,728,394
</TABLE>
EXHIBIT 25.2
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
TELEBANC FINANCIAL CORPORATION
(Exact name of obligor as specified in its charter)
Delaware
(State of incorporation) (I.R.S. employer identification no.)
1111 North Highland Street
Arlington, Virginia 22201
(Address of principal executive offices) (Zip Code)
Exchange Junior Subordinated Debentures
of TeleBanc Financial Corporation
(Title of the indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a)Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor is not an
affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 13th day
of November, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Donald G. MacKelcan
-------------------------
By: /s/ Norma P. Closs
---------------------
Assistant Secretary
Name: Norma P. Closs
Title: Vice President
EXHIBIT 25.3
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
TELEBANC FINANCIAL CORPORATION
(Exact name of obligor as specified in its charter)
Delaware
(State of incorporation) (I.R.S. employer identification no.)
1111 North Highland Street
Arlington, Virginia 22201
(Address of principal executive offices) (Zip Code)
TeleBanc Financial Corporation Guarantee with respect
to Exchange Capital Securities
(Title of the indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the
obligor is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 13th day
of November, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Donald G. MacKelcan
-----------------------
Assistant Secretary
By: /s/ Norma P. Closs
---------------------
Name: Norma P. Closs
Title: Vice President
- --------
Insert in Definitive Capital Securities only.
Insert in Global Capital Securities only.
Signature must be guaranteed by an "eligible guarantor
institution" that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TELEBANC CAPITAL TRUST I
OFFER TO EXCHANGE ITS
11.00% EXCHANGE CAPITAL SECURITIES
("EXCHANGE CAPITAL SECURITIES")
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11.00% ORIGINAL CAPITAL SECURITIES
("ORIGINAL CAPITAL SECURITIES")
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
TELEBANC FINANCIAL CORPORATION
PURSUANT TO THE PROSPECTUS DATED DECEMBER _____, 1997
(AS THE SAME MAY BE AMENDED OR SUPPLEMENTED, THE "PROSPECTUS")
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JANUARY ___, 1998,
OR ON SUCH LATER DATE OR TIME TO WHICH
THE CORPORATION OR THE TRUST
MAY EXTEND THE EXCHANGE OFFER (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent For The Exchange Offer Is:
Wilmington Trust Company
By Hand, Overnight Delivery, Registered or Certified Mail:
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Attention: Corporate Trust Department
Confirm by Telephone: (302) 651-1000
Facsimile Transmissions: (302) 651-8882
(ELIGIBLE INSTITUTIONS ONLY)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus. As used herein, the term "Holder" means a
holder of Original Capital Securities, including any participant ("DTC
Participant") in the book-entry transfer facility system of The Depository Trust
Company ("DTC") whose name appears on a security position listing as the owner
of the Original Capital Securities. As used herein, the term "Certificates"
means physical certificates representing Original Capital Securities.
To participate in the Exchange Offer (as defined below), Holders must
tender by (a) book-entry transfer pursuant to the procedures set forth in the
Prospectus under "The Exchange Offer--Procedures for Tendering Original
Capital," or (b) forwarding Certificates herewith.
Holders who are DTC Participants tendering by book-entry transfer must
execute such tender through the Automated Tender Offer Program ("ATOP") of DTC.
A Holder using ATOP should transmit its acceptance to DTC on or prior to the
Expiration Date. DTC will verify such acceptance, execute a book-entry transfer
of the tendered Original Capital Securities into the Exchange Agent's account at
DTC and then send to the Exchange Agent confirmation of such book-entry transfer
(a "book-entry confirmation"), including an agent's message ("Agent's Message")
confirming that DTC has received an express acknowledgment from such Holder that
such Holder has received and agrees to be bound by this Letter of Transmittal
and that the Trust and the Corporation may enforce this Letter of Transmittal
against such Holder. The book-entry confirmation must be received by the
Exchange Agent in order for the tender relating thereto to be effective.
Book-entry transfer to DTC in accordance with DTC's procedures does not
constitute delivery of the book-entry confirmation to the Exchange Agent.
If the tender is not made through ATOP, Certificates, as well as this
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date in order for
such tender to be effective.
Holders of Original Capital Securities who cannot complete the
procedures for delivery by book-entry transfer of such Original Capital
Securities on a timely basis or who cannot deliver their Certificates for such
Original Capital Securities and all other required documents to the Exchange
Agent on or prior to the Expiration Date, must, in order to participate in the
Exchange Offer, tender their Original Capital Securities according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer--Procedures for Tendering Original Capital Securities."
THE METHOD OF DELIVERY OF THE BOOK-ENTRY CONFIRMATION OR CERTIFICATES,
THIS LETTER OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION
AND SOLE RISK OF THE TENDERING HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY
SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
E-2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
====================================================================================================================
DESCRIPTION OF ORIGINAL CAPITAL SECURITIES
- --------------------------------------------------------------------------------------------------------------------
If blank, please print name and Original Capital Securities tendereD
address of registered holder. (Attach additional list if necessary)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liquidation Amount
Certificate Aggregate of Original Capital
Number(s)* Liquidation Amount Securities Tendered
of Original Capital (if less than all)**
Securities
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL AMOUNT
TENDERED
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Original Capital Securities may be tendered in whole or in part indenominations of $100,000 and integral
multiples of $1,000 in excess thereof, provided that if any Original Capital Securities are tendered for
exchange in part, the untendered Liquidation Amount thereof must be $100,000 or any integral multiple of $1,000
in excess thereof. All Original Capital Securities held shall be deemed tendered unless a lesser number is
specified in this column. See Instruction 4.
=====================================================================================================================
</TABLE>
E-3
<PAGE>
BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY
[ ] CHECK HERE IF TENDERED ORIGINAL CAPITAL 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:__________________________________________________
DTC Account Number:_____________________________________________________________
Transaction Code Number:________________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED ORIGINAL CAPITAL SECURITIES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT, AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s):_______________________________________________
Window Ticket Number (if any):______________________________________________
Date of Execution of Notice of Guaranteed Delivery:_________________________
Name of Institution which Guaranteed Delivery:______________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:________________
Name of Tendering Institution:______________________________________________
DTC Account Number:_________________________________________________________
Transaction Code Number:____________________________________________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL CAPITAL
SECURITIES FOR YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER
TRADING ACTIVITIES AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF THE
PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:___________________________________________________________________________
Address:________________________________________________________________________
E-4
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to TeleBanc Capital Trust I, a trust
formed under the laws of the State of Delaware (the "Trust") and TeleBanc
Financial Corporation, a Delaware corporation (the "Corporation"), the above
described aggregate Liquidation Amount of the Trust's Original Capital
Securities in exchange for a like aggregate Liquidation Amount of the Trust's
Exchange Capital Securities which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), upon the terms and subject to the
conditions set forth in the Prospectus, receipt of which is hereby acknowledged,
and in this Letter of Transmittal (which, together with the Prospectus,
constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Original Capital Securities tendered herewith in accordance with
the terms and conditions of the Exchange Offer (including, if the Exchange Offer
is extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Trust all right, title and interest in and to such Original Capital
Securities as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Corporation and the Trust in connection with the Exchange Offer) with respect to
the tendered Original Capital Securities, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) subject only to the right of withdrawal described in the Prospectus,
to (i) deliver Certificates for Original Capital Securities to the Corporation
or the Trust together with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Trust, upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Capital Securities to be
issued in exchange for such Original Capital Securities, (ii) present
Certificates for such Original Capital Securities for transfer, and to transfer
the Original Capital Securities on the books of the Trust, and (iii) receive for
the account of the Trust all benefits and otherwise exercise all rights of
beneficial ownership of such Original Capital Securities, all in accordance with
the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
ORIGINAL CAPITAL SECURITIES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED
FOR EXCHANGE, THE TRUST WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE ORIGINAL CAPITAL SECURITIES TENDERED HEREBY ARE NOT SUBJECT TO ANY
ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND
DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE TRUST OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE
ORIGINAL CAPITAL SECURITIES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY
WITH ITS OBLIGATIONS UNDER THE REGISTRATION AGREEMENT. THE UNDERSIGNED HAS READ
AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered Holder(s) of the Original
Capital Securities tendered hereby should be printed in the box entitled
"Description of Original Capital Securities" above, if they are not already set
forth in such box, as they appear on the Certificates representing such Original
Capital Securities or on the records of DTC, as the case may be. The Certificate
number(s) of any such Certificates and the principal amount of such Original
Capital Securities should be specified in such box as indicated therein.
The undersigned understands that tenders of Original Capital Securities
pursuant to any one of the procedures described in "The Exchange
Offer--Procedures for Tendering Original Capital Securities" in the Prospectus
and in the instructions attached hereto will, upon the Corporation's and the
Trust's acceptance for exchange of such tendered Original Capital Securities,
constitute a binding agreement between the undersigned, the Corporation and the
Trust upon the terms and subject to the conditions of the Exchange Offer.
E-5
<PAGE>
The undersigned recognizes that, under certain circumstances set forth
in the Prospectus, the Corporation and the Trust may not be required to accept
for exchange any of the Original Capital Securities tendered hereby.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Capital
Securities be issued in the name(s) of the undersigned or credited to the
account at DTC indicated above in the case of a book-entry transfer of Original
Capital Securities.
If any Original Capital Securities are submitted for more Original
Capital Securities than are tendered or accepted for exchange, then, without
expense to the tendering Holder, promptly following the expiration or
termination of the Exchange Offer, such non-exchanged or non-tendered Original
Capital Securities will, if evidenced by Certificates, be returned, or will, if
evidenced by book-entry, be credited to the account at DTC indicated above. If
applicable, substitute Certificates representing non-exchanged Original Capital
Securities will be issued to the undersigned or non-exchanges Original Capital
Securities will be credited to the account at DTC indicated above in the case of
a book-entry transfer of Original Capital Securities.
Unless otherwise indicated under "Special Delivery Instructions,"
certificates for Original Capital Securities and for Exchange Capital Securities
will be delivered to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING ORIGINAL CAPITAL SECURITIES AND EXECUTING THIS LETTER OF
TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (1) THE
UNDERSIGNED IS NOT AN "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES
ACT) OF THE CORPORATION OR THE TRUST, (2) ANY EXCHANGE CAPITAL SECURITIES TO BE
RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS
BUSINESS, (3) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY
PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES
ACT) OF EXCHANGE CAPITAL SECURITIES TO BE RECEIVED IN THE EXCHANGE OFFER, AND
(4) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED
IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE
SECURITIES ACT) OF SUCH EXCHANGE CAPITAL SECURITIES. BY TENDERING ORIGINAL
CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF
TRANSMITTAL, A HOLDER OF ORIGINAL CAPITAL SECURITIES THAT IS A BROKER-DEALER
REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY
THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE
COMMISSION TO THIRD PARTIES, THAT (1) SUCH ORIGINAL CAPITAL SECURITIES ARE HELD
BY SUCH BROKER-DEALER ONLY AS A NOMINEE, OR (2) SUCH ORIGINAL CAPITAL SECURITIES
WERE ACQUIRED BY IT FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES
OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE CAPITAL SECURITIES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY
DELIVERING THE PROSPECTUS, IT WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE CORPORATION AND THE TRUST HAVE AGREED THAT, SUBJECT TO THE
PROVISIONS OF THE REGISTRATION AGREEMENT, THE PROSPECTUS MAY BE USED IN
CONNECTION WITH RESALES OF EXCHANGE CAPITAL SECURITIES RECEIVED IN EXCHANGE FOR
ORIGINAL CAPITAL SECURITIES BY A BROKER-DEALER WHO ACQUIRED ORIGINAL CAPITAL
SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") FOR A PERIOD ENDING 180 DAYS AFTER
THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES
DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH EXCHANGE CAPITAL
SECURITIES HAVE BEEN DISPOSED OF
E-6
<PAGE>
BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH PARTICIPATING
BROKER-DEALER, BY TENDERING SUCH ORIGINAL CAPITAL SECURITIES AND EXECUTING THIS
LETTER OF TRANSMITTAL OR BY TENDERING THROUGH BOOK-ENTRY TRANSFER IN LIEU
THEREOF, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE CORPORATION OR THE TRUST
OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY
MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE
OF EXCHANGE CAPITAL SECURITIES PURSUANT TO THE PROSPECTUS UNTIL (1) THE
CORPORATION AND THE TRUST HAVE AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT
SUCH MISSTATEMENT OR OMISSION AND HAVE FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR (2) THE
CORPORATION OR THE TRUST HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE CAPITAL
SECURITIES MAY BE RESUMED, AS THE CASE MAY BE. IF THE CORPORATION OR THE TRUST
GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE CAPITAL SECURITIES, THEY
SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING
BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE
OF EXCHANGE CAPITAL SECURITIES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND
INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE ON
WHICH (1) PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE
CAPITAL SECURITIES OR (2) THE CORPORATION OR THE TRUST HAS GIVEN NOTICE THAT THE
SALE OF EXCHANGE CAPITAL SECURITIES MAY BE RESUMED, AS THE CASE MAY BE.
AS A RESULT, A PARTICIPATING BROKER-DEALER WHO INTENDS TO USE THE
PROSPECTUS IN CONNECTION WITH RESALES OF EXCHANGE CAPITAL SECURITIES RECEIVED IN
EXCHANGE FOR ORIGINAL CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER MUST
NOTIFY THE CORPORATION AND THE TRUST, OR CAUSE THE CORPORATION AND THE TRUST TO
BE NOTIFIED, ON OR PRIOR TO THE EXPIRATION DATE, THAT IT IS A PARTICIPATING
BROKER-DEALER. SUCH NOTICE MAY BE GIVEN IN THE SPACE PROVIDED ABOVE OR MAY BE
DELIVERED TO THE EXCHANGE AGENT AT THE ADDRESS SET FORTH IN THE PROSPECTUS UNDER
"THE EXCHANGE OFFER--EXCHANGE AGENT."
Holders whose Original Capital Securities are accepted for exchange
will not receive Distributions on such Original Capital Securities and the
undersigned hereby waives the right to receive any Distributions on such
Original Capital Securities accumulated from and including June 9, 1997.
Accordingly, holders of Exchange Capital Securities (as of the record date) for
the payment of Distributions on December 1, 1997 will be entitled to
Distributions accumulated from and including June 9, 1997.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Corporation or the Trust to be necessary or desirable to
complete the sale, assignment and transfer of the Original Capital Securities
tendered hereby. All authority herein conferred or agreed to be conferred in
this Letter of Transmittal shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of the undersigned.
Except as stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF
ORIGINAL CAPITAL SECURITIES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO
HAVE TENDERED THE ORIGINAL CAPITAL SECURITIES AS SET FORTH IN SUCH BOX.
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<PAGE>
HOLDER(S) SIGN HERE
(SEE ATTACHED INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON THE LAST PAGE)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Original Capital Securities hereby tendered or on the
records of DTC, as the case may be, or by any person(s) authorized to become the
registered Holder(s) by endorsements and documents transmitted herewith
(including such opinions of counsel, certifications and other information as may
be required by the Trust to comply with the restrictions on transfer applicable
to the Original Capital Securities). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or another
acting in a fiduciary capacity or representative capacity, set forth the
signatory's full title. See Instruction 5.
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date: __________________________________________, 1997
Name(s):________________________________________________________________________
(PLEASE PRINT)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
Tax Identification or Social Security Number(s):________________________________
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<PAGE>
GUARANTEE OF SIGNATURE(S)
(SEE ATTACHED INSTRUCTIONS 2 AND 5)
________________________________________________________________________________
(AUTHORIZED SIGNATURE)
Date:__________________________________________, 1997
Name of Firm:___________________________________________________________________
(PLEASE PRINT)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
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<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE ATTACHED INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if certificates for Exchange Capital Securities or
non-tendered or non-exchanged Original Capital Securities are to be issued in
the name of someone other than the registered Holder(s) of the Original Capital
Securities whose name(s) appear(s) above.
Issue:
[ ] Non-tendered or non-exchanged Original Capital Securities to:
[ ] Exchange Capital Securities to:
Name(s):________________________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number:_______________________________________________________________
Tax Identification or Social Security Number(s):________________________________
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<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE ATTACHED INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if certificates for Exchange Capital Securities or
non-tendered or non-exchanged Original Capital Securities are to be sent to
someone other than the registered Holder(s) of the Original Capital Securities
whose name(s) appear(s) above, or such registered Holder(s) at an address other
than that shown above.
Mail:
[ ] Non-tendered or non-exchanged Original Capital Securities to:
[ ] Exchange Capital Securities to:
Name(s):________________________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number:_______________________________________________________________
Tax Identification or Social Security Number(s):________________________________
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<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. BOOK-ENTRY TRANSFER; DELIVERY OF LETTER OF TRANSMITTAL AND
CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. To tender in the Exchange Offer,
Holders must tender by (a) forwarding Certificates herewith or (b) book-entry
transfer pursuant to the procedures set forth in "The Exchange Offer-Procedures
for Tendering Original Capital Securities" in the Prospectus. Holders who are
DTC Participants tendering by book-entry transfer must execute such tender
through DTC's ATOP system. A Holder using ATOP should transmit its acceptance to
DTC on or prior to the Expiration Date. DTC will verify such acceptance, execute
a book-entry transfer of the tendered Original Capital Securities into the
Exchange Agent's account at DTC and then send to the Exchange Agent a book-entry
confirmation, including an Agent's Message confirming that DTC has received an
express acknowledgment from such Holder that such Holder has received and agrees
to be bound by this Letter of Transmittal and that the Trust and the Corporation
may enforce this Letter of Transmittal against such Holder. The book-entry
confirmation must be received by the Exchange Agent in order for the tender
relating thereto to be effective. Book-entry transfer to DTC in accordance with
DTC's procedure does not constitute delivery of the book-entry confirmation to
the Exchange Agent.
IF THE TENDER IS NOT MADE THROUGH ATOP, CERTIFICATES, AS WELL AS THIS
LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), PROPERLY COMPLETED AND DULY
EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, AND ANY OTHER DOCUMENTS
REQUIRED BY THIS LETTER OF TRANSMITTAL, MUST BE RECEIVED BY THE EXCHANGE AGENT
AT ITS ADDRESS SET FORTH HEREIN ON OR PRIOR TO THE EXPIRATION DATE IN ORDER FOR
SUCH TENDER TO BE EFFECTIVE.
Original Capital Securities may be tendered in whole or in part in the
Liquidation Amount of $100,000 (100 Capital Securities) and integral multiples
of $1,000 in excess thereof, provided that, if any Original Capital Securities
are tendered for exchange in part, the untendered Liquidation Amount thereof
must be $100,000 (100 Capital Securities) or any integral multiple of $1,000 in
excess thereof.
Holders who wish to tender their Original Capital Securities and (i)
whose Original Capital Securities are not immediately available or (ii) who
cannot deliver their Original Capital Securities, this Letter of Transmittal and
all other required documents to the Exchange Agent on or prior to the Expiration
Date or (iii) who cannot complete the procedures for delivery by book-entry
transfer on a timely basis, may tender their Original Capital Securities by
properly completing and duly executing a notice to the Exchange Agent
guaranteeing delivery to the Exchange Agent of either certificates representing
the Original Capital Securities or a book-entry confirmation in compliance with
the requirements set forth in the Prospectus (the "Notice of Guaranteed
Delivery"), pursuant to the guaranteed delivery procedures set forth in the
Prospectus under "The Exchange Offer--Procedures for Tendering Original Capital
Securities--Guaranteed Delivery." Pursuant to such procedures: (i) such tender
must be made by or through an Eligible Institution (as defined below); (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying this Letter of Transmittal, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii) (a)
a book-entry confirmation or (b) the certificates representing all tendered
Original Capital Securities, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery, all as provided in the Prospectus under "The
Exchange Offer--Procedures for Tendering Original Capital Securities--Guaranteed
Delivery".
A Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Original Capital
Securities to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or
prior to the Expiration Date. As used herein and in the Prospectus, "Eligible
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<PAGE>
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as "an eligible guarantor institution," including (as such terms
are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association.
THE METHOD OF DELIVERY OF THE BOOK-ENTRY CONFIRMATION OR CERTIFICATES,
THIS LETTER OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION
AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY
SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Neither the Corporation nor the Trust will accept any alternative,
conditional or contingent tenders. Each tendering Holder, by book-entry transfer
through ATOP or execution of a Letter of Transmittal (or facsimile thereof),
waives any right to receive any notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered Holder(s) of
Original Capital Securities tendered herewith, unless such Holder(s)
has completed either the box entitled "Special Issuance Instructions"
or the box entitled "Special Delivery Instructions" above, or
(ii) such Original Capital Securities are tendered for the account of a firm
that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Original Capital Securities" is inadequate, the Certificate
number(s) and/or the principal amount of Original Capital Securities and any
other required information should be listed on a separate signed schedule which
is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Original Capital
Securities will be accepted only in the Liquidation Amount of $100,000 (100
Capital Securities) and integral multiples of $1,000 in excess thereof, provided
that if any Original Capital Securities are tendered for exchange in part, the
untendered Liquidation Amount thereof must be $100,000 (100 Capital Securities)
or any integral multiple of $1,000 in excess thereof. If less than all the
Original Capital Securities are to be tendered, fill in the Liquidation Amount
of Original Capital Securities that are to be tendered in the box entitled
"Liquidation Amount of Original Capital Securities Tendered." If applicable, new
Certificate(s) for the Original Capital Securities that were not tendered will
be sent to the address designated herein by such Holder promptly after the
Expiration Date. All Original Capital Securities represented by Certificates
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
Except as otherwise provided herein, tenders of Original Capital
Securities may be withdrawn at any time on or prior to the Expiration Date. In
order for a withdrawal to be effective on or prior to such date, a written or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth above or in the Prospectus
on or prior to such date. Any such notice of withdrawal must specify the name of
the person who tendered the Original Capital Securities to be withdrawn, the
aggregate principal amount of Original Capital Securities to be withdrawn, and,
if any Certificates for Original Capital Securities have been
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<PAGE>
tendered, the name of the registered Holder of the Original Capital Securities
as set forth on any such Certificates, if different from that of the person who
tendered such Original Capital Securities. If Certificates for the Original
Capital Securities have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Certificates, the tendering
Holder must submit the serial numbers shown on the particular Certificates to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Original Capital Securities tendered
for the account of an Eligible Institution. If Original Capital Securities have
been tendered pursuant to the procedures for book-entry transfer set forth in
the Prospectus under "The Exchange Offer-- Procedures for Tendering Original
Capital Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Original Capital
Securities. Withdrawals of tenders of Original Capital Securities may not be
rescinded. Original Capital Securities properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described herein.
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Corporation and
the Trust, in their sole discretion, whose determination shall be final and
binding on all parties. Neither the Corporation, the Trust, any affiliates or
assigns of the Corporation or the Trust, the Exchange Agent nor any other person
shall be under any duty to give any notification of any irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification. Any Original Capital Securities which have been tendered but which
are withdrawn will be returned or transferred by book-entry, as the case may be,
to the Holder thereof without cost to such Holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Original Capital Securities tendered hereby, the signature(s) must correspond
exactly with the name(s) as written on the face of the Certificate(s) for such
Original Capital Securities, without alteration, enlargement or any change
whatsoever, or as recorded in DTC's book-entry transfer facility system, as the
case may be.
If any Certificates tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Capital Securities are registered in different
names on several Certificates, it will be necessary to complete, sign and submit
as many separate Letters of Transmittal as there are different registrations of
Certificates. If any tendered Original Capital Securities are registered in
different names in several book-entry accounts, proper procedures for book-entry
transfer must be followed for each account.
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 must submit proper
evidence satisfactory to the Corporation and the Trust, in their sole
discretion, of each such person's authority so to act.
When this Letter of Transmittal is signed by the registered Holder(s)
of the Original Capital Securities listed and transmitted hereby, or book-entry
transfer is effectuated by such Holder(s), no endorsement(s) of Certificate(s)
or separate bond power(s) are required except if Exchange Capital Securities are
to be issued in the name of a person other than the registered Holder(s). If
such exception applies, signature(s) on such Certificate(s) or bond power(s)
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the Original Capital Securities listed, the
Certificate(s) must be endorsed or accompanied by appropriate bond powers,
signed exactly as the name(s) of the registered Holder(s) appear(s) on the
Certificates, and also must be accompanied by such opinions of counsel,
certifications and other information as the Corporation or the Trust may require
in accordance with the restrictions on
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<PAGE>
transfer applicable to the Original Capital Securities. In such event,
signatures on such Certificates or bond powers must be guaranteed by an Eligible
Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Capital
Securities are to be issued in the name of a person other than the signer of
this Letter of Transmittal, or if Exchange Capital Securities are to be sent to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed. Original Capital Securities not exchanged will be returned,
if evidenced by Certificates, by mail or, if tendered by book-entry transfer, by
crediting the account at DTC indicated above in Instruction 4.
7. IRREGULARITIES. The Corporation and the Trust will determine, in
their sole discretion, all questions as to the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tender of Original Capital Securities, which determination shall be final and
binding on all parties. The Corporation and the Trust reserve the absolute right
to reject any and all tenders determined by either of them not to be in proper
form or the acceptance of which, or exchange for which, may in the view of
counsel to the Corporation and the Trust be unlawful. The Corporation and the
Trust also reserve the absolute right, subject to applicable law, to waive any
of the conditions of the Exchange Offer set forth in the Prospectus under "The
Exchange Offer--Conditions to the Exchange Offer" or any conditions or
irregularity in any tender of Original Capital Securities of any particular
Holder whether or not similar conditions or irregularities are waived in the
case of other Holders. The Corporation's and the Trust's interpretation of the
terms and conditions of the Exchange Offer (including this Letter of Transmittal
and the instructions hereto) will be final and binding. No tender of Original
Capital Securities will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. The
Corporation, the Trust, any affiliates or assigns of the Corporation, the Trust,
the Exchange Agent, or any other person shall not be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front cover of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and this
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a Holder whose tendered Original Capital Securities are accepted
for exchange is required to provide the Exchange Agent with such Holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If
the Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the Holder or other payee to a $50 penalty. In
addition, payments to such Holders or other payees with respect to Original
Capital Securities exchanged pursuant to the Exchange Offer may be subject to
31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-9.
If the Holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60-day period
will be remitted to the Holder and no further amounts shall be retained or
withheld from payments made to the Holder thereafter. If, however, the Holder
has not provided the Exchange Agent with its TIN within such 60-day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
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<PAGE>
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Capital Securities or of the last transferee appearing on the
transfers attached to, or endorsed on, the Original Capital Securities. If the
Original Capital Securities are registered in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
Holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Corporation and the Trust reserve the
absolute right to waive satisfaction of any or all conditions enumerated in the
Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional or contingent
tenders will be accepted. All tendering Holders, by execution of this Letter of
Transmittal, shall waive any right to receive notice of the acceptance of
Original Capital Securities for exchange.
Neither the Corporation, the Trust, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of Original Capital Securities nor shall any of them incur any
liability for failure to give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Original Capital Securities have been lost, destroyed or stolen,
the Holder should promptly notify the Exchange Agent. The Holder will then be
instructed as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Original Capital
Securities for exchange will not be obligated to pay any transfer taxes in
connection therewith. If, however, Exchange Capital Securities are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Original Capital Securities tendered, or if a transfer
tax is imposed for any reason other than the exchange of Original Capital
Securities in connection with the Exchange Offer, then the amount of any such
transfer tax (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 with this Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
IMPORTANT: BOOK-ENTRY CONFIRMATION OR THIS LETTER OF
TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
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TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 9)
PAYOR'S NAME: WILMINGTON TRUST COMPANY
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY
FORM W-9 BY SIGNING AND DATING BELOW. -------------------------
DEPARTMENT OF THE TREASURY SOCIAL SECURITY NUMBER OR
INTERNAL REVENUE SERVICE TAXPAYER IDENFICIATION
SERVICE NUMBER
PAYER' REQUEST FOR
TAXPAYER
IDENTIFICATION NUMBER
("TIN")
AND CERTIFICATION ----------------------------------------------------------------------------------------------
PART 2 - TIN APPLIED FOR [ ]1
----------------------------------------------------------------------------------------------
CERTIFICATION: UNDER THE 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).
(2) I am not subject to backup witholding either because(i) I am exempt from backup witholding,
(ii) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or dividends, or (iii)
IRS has notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
The Internal Revenue Service does not require your consent to any provision of this document
other than the Certifications required to be avoid backup witholding.
SIGNATURE: ________________________________ DATED: _________________________________
- -----------------------------------------------------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax return and you have not been notified by the IRS
that you are no longer subject to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY
AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 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 (1) 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 (2) I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I
UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER BY THE TIME OF PAYMENT, 31% OF ALL PAYMENTS MADE TO ME
THEREAFTER WILL BE WITHHELD AND REMITTED TO THE INTERNAL REVENUE SERVICE UNTIL I PROVIDE A TAXPAYER IDENTIFICATION NUMBER.
- ------------------------------------------------------------------------ --------------------------------------------------
SIGNATURE DATE
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
E-17
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
11.00% ORIGINAL CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
OF
TELEBANC CAPITAL TRUST I
FULLY AND UNCONDITIONALLY GUARANTEED BY
TELEBANC FINANCIAL CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Trust's (as defined below) 11.00% Original Capital
Securities (the "Original Capital Securities") are not immediately available,
(ii) Original Capital Securities, the Letter of Transmittal and all other
required documents cannot be delivered to Wilmington Trust Company (the
"Exchange Agent") on or prior to the Expiration Date (as defined in the
Prospectus referred to below) or (iii) the procedures for delivery by book-entry
transfer cannot be completed on a timely basis. This Notice of Guaranteed
Delivery may be delivered by hand, overnight courier or mail, or transmitted by
facsimile transmission, to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Original Capital Securities" in the Prospectus.
In addition, in order to utilize the guaranteed delivery procedure to tender
Original Capital Securities pursuant to the Exchange Offer, a completed, signed
and dated Letter of Transmittal relating to the Original Capital Securities (or
facsimile thereof) must also be received by the Exchange Agent on or prior to
the Expiration Date. Capitalized terms not defined herein have the meanings
assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
Wilmington Trust Company
By Hand, Overnight Delivery, Registered or Certified Mail:
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Attention: Corporate Trust Department
Confirm by Telephone: (302) 651-1000
Facsimile Transmissions: (302) 651-8882
(ELIGIBLE INSTITUTIONS ONLY)
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A 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.
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<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to TeleBanc Capital Trust I, a Delaware
business trust (the "Trust") and to TeleBanc Financial Corporation, a Delaware
Corporation (the "Corporation"), upon the terms and subject to the conditions
set forth in the Prospectus dated December _________, 1997 (as the same may be
amended or supplemented from time to time, the "Prospectus"), and the related
Letter of Transmittal (which together constitute the "Exchange Offer"), receipt
of which is hereby acknowledged, the aggregate liquidation amount of Original
Capital Securities set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange
Offer--Procedures for Tendering Original Capital Securities."
Aggregate Liquidation Amount:___________________________________________________
Name(s) of Registered Holder(s):________________________________________________
Amount Tendered: $_____________________________________________________________*
Certificate No(s)
(if available):_________________________________________________________________
Total Liquidation Amount Represented by Original Capital Securities
Certificate(s): $_____________
If Original Capital Securities will be tendered by book-entry transfer, provide
the following information:
DTC Account Number:____________________________________________________
Date:__________________________________________________________________
- --------------------------------
* Must be in denominations of a Liquidation Amount of $1,000 and any integral
multiple thereof, and not less than $100,000 aggregate Liquidation Amount.
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<PAGE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE:
X_______________________________________ ______________________________
X_______________________________________ ______________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:_________________________________________________
This Notice of Guaranteed Delivery must be signed by the holder(s) of
the Original Capital Securities as their name(s) appear(s) on certificates for
Original Capital Securities or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement 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 set
forth his or her full title below.
Please print name(s) and address(es):
Name(s): ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Capacity: ___________________________________________________________________
Address(es): ___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
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<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker or government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Original
Capital Securities tendered hereby in proper form for transfer, or confirmation
of the book-entry transfer of such Original Capital Securities to the Exchange
Agent's account at The Depository Trust Company, pursuant to the procedures for
book-entry transfer set forth in the Prospectus, in either case together with
one or more properly completed and duly executed Letter(s) of Transmittal (or
facsimile thereof) and any other required documents within three business days
after the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Original Capital Securities tendered hereby to the Exchange
Agent within the time period set forth above and that failure to do so could
result in a financial loss to the undersigned.
- --------------------------------- -----------------------------------
Name of Firm Authorized Signature
- --------------------------------- -----------------------------------
Address Please Type or Print Name
- --------------------------------- -----------------------------------
Zip Code Title
Area Code and Telephone No. __________________________ Dated:________________
NOTE: DO NOT SEND CERTIFICATES FOR ORIGINAL CAPITAL SECURITIES WITH THIS FORM.
CERTIFICATES FOR ORIGINAL CAPITAL SECURITIES SHOULD ONLY BE SENT WITH YOUR
LETTER OF TRANSMITTAL.
E-22
Exhibit 99.3
December __, 1997
Wilmington Trust Company
Corporate Trust Department
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Ladies and Gentlemen:
TeleBanc Capital Trust I, a trust formed under the laws of the State of
Delaware (the "Trust") proposes to make an offer (the "Exchange Offer") to
exchange any and all of its outstanding 11.00% Capital Securities (Liquidation
Amount $1,000 per Capital Security) (the "Original Capital Securities") for its
11.00% Exchange Capital Securities (Liquidation Amount $1,000 per Capital
Security) (the "Exchange Capital Securities"). All of the beneficial interests
represented by common securities of the Trust are owned by TeleBanc Financial
Corporation, a Delaware corporation (the "Corporation"). The terms and
conditions of the Exchange Offer as currently contemplated are set forth in a
prospectus, dated December _____, 1997 (as the same may be amended or
supplemented from time to time, the "Prospectus" and the related Letter of
Transmittal, which together constitute the "Exchange Offer"), to be distributed
to all record holders of the Original Capital Securities. A copy of the
Prospectus is attached hereto as Exhibit A. The Original Capital Securities and
the Exchange Capital Securities are collectively referred to herein as the
"Securities." Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus.
A copy of each of the form of the Letter of Transmittal, the form of
the Notice of Guaranteed Delivery, the form of letter to brokers and the form of
letter to clients are attached hereto as Exhibit B.
The Trust hereby authorizes and appoints Wilmington Trust Company to
act as exchange agent (the "Exchange Agent") in connection with the Exchange
Offer and Wilmington Trust Company hereby agrees to act as Exchange Agent in
connection with the Exchange Offer. References hereinafter to "you" shall refer
to Wilmington Trust Company.
The Exchange Offer is expected to be commenced by the Trust on or about
December ___, 1997. The Letter of Transmittal accompanying the Prospectus (or in
the case of book entry securities, the ATOP system) is to be used by the holders
of the Original Capital Securities to accept the Exchange Offer and contains
instructions with respect to (a) the delivery of certificates for Original
Capital
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<PAGE>
Securities tendered in connection therewith and (b) the book-entry transfer of
Securities to the Exchange Agent's account.
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
January ___, 1998 or on such later date or time to which the Corporation or the
Trust may extend the Exchange Offer (the "Expiration Date"). Subject to the
terms and conditions set forth in the Prospectus, the Corporation and the Trust
expressly reserve the right to extend the Exchange Offer from time to time by
giving oral (to be confirmed in writing) or written notice to you before 9:00
a.m., New York City time, on the Business Day following the previously scheduled
Expiration Date.
The Trust expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Original Capital Securities
not theretofore accepted for exchange, upon the occurrence of any of the
conditions of the Exchange Offer specified in the Prospectus under the caption
"The Exchange Offer--Conditions to the Exchange Offer." The Trust will give you
prompt oral (confirmed in writing) or written notice of any amendment,
termination or nonacceptance of Original Capital Securities.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
14. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
15. You will establish an account with respect to the Original Capital
Securities at The Depository Trust Company (the "Book-Entry Transfer Facility")
for purposes of the Exchange Offer within two Business Days after the date of
the Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of the
Original Capital Securities by causing the Book-Entry Transfer Facility to
transfer such Original Capital Securities into your account in accordance with
the Book-Entry Transfer Facility's procedure for such transfer.
16. You are to examine each of the Letters of Transmittal and
certificates for Original Capital Securities (or confirmation of book-entry
transfer into your account at the Book-Entry Transfer Facility) and any other
documents delivered or mailed to you by or for holders of the Original Capital
Securities to ascertain whether: (a) the Letters of Transmittal and any such
other documents are duly executed and properly completed in accordance with
instructions set forth therein, (b) the Original Capital Securities have
otherwise been properly tendered, and (c) tendering registered holders of the
Original Capital Securities have provided their correct Tax Identification
Number or required certification. In each case where the Letter of Transmittal
or any other document has been improperly completed or executed, or where
book-entry confirmations are not in due and proper form or omit certain
information, or any of the certificates for Original Capital
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<PAGE>
Securities are not in proper form for transfer or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform such holders of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
17. With the approval of any Administrative Trustee of the Trust or
any person designated in writing by the Corporation (a "Designated Officer")
(such approval, if given orally, to be confirmed in writing) or any other party
designated by any such Administrative Trustee or Designated Officer in writing,
you are authorized to waive any irregularities in connection with any tender of
Original Capital Securities pursuant to the Exchange Offer.
18. Tenders of Original Capital Securities may be made only as set
forth in the Letter of Transmittal and in the section of the Prospectus
captioned "The Exchange Offer--Procedures for Tendering Original Capital
Securities," and Original Capital Securities shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
therein.
Notwithstanding the provisions of this paragraph 5, Original Capital
Securities that any Administrative Trustee of the Trust or Designated Officer of
the Corporation shall approve as having been properly tendered shall be
considered to be properly tendered. Such approval, if given orally, shall be
confirmed in writing.
19. You shall advise the Trust and the Corporation with respect to any
Original Capital Securities received subsequent to the Expiration Date and
accept their instructions with respect to disposition of such Original Capital
Securities.
20. You shall accept tenders:
(a) in cases where the Original Capital Securities are registered in
two or more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of such person's authority so to act is submitted;
and
(c) from persons other than the registered holder of Original Capital
Securities provided that customary transfer requirements, including
satisfaction of any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Original Capital Securities where
so indicated and as permitted in the Letter of Transmittal and deliver
certificates for Original Capital Securities to the transfer agent for division
and return any untendered Original Capital Securities to the holder (or such
other person as may be designated in the Letter of Transmittal) as promptly as
practicable after expiration or termination of the Exchange Offer.
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<PAGE>
21. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Trust will notify you (such notice, if given orally, to be confirmed
in writing) of its acceptance, promptly after the Expiration Date, of all
Original Capital Securities properly tendered and you, on behalf of the Trust,
will exchange such Original Capital Securities for Exchange Capital Securities
and cause such Original Capital Securities to be canceled. Delivery of Exchange
Capital Securities will be made on behalf of the Trust by you at the rate of
$1,000 Liquidation Amount of Exchange Capital Securities for each $1,000
Liquidation Amount of the corresponding series of Original Capital Securities
tendered promptly after notice (such notice, if given orally, to be confirmed in
writing) of acceptance of said Original Capital Securities by the Trust;
provided, however, that in all cases, Original Capital Securities tendered
pursuant to the Exchange Offer will be exchanged only after timely receipt by
you of certificates for such Original Capital Securities (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents. You shall issue Exchange Capital Securities only in Liquidation
Amounts of $1,000 or any integral multiple thereof. Original Capital Securities
may be tendered in whole or in part in Liquidation Amounts of $100,000 and
integral multiples of $1,000 in excess thereof, provided that if any Original
Capital Securities are tendered for exchange in part, the untendered Liquidation
Amount thereof must be $100,000 or any integral multiple of $1,000 in excess
thereof.
22. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Original Capital Securities tendered pursuant to
the Exchange Offer may be withdrawn at any time on or prior to the Expiration
Date.
23. The Trust shall not be required to exchange any Original Capital
Securities tendered if any of the conditions set forth in the Exchange Offer are
not met. Notice of any decision by the Trust not to exchange any Original
Capital Securities tendered shall be given orally (and confirmed in writing) by
the Trust to you.
24. If, pursuant to the Exchange Offer, the Trust does not accept for
exchange all or part of the Original Capital Securities tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus under the caption "The Exchange Offer--Conditions to the Exchange
Offer" or otherwise, you shall promptly after the expiration or termination of
the Exchange Offer return those certificates for unaccepted Original Capital
Securities (or effect appropriate book-entry transfer), together with any
related required documents and the Letters of Transmittal relating thereto that
are in your possession, to the persons who deposited them.
25. All certificates for reissued Original Capital Securities,
unaccepted Original Capital Securities or for Exchange Capital Securities shall
be
E-26
<PAGE>
forwarded (a) by first-class certified mail, return receipt requested, under a
blanket surety bond protecting you and the Trust from loss or liability arising
out of the non-receipt or non-delivery of such certificates; (b) by registered
mail insured separately for the replacement value of each of such certificates
or (c) by effectuating appropriate book-entry transfer.
26. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
27. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth in the section of the Prospectus captioned "The Exchange
Offer," the Letter of Transmittal or herein or as may be subsequently
agreed to in writing by you and the Trust;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness
of any of the certificates or the Original Capital Securities
represented thereby deposited with you pursuant to the Exchange Offer,
and will not be required to and will make no representation as to the
validity, value or genuineness of the Exchange Offer or any other
disclosure materials delivered in connection therewith;
(c) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability,
unless you shall have been furnished with indemnity reasonably
satisfactory to you;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter,
telegram or other document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper
party or parties;
(e) may reasonably act upon any tender, statement, request, agreement
or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information contained therein, which you shall in
good faith believe to be genuine or to have been signed or represented
by a proper person or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any Administrative Trustee of the Trust or from any
Designated Officer of the Corporation;
(g) may consult with counsel satisfactory to you, including counsel
for the Trust, with respect to any questions relating to your duties
and responsibilities and the advice or opinion of such counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered
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<PAGE>
or omitted to be taken by you hereunder in good faith and in accordance
with the advice or opinion of such counsel, provided that you shall
promptly notify the Corporation of any action taken or omitted by you
in reliance upon such advice or opinion; and
(h) shall not advise any person tendering Original Capital Securities
pursuant to the Exchange Offer as to the wisdom of making such tender
or as to the market value or decline or appreciation in market value of
any Original Capital Securities.
28. You shall take such action as may from time to time be requested
by the Trust or its counsel or any Designated Officer of the Corporation (and
such other action as you may reasonably deem appropriate) to furnish copies of
the Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery or
such other forms as may be approved from time to time by the Trust or the
Corporation, to all persons requesting such documents and to accept and comply
with telephone requests for information relating to the Exchange Offer, provided
that such information shall relate only to the procedures for accepting (or
withdrawing from) the Exchange Offer. The Trust will furnish you with copies of
such documents at your request. All other requests for information relating to
the Exchange Offer shall be directed to the Trust, Attention: Aileen Lopez Pugh.
29. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to Aileen Lopez Pugh of the Trust, and
such other person or persons as the Trust or the Corporation may request, daily
(and more frequently during the week immediately preceding the Expiration Date
and if otherwise requested) up to and including the Expiration Date, the
aggregate Liquidation Amount of Original Capital Securities which have been
tendered pursuant to the Exchange Offer and the items received by you pursuant
to this Agreement, separately reporting and giving cumulative totals as to items
properly received and items improperly received. In addition, you will also
inform, and cooperate in making available to, the Trust or the Corporation or
any such other person or persons, upon oral request made from time to time on or
prior to the Expiration Date, such other information as it or such person
reasonably requests. Such cooperation shall include, without limitation, the
granting by you to the Trust or the Corporation, and such person as the Trust or
the Corporation may request, of access to those persons on your staff who are
responsible for receiving tenders, in order to ensure that immediately prior to
the Expiration Date the Trust or the Corporation shall have received information
in sufficient detail to enable it to decide whether to extend the Exchange
Offer. You shall prepare a final list of all persons whose tenders were
accepted, the aggregate Liquidation Amount of Original Capital Securities
tendered, the aggregate Liquidation Amount of Original Capital Securities
accepted and deliver said list to the Trust promptly after the Expiration Date.
30. Letters of Transmittal, book-entry confirmations and Notices of
Guaranteed Delivery shall be stamped by you as to the date and the time of
receipt
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<PAGE>
thereof and shall be preserved by you for a period of time at least equal to the
period of time you preserve other records pertaining to the transfer of
securities.
31. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Corporation or the Trust, or any of its or their subsidiaries or affiliates
pursuant to any loan or credit agreement with you or for compensation owed to
you hereunder.
32. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and the Notice of Guaranteed Delivery and further acknowledge that
you have examined each of them. Any inconsistency between this Agreement, on the
one hand, and the Prospectus, the Letter of Transmittal and the Notice of
Guaranteed Delivery (as they may be amended or supplemented from time to time),
on the other hand, shall be resolved in favor of the latter three documents,
except with respect to your duties, liabilities and indemnification which shall
be controlled by this Agreement.
33. For services rendered as Exchange Agent hereunder, you shall be
entitled to the compensation set forth on Schedule I attached hereto, plus
reasonable out-of-pocket expenses and reasonable attorneys' fees, incurred in
connection with your services hereunder, within 30 days following receipt by the
Corporation of an itemized statement of such expenses and fees in reasonable
detail.
34. (a) The Trust covenants and agrees to indemnify and hold you
(which for purposes of this paragraph shall include your directors, officers and
employees) harmless in your capacity as Exchange Agent hereunder from and
against any and all loss, liability, cost, damage, expense and claim, including
but not limited to reasonable attorneys' fees and expenses, you incurred as a
result of, arising out of or in connection with your performance of your duties
under this Agreement or your compliance with the instructions set forth herein
or delivered hereunder; provided, however, that the Trust shall not be liable
for indemnification or otherwise for any loss, liability, cost, damage, expense
or claim arising out of your gross negligence or willful misconduct. In no case
shall the Trust be liable under this indemnity with respect to any claim against
you unless and until you notify the Trust, by letter or by facsimile confirmed
by letter, of the written assertion of a claim against you or of any other
action commenced against you, promptly after you shall have received any such
written assertion or notice of commencement of action. The Trust shall be
entitled to participate at its own expense in the defense of any such claim or
other action, and, if the Trust so elects, the Trust may assume the defense of
any suit brought to enforce any such claim; provided that the Trust shall not be
entitled to assume the defense of any such action if the named parties to such
action include both the Trust and you and representation of both parties by the
same legal counsel would, in the written opinion of counsel to you, be
inappropriate due to actual or potential conflicting interests between them. In
the event that the Trust shall assume the defense of any such suit or threatened
action in respect of which indemnification may be
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<PAGE>
sought hereunder, the Trust shall not be liable for the fees and expenses of any
counsel thereafter retained by you. The Trust shall not be liable under this
paragraph for the fees and expenses of more than one legal counsel for you.
(b) You agree that, without the prior written consent of the Trust
(which consent shall not be unreasonably withheld), you will not settle,
compromise or consent to the entry of any pending or threatened claim, action,
or proceeding in respect of which indemnification could be sought in accordance
with the indemnification provisions of this Agreement (whether or not you or the
Trust or any of its trustees or controlling persons is an actual or potential
party to such claim, action or proceeding), unless such settlement, compromise
or consent includes an unconditional release of the Trust and its trustees and
controlling persons from all liability arising out of such claim, action or
proceeding.
35. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. The Trust understands that you are required in certain
instances to deduct 31% of the amounts to be paid with respect to interest paid
on the Exchange Capital Securities and proceeds from the sale, exchange,
redemption or retirement of the Exchange Capital Securities from holders who
have not supplied their correct Taxpayer Identification Number or required
certification. Such funds will be turned over to the Internal Revenue Service in
accordance with applicable regulations. You shall notify the Corporation and the
Trust of any holder who has failed to supply such Taxpayer Identification Number
or certification.
36. You shall notify the Trust of the amount of any transfer taxes
payable in respect of the exchange of Original Capital Securities and, upon
receipt of written approval from the Trust, you shall deliver or cause to be
delivered, in a timely manner to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Original Capital
Securities, your check in the amount of all transfer taxes so payable, and the
Trust shall reimburse you for the amount of any and all transfer taxes payable
in respect of the exchange of Original Capital Securities; provided, however,
that you shall reimburse the Trust for amounts refunded to you in respect of
your payment of any such transfer taxes, at such time as you received such
refund.
37. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto, and no other person shall
have any rights hereunder.
38. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
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<PAGE>
39. In case any provision of this Agreement 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. Upon such
determination that any term or provision or the application thereof is invalid,
illegal or unenforceable, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the agreements
contained herein may be performed as originally contemplated to the fullest
extent possible.
40. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
41. The descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
42. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or facsimile number set forth below:
If to the Trust:
TeleBanc Capital Trust I
c/o TeleBanc Financial Corporation
1111 North Highland Street
Arlington, VA 22201
Facsimile: (703) 247-5456
Attention: Aileen Lopez Pugh
If to the Exchange Agent:
Wilmington Trust Company
Corporate Trust Department
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Facsimile: (302) 651-8882
Attention: Corporate Trust Department
43. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 180 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 20 and 22 shall survive the termination of this
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<PAGE>
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Trust any certificates for Securities, funds or property then held by you as
Exchange Agent under this Agreement.
44. This Agreement shall be binding and effective as of the date
hereof.
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<PAGE>
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
TELEBANC CAPITAL TRUST I
By: _____________________________
Name: ________________
Title: Administrative Trustee
Accepted as the date first above written:
WILMINGTON TRUST COMPANY, as Exchange Agent
By:_________________________________
Name:
Title:
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<PAGE>
SCHEDULE I
FEES
Wilmington Trust Company
Corporate Trust Department
SCHEDULE OF FEES
FOR
TELEBANC CAPITAL TRUST I
11.00% EXCHANGE CAPITAL SECURITIES
I. Exchange Agent $
-------------- -------
Covers review of the Letter of Transmittal, the Exchange Agent Agreement and
other related documentation; establishment of accounts and systems link with
depositories; operational and administrative charges and time spent in
connection with the review, receipt and processing of Letters of Transmittal,
Agent's Messages and Notices of Guaranteed Delivery.
Note: The fees set forth in this schedule are subject to review of documentation
and our internal credit and conflict review. The fees are also subject to change
should circumstances warrant. Out-of-pocket expenses and disbursements,
including counsel fees, incurred in the performance of our duties will be added
to the billed fees. We may place orders to buy/sell financial instruments with
outside broker-dealers that we select, as well as __________________ or its
affiliates. These transactions (for which normal and customary spreads will be
earned in addition to the charges quoted above) will be executed on a riskless
principal basis solely for your account(s) and without recourse to us or our
affiliates. If you choose to invest in any mutual fund, _________________ and/or
our affiliates may earn service fees/expenses associated with these funds as
disclosed in the mutual fund prospectus provided to you, in addition to the
charges quoted above. We will provide periodic account statements describing
transactions executed for your account(s). Trade confirms will be available upon
your request at no additional charge. If a deal should fail to close for reasons
beyond our control, we reserve the right to charge our acceptance plus
reimbursement for legal fees incurred.
Fees for any services not specifically covered in this or other applicable
schedules will be based on an appraisal of services rendered.
E-34
EXHIBIT 99.4
TELEBANC CAPITAL TRUST I
OFFER FOR ALL OUTSTANDING
11.00% ORIGINAL CAPITAL SECURITIES
IN EXCHANGE FOR
11.00% EXCHANGE CAPITAL SECURITIES
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
TeleBanc Capital Trust I (the "Trust") is offering, upon and subject to
the terms and conditions set forth in a prospectus dated December ____, 1997 (as
the same may be amended or supplemented from time to time, the "Prospectus"),
and the enclosed letter of transmittal (the "Letter of Transmittal"), to
exchange (the "Exchange Offer") its 11.00% Exchange Capital Securities for any
and all of its outstanding 11.00% Original Capital Securities (the "Original
Capital Securities"). The Exchange Offer is being made in order to satisfy
certain obligations of the Trust and TeleBanc Financial Corporation (the
"Corporation") contained in the Registration Rights Agreement, dated June 5,
1997, among the Trust, the Corporation, and Sandler O'Neill & Partners, L.P.
We are requesting that you contact your clients for whom you hold
Original Capital Securities regarding the Exchange Offer. For your information
and for forwarding to your clients for whom you hold Original Capital Securities
registered in your name or in the name of your nominee, or who hold Original
Capital Securities registered in their own names, we are enclosing the following
documents:
37. The Prospectus dated December ______, 1997;
38. The Letter of Transmittal for your use and for the information (or
the use, where relevant) of your clients;
39. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Original Capital Securities are not immediately
available or time will not permit all required documents to reach the Exchange
Agent prior to the Expiration Date (as defined below) or if the procedure for
book-entry transfer cannot be completed on a timely basis;
40. A form of letter which may be sent to your clients for whose
account you hold Original Capital Securities registered in your name or the name
of your nominee, with space provided for obtaining such clients' instructions
with regard to the Exchange Offer; and
41. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON JANUARY ___, 1998, OR ON SUCH LATER DATE OR TIME TO
WHICH THE CORPORATION OR THE TRUST MAY EXTEND THE EXCHANGE OFFER (THE
"EXPIRATION DATE"). THE ORIGINAL CAPITAL SECURITIES TENDERED PURSUANT TO THE
EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Original Capital
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<PAGE>
Securities should be delivered to the Exchange Agent, all in accordance with the
instructions set forth in the Letter of Transmittal and the Prospectus.
If holders of Original Capital Securities wish to tender, but it is
impracticable for them to forward their certificates for Original Capital
Securities prior to the expiration of the Exchange Offer or to comply with the
book-entry transfer procedures on a timely basis, a tender may be effected by
following the guaranteed delivery procedures described in the Prospectus under
"The Exchange Offer --Procedures for Tendering Original Capital Securities --
Guaranteed Delivery."
The Trust will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Original Capital Securities held by them as nominee or in a
fiduciary capacity. The Trust will pay or cause to be paid all stock transfer
taxes applicable to the exchange of Original Capital Securities pursuant to the
Exchange Offer, except as set forth in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed to
Wilmington Trust Company, the Exchange Agent for the Original Capital
Securities, at its address and telephone number set forth on the front of the
Letter of Transmittal.
Very truly yours,
TELEBANC CAPITAL TRUST I
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE TRUST OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
E-36
Exhibit 99.5
TELEBANC CAPITAL TRUST I
OFFER FOR ALL OUTSTANDING
11.00% ORIGINAL CAPITAL SECURITIES
IN EXCHANGE FOR
11.00% EXCHANGE CAPITAL SECURITIES
To Our Clients:
Enclosed for you consideration is a prospectus dated December ______,
1997 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of TeleBanc Capital
Trust I (the "Trust") and TeleBanc Financial Corporation (the "Corporation") to
exchange the Trust's 11.00% Exchange Capital Securities for any and all of the
Trust's outstanding 11.00% Original Capital Securities (the "Original Capital
Securities"), upon the terms and subject to the conditions described in the
Prospectus. The Exchange Offer is being made in order to satisfy certain
obligations of the Trust and the Corporation contained in the Registration
Rights Agreement dated, June 5, 1997, among the Trust, the Corporation, and
Sandler O'Neill & Partners, L.P.
This material is being forwarded to you as the beneficial owner of the
Original Capital Securities carried by us in your account but not registered in
your name. A TENDER OF SUCH ORIGINAL CAPITAL SECURITIES MAY ONLY BE MADE BY US
AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to
tender on your behalf the Original Capital Securities held by us for your
account, pursuant to the terms and conditions set forth in the enclosed
Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Original Capital Securities on your behalf in
accordance with the provisions of the Exchange Offer. The Exchange Offer shall
expire at 5:00 p.m., New York City time, on January ___, 1998, or on such later
date or time to which the Corporation or the Trust may extend the Exchange
Offer. Any Original Capital Securities tendered pursuant to the Exchange Offer
may be withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
42. The Exchange Offer is for any and all Original Capital Securities.
43. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer--Conditions to the
Exchange Offer."
44. Any transfer taxes incident to the transfer of Original Capital
Securities from the holder to the Corporation will be paid by the Corporation,
except as otherwise provided in the Instructions in the Letter of Transmittal.
45. The Exchange Offer expires at 5:00 p.m., New York City time, on
January ___, 1998, or on such later date or time to which the Corporation or the
Trust may extend the Exchange Offer.
If you wish to have us tender your Original Capital Securities, please
so instruct us by completing, executing and returning to us the instruction form
on the back of this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER ORIGINAL CAPITAL
SECURITIES.
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<PAGE>
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by TeleBanc
Capital Trust I with respect to its Original Capital Securities.
This will instruct you to tender the Original Capital Securities held
by you for the account of the undersigned, upon and subject to the terms and
conditions set forth in the Prospectus and the related Letter of Transmittal.
Please tender the Original Capital Securities held by you for my
account as indicated below:
AGGREGATE PRINCIPAL AMOUNT AT MATURITY
OF ORIGINAL CAPITAL SECURITIES TENDERED
----------------------------------------
11.00% Original Capital Securities
|_| Please do not tender any Original Capital Securities held by you
for my account.
Dated: __________________________, 1997
-----------------------------------
-----------------------------------
Signature(s)
-----------------------------------
-----------------------------------
Please print name(s) here
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Addresses
-----------------------------------
Area code and telephone number
----------------------------------------------------
Taxpayer Identification or Social Security Number(s)
None of the Original Capital Securities held by us for your account
will be tendered unless we receive written instructions from you to do so.
Unless a specific contrary instruction is given in the space provided, your
signature(s) hereon shall constitute an instruction to us to tender all the
Original Capital Securities held by us for your account.
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