<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1998
REGISTRATION NO. 333-53689
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
TELEBANC FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
13-3759196
(I.R.S. EMPLOYEE IDENTIFICATION NO.)
1111 NORTH HIGHLAND STREET
ARLINGTON, VIRGINIA 22201
(703) 247-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TELEBANC CAPITAL TRUST II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS TRUST AGREEMENT)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
51-6507843
(I.R.S. EMPLOYEE IDENTIFICATION NO.)
1111 NORTH HIGHLAND STREET
ARLINGTON, VIRGINIA 22201
(703) 247-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
AILEEN LOPEZ PUGH
TELEBANC FINANCIAL CORPORATION
1111 NORTH HIGHLAND STREET
ARLINGTON, VIRGINIA 22201
(703) 247-3705
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF EACH REGISTRANT)
------------------
With copies to:
PATRICK T. CONNORS, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE
2300 N STREET, N.W.
WASHINGTON, D.C. 20037
(202) 663-8217
LEE MEYERSON, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 445-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of the
Securities Act of 1933, please check the following box. [ ] (continues on next
page)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Junior Subordinated Deferrable Interest
Debentures, Series A of TeleBanc Financial
Corporation(3)................................. 1,100,000 $25.00 $27,500,000 $8,113
Series A Capital Securities of TeleBanc Capital
Trust II....................................... 1,100,000 $25.00 $27,500,000 NA
The TeleBanc Financial Corporation Guarantee with
respect to the Series A Capital
Securities(4)(5)............................... NA NA NA NA
Total............................................ 1,100,000 100% $27,500,000(6) $8,113
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) The registration fee has been calculated on the basis of the maximum
aggregate offering price of the securities being offered. TeleBanc Financial
Corporation has previously paid $7,375 of this fee and, in accordance with
Rule 457(a), the remainder of $738 is paid herewith.
(3) The Junior Subordinated Deferrable Interest Debentures, Series A will be
purchased by TeleBanc Capital Trust II with the proceeds of the sale of the
Series A Capital Securities.
(4) No separate consideration will be received for the TeleBanc Financial
Corporation Guarantee.
(5) This Registration Statement is deemed to cover the Junior Subordinated
Deferrable Interest Debentures, Series A of TeleBanc Financial Corporation,
the rights of holders of Junior Subordinated Deferrable Interest Debentures,
Series A of TeleBanc Financial Corporation under the Indenture, the rights
of holders of Series A Capital Securities of TeleBanc Capital Trust II under
the Trust Agreement, the rights of holders of the Series A Capital
Securities under the Guarantee, which, taken together, fully, irrevocably
and unconditionally guarantee all of the respective obligations of TeleBanc
Capital Trust II under the Series A Capital Securities.
(6) Such amount represents the principal amount of Junior Subordinated
Deferrable Interest Debentures, Series A issued at their principal amount
and the issue price rather than the principal amount of Junior Subordinated
Deferrable Interest Debentures, Series A issued at an original issue
discount. Such amount also represents the initial public offering price of
the Series A Capital Securities of TeleBanc Capital Trust II.
------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement relates to the offering (the "Offering") by
TeleBanc Capital Trust II, a statutory business trust created under the laws of
the State of Delaware (the "Issuer"), of $27.5 million % Beneficial
Unsecured Securities, Series A (the "Series A Capital Securities"). TeleBanc
Financial Corporation, a Delaware corporation (the "Corporation"), is the owner
of all of the beneficial ownership interests represented by common securities of
such trust.
In addition, the Corporation has filed a Registration Statement relating to
the offering (the "Common Stock Offering") to the public of 4,100,000 shares of
common stock, par value $.01 per share (the "Common Stock") (and an additional
615,000 shares of Common Stock if the over-allotment option is exercised in full
by the underwriters of the Common Stock Offering). The Corporation does not
intend to complete the Offering unless the Common Stock Offering is consummated.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 2, 1998
$27,500,000
TELEBANC CAPITAL TRUST II
BLUS SM
% BENEFICIAL UNSECURED SECURITIES, SERIES A
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
[TELEBANK LOGO]
The % Beneficial Unsecured Securities, Series A (the "Series A Capital
Securities"), offered hereby (the "Offering") represent beneficial ownership
interests in TeleBanc Capital Trust II, a statutory business trust created under
the laws of the State of Delaware (the "Issuer"). TeleBanc Financial
Corporation, a Delaware corporation (the "Corporation"), will be the owner of
all of the beneficial ownership interests represented by common securities of
the Issuer (the "Series A Common Securities" and, collectively with the Series A
Capital Securities, the "Series A Securities"). Wilmington Trust Company is the
Property Trustee of the Issuer, as well as the Delaware Trustee, the Debenture
Trustee and the Guarantee Trustee. The Issuer exists for the sole purpose of
issuing the Series A Securities and the Series A Common Securities and investing
the proceeds thereof in approximately $ of % Junior Subordinated
Deferrable Interest Debentures, Series A (the "Series A Subordinated
Debentures"), to be issued by the Corporation. The Series A Subordinated
Debentures will mature on , 2028. The Series A Capital Securities will
have a preference under certain circumstances with respect to cash distributions
and amounts payable on liquidation or redemption over the Series A Common
Securities. See "Description of Series A Capital Securities -- Subordination of
Series A Common Securities."
Simultaneously with the Offering, the Corporation is offering to the public
(the "Common Stock Offering") 4,100,000 shares of common stock, par value $.01
per share (the "Common Stock") (and an additional 615,000 shares of Common Stock
if the over-allotment option is exercised in full by the underwriters of the
Common Stock Offering). The Common Stock and the Series A Capital Securities are
being offered in separate offerings. However, the Corporation does not intend to
complete the Offering unless the Common Stock Offering is consummated.
Continued on next page
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREOF FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE SERIES A CAPITAL SECURITIES.
------------------------
THESE SECURITIES 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 TO WHICH IT RELATES. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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[CAPTION]
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) COMMISSIONS(2) ISSUER(1)(3)(4)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Series A Capital Security....................... $25.00 (3) $25.00
Total............................................... $27,500,000 (3) $27,500,000
</TABLE>
================================================================================
(1) Plus accrued Distributions, if any, from , 1998 to the date of
delivery.
(2) The Issuer and the Corporation have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Series A Capital
Securities will be invested in the Series A Subordinated Debentures, the
Corporation has agreed to pay to the Underwriters as compensation for their
arranging the investment therein of such proceeds $ per Series A
Capital Security (or $ in the aggregate). See "Underwriting."
(4) Expenses of the offering, which are payable by the Corporation, are
estimated to be $145,000.
BLUS SM is a service mark of Canadian Imperial Bank of Commerce.
------------------------
The Series A Capital Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that the Series A Capital Securities will be ready for delivery in book-entry
form only through the facilities of The Depository Trust Corporation in New
York, New York, on or about , 1998, against payment therefor in
immediately available funds.
------------------------
CIBC OPPENHEIMER
LEGG MASON WOOD WALKER
INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
The date of this Prospectus is , 1998
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A CAPITAL
SECURITIES, INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A
PENALTY BID. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
(cover page continued)
Holders of the Series A Capital Securities will be entitled to receive
cumulative cash distributions accruing from the date of original issuance and
payable quarterly in arrears on the last day of March, June, September and
December of each year, commencing September 30, 1998, at the annual rate of
% on the Liquidation Amount (as defined herein) of $25.00 per Series A
Capital Security ("Distributions"). Subject to certain exceptions, as described
herein, the Corporation has the right to defer payment of interest on the Series
A Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarterly periods with respect to each deferral period
(each, an "Extension Period"), provided that no Extension Period may extend
beyond the Stated Maturity (as defined herein) of the Series A Subordinated
Debentures. Upon the termination of any such Extension Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the rate
of % per annum, compounded quarterly, to the extent permitted by applicable
law), the Corporation may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Series A Subordinated
Debentures are so deferred, Distributions on the Series A Capital Securities
will also 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 debt securities that rank
pari passu with or junior to the Series A Subordinated Debentures. During an
Extension Period, interest on the Series A Subordinated Debentures will continue
to accrue (and the amount of Distributions to which holders of the Series A
Capital Securities are entitled will accumulate) at the rate of % per
annum, compounded quarterly from the relevant payment date for such interest,
and holders of Series A Capital Securities will be required to accrue interest
income for United States federal income tax purposes. See "Description of Series
A Subordinated Debentures -- Option to Defer Interest Payments" and "Certain
Federal Income Tax Consequences -- Interest Income and Original Issue Discount."
The Series A Subordinated Debentures are unsecured and subordinated to all
Senior Debt (as defined herein). The Series A Subordinated Debentures will rank
pari passu, and payments thereon will be made pro rata, with the $10 million
outstanding 11.00% Junior Subordinated Deferrable Interest Debentures, Series A
(the "Existing Junior Subordinated Debentures") of the Corporation, which were
issued on June 9, 1997 and mature on June 1, 2027. The Existing Junior
Subordinated Debentures were issued to TeleBanc Capital Trust I ("TCT I"), an
entity in which the Corporation owns all of the outstanding common securities
and which is a financing vehicle of the Corporation that issued $10 million of
11.00% Capital Securities, Series A (the "Existing Capital Securities") in a
private placement completed in June, 1997. The relationships between the Series
A Subordinated Debentures and the Existing Junior Subordinated Debentures, and
the Series A Capital Securities and the Existing Capital Securities are
described under "Description of Series A Capital Securities" and "Description of
Series A Subordinated Debentures." Substantially all of the Corporation's other
existing indebtedness constitutes Senior Debt. Because the Corporation is a
holding company, the right of the Corporation to participate in any distribution
of assets of any subsidiary, including TeleBank, a federally chartered savings
bank ("TeleBank"), upon such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of creditors of that subsidiary,
except to the extent that the Corporation may itself be recognized as a creditor
of that subsidiary. Accordingly, the Series A Subordinated Debentures (and
therefore the Series A Capital Securities) will be effectively subordinated to
all existing and future liabilities of the Corporation's subsidiaries, and
holders thereof should only look to the assets of the Corporation for payments
on the Series A Subordinated Debentures. See "Description of Series A
Subordinated Debentures -- Subordination."
The Corporation has, through the Series A Guarantee, the Series A Trust
Agreement, the Series A Subordinated Debentures and the Indenture (each as
defined herein), taken together, fully, irrevocably and
2
<PAGE> 5
unconditionally guaranteed all of the Issuer's obligations under the Series A
Capital Securities. See "Relationship Among the Series A Capital Securities, the
Series A Subordinated Debentures and the Series A Guarantee -- Full and
Unconditional Guarantee." The Series A Guarantee of the Corporation (the "Series
A Guarantee") guarantees the payment of Distributions and payments on
liquidation of the Issuer or redemption of the Series A Capital Securities, but
only in each case to the extent of funds held by the Issuer, as described
herein. See "Description of Series A Guarantee." If the Corporation does not
make interest payments on the Series A Subordinated Debentures held by the
Issuer, the Issuer will have insufficient funds to pay Distributions on the
Series A Capital Securities. The Series A Guarantee does not cover payment of
Distributions when the Issuer has insufficient funds to pay such Distributions.
In such event, a holder of Series A Capital Securities may institute a legal
proceeding directly against the Corporation pursuant to the terms of the
Indenture to enforce payment of amounts equal to such Distributions to such
holder. See "Description of Series A Subordinated Debentures -- Enforcement of
Certain Rights by Holders of Series A Capital Securities." The obligations of
the Corporation under the Series A Guarantee are subordinate and junior in right
of payment to all Senior Debt of the Corporation.
The Series A Capital Securities are subject to mandatory redemption, in
whole but not in part, upon repayment of the Series A Subordinated Debentures at
their Stated Maturity. Subject to the Corporation having received prior
regulatory approval to do so if then required under applicable capital
guidelines or policies, the Series A Subordinated Debentures are redeemable
prior to their Stated Maturity at the option of the Corporation (i) on or after
, 2003, in whole at any time or in part from time to time,
or (ii) at any time in certain circumstances as described under "Description of
Series A Subordinated Debentures -- Conditional Right to Redeem upon a Tax Event
or Capital Treatment Event," in whole (but not in part), within 90 days
following the occurrence of a Tax Event or Capital Treatment Event (both as
defined herein). See "Description of Series A Capital Securities -- Redemption
or Exchange" and "Description of Series A Subordinated Debentures --
Redemption."
The Corporation will have the right at any time to terminate the Issuer,
subject to the Corporation having received prior regulatory approval to do so if
then required under applicable capital guidelines or policies. See "Description
of Series A Capital Securities -- Redemption or Exchange." In the event of
termination of the Issuer, after satisfaction of liabilities to creditors of the
Issuer as required by applicable law, the holders of the Series A Capital
Securities will be entitled to receive $25.00 per Series A Capital Security (the
"Liquidation Amount") plus accumulated and unpaid Distributions thereon to the
date of payment, which may be in the form of a distribution of such amount in
Series A Subordinated Debentures in exchange therefor, subject to certain
exceptions. See "Description of Series A Capital Securities -- Liquidation
Distribution Upon Termination."
The Series A Capital Securities will be represented by one or more global
certificates registered in the name of The Depository Trust Corporation ("DTC")
or its nominee. Beneficial interests in the Series A Capital Securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants ("Participants"). Except as described
herein, Series A Capital Securities in certificated form will not be issued in
exchange for the global certificates. See "Description of Series A Capital
Securities -- Registration of Series A Capital Securities."
------------------------
As used herein, (i) the "Indenture" means the Junior Subordinated
Indenture, dated as of , 1998, as amended and supplemented from time
to time, between the Corporation and Wilmington Trust Company, as trustee (the
"Debenture Trustee") relating to the issuance of the Series A Subordinated
Debentures by the Corporation, and (ii) the "Series A Trust Agreement" means the
Amended and Restated Trust Agreement among the Corporation, as Depositor (as
defined therein), Wilmington Trust Company, as Property Trustee (the "Property
Trustee"), Wilmington Trust Company, as Delaware Trustee (the "Delaware
Trustee"), the Administrative Trustees named therein (collectively with the
Property Trustee and the Delaware Trustee, the "Issuer Trustees") and the
holders of the Series A Capital Securities and the Series A Common Securities.
3
<PAGE> 6
AVAILABLE INFORMATION
The Corporation is subject to certain information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, upon
commencement of the Offering, in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 02549. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov. In
addition, such reports, proxy statements and other information concerning the
Corporation can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 20006.
The Corporation and the Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Corporation and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and the financial statements,
notes and schedules filed as a part thereof or incorporated by reference
therein, which may be inspected at the public reference facilities of the
Commission at the addresses set forth above or through the Commission's home
page on the Internet. Statements made in this Prospectus concerning the contents
of any documents referred to herein are not necessarily complete, and in each
instance are qualified in all respects by reference to the copy of such document
filed as an exhibit to the Registration Statement.
No separate financial statements of the Issuer have been included herein.
The Corporation and the Issuer do not consider that such financial statements
would be material to holders of the Series A Capital Securities because the
Issuer 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 Series A Subordinated
Debentures of the Corporation and issuing the Series A Securities. See "TeleBanc
Capital Trust II," "Description of Series A Capital Securities," "Description of
Series A Subordinated Debentures" and "Description of Series A Guarantee." In
addition, the Corporation does not expect that the Issuer will be subject to the
reporting or information requirements under the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Corporation with the Commission are
incorporated by reference herein: Annual Report on Form 10-K for the year ended
December 31, 1997, as amended on April 2, 1998, April 30, 1998, May 14, 1998,
May 15, 1998 and June 3, 1998; and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, as filed on May 15, 1998; and the Current Report on Form
8-K, as filed on January 29, 1998.
Each document or report filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated or
deemed to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and 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 such statement so modified or
4
<PAGE> 7
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Corporation will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (other
than exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to: TeleBanc
Financial Corporation, 1111 North Highland Street, Arlington, VA 22201-2807,
Attention: Chief Financial Officer, telephone number (703)-247-3700.
5
<PAGE> 8
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. The information presented in
this Prospectus regarding the capital securities of the Corporation reflects a
100% stock dividend declared and paid by the Corporation on June 22, 1998 to
holders of record of the Common Stock of the Corporation on June 11, 1998.
TELEBANC FINANCIAL CORPORATION
TeleBanc Financial Corporation ("TeleBanc Financial" or the "Corporation")
was organized under the laws of the State of Delaware in January 1994 as a
savings and loan holding company. TeleBanc Financial operates its business
principally through two wholly owned subsidiaries, TeleBank, a federally
chartered savings bank, and TeleBanc Capital Markets, Inc. ("TCM"). TeleBank
offers savings and investment products insured up to applicable limits by the
Federal Deposit Insurance Corporation (the "FDIC"), and TCM is a registered
broker-dealer and investment advisor, specializing in mortgage-backed securities
and mortgage loans, that manages the portfolios of TeleBanc Financial and
TeleBank. In addition, TeleBanc Servicing Corporation ("TSC"), a wholly owned
subsidiary of TeleBank, has invested in a joint venture engaged in the
acquisition and collection of delinquent consumer loans for its own portfolio.
The Corporation has formed another wholly owned subsidiary, TeleBanc Insurance
Services, Inc., through which it intends to offer co-branded insurance products.
Unless the context indicates otherwise, references herein to the Corporation
include TeleBanc Financial and all of its subsidiaries, references to TeleBanc
Financial refer to TeleBanc Financial Corporation, the holding company, and
references to TeleBank refer to TeleBank.
The Corporation is a leading national provider of high value savings,
investment and other financial products and services. The Corporation utilizes a
branchless banking strategy to offer financial products and services to
customers nationwide and to maintain its low cost structure through the use of
alternative delivery channels, such as telephones, the Internet, automated
teller machines ("ATMs"), facsimile and mail. The Corporation's broad selection
of high value savings and investment products generally have higher interest
rates or carry lower fees than similar products offered by traditional,
branch-based financial institutions. The Corporation also emphasizes high
quality customer service and provides customers with "anywhere, anytime"
convenience for accessing its financial products and services. The Corporation
intends to broaden its financial products and services to include in 1998
annuities, residential mortgage loans, credit cards and mutual funds. At March
31, 1998, the Corporation had more than 22,000 customer accounts, $560.6 million
in retail deposits and $1.0 billion in assets.
The Corporation's executive offices are located at 1111 North Highland
Street, Arlington, VA, 22201, telephone (703) 247-3700.
TELEBANC CAPITAL TRUST II
The Issuer is a statutory business trust formed under Delaware law pursuant
to (i) the Declaration of Trust, dated as of May 22, 1998, by and among the
Corporation, as sponsor, (the "Sponsor"), Wilmington Trust Company, as Delaware
Trustee and the three individual Administrative Trustees named therein, and (ii)
the filing of a Certificate of Trust with the Delaware Secretary of State on May
22, 1998. The Issuer's business and affairs are conducted by the Issuer
Trustees: the Property Trustee, the Delaware Trustee, and the three individual
Administrative Trustees who are employees or officers of or affiliated with the
Corporation. The Issuer exists for the exclusive purposes of (i) issuing and
selling the Series A Capital Securities and the Series A Common Securities, (ii)
using the proceeds from the sale of the Series A Capital Securities and the
Series A Common Securities to acquire the Series A Subordinated Debentures
issued by the Corporation and (iii) engaging in only those other activities
necessary or incidental thereto (such as registering the transfer of the Series
A Capital Securities and the Series A Common Securities). Accordingly, the
Series A Subordinated Debentures will be the sole assets of the Issuer, and
payments under the Series A Subordinated Debentures will be the sole revenue of
the Issuer. All of the Series A Common Securities will be owned by the
Corporation.
6
<PAGE> 9
THE OFFERING
Securities Offered............ 1,100,000 Series A Capital Securities, having a
Liquidation Amount of $25.00 per Series A
Capital Security and representing individual
beneficial ownership interests in the assets of
the Issuer, which will consist solely of the
Series A Subordinated Debentures.
Offering Price................ $25.00 per Series A Capital Security plus
accumulated Distributions, if any, from
, 1998.
Distributions................. The Distributions payable on each Series A
Capital Security will be fixed at a rate per
annum of % of the Liquidation Amount of
$25.00 per Series A Capital Security, will be
cumulative, will accrue from the date of
issuance of the Series A Capital Securities,
and will be payable quarterly in arrears on the
last day of March, June, September and December
of each year, commencing on September 30, 1998
(subject to possible deferral as described
below) and on the Stated Maturity Date. The
amount of each Distribution due with respect to
the Series A Capital Securities will include
amounts accrued through the date the
Distribution payment is due. See "Description
of Series A Capital Securities --
Distributions."
Right to Defer Interest....... Distributions on Series A 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
Series A Subordinated Debentures. No Extension
Period will exceed 20 consecutive quarterly
periods, end on a date other than an Interest
Payment Date (as defined herein) or extend
beyond the Stated Maturity Date. See
"Description of Series A Subordinated
Debentures -- Option to Defer Interest
Payments" and "Certain Federal Income Tax
Consequences -- Interest Income and Original
Issue Discount."
Ranking....................... The Series A Capital Securities will rank pari
passu, and payments thereon will be made pro
rata, with the Series A Common Securities,
except as described under "Description of
Series A Capital Securities -- Subordination of
Series A Common Securities." The Series A
Subordinated Debentures will rank pari passu
with the Existing Junior Subordinated
Debentures and all other junior subordinated
debentures to be issued by the Corporation with
substantially similar subordination terms and
which have been or may be issued and sold 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") established
or to be established by the Corporation and
will be unsecured and subordinate and junior in
right of payment to the extent and in the
manner set forth in the Indenture to all Senior
Debt (as defined herein) of the Corporation.
See "Description of Series A Subordinated
Debentures." The Series A Guarantee will rank
pari passu with the guarantee by the
Corporation of the obligations of TCT I under
the Existing Capital Securities and with all
other guarantees issued or to be issued by the
Corporation with respect to capital securities
issued or to be issued by a financing entity
and will constitute an unsecured obligation of
the Corpora-
7
<PAGE> 10
tion and will rank subordinate and junior in
right of payment to the extent and in the
manner set forth in the Series A Guarantee to
all Senior Debt of the Corporation. See
"Description of Series A Guarantee." In
addition, because the Corporation is a holding
company, the Series A Subordinated Debentures
and the Series A Guarantee will be effectively
subordinated to all existing and future
liabilities of the Corporation's subsidiaries,
including the deposit liabilities of TeleBank.
See "Description of Series A Subordinated
Debentures."
Redemption.................... The Series A Capital Securities will be subject
to mandatory redemption, (i) in whole but not
in part, on the Stated Maturity Date upon
repayment of the Series A Subordinated
Debentures, (ii) in whole but not in part, at
any time prior to , 2003,
contemporaneously with the optional prepayment
of the Series A Subordinated Debentures by the
Corporation upon the occurrence and
continuation of a Tax Event or Capital
Treatment Event and (iii) in whole or in part,
on or after , 2003, contemporaneously
with the optional prepayment by the Corporation
of the Series A Subordinated Debentures. See
"Description of Series A Capital
Securities -- Redemption or Exchange."
Guarantee..................... Payment of Distributions out of moneys held by
the Issuer, and payments on liquidation of the
Issuer or the redemption of the Series A
Capital Securities, are guaranteed by the
Corporation to the extent the Issuer has funds
available therefor. If the Corporation does not
make principal or interest payments on the
Series A Subordinated Debentures, the Issuer
will not have sufficient funds to make
Distributions on the Series A Capital
Securities, in which event the Series A
Guarantee shall not apply to such Distributions
until the Issuer has sufficient funds available
therefor. The Corporation's obligations under
the Series A Guarantee, taken together with its
obligations under the Series A Subordinated
Debentures and the Indenture, including its
obligations to pay all costs, expenses and
liabilities of the Issuer (other than with
respect to the Series A Capital Securities),
constitutes a full and unconditional guarantee
of all of the Issuer's obligations under the
Series A Capital Securities. See "Description
of Series A Guarantee" and "Relationship Among
the Series A Capital Securities, the Series A
Subordinated Debentures and the Series A
Guarantee." The obligations of the Corporation
under the Series A Guarantee are subordinate
and junior in right of payment to all Senior
Debt of the Corporation. See "Risk
Factors -- Risk Factors Relating to the Series
A Capital Securities -- Ranking of Subordinated
Obligations Under the Series A Guarantee and
the Series A Subordinated Debentures" and
"Description of Series A Guarantee."
Liquidation of the Issuer..... In the event of the liquidation of the Issuer,
after satisfaction of the claims of creditors
of the Issuer, if any, as provided by
applicable law, the holders of the Series A
Capital Securities will be entitled to receive
a liquidation preference of $25.00 per Series A
Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment,
which may be in the form of a distribution of
such amount in Series A Subordinated Debentures
as described above.
8
<PAGE> 11
If such liquidation distribution can be paid
only in part because the Issuer has
insufficient assets available to pay in full
the aggregate liquidation distribution, then
the amounts payable directly by the Issuer on
the Series A Capital Securities shall be paid
on a pro rata basis. The holder of the Series A
Common Securities will be entitled to receive
distributions upon any such liquidation pro
rata with the holders of the Series A Capital
Securities, except that if a Debenture Event of
Default (as defined herein) has occurred and is
continuing, the Series A Capital Securities
shall have a priority over the Series A Common
Securities. See "Description of Series A
Capital Securities -- Liquidation Distribution
Upon Termination."
Use of Proceeds............... The proceeds to the Issuer from the sale of the
Series A Capital Securities will be invested by
the Issuer in the Series A Subordinated
Debentures. The Corporation intends to use the
net proceeds from the sale of the Series A
Subordinated Debentures to fund the continued
growth of the Corporation including its
national direct marketing initiatives, and for
working capital and general corporate purposes.
See "Use of Proceeds."
Limited Voting Rights......... The holders of the Series A Capital Securities
will have no voting rights except in limited
circumstances. See "Description of Series A
Capital Securities -- Voting Rights; Amendment
of Series A Trust Agreement."
ERISA Considerations.......... For a discussion of certain restrictions on
purchases, see "Certain ERISA Considerations."
Risk Factors.................. For a discussion of considerations relevant to
an investment in the Series A Capital
Securities, see "Risk Factors."
9
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA OF TELEBANC FINANCIAL CORPORATION
(In thousands, except per share amounts and other operating data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------- ---------------------------------------
PRO FORMA ACTUAL ACTUAL PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
--------- --------- --------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income.................. $40,511 $45,800 $59,301 $82,609 $12,837 $18,071 $23,599
Interest expense................. 31,946 34,815 46,063 64,494 9,878 14,477 19,045
--------- --------- --------- ------- --------- --------- ----------
Net interest income.............. 8,565 10,985 13,238 18,115 2,959 3,594 4,554
Non-interest income.............. 3,777 2,756 4,093 7,248 618 1,947 2,175
Non-interest expense............. 6,240 9,075 10,142 14,864 2,105 4,204 5,212
Net income available to common
stockholders................... 2,720 2,552 3,671 5,874 814 274 311
Earnings per share:
Basic........................ $0.66 $0.62 $0.84 $1.34 $0.19 $0.06 $0.07
Diluted...................... 0.66 0.58 0.57 0.89 0.15 0.05 0.05
Weighted average shares:
Basic........................ 4,099 4,099 4,383 4,393 4,212 4,468 4,478
Diluted...................... 4,104 4,406 7,411 7,421 5,790 5,757 5,767
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
-------------------------------- -------------------------
1995 1996 1997 ACTUAL PRO FORMA(1)
-------- -------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Total assets............................................... $553,943 $647,965 $1,100,352 $1,048,153 $1,373,847
Loans receivable and mortgage-backed securities............ 482,877 536,564 859,907 817,209 1,024,812
Investment securities...................................... 40,058 78,826 91,237 123,963 161,477
Retail deposits............................................ 306,500 390,486 522,221 560,554 849,285
Brokered callable certificates of deposit.................. -- -- -- 42,286 42,286
Borrowings(2).............................................. 225,878 232,821 522,735 389,247 426,110
Trust preferred securities(3).............................. -- -- 9,572 9,526 9,526
Total stockholders' equity................................. 21,565 24,658 45,824 46,540 46,640
OTHER OPERATING DATA(4):
Number of accounts......................................... 12,919 16,506 21,817 22,916 37,916
Customers with two or more accounts........................ 28% 31% 30% 31% (5)
Accounts referred by or cross-sold to existing customers... 25% 27% 38% 50% (5)
</TABLE>
- ---------------
(1) The Pro Forma Statement of Operations Data and Pro Forma Statement of
Financial Condition Data of the Corporation give pro forma effect to the MET
Holdings Transaction, which is described herein under "Capitalization," and
the DFC Acquisition, which is described under "Recent Developments." The Pro
Forma Statement of Operations data of the Corporation gives pro forma effect
to the above-mentioned transactions as if they had occurred on January 1,
1997 for the year ended December 31, 1997, and on January 1, 1998 for the
three months ended March 31, 1998. The Pro Forma Statement of Financial
Condition Data of the Corporation gives effect to the above-mentioned
transactions as if they had occurred on March 31, 1998. See "Selected Pro
Forma Condensed Consolidated Statement of Financial Condition and Statement
of Operations of TeleBanc Financial Corporation."
(2) Consists of advances from the Federal Home Loan Bank ("FHLB") of Atlanta,
securities sold under agreements to repurchase, subordinated debt, net and
other liabilities.
(3) Consists of 10,000 shares of Corporation-Obligated Mandatorily Redeemable
Capital Securities of TCT I, which was formed to issue such securities and
invest the net proceeds in the Existing Junior Subordinated Debentures. See
Note 12 to Consolidated Financial Statements.
(4) The Other Operating Data has been derived from the Corporation's records.
Account data for Direct Financial Corporation is approximate.
(5) Data giving pro forma effect to the DFC Acquisition is not available as of
the date of this Prospectus.
10
<PAGE> 13
TELEBANC CAPITAL TRUST II
TeleBanc Capital Trust II is a statutory business trust created under
Delaware law pursuant to (i) the Declaration of Trust, dated as of May 22, 1998,
by and among the Corporation, as Sponsor, Wilmington Trust Company, as Delaware
Trustee, and the three individual Administrative Trustees named therein, and
(ii) the filing of a Certificate of Trust with the Delaware Secretary of State
on May 22, 1998. The Series A Trust Agreement will be qualified as an indenture
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The Issuer exists for the exclusive purposes of (i) issuing and selling the
Series A Securities, (ii) using the proceeds from the sale of Series A
Securities to acquire Series A Subordinated Debentures issued by the Corporation
and (iii) engaging in only those other activities necessary or incidental
thereto (such as registering the transfer of the Series A Capital Securities).
Accordingly, the Series A Subordinated Debentures will be the sole assets of the
Issuer, and payments under the Series A Subordinated Debentures will be the sole
revenue of the Issuer.
All of the Series A Common Securities will be owned by the Corporation. The
Series A Common Securities will rank pari passu, and payments will be made
thereon pro rata, with the Series A Capital Securities, except that upon the
occurrence and continuance of an event of default under the Series A Trust
Agreement resulting from an event of default under the Indenture, the rights of
the Corporation as holder of the Series A Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or otherwise
will be subordinated to the rights of the holders of the Series A Capital
Securities. See "Description of Series A Capital Securities -- Subordination of
Series A Common Securities." The Corporation will acquire Series A Common
Securities in an aggregate Liquidation Amount at least equal to 3% of the total
capital of the Issuer.
The Issuer has a term of 55 years, but may terminate earlier as provided in
the Series A Trust Agreement. The Issuer's business and affairs are conducted by
the Issuer Trustees: Wilmington Trust Company, as Property Trustee and as
Delaware Trustee, and the individual Administrative Trustees who are employees
or officers of or affiliated with the Corporation. Wilmington Trust Company, as
Property Trustee, will act as sole trustee under the Series A Trust Agreement
for purposes of compliance with the Trust Indenture Act. Wilmington Trust
Company will also act as trustee under the Series A Guarantee and the Indenture.
See "Description of Series A Guarantee" and "Description of Series A
Subordinated Debentures." The holder of the Series A Common Securities of the
Issuer, or the holders of a majority in Liquidation Amount of the Series A
Capital Securities if an event of default under the Series A Trust Agreement has
occurred and is continuing, will be entitled to appoint, remove or replace the
Property Trustee and/or the Delaware Trustee. In no event will the holders of
the Series A Capital Securities have the right to vote to appoint, remove or
replace the Administrative Trustees; such voting rights are vested exclusively
in the holder of the Series A Common Securities. The Corporation will pay all
fees and expenses related to the Issuer and the offering of the Series A Capital
Securities and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the Issuer. The Corporation does not expect that the Issuer will
be subject to the reporting or information requirements under the Exchange Act.
The principal executive offices of the Issuer are c/o TeleBanc Financial
Corporation, 1111 North Highland Street, Arlington, Virginia 22201.
11
<PAGE> 14
RISK FACTORS
Prospective purchasers of the Series A Capital Securities should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the following matters. In addition, because holders of
Series A Capital Securities may receive Series A Subordinated Debentures in
exchange therefor upon liquidation of the Issuer, prospective purchasers of
Series A Capital Securities are also making an investment decision with regard
to the Series A Subordinated Debentures and should carefully review all the
information regarding the Series A Subordinated Debentures contained herein.
RISK FACTORS RELATING TO THE SERIES A CAPITAL SECURITIES
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES A GUARANTEE AND
THE SERIES A SUBORDINATED DEBENTURES
The obligations of the Corporation under the Series A Guarantee issued by
the Corporation for the benefit of the holders of Series A Capital Securities
and under the Series A Subordinated Debentures are unsecured and rank
subordinate and junior in right of payment to all Senior Debt of the
Corporation. Substantially all of the Corporation's existing indebtedness, other
than the Existing Junior Subordinated Debentures, constitutes Senior Debt. The
Series A Guarantee will rank pari passu with the guarantee by the Corporation of
the obligations of TCT I under the Existing Capital Securities, and the Series A
Subordinated Debentures will rank pari passu with the Existing Junior
Subordinated Debentures.
Because the Corporation is a holding company, the right of the Corporation
to participate in any distribution of the assets of any subsidiary, including
TeleBank, upon such subsidiary's liquidation or reorganization or otherwise, is
subject to the prior claims of creditors of that subsidiary, except to the
extent that the Corporation may itself be recognized as a creditor of that
subsidiary. There are various legal limitations on the extent to which certain
of the Corporation's subsidiaries may extend credit, pay dividends or otherwise
supply funds to, or engage in transactions with, the Corporation or certain of
its other subsidiaries. Accordingly, the Series A Subordinated Debentures and
the Series A Guarantee will be effectively subordinated to all existing and
future liabilities of the Corporation's subsidiaries, and holders of Series A
Subordinated Debentures and beneficiaries of the Series A Guarantee should look
only to the assets of the Corporation for payments on the Series A Subordinated
Debentures or under the Series A Guarantee, as the case may be. See "TeleBanc
Financial Corporation." None of the Indenture, the Series A Guarantee or the
Series A Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Debt, that may be incurred by the Corporation.
See "Description of Series A Guarantee -- Status of the Guarantee" and
"Description of Series A Subordinated Debentures -- Subordination." The
Corporation expects from time to time that it will incur additional indebtedness
constituting Senior Debt and that its subsidiaries will incur additional
liabilities.
The ability of the Issuer to pay amounts due on the Series A Capital
Securities is solely dependent upon the Corporation's making payments on the
Series A Subordinated Debentures as and when required. See "Risk Factors
Relating to the Corporation -- Limited Sources of Funds; Payment of Fixed
Obligations."
OPTION TO DEFER INTEREST PAYMENT; 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 payment of interest
on the Series A Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Series A Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Series A Capital Securities by the
Issuer also will be deferred (and the amount of Distributions to which holders
of the Series A Capital Securities are entitled will accumulate additional
Distributions thereon at the rate of % per annum, compounded quarterly
from the relevant payment date for such Distributions) during any such Extension
Period. 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,
12
<PAGE> 15
any of the Corporation's capital stock, (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation (including other series of Junior Subordinated
Debentures) that rank pari passu with or junior in interest to the Series A
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 if such guarantee ranks pari passu with or junior in interest to the
Series A Subordinated Debentures (other than (a) dividends or distributions in
capital stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan or the
redemption or repurchase of any such rights pursuant thereto, (c) payments under
the Series A Guarantee, (d) purchases of Common Stock related to the issuance of
Common Stock or rights under any of the Corporation's benefit plans for its
directors, officers or employees, related to the issuance of Common Stock or
rights under a dividend reinvestment and stock purchase plan, or related to the
issuance of Common Stock (or securities convertible into or exchangeable for
Common Stock) as consideration in an acquisition transaction that was entered
into prior to the commencement of such Extension Period and (e) guarantee
payments with respect to the guarantee by the Corporation of the Existing
Capital Securities to the extent such payments are made pari passu with payments
with respect to the Series A Guarantee). Prior to the termination of any such
Extension Period, the Corporation may further defer the payment of interest,
provided that no Extension Period may exceed 20 consecutive quarterly periods or
extend beyond the Stated Maturity of the Series A Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of % per
annum, compounded quarterly from the interest payment date for such interest, to
the extent permitted by applicable law), the Corporation may elect to begin a
new Extension Period subject to the above requirements. There is no limitation
on the number of times that the Corporation may elect to begin an Extension
Period. See "Description of Series A Capital Securities -- Distributions" and
"Description of Series A Subordinated Debentures -- Option to Defer Interest
Payments."
Should an Extension Period occur, a holder of Series A Capital Securities
will be required to accrue income (in the form of original issue discount) in
respect of its pro rata share of the Series A Subordinated Debentures held by
the Issuer for United States federal income tax purposes. As a result, a holder
of Series A Capital Securities will be required to include such income in gross
income for United States federal income tax purposes in advance of the receipt
of cash attributable to such income, and will not receive the cash related to
such income from the Issuer if the holder disposes of the Series A Capital
Securities prior to the record date for the payment of Distributions. See
"Certain Federal Income Tax Consequences -- Interest Income and Original Issue
Discount" and "-- Sales or Redemption of Series A Capital Securities."
The Corporation has no current intention of exercising its right to defer
payments of interest on the Series A Subordinated Debentures. However, should
the Corporation elect to exercise such right in the future, the market price of
the Series A Capital Securities is likely to be adversely affected. A holder
that disposes of its Series A Capital Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Series A Capital Securities.
REDEMPTION UPON TAX EVENT OR CAPITAL TREATMENT EVENT
Upon the occurrence and continuation of a Tax Event or Capital Treatment
Event (whether occurring before or after , 2003), the Corporation has the
right if certain conditions are met, to redeem the Series A Subordinated
Debentures in whole (but not in part) within 90 days following the occurrence of
such Tax Event or Capital Treatment Event and thereby cause a mandatory
redemption of the Series A Capital Securities. The exercise of such right is
subject to the Corporation's having received any regulatory approvals to do so
if then required under applicable capital guidelines or policies. See
"Description of Series A Subordinated Debentures -- Conditional Right to Redeem
upon a Tax Event or Capital Treatment Event" and "Description of Series A
Capital Securities -- Redemption or Exchange."
A "Tax Event" means the receipt by the Issuer 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 proposed change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting
13
<PAGE> 16
or applying such laws or regulations, which amendment or change is effective or
which proposed change, pronouncement or decision is announced on or after the
date of issuance of the Series A Capital Securities under the Series A Trust
Agreement, there is more than an insubstantial risk that (i) the Issuer 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 Series A
Subordinated Debentures, (ii) interest payable by the Corporation on the Series
A 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 United
States federal income tax purposes or (iii) the Issuer is, or will be within 90
days of the date of the opinion, subject to more than a de minimis amount of
other taxes, duties or other governmental charges. With respect to Series A
Subordinated Debentures which are no longer held by the Issuer or another
issuer, "Tax Event" means the receipt by 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 proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which proposed change, pronouncement or decision is announced on or after the
date of issuance of the Series A Subordinated Debentures under the Indenture,
there is more than an insubstantial risk that interest payable by the
Corporation on the Series A 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 United States federal income tax purposes (each of the
circumstances referred to in clauses (i), (ii) and (iii) of the preceding
sentence and the circumstances referred to in this sentence being referred to
herein as an "Adverse Tax Consequence").
Recently, the Internal Revenue Service ("IRS") asserted that the interest
payable on a security with terms that are similar to the terms of the Series A
Subordinated Debentures (but with a longer maturity than the Series A
Subordinated Debentures) was not deductible for United States federal income tax
purposes. The taxpayer in that case has filed a petition in the United States
Tax Court challenging the IRS's position on this matter. If this matter is in
fact litigated and the Tax Court were to sustain the IRS's position on this
matter, such judicial decision could constitute a Tax Event which could result
in an early mandatory redemption of the Series A Capital Securities.
A "Capital Treatment Event" means that the Corporation shall have received
an opinion of independent bank regulatory counsel experienced in such matters to
the effect that the Series A Capital Securities, as a result of (a) any
amendment to or change (including any announced prospective change) in the laws
(or any regulations thereunder) of the United States or any rules, guidelines or
policies of the appropriate regulatory authorities or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of the original
issuance of the Series A Capital Securities, do not constitute, or within 90
days of the date thereof, will not constitute Tier 1 capital or its then
equivalent applied as if the Corporation or its successor were a bank holding
company under The Bank Holding Company Act of 1956, as amended; provided,
however, that the distribution of the Series A Subordinated Debentures in
connection with the liquidation of the Issuer by the Corporation shall not in
and of itself constitute a Capital Treatment Event unless such liquidation shall
have occurred in connection with a Tax Event.
EXCHANGE OF SERIES A CAPITAL SECURITIES FOR SERIES A SUBORDINATED DEBENTURES
The Corporation will have the right at any time to terminate the Issuer
and, after satisfaction of liabilities to creditors of the Issuer as required by
applicable law, cause the Series A Subordinated Debentures to be distributed to
the holders of the Series A Capital Securities in exchange therefor upon
liquidation of the Issuer. The exercise of such right is subject to the
Corporation having received prior regulatory approval if then required under
applicable capital guidelines or policies. See "Description of Series A Capital
Securities -- Liquidation Distribution Upon Termination" and "Description of
Series A Capital Securities -- Redemption or Exchange."
Under current United States federal income tax law and interpretations and
assuming, as expected, the Issuer is classified as a grantor trust for such
purposes, a distribution of the Series A Subordinated Debentures
14
<PAGE> 17
upon a liquidation of the Issuer should not be a taxable event to holders of the
Series A Capital Securities. However, if a Tax Event were to occur which would
cause the Issuer to be subject to United States federal income tax with respect
to income received or accrued on the Series A Subordinated Debentures, a
distribution of the Series A Subordinated Debentures by the Issuer could be a
taxable event to the Issuer and the holders of the Series A Capital Securities.
See "Certain Federal Income Tax Consequences -- Distribution of Series A
Subordinated Debentures to Holders of Series A Capital Securities."
MARKET PRICES
There can be no assurance as to the market prices for Series A Capital
Securities or Series A Subordinated Debentures that may be distributed in
exchange for Series A Capital Securities upon liquidation of the Issuer.
Accordingly, the Series A Capital Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Series A Subordinated Debentures that a holder of Series A Capital Securities
may receive upon liquidation of the Issuer, may trade at a discount to the price
that the investor paid to purchase the Series A Capital Securities offered
hereby. As a result of the existence of the Corporation's right to defer
interest payments, the market price of the Series A Capital Securities (which
represent beneficial ownership interests in the Issuer) may be more volatile
than the market prices of other securities that are not subject to such optional
deferrals. See "Description of Series A Capital Securities" and "Description of
Series A Subordinated Debentures."
RIGHTS UNDER THE SERIES A GUARANTEE
The Series A Guarantee guarantees to the holders of the Series A Capital
Securities the following payments, to the extent not paid by the Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Series A Capital
Securities, to the extent that the Issuer has funds on hand available therefor
at such time, (ii) the redemption price with respect to any Series A Capital
Securities called for redemption, to the extent that the Issuer has funds on
hand available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of the Issuer (unless the Series A
Subordinated Debentures are distributed to holders of the Series A 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 Issuer has funds on hand available therefor at such time, and (b) the amount
of assets of the Issuer remaining available for distribution to holders of the
Series A Capital Securities after payment of creditors of the Issuer as required
by applicable law. The Series A Guarantee will be qualified as an indenture
under the Trust Indenture Act. Wilmington Trust Company will act as Guarantee
Trustee under the Series A Guarantee for the purpose of compliance with the
Trust Indenture Act and will hold the Series A Guarantee for the benefit of the
holders of the Series A Capital Securities. Wilmington Trust Company will also
act as Debenture Trustee for the Series A Subordinated Debentures, as Property
Trustee under the Indenture and as Delaware Trustee under the Series A Trust
Agreement.
The Series A Guarantee is subordinate as described under "-- Ranking of
Subordinated Obligations Under the Series A Guarantee and the Series A
Subordinated Debentures."
The holders of not less than a majority in aggregate 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 Guarantee
Trustee in respect of the Series A Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Series A Guarantee.
Any holder of the Series A Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series A
Guarantee without first instituting a legal proceeding against the Issuer, the
Guarantee Trustee or any other person or entity. If the Corporation were to
default on its obligation to pay amounts payable under the Series A Subordinated
Debentures, the Issuer would lack funds for the payment of Distributions or
amounts payable on redemption of the Series A Capital Securities or otherwise,
and, in such event, holders of the Series A Capital Securities would not be able
to rely upon the Series A Guarantee for payment of such amounts. Instead, if an
event of default under the Indenture shall have occurred and be continuing and
such event is attributable to the failure of the Corporation to pay interest on
or principal of the Series A Subordinated Debentures on the applicable payment
date, then a holder of Series A Capital Securities may
15
<PAGE> 18
institute a legal proceeding directly against the Corporation pursuant to the
terms of the Indenture for enforcement of payment to such holder of the
principal of or interest on such Series A Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Series A
Capital Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Corporation will have a right of set-off under the Indenture
to the extent of any payment made by the Corporation to such holder of Series A
Capital Securities in the Direct Action. Except as described herein, holders of
Series A Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Series A Subordinated Debentures or
assert directly any other rights in respect of the Series A Subordinated
Debentures. The exercise by the Corporation of its right, as described herein,
to defer the payment of interest on the Series A Subordinated Debentures, does
not constitute a Debenture Event of Default. See "Description of Series A
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Series A
Capital Securities" and "-- Debenture Events of Default" and "Description of
Series A Guarantee." The Series A Trust Agreement provides that each holder of
Series A Capital Securities by acceptance thereof agrees to the provisions of
the Series A Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Series A Capital Securities generally will have limited voting
rights relating only to the modification of the Series A Capital Securities and
the Series A Guarantee and the exercise of the Issuer's rights as holder of
Series A Subordinated Debentures. The Series A Trust Agreement provides that
holders of Series A Capital Securities will not be entitled to vote to appoint,
remove or replace the Property Trustee, the Delaware Trustee or any
Administrative Trustee, and that such voting rights are vested exclusively in
the holder of the Series A Common Securities except, with respect to the
Property Trustee and the Delaware Trustee, upon the occurrence of certain events
described herein. The Property Trustee, the Administrative Trustees and the
Corporation may amend the Series A Trust Agreement without the consent of
holders of Series A Capital Securities to ensure that the Issuer will not be
classified for United States federal income tax purposes as an association or
publicly traded partnership subject to taxation as a corporation unless such
action materially and adversely affects the interests of such holders. See
"Description of Series A Capital Securities -- Removal of Issuer Trustees" and
"-- Voting Rights; Amendment of Series A Trust Agreement."
TRADING CHARACTERISTICS
The Series A Capital Securities will be a new issue of securities for which
there currently is no market. The Series A Capital Securities have been approved
for quotation on the Nasdaq National Market under the symbol "TBFCP," subject to
notice of issuance. Further, although the Underwriters have indicated to the
Corporation and the Issuer that they intend to make a market in the Series A
Capital Securities, they are not obligated to do so and may discontinue any such
market-making activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Series A Capital Securities.
The Series A Capital Securities may trade at prices that do not fully
reflect the value of accrued and unpaid interest with respect to the underlying
Series A Subordinated Debentures. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and "-- Sales or
Redemption of Series A Capital Securities" for a discussion of the United States
federal income tax consequences that may result from a taxable disposition of
the Series A Capital Securities.
RISK FACTORS RELATING TO THE CORPORATION
LIMITED SOURCES OF FUNDS; PAYMENT OF FIXED OBLIGATIONS
The Corporation relies on cash dividends from TeleBank to make payments on
certain obligations, including payments on the Series A Subordinated Debentures
(which are the primary source of funds for the payment of the Series A Capital
Securities). TeleBank is subject to substantial regulatory restrictions on its
ability to pay dividends on its common stock.
16
<PAGE> 19
Office of Thrift Supervision ("OTS") regulations prohibit thrift
institutions, such as TeleBank, from making "capital distributions" (defined to
include a cash distribution or a stock redemption, but to exclude dividends in
the form of additional capital stock) unless the institution is at least
"adequately capitalized." Currently, an institution is considered "adequately
capitalized" for this purpose if it has a core capital ratio of at least 4.0%, a
Tier 1 capital ratio of at least 4.0%, and a total capital ratio of at least
8.0%. At March 31, 1998, TeleBank's tangible, core Tier 1 and total capital
ratios of 5.5%, 5.5%, 11.0% and 11.6%, respectively, met the ratios established
for "well capitalized" institutions and, thus, exceeded the ratios established
for "adequately capitalized" institutions.
Under current OTS capital distribution regulations, as long as TeleBank
meets the OTS capital requirements before and after the payment of dividends, it
may pay dividends without prior OTS approval equal to the higher of (i) 100% of
net income to date over the calendar year and 50% of surplus capital existing at
the beginning of the calendar year or (ii) 75% of its net income over the most
recent four-quarter period. The OTS could require prior approval if it were to
determine that TeleBank was "in need of more than normal supervision." In
addition, the OTS retains general discretion to prohibit any otherwise permitted
capital distribution on general safety and soundness grounds, and must be given
30 days' advance notice of all capital distributions, during which time it may
object to any proposed distribution. As of March 31, 1998, approximately $11.0
million was available for payment of dividends by TeleBank to the Corporation
under applicable restrictions without regulatory approval. There can be no
assurance that such amounts can or will be paid as dividends. The Corporation's
aggregate annual interest payment on its subordinated debentures and the
Existing Junior Subordinated Debentures is $4.4 million. In addition, under the
terms of the indentures for certain of its subordinated debentures and the
Existing Junior Subordinated Debentures, the Corporation presently is required
to maintain, on an unconsolidated basis, liquid assets in an amount equal to or
greater than $3.3 million. Any restrictions on TeleBank's payment of dividends
could adversely affect the Corporation's ability to make payments on the Series
A Subordinated Debentures, and thus on the Issuer's ability to make payments on
the Series A Capital Securities. See "Business -- Government Regulation --
Sources of Funds for Cash Dividends" and Note 12 to Consolidated Financial
Statements of TeleBanc Financial Corporation.
INTEREST RATE RISK
The results of operations of the Corporation substantially depend upon the
level of the Corporation's net interest income, which is the difference between
interest income from interest-earning assets (such as loans and mortgage-backed
securities) and interest expense on interest-bearing liabilities (such as
deposits and borrowings). Interest rates are highly sensitive to many factors
beyond the Corporation's control, including governmental monetary policies,
domestic and international economic and political conditions and other factors.
If interest rate fluctuations cause TeleBank's cost of funds to increase faster
than the yield on the interest-bearing assets of TeleBank, its net interest
income will be reduced.
The market value of most of the Corporation's financial assets also is
sensitive to fluctuations in market interest rates. Fixed-rate investments,
mortgage-backed and related securities and mortgage loans generally decline in
value as interest rates rise. Based on TeleBank's March 31, 1998 simulation
analysis, and excluding TeleBank's trading portfolio, the Corporation estimates
that a hypothetical instantaneous 100 basis point rise in rates would cause the
fair value of stockholders' equity the ("FVE") to decrease by 8.6%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LEGISLATIVE CONSIDERATIONS
Congress has been considering legislation in various forms which could
require a federally chartered savings bank, such as TeleBank, to convert its
charter to a national or state bank charter. If legislation is adopted that
requires TeleBank to convert its charter, TeleBanc Financial would become a bank
holding company subject to additional regulation, including restrictions on its
activities and the imposition of regulatory capital requirements. In the absence
of appropriate "grandfather" provisions, such legislation could have an adverse
effect on TeleBank and the Corporation. The Corporation is unable to predict
whether, and in
17
<PAGE> 20
what form, any such legislation is likely to be passed and what effect such
legislation might have on the Corporation or TeleBank. See
"Business -- Government Regulation -- Thrift Charter Legislation."
GOVERNMENT REGULATION
The Corporation is subject to federal regulatory oversight by the OTS as a
savings and loan holding company. TeleBank is subject to extensive regulation by
the OTS as its primary federal regulator and also by the FDIC and the Board of
Governors of the Federal Reserve Board (the "Federal Reserve Board"). Future
legislation or regulations may be adopted which could have an adverse effect on
the Corporation or TeleBank. In addition, TeleBank's non-traditional operating
plan may subject it to increased regulatory scrutiny.
TeleBank is subject to minimum capital and leverage requirements prescribed
by federal statute and OTS regulations. At March 31, 1998, TeleBank's regulatory
tangible, core, tier 1 and total capital ratios were 5.5%, 5.5%, 11.0% and
11.6%, respectively. TeleBank's capital ratios exceeded the requirements under
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") as well as the standards established for "well capitalized"
institutions under the prompt corrective action regulations issued pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). If
TeleBank were to fail to meet its regulatory capital requirements it would be
subject to additional restrictions and would be required by statute to file a
capital restoration plan with the OTS setting forth, among other things, the
steps TeleBank would take to become "adequately capitalized." The OTS could
choose not to accept the plan unless the Corporation guaranteed TeleBank's
compliance with the plan in writing. Finally, if TeleBank were to become
"critically undercapitalized" (which is defined to include institutions that
still have a positive net worth) it would be subject to the appointment of a
receiver or conservator.
TeleBank's ability to maintain or increase its capital levels in future
periods will be subject, among other things, to general economic conditions, the
Corporation's ability to raise new capital and the Corporation's ability and
willingness to make additional capital contributions to TeleBank. As a result,
although TeleBank's regulatory capital ratios at March 31, 1998 met the ratios
established for "well capitalized" institutions, there can be no assurance that
TeleBank will be able to maintain capital levels that meet the standards for
classification as "well capitalized" under the prompt corrective action
standards.
DEVELOPMENT OF BRAND AWARENESS
The Corporation believes that the importance of brand recognition will
increase as more companies engage in commerce over the Internet and through
other nontraditional commercial means. The Corporation's success in introducing
new financial products and services through alternative delivery channels will
depend in part upon the Corporation's ability to increase brand awareness of the
name "TeleBank." There can be no assurance that the Corporation will be able to
develop effectively an association between the brand name "TeleBank" and the
financial products and services it provides, or that, if successful, such
association will have a material favorable effect on the Corporation's business,
financial condition and results of operations. The Corporation anticipates that
its efforts to develop and, if developed, maintain brand awareness will increase
marketing and related costs significantly. These significant additional expenses
could have a material adverse effect on the Corporation's business, financial
condition and results of operations. The Corporation currently does not own a
federal registration for the servicemark "TeleBank." If the Corporation is
successful in developing a branded identity for "TeleBank" and a competitor were
to challenge successfully the Corporation's ability to use the name TeleBank, it
could have a material adverse effect on the Corporation's business, financial
condition and results of operation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The Corporation believes that the principal competitive factors in the
financial services industry in which it operates are price (e.g., interest rates
paid on savings products and fees associated with investment products), service,
convenience and product quality. Although the Corporation believes its operating
strategy enables it to offer competitive financial products on a nationwide
basis, there can be no assurance that the
18
<PAGE> 21
Corporation will be able to differentiate its products from the products of its
competitors in the financial services industry.
The financial services industry, which is highly competitive and dynamic,
has recently undergone, and continues to undergo, a major consolidation of
participants. Competing providers of direct-marketed savings and investment
products include Net.B@nk and other Internet-based financial institutions.
Additionally, more traditional, branch-based financial services companies may be
able to adopt business strategies similar to those of the Corporation with
relative ease, and there are few barriers to market entry. Many of the financial
institutions and other Companies with which the Corporation currently competes
or may compete in the future have significantly greater capital and management
resources than does the Corporation. Increased competition could have a material
adverse affect on the Corporation's business, financial condition and results of
operations. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Corporation's success may depend upon the continued service of the
Corporation's senior management, including David A. Smilow, Chairman of the
Board of Directors, Mitchell H. Caplan, Vice Chairman of the Board of Directors,
Chief Executive Officer and President, Aileen Lopez Pugh, Executive Vice
President and Chief Financial Officer and Laurence Greenberg, Executive Vice
President and Chief Marketing Officer. The loss of service of any key personnel,
or the inability to attract additional qualified personnel, could have an
adverse effect on the Corporation's business, financial condition and results of
operations.
SYSTEMS FAILURE AND SECURITY RISKS
The computer systems and network infrastructure used by TeleBank and the
Corporation may be vulnerable to unforeseen problems. TeleBank's operations are
dependent upon the ability of TeleBank to protect its computer equipment against
damage from fire, power loss, telecommunications failure or a similar
catastrophic event. Any damage or failure that causes an interruption in
TeleBank's operations could have a material adverse effect on the Corporation's
business, financial condition and results of operations. TeleBank also must
protect its computer systems and network infrastructure from physical break-ins,
security breaches and other disruptive problems caused by the Internet or other
users. Such computer break-ins and power disruptions could jeopardize the
security of information stored in and transmitted through such computer systems
and network infrastructure, which may result in significant liability to
TeleBank and the Corporation and would likely adversely affect the Corporation's
ability to retain or attract customers. The Corporation employs security
systems, including firewalls and password encryption, designed to minimize the
risk of security breaches, and relies on an outside third party service provider
for back-up Internet services and facilities. The Corporation also maintains
insurance designed to compensate the Corporation in the event of any accident,
system failure or breach of security. In addition, depositors' funds are insured
by the FDIC to a maximum of $100,000 per depositor. Although the Corporation
intends to continue to implement security technology and establish operational
procedures to prevent break-ins, damage and failures, there can be no assurance
that these security measures will be successful. A failure of such security
measures could have a material adverse effect on the Corporation's business,
financial condition and results of operations.
19
<PAGE> 22
TELEBANC FINANCIAL CORPORATION
The Corporation is a leading national provider of high value savings,
investment and other financial products and services. The Corporation utilizes a
branchless banking strategy to offer financial products and services to
customers nationwide and to maintain its low cost structure through the use of
alternative delivery channels, such as telephones, the Internet, ATMs, facsimile
and mail. The Corporation's broad selection of high value savings and investment
products generally have higher interest rates or carry lower fees than similar
products offered by traditional, branch-based financial institutions. The
Corporation also emphasizes high quality customer service and provides customers
with "anywhere, anytime" convenience for accessing its financial products and
services. The Corporation intends to broaden its financial products and services
to include in 1998 annuities, residential mortgage loans, credit cards and
mutual funds. At March 31, 1998, the Corporation had more than 22,000 customer
accounts, $560.6 million in retail deposits and $1.0 billion in assets.
The financial services industry is the fifth largest in the United States.
In 1997, deposits held in U.S. financial institutions totaled more than $4
trillion and the total assets held by such institutions was more than $6
trillion. The financial services industry is experiencing rapid change,
characterized by the demand for electronic delivery channels for products and
services, the emergence of nationwide, full-service financial institutions and
growing price competition. Increasingly, customers are seeking higher value
products, as well as access to financial services and products through
electronic delivery channels, such as the Internet, telephones, ATMs and
facsimile. The use of such electronic media has grown through the development of
network technologies, the increased use of personal computers in the home and
workplace and faster and less expensive Internet access. According to an April
1998 report by the U.S. Department of Commerce (the "Commerce Report"),
businesses will trade as much as $300 billion annually over the Internet during
the next five years. Although Internet banking is still relatively new, the
Commerce Report estimated that approximately 4.5 million households were banking
online in 1997, and that number is expected to increase to 10 to 16 million
households by the year 2000.
To meet changing customer demands, the Corporation has developed a low cost
operating strategy designed to reach potential customers through alternative
delivery channels and to build brand awareness of "TeleBank." As part of this
strategy, through a variety of advertising and promotional media, including
print, the Internet, radio advertising and public relations, the Corporation
targets customers in all 50 states who seek higher rates, convenience and
service. The Corporation also has implemented an affinity marketing program,
through which it directly markets its savings and investment products to members
of the participating organizations. Currently, TeleBank has affinity programs
with 10 organizations having an aggregate of more than one million members
nationwide. The Corporation also intends to broaden its financial product and
service offerings by forming strategic alliances with other financial service
providers to develop and market co-branded products. For example, the
Corporation has entered into agreements with, among others, USG Annuity & Life
Company and Jackson National Life Insurance Company to offer co-branded
annuities through the Corporation's licensed insurance subsidiary. The
Corporation has entered into agreements with E-Loan, an Internet-based mortgage
loan broker, to offer residential mortgage loans and with E-Trade to make
available electronic brokerage services and related financial products.
RECENT DEVELOPMENT
Consistent with the Corporation's direct marketing operating strategy, the
Corporation has signed an agreement to acquire Direct Financial Corporation
("DFC"), a regional savings and loan holding company, and its wholly owned
subsidiary, Premium Bank F.S.B., a federal savings bank ("Premium Bank"), in a
merger transaction for approximately $21.4 million in cash and the repayment by
the Corporation of approximately $6 million in subordinated debt and other
liabilities (the "DFC Acquisition"). DFC employs a direct marketing strategy
similar to that of the Corporation. At December 31, 1997, DFC reported total
assets of $326.1 million, total deposits of $273.9 million, total stockholders'
equity of $12.3 million and approximately 15,000 customer accounts. Although
there can be no assurance, the DFC Acquisition is expected to be completed in
the summer of 1998, subject to certain conditions, including receipt of
regulatory approval. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
20
<PAGE> 23
USE OF PROCEEDS
All of the proceeds from the sale of the Series A Capital Securities will
be invested by the Issuer in Series A Subordinated Debentures. The Corporation
intends that the proceeds from the sale of the Series A Subordinated Debentures
will be used to fund the continued growth of the Corporation, including its
national direct marketing initiatives, and for working capital and general
corporate purposes.
Simultaneously with the Offering, the Corporation is offering to the public
pursuant to the Common Stock Offering 4,100,000 shares of Common Stock (and an
additional 615,000 shares of Common Stock if the over-allotment option is
exercised in full by the underwriters of the Common Stock Offering). The
Corporation intends to use the net proceeds from the Common Stock Offering,
estimated to be $50.9 million ($58.6 million if the underwriters' over-allotment
option is exercised in full), assuming a price to the public for the Common
Stock of $13.50 per share, to fund the continued growth of the Corporation,
including its national direct marketing initiatives, and for working capital and
general corporate purposes. The Series A Capital Securities and the Common Stock
are being sold in separate offerings. However, the Corporation does not intend
to complete the Offering unless the Common Stock Offering is completed.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Corporation's consolidated ratios of
earnings to fixed charges and ratios of earnings to combined fixed charges and
preferred stock dividend requirements for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ---------------------------------
ENDED MARCH 31, 1998 1997 1996 1995 1994 1993
-------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges:
Excluding Interest on Deposits....... 1.06x 1.38x 1.30x 1.29x 1.09x 1.50x
Including Interest on Deposits....... 1.03x 1.17x 1.11x 1.14x 1.04x 1.17x
Earnings to Fixed Charges and
Preferred Dividends:
Excluding Interest on Deposits....... 1.02x 1.33x 1.30x 1.29x 1.09x 1.50x
Including Interest on Deposits....... 1.01x 1.15x 1.11x 1.14x 1.04x 1.17x
</TABLE>
For purposes of computing the ratios of earnings to fixed charges and of
earnings to combined fixed charges and the pretax amount of preferred stock
dividend requirements, earnings represent net income from continuing operations
plus total taxes based on income and fixed charges and less undistributed
earnings of subsidiaries. Fixed charges, excluding interest on deposits,
consists of interest expense (other than on deposits) and capitalized interest.
Fixed charges, including interest on deposits, consists of all interest expense
and capitalized interest.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer will be treated as a
subsidiary of the Corporation and, accordingly, the accounts of the Issuer will
be included in the Consolidated Financial Statements of the Corporation. The
Series A Capital Securities will be presented as part of a separate line item in
the consolidated balance sheets of the Corporation under the caption
"Corporation-Obligated Mandatorily Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated Debentures of the Corporation," and
appropriate disclosures about the Series A Capital Securities, the Series A
Guarantee and the Series A Subordinated Debentures will be included in the Notes
to the Consolidated Financial Statements. For financial reporting purposes, the
Corporation will record Distributions payable on the Series A Capital Securities
as minority interest in the Consolidated Statements of Operations.
The Corporation has agreed that future financial reports of the Corporation
will: (i) present the Series A Capital Securities issued by the Corporation on
the Corporation's balance sheet as a separate line item entitled
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<PAGE> 24
"Corporation--Obligated Mandatorily Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated Debentures of the Corporation;" (ii)
include in a footnote to the financial statements disclosure that the sole
assets of the Issuer are the Series A Subordinated Debentures (specifying the
principal amount, interest rate and maturity date of Series A Subordinated
Debentures held); and (iii) include, in an audited footnote to the financial
statements, disclosure that (a) the Issuer is wholly owned, (b) the sole assets
of the Issuer are the Series A Subordinated Debentures (specifying the principal
amount, interest rate and maturity date of the Series A Subordinated Debentures
held), and (c) the obligations of the Corporation under the Series A
Subordinated Debentures, the Indenture, the Series A Trust Agreement and the
Series A Guarantee, in the aggregate, constitute a full and unconditional
guarantee by the Corporation of the Issuer's obligations under the Series A
Capital Securities issued by the Issuer.
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<PAGE> 25
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Corporation at March 31, 1998 (i) on an actual basis, (ii) on a pro forma
basis to reflect the consummation of (a) the Corporation's acquisition of
substantially all of the assets and assumption of substantially all of the
liabilities of MET Holdings, Inc. ("MET Holdings") in exchange for the issuance
of 2,876,162 shares of Common Stock (the "MET Holdings Transaction") which was
completed on April 30, 1998 and (b) the DFC Acquisition, and (iii) on a pro
forma, as adjusted basis to give effect to (a) the consummation of the offering
of the Series A Capital Securities and the investment of the net proceeds
therefrom in the Series A Subordinated Debentures, (b) the sale of the
Corporation's Common Stock in the Common Stock Offering and the investment of
the net proceeds therefrom, (c) the issuance of 2,399,486 shares of Common Stock
upon the conversion (the "Preferred Stock Conversion") of 18,850 outstanding
shares of Series A Voting Convertible Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), 4,050 outstanding shares of Series B Nonvoting
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock"), and 7,000 shares of Series C Nonvoting Convertible Preferred Stock, par
value $.01 per share (the "Series C Preferred Stock" and, collectively with the
Series A Preferred Stock and the Series B Preferred Stock, the "Preferred
Stock") upon completion of the Common Stock Offering, and (d) the issuance of
119,974 shares of Common Stock as a dividend on the Preferred Stock immediately
prior to completion of the Common Stock Offering. See "Use of Proceeds," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The information set forth in the table should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto of
TeleBanc Financial Corporation included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Subordinated debt, net.................................... $29,672 $29,672 $ 29,672
Trust preferred securities (1)............................ 9,526 9,526 35,919
Stockholders' equity (2):
Preferred Stock, $.01 par value, 500,000 shares
authorized:
Series A Voting Convertible Preferred Stock, 18,850
issued and outstanding actual and pro forma, no
shares issued and outstanding pro forma, as
adjusted............................................. 9,634
Series B Nonvoting Convertible Preferred Stock, 4,050
issued and outstanding actual and pro forma, no
shares issued and outstanding, pro forma, as
adjusted............................................. 2,070
Series C Nonvoting Convertible Preferred Stock, 7,000
issued and outstanding actual and pro forma, no
shares issued and outstanding, pro forma, as
adjusted............................................. 3,577 -- --
Common Stock, $.01 par value, 29,500,000 shares
authorized, 4,484,988 and 7,014,448 shares issued and
outstanding actual and pro forma, respectively;
11,114,448 shares issued and outstanding, pro forma, as
adjusted................................................ 44 70 110
Additional paid-in capital................................ 16,365 33,340 84,150
Retained earnings......................................... 11,850 10,230 10,230
Net unrealized gain on securities available for sale, net
of tax.................................................. 3,000 3,000 3,000
------- ------- --------
Total stockholders' equity (3)....................... 46,540 46,640 97,490
------- ------- --------
Total capitalization............................ $85,738 $85,838 $163,081
======= ======= ========
</TABLE>
- ---------------
(1) Consists of 10,000 shares of Company-Obligated Mandatorily Redeemable
Capital Securities of a subsidiary trust, TCT I. See Note 12 to Consolidated
Financial Statements of TeleBanc Financial Corporation.
(2) Does not include 1,086,176 shares of Common Stock issuable upon the exercise
of outstanding warrants or 1,645,196 shares of Common Stock reserved for
issuance upon exercise of outstanding options granted to directors,
executive officers and key employees under the Company's 1994 Stock Option
Plan and 1997 Stock Option Plan.
(3) If the over-allotment option granted to the Underwriters of the Common Stock
Offering is exercised in full, total stockholders' equity, pro forma, as
adjusted, of the Corporation at March 31, 1998 would be $105.8 million.
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<PAGE> 26
SELECTED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION AND STATEMENT OF OPERATIONS
OF TELEBANC FINANCIAL CORPORATION
The unaudited Pro Forma Condensed Consolidated Statement of Financial
Condition and Statement of Operations of the Corporation are presented to give
pro forma effect to (i) the MET Holdings Transaction and (ii) the DFC
Acquisition. The DFC Acquisition is expected to be completed in the summer of
1998, subject to certain conditions, including receipt of regulatory approval.
The pro forma financial information has been prepared using the historical
Consolidated Financial Statements of the Corporation. The Pro Forma Condensed
Consolidated Statement of Financial Condition gives effect to the transactions
described above as if they had occurred as of March 31, 1998. The Pro Forma
Condensed Consolidated Statement of Operations gives pro forma effect to the
above transactions as if they had occurred on January 1, 1997 for the year ended
December 31, 1997, and on January 1, 1998 for the three months ended March 31,
1998.
The pro forma consolidated financial data of the Corporation have been
derived from and should be read in conjunction with the Consolidated Financial
Statements of the Corporation and the Notes thereto included elsewhere in this
Prospectus. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the financial position that would have
occurred had the transactions described above been effected on the dates assumed
nor is the pro forma financial information intended to be indicative of the
Corporation's future financial position or results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
MET HOLDINGS
AND DFC
CORPORATION COMBINED PRO FORMA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) HISTORICAL HISTORICAL(A) ADJUSTMENT PRO FORMA
- ----------------------------------------- ----------- ------------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income.......................... $59,301 $23,308 $ -- $82,609
Interest expense......................... 46,063 18,431 -- 64,494
------- ------- ----- -------
Net interest income................... 13,238 4,877 -- 18,115
Provision for loan losses................ 921 456 -- 1,377
Non-interest income...................... 4,093 3,155 -- 7,248
Non-interest expense:
Selling, general and administrative
expenses............................ 9,042 4,212 -- 13,254
Other non-interest expense............ 1,100 -- 510(b) 1,610
------- ------- ----- -------
Income before income tax, minority
interest and preferred dividend......... 6,268 3,364 (510) 9,122
Income tax expense....................... 1,657 471 -- 2,128
Minority interest........................ 394 -- -- 394
------- ------- ----- -------
Net income from continuing operations
before nonrecurring charges directly
attributable to the transaction and
preferred dividend...................... $ 4,217 $ 2,893 $(510) $ 6,600
======= ======= ===== =======
Preferred dividend....................... 546 180 -- 726
Net income available to common
stockholders............................ $ 3,671 $ 2,713 $(510) $ 5,874
======= ======= ===== =======
Earnings per share:
Basic................................. $ 0.84 $ 1.34
Diluted............................... $ 0.57 $ 0.89
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------
MET HOLDINGS
AND DFC
CORPORATION COMBINED PRO FORMA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) HISTORICAL HISTORICAL(A) ADJUSTMENT PRO FORMA
- ----------------------------------------- ----------- ------------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income.......................... $18,071 $5,528 $ -- $23,599
Interest expense......................... 14,477 4,568 -- 19,045
------- ------ ----- -------
Net interest income................... 3,594 960 -- 4,554
Provision for loan losses................ 250 130 -- 380
Non-interest income...................... 1,947 228 -- 2,175
Non-interest expense:
Selling, general and administrative
expenses............................ 3,889 880 -- 4,769
Other non-interest expense............ 315 -- 128(b) 443
------- ------ ----- -------
Income before income tax, minority
interest and preferred dividend......... 1,087 178 (128) 1,137
Income tax expense....................... 475 13 -- 488
Minority interest........................ 176 -- -- 176
------- ------ ----- -------
Net income from continuing operations
before nonrecurring charges directly
attributable to the transaction and
preferred dividend...................... $ 436 $ 165 $(128) $ 473
======= ====== ===== =======
Preferred dividend....................... 162 -- -- 162
Net income available to common
stockholders............................ $ 274 $ 165 $(128) $ 311
======= ====== ===== =======
Earnings per share:
Basic................................. $ 0.06 $ 0.07
Diluted............................... $ 0.05(c) $ 0.05
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------------------------------------
MET HOLDINGS
TELEBANC AND DFC
FINANCIAL COMBINED PRO FORMA
HISTORICAL HISTORICAL(D) ADJUSTMENT PRO FORMA
----------- ------------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA(D):
Assets:
Cash and cash equivalents................................ $ 31,559 $ 6,471 $ (8,566)(e) $ 29,464
Loans receivable, net.................................... 557,057 182,079 -- 739,136
Mortgage-backed securities............................... 260,152 25,524 -- 285,676
Investment securities.................................... 123,963 33,914 3,600(f) 161,477
Other assets............................................. 75,422 94,154 (11,482)(g) 158,094
---------- -------- -------- ----------
Total assets............................................. $1,048,153 $342,142 $(16,448) $1,373,847
========== ======== ======== ==========
Liabilities:
Retail deposits.......................................... $ 560,554 $288,731 $ -- $ 849,285
Brokered callable certificates of deposit................ 42,286 -- -- 42,286
Advances from the FHLB................................... 190,000 10,500 -- 200,500
Reverse repurchase agreements and other borrowings....... 153,970 2,495 19,000(h) 175,465
Other liabilities........................................ 45,277 8,925 (4,057)(i) 50,145
---------- -------- -------- ----------
Total liabilities........................................ 992,087 310,651 14,943 1,317,681
Trust preferred securities(k)............................... 9,526 -- -- 9,526
Total stockholders' equity.................................. 46,540 31,491 (31,391)(j) 46,640
---------- -------- -------- ----------
Total liabilities and stockholders' equity............... $1,048,153 $342,142 $(16,448) $1,373,847
========== ======== ======== ==========
</TABLE>
- ---------------
(a) Reflects the combined statement of operations of MET Holdings and DFC for
the year ended December 31, 1997 and the three months ended March 31, 1998.
24
<PAGE> 27
(b) Reflects the amortization of goodwill for the year ended December 31, 1997
and the three months ended March 31, 1998 ($510 and $128, respectively)
recognized in conjunction with the DFC Acquisition.
(c) The impact of the convertible Preferred Stock is antidilutive for the three
months ended March 31, 1998. The Preferred Stock will convert to Common
Stock in the Preferred Stock Conversion. See "Capitalization." Basic
earnings per share in future periods will be reduced as a result of the
issuance of 2,399,486 shares of Common Stock in the Preferred Stock
Conversion and 119,974 shares of Common Stock issuable as a dividend on the
Preferred Stock upon consummation of the Common Stock Offering.
(d) Reflects the combined statements of financial condition of MET Holdings and
DFC as of March 31, 1998.
(e) Reflects the cash amount paid by TeleBanc Financial to acquire DFC
($21,400), plus the amount paid for expenses related to the MET Holdings
Transaction and the elimination of intercompany deposits ($1,109) and the
amount used to payoff the outstanding subordinated debentures of DFC
($5,057), net of the proceeds received through borrowings ($19,000).
(f) Reflects the mark-to-market adjustment recognized in conjunction with the
acquisition of AFS Investment Securities, a wholly owned subsidiary of DFC
which will be acquired by the Corporation in the DFC Acquisition ($3,600).
(g) Reflects the elimination of MET Holdings' equity interest in TeleBanc
Financial ($19,169), net of a mark-to-market adjustment for MET Holdings'
equity investment in an unrelated entity ($31). These adjustments also
include goodwill to be recognized in conjunction with the DFC Acquisition
($7,656).
(h) Reflects additional reverse repurchase agreements entered into in
connection with the DFC Acquisition ($19,000).
(i) Reflects the payoff of outstanding subordinated debentures of DFC ($5,057)
in connection with the DFC Acquisition, net of additional liabilities
incurred in connection with the DFC Acquisition.
(j) Reflects (i) the acquisition by the Corporation of DFC's assets and
liabilities and the assets (including 2,866,162 shares of Common Stock
owned by MET Holdings) and liabilities of MET Holdings and (ii) the
issuance of 2,876,162 shares of Common Stock to MET Holdings. The DFC
Acquisition and the MET Holdings Transaction are accounted for as a
purchase in which the assets and liabilities of DFC and MET Holdings will
be recorded at fair value on the Consolidated Financial Statements of the
Corporation.
(k) Consists of 10,000 shares of Corporation-Obligated Mandatorily Redeemable
Capital Securities of a subsidiary trust, TCT I. See "Description of
Securities" and Note 12 to Consolidated Financial Statements of TeleBanc
Financial Corporation.
25
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF TELEBANC FINANCIAL CORPORATION
The following table presents selected statement of operations data and
statement of financial condition data of the Corporation on a consolidated basis
for each of the five years in the period ended December 31, 1997, and for the
three months ended March 31, 1997 and 1998. The selected historical consolidated
financial data presented below for each of the years in the period ended
December 31, 1997, are derived from the audited Consolidated Financial
Statements of the Corporation. Such data should be read in conjunction with the
Consolidated Financial Statements of the Corporation and the Notes thereto
included elsewhere in this Prospectus. The selected unaudited consolidated
financial data for the three months ended March 31, 1998 presented below are
based on the unaudited Consolidated Financial Statements of the Corporation for
the period ended and as of March 31, 1998, which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(In thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income................................. $16,667 $22,208 $40,511 $45,800 $59,301 $12,837 $18,071
Interest expense................................ 11,828 17,513 31,946 34,815 46,063 9,878 14,477
------- ------- ------- ------- ------- ------- -------
Net interest income......................... 4,839 4,695 8,565 10,985 13,238 2,959 3,594
Provision for loan losses....................... 211 492 1,722 919 921 243 250
Non-interest income............................. 1,157 175 3,777 2,756 4,093 618 1,947
Non-interest expenses:
Selling, general and administrative
expenses.................................. 2,997 3,503 5,561 8,375 9,042 1,897 3,889
Other non-interest expenses................. 739 153 679 700 1,100 208 315
------- ------- ------- ------- ------- ------- -------
Income before income tax, cumulative effect of
change in accounting principle and minority
interest...................................... 2,049 722 4,380 3,747 6,268 1,229 1,087
Income tax expense.............................. 842 182 1,660 1,195 1,657 355 475
Cumulative effect of change in accounting
principle..................................... 170 -- -- -- -- -- --
Minority interest............................... -- -- -- -- 394 -- 176
Preferred stock dividend........................ -- -- -- -- 546 60 162
------- ------- ------- ------- ------- ------- -------
Net income available to common stockholders..... $ 1,377 $ 540 $ 2,720 $ 2,552 $ 3,671 $ 814 $ 274
======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic....................................... $ 0.53 $ 0.16 $ 0.66 $ 0.62 $ 0.84 $ 0.19 $ 0.06
Diluted..................................... $ 0.53 $ 0.16 $ 0.66 $ 0.58 $ 0.57 $ 0.15 $ 0.05
Weighted average shares:
Basic....................................... 2,599 3,498 4,099 4,099 4,383 4,212 4,468
Diluted..................................... 2,599 3,498 4,104 4,406 7,411 5,790 5,757
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------- -----------
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Total assets.................................... $220,301 $427,292 $553,943 $647,965 $1,100,352 $1,048,153
Loans receivable, net........................... 100,859 154,742 248,492 351,821 540,704 557,057
Mortgage-backed securities (1).................. 80,782 236,464 234,385 184,743 319,203 260,152
Investment securities (1)....................... 18,110 12,444 40,058 78,826 91,237 123,963
Retail savings and certificates of deposit...... 113,132 212,411 306,500 390,486 522,221 560,554
Advances from the FHLB.......................... 61,000 96,000 105,500 144,800 200,000 190,000
Securities sold under agreements to
repurchase.................................... 29,642 79,613 93,905 57,581 279,909 153,970
Trust preferred securities (2).................. -- -- -- -- 9,572 9,526
Total stockholders' equity...................... 12,378 17,028 21,565 24,658 45,824 46,540
OTHER FINANCIAL AND OPERATING DATA:
Return on average total assets.................. 0.61% 0.17% 0.53% 0.61%(3) 0.45% 0.11%
Return on average stockholders' equity.......... 11.79% 3.17% 14.10% 16.50%(3) 9.17% 2.58%
SG&A expenses to total assets................... 1.36% 0.82% 1.00% 1.03%(3) 0.82% 1.48%
Number of deposit accounts...................... 2,932 8,564 12,919 16,506 21,817 22,916
CAPITAL RATIOS OF TELEBANK:
Core............................................ 5.39% 6.27% 5.31% 5.08% 5.06% 5.48%
Tangible........................................ 5.38 6.35 5.36 5.07 5.06 5.48
Total capital................................... 14.75 15.96 11.74 10.41 11.91 11.60
</TABLE>
- ---------------
(1) Includes available-for-sale, held-to-maturity, held-for-sale, and trading.
(2) Consists of 10,000 shares of Corporation-Obligated Mandatorily Redeemable
Capital Securities of a subsidiary trust, TCT I. TCT I is a business trust
formed for the purpose of issuing capital securities and investing the
proceeds in the Existing Junior Subordinated Debentures issued by the
Corporation. See "Description of Series A Capital Securities" and Note 12 to
Consolidated Financial Statements of TeleBanc Financial Corporation.
(3) Excludes one-time pre-tax charge of $1.7 million ($1.1 million after tax) to
recapitalize the Savings Association Insurance Fund ("SAIF"). Giving effect
to the charge, return on average total assets, return on average
stockholders' equity, and selling, general and administrative expenses to
total assets for 1996 were 0.42%, 11.4% and 1.29%, respectively.
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Corporation utilizes a branchless banking strategy through which it
offers financial products and services to customers nationwide using alternative
delivery platforms, including the telephone, the Internet, ATMs, facsimile and
mail. Prior to its acquisition by members of present management in 1989, the
Corporation operated as a traditional community savings bank. In 1989,
management changed the Corporation's growth strategy using direct marketing to
offer, through electronic delivery channels, high value financial products and
services, which generally offer higher interest rates or lower fees than those
offered by traditional financial institutions.
The Corporation primarily generates revenue in the form of net interest
income and, to a lesser degree, non-interest income which includes fees and
commissions for services and gains on the sale of assets. Net interest income is
the "spread" or difference between the rates of interest earned on loans and
other interest-earning assets, and the rates of interest 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 may
materially affect net interest income.
The Corporation's asset acquisition strategy is to purchase pools of
mortgages secured by one-to-four family residences and mortgage-related
securities. The Corporation does not currently originate loans. The Corporation
believes that by purchasing a seasoned and geographically diverse loan
portfolio, it reduces expenses related to loan origination, and is able to
actively manage credit quality risk.
TeleBank manages its interest rate risk by analyzing the maturities and
repricing of its deposits and other sources of funding, and seeking to match the
maturities of these instruments with the maturities of the assets in its loan
portfolio. In an effort to manage interest rate exposure, TeleBank uses various
hedging techniques such as interest rate swaps, caps, swaptions, floors, collars
and financial options. TeleBank actively monitors its interest rate sensitivity
in a variety of interest rate environments.
The Corporation plans to build the "TeleBank" franchise identity based on
its high value savings and investment and other financial products, superior
customer service and anywhere, anytime convenience. The Corporation believes
that associating its brand name with its services and delivery channels will
enable it to capture the growing market of customers who are increasingly
relying on alternative channels for the delivery of their financial services. In
pursuing this strategy, the Corporation plans to increase significantly its
marketing expenditures for the foreseeable future to implement a targeted,
national advertising campaign and marketing initiative.
DFC ACQUISITION
Consistent with its operating strategy, the Corporation has signed an
agreement to acquire DFC, a thrift holding company and its federally chartered
savings bank subsidiary, Premium Bank, in a transaction expected to be
consummated in the summer of 1998, subject to regulatory approval. TeleBanc
Financial is acquiring DFC because DFC has employed a direct marketing strategy
similar to that of the Corporation, and thus presents the opportunity for the
Corporation to acquire the deposits and customers of a financial institution
without acquiring significant infrastructure. DFC currently operates from a
single branch in New Jersey located approximately 30 miles outside of
Philadelphia, Pennsylvania, and its customer and deposit base is concentrated in
the mid-Atlantic region of the United States. The Corporation does not intend to
retain any significant portion of DFC's employees and intends to close DFC's
single branch location. DFC also originates residential mortgage loans, although
the Corporation intends to discontinue mortgage loan origination upon its
acquisition of DFC. DFC also offers credit cards to its customers through a
relationship with First Data Resources and Card Management Services. During
1998, in reliance upon DFC's existing credit card relationships, the Corporation
also intends to offer its customers a co-branded credit card.
27
<PAGE> 30
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
Total interest income increased by $5.3 million to $18.1 million for the
three months ended March 31, 1998 from $12.8 million for the three months ended
March 31, 1997, an increase of 41.4%. Total interest expense increased $4.6
million to $14.5 million for the three months ended March 31, 1998 from $9.9
million for the three months ended March 31, 1997, an increase of 46.6%.
Non-interest income increased by $1.3 million to $1.9 million for the three
months ended March 31, 1998 from $618,000 for the three months ended March 31,
1997, an increase of 215%, primarily as a result of increased income from the
Corporation's loans held-for-sale portfolio, loan fees on the Corporation's loan
portfolio, and sales of liquid securities. Non-interest expenses increased $2.1
million to $4.2 million for the three months ended March 31, 1998, compared to
$2.1 million for the three months ended March 31, 1997, an increase of 99.7%,
primarily attributable to marketing and operating expenses directly associated
with TeleBank brand building and customer acquisition campaigns. Net income for
the three months ended March 31, 1998 decreased $438,000 to $436,000, compared
to $874,000 for the three months ended March 31, 1997, a decrease of 50%.
With the anticipated consummation of the DFC Acquisition and a
corresponding increase in assets of approximately $320 million, management
maintained assets at relatively stable levels in the first quarter of 1998. As
of March 31, 1998, assets totaled $1.0 billion, a $52.2 million decline, from
the $1.1 billion level as of December 31, 1997. Cash and cash equivalents
declined by $60.6 million to $31.6 million at March 31, 1998, from $92.2 million
at December 31, 1997, a decrease of 65.7%. Trading securities, investment
securities available for sale and mortgage-backed securities available for sale
decreased by $5.4 million to $426.2 million at March 31, 1998 from $431.6
million at December 31, 1997. Loans receivable, net increased $27.1 million to
$418.7 million at March 31, 1998 from $391.6 million at December 31, 1997, an
increase of 6.9%. Loans receivable held for sale decreased $10.7 million to
$138.4 million at March 31, 1998 from $149.1 million at December 31, 1997. While
the Corporation's corresponding liability levels also remained stable, deposits
increased $38.3 million, or 7.3%, to $560.5 million at March 31, 1998 from
$522.2 million at December 31, 1997 and retail customer accounts grew 4.6% from
the prior quarter to approximately 22,000 at March 31, 1998. In the first
quarter of 1998, the Corporation also sold brokered callable certificates of
deposit, which totaled $42.3 million at March 31, 1998. FHLB advances and other
borrowings declined by $133.5 million to $389.2 million at March 31, 1998 from
$522.7 at December 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Interest Income. Total interest income increased by $13.5 million to $59.3
million for the year ended December 31, 1997 from $45.8 million for the year
ended December 31, 1996, an increase of 29.5%. This increase is due primarily to
the $11.6 million increase in interest income on mortgages and other loans, an
increase of 50.4% in 1997, principally due to a significant increase in the
average loan balance during the period. Interest income on mortgage-backed and
related securities decreased slightly to $17.6 million at December 31, 1997 from
$18.0 million at December 31, 1996 largely as a result of a decline in the
yield.
Interest Expense. Total interest expense increased by $11.3 million to
$46.1 million for the year ended December 31, 1997 from $34.8 million for the
year ended December 31, 1996, an increase of 32.5%. The increase is attributable
to both an increase in interest-bearing liabilities and a slight increase in the
average interest rate paid.
Loan Loss Provision. The provision for loan losses is the annual cost of
providing an allowance for estimated losses in the loan portfolio, and reflects
management's judgment as to the reserve necessary to absorb loan losses based
upon the Corporation's assessment of a number of factors, including its
delinquent loan trends and historical loss experience, current and anticipated
economic conditions, the mix of loans in the Corporation's portfolio, and the
Corporation's internal credit review process. The provision for loan losses
remained substantially unchanged at $921,000 for the year ended December 31,
1997, compared to $919,000 for the year ended December 31, 1996, despite a
significant increase in the loan portfolio primarily because the Corporation
historically has experienced a low level of net charge-offs due in part to its
focus on residential mortgage assets. The ratio of net charge-offs to net
average loans outstanding during 1997 was 0.06%,
28
<PAGE> 31
compared to 0.10% during 1996. Total loan loss allowance as a percentage of
total non-performing loans was 31.0% as of December 31, 1997, compared to 26.3%
as of December 31, 1996.
Non-interest Income. Total non-interest income increased by $1.3 million
to $4.1 million for the year ended December 31, 1997, from $2.8 million for the
year ended December 31, 1996, an increase of 46.4%. Non-interest income
increased primarily because the Corporation recognized $1.2 million of
non-interest income as gain on trading securities during 1997. In addition, the
Corporation recognized an $864,000 decline in equity investment primarily
attributable to the write-off of the equity investment by TeleBank in AGT
Mortgage Services, LLC, which had provided loan servicing services for a fee and
ceased operations in July 1997.
Non-interest Expenses. Total non-interest expenses, principally selling,
general and administrative expenses, increased $1.1 million to $10.1 million for
the year ended December 31, 1997, from $9.1 million for the year ended December
31, 1996, an increase of 11.8%. Selling, general and administrative expenses
increased $600,000 to $9.0 million during 1997 from $8.4 million during 1996, an
increase of 7.1%, primarily as a result of a $1.2 million increase in
compensation and employee benefits in 1997. During 1996, the Corporation
incurred a one-time $1.7 million assessment to recapitalize the SAIF. See
"Business -- Government Regulation." Other general and administrative expenses
increased $1.1 million, principally as a result of increased marketing expenses
to support a growing deposit base and the building of brand identity.
Other non-interest expenses increased $1.1 million to $4.1 million during
the year December 31, 1997 from $3.0 million during the year ended December 31,
1996, an increase of 36.7%, primarily as a result of increased advertising
expenses, increased office occupancy costs and an increased amortization of
purchased mortgage servicing rights.
Income Tax Expense. Income tax expense for the year ended December 31,
1997 was $1.7 million, compared with $1.2 million for the year ended December
31, 1996. The Corporation's effective tax rate for 1997 was 26.4%, compared to
31.9% for 1996. The effective tax rate decreased largely as a result of an
increase during 1997 in interest earned on municipal bonds, which generally were
tax-exempt.
Net Income. Net income for the year ended December 31, 1997 increased $1.1
million to $3.7 million from $2.6 million for the year ended December 31, 1996,
an increase of 42.3%. 1997 net income consisted primarily of $13.2 million in
net interest income, $3.3 million in net gain on the sale of trading securities,
principally loans held for sale, and mortgage-backed and investment securities,
which was offset by $10.1 million in non-interest expenses, $921,000 in
provision for loan losses, and $1.7 million in income tax expense. The
Corporation's return on average assets and return on average equity for the year
ended December 31, 1997 were 0.45% and 9.17%, respectively.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Interest Income. Total interest income increased by $5.3 million to $45.8
million for the year ended December 31, 1996 from $40.5 million for the year
ended December 31, 1995, an increase of 13.1%. The increase is due primarily to
a $5.4 million increase in interest income on mortgages and other loans, an
increase of 30.5% in 1996, principally due to a $77.3 million increase in the
average loan balance during the period. Interest income on mortgage-backed
securities held-to-maturity and available-for-sale decreased to $18.0 million at
December 31, 1996 from $20.2 million at December 31, 1995 largely as a result of
a decline in average balances.
Interest Expense. Total interest expense increased by $2.9 million to
$34.8 million for the year ended December 31, 1996 from $31.9 million for the
year ended December 31, 1995, an increase of 9.1%. The increase is attributable
to an increase in interest-bearing liabilities, offset in part by a decline in
interest cost.
Loan Loss Provision. The provision for loan losses declined to $919,000
for the year ended December 31, 1996, compared to $1.7 million for the year
ended December 31, 1995, despite a significant increase in the size of the loan
portfolio, primarily because the Corporation experienced a low level of actual
net charge-offs due in part to its focus on residential mortgage assets. The
total loan loss allowance as of December 31, 1996 was $3.0 million from $2.3
million at December 31, 1995, which were 0.80% and 0.90% of total loans
29
<PAGE> 32
outstanding at such dates, respectively. Total loan loss allowance as a
percentage of total non-performing loans was 26.3% as of December 31, 1996,
compared to 43.4% as of December 31, 1995.
Non-interest Income. Total non-interest income declined by $1.0 million to
$2.8 million for the year ended December 31, 1996, from $3.8 million for the
year ended December 31, 1995, a decrease of 26.3%. Fees, service charges and
other income increased by $814,000 in 1996, in large part as a result of fees
collected on $2.8 million in purchased mortgage servicing rights, and gain on
loans held for sale increased by $642,000 in 1996, which were primarily offset
by an $870,000 decrease in mortgage-backed securities available for sale, a
$924,000 decrease in investment securities available for sale and a $628,000
decrease in trading account income.
Non-interest Expenses. Total non-interest expenses increased $2.9 million
to $9.1 million for the year ended December 31, 1996 from $6.2 million for the
year ended December 31, 1995, an increase of 46.8%. Selling, general and
administrative expenses increased $2.8 million to $8.4 million for the year
ended December 31, 1996 from $5.6 million for the year ended December 31, 1995,
an increase of 50%, primarily because of the $1.7 million one-time SAIF
assessment incurred in 1996. See "Business -- Government Regulation." In
addition, compensation and employee expenses increased by $660,000 as a result
of adding employees and higher performance-based bonuses, the TeleBank federal
deposit insurance premium increased by $483,000, and administrative expenses
generally increased as a result of an increased deposit base.
Other non-interest expenses increased slightly because of an increase in
amortization of purchased mortgage servicing rights, offset by a decline in real
estate owned expense.
Income Tax Expense. Income tax expense for the year ended December 31,
1996 was $1.2 million, compared with $1.7 million for the year ended December
31, 1995. The Corporation's effective tax rate for the year ended December 31,
1996 was 31.9%, compared to 37.9% for the year ended December 31, 1995.
Net Income. Net income for the year ended December 31, 1996 decreased
$168,000 to $2.6 million from $2.7 million for the year ended December 31, 1995,
a decrease of 6.2%. Net income for the year ended December 31, 1996 included the
one-time $1.7 million SAIF assessment. Excluding the one-time assessment, 1996
net income would have been $3.6 million. Net income consisted primarily of $11.0
million in net interest income and $1.8 million in net gain on the sale of
trading securities, principally loans held for sale and mortgage-backed and
investment securities, which was offset by $9.1 million in non-interest
expenses, $919,000 in provision for loan losses, and $1.2 million in income tax
expense. The Corporation's return on average assets and return on average equity
for the year ended December 31, 1996 were 0.42% and 11.46%, respectively.
Earnings per share, on a fully diluted basis, were $0.58 for 1996.
QUARTERLY RESULTS
The following table sets forth certain selected unaudited quarterly
financial data of the Corporation for each of the eight quarters in the two-year
period ended March 31, 1998. The consolidated financial data presented below
have been prepared on a basis consistent with the Corporation's audited
Consolidated Financial Statements included elsewhere in this Prospectus and, in
the opinion of management, include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of such information. This
information should be read in conjunction with the Corporation's audited
Consolidated Financial Statements and the Notes thereto and the unaudited
quarterly Consolidated Financial Statements and the
30
<PAGE> 33
Notes thereto included elsewhere in this Prospectus. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1997 1997 1997 1997 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest income............. $11,364 $11,871 $11,433 $12,837 $15,275 $14,821 $16,368 $18,071
Interest expense............ 8,449 9,034 8,975 9,878 11,865 11,548 12,772 14,477
------- ------- ------- ------- ------- ------- ------- -------
Net interest income..... 2,915 2,837 2,458 2,959 3,410 3,273 3,596 3,594
Provision for loan losses... 200 125 175 243 308 120 250 250
Non-interest income......... 291 540 1,320 607 1,244 1,084 1,158 1,947
SG&A........................ 1,749 3,287 1,660 1,897 2,251 2,078 2,816 3,889
Other non-interest operating
expenses.................. 81 247 71 208 202 260 430 315
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes
and minority interest..... 1,176 (282) 1,872 1,218 1,893 1,899 1,258 1,087
Income tax expense.......... 417 (220) 667 355 618 709 (25) 475
Minority interest in
subsidiary................ -- -- -- -- 67 285 42 176
------- ------- ------- ------- ------- ------- ------- -------
Net income.................. 759 (62) 1,205 863 1,208 905 1,241 436
Preferred stock dividends... -- -- -- 60 162 162 162 162
Net income available to
common stockholders....... $ 759 $ (62) $ 1,205 $ 803 $ 1,046 $ 743 $ 1,079 $ 274
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share.... $ 0.19 $ (0.02) $ 0.30 $ 0.19 $ 0.24 $ 0.16 $ 0.24 $ 0.06
Diluted earnings per
share..................... 0.18 (0.02) 0.26 0.15 0.16 0.11 0.16 0.05
</TABLE>
The Corporation's quarterly results of operations may be subject to
significant fluctuations due to several factors, including interest rate
fluctuations, economic factors, the level of marketing expenditures to implement
the Corporation's growth strategy, the performance of the Corporation's loan
portfolio and other interest-earning assets, retention and growth of deposits,
and other factors. The Corporation anticipates that its operating expenses,
principally marketing and compensation expenses, will increase significantly for
the foreseeable future. If the Corporation's net interest income in any quarter
does not increase correspondingly, the Corporation's results of operations for
that quarter would be materially adversely affected. Accordingly, the
Corporation does not believe that quarter-to-quarter comparisons of the results
of operations are meaningful and the results of operations in any particular
quarter should not be relied upon as necessarily indicative of future
performance.
FINANCIAL CONDITION
The Corporation's total assets increased by $452.0 million to $1.1 billion
at December 31, 1997 from $648.0 million at December 31, 1996, an increase of
69.8%. The growth in total assets is primarily the result of a $188.9 million
increase in loans receivable and a $134.5 million increase in mortgage-backed
securities. The primary sources of funds for this growth in assets were deposits
and borrowings.
Loans receivable, net and loans receivable held for sale, increased $188.9
million to $540.7 million at December 31, 1997 from $351.8 million at December
31, 1996, an increase of 53.7%. The increase reflects whole loan purchases of
$342.9 million, offset in part by $95.1 million of principal repayments and
$60.7 million of loans sold in 1997. During 1996, the Corporation recorded whole
loan purchases of $183.1 million, offset in part by $50.2 million of principal
repayments and $27.1 million of loans sold. In mid-1996, as part of a change in
its loan investment strategy, the Corporation reclassified certain loans as
"loans held-for-sale." Loans held-for-sale generally are susceptible to sale
after restructuring or credit enhancement and are recorded at the lower of cost
or market.
Mortgage-backed securities available-for-sale increased $134.5 million to
$319.2 million at December 31, 1997 from $184.7 million at December 31, 1996, an
increase of 72.8%. Investment securities available-for-sale increased $12.4
million to $91.2 million at December 31, 1997 from $78.8 million at December 31,
1996, an
31
<PAGE> 34
increase of 15.7%. These securities are held for liquidity purposes and the
increases in these categories of assets is consistent with the overall growth of
the Corporation's assets in 1997.
Deposits increased $131.7 million to $522.2 million at December 31, 1997
from $390.5 million at December 31, 1996, an increase of 33.7%, largely as a
result of the Corporation's continued targeted marketing efforts to attract
money market accounts and CDs. During the year ended December 31, 1997,
approximately $25.9 million of interest was credited to deposit accounts and
deposits exceeded withdrawals by $105.8 million, resulting in the net overall
increase in deposits. During 1997, the Corporation completed a systems
conversion to an integrated platform for marketing, deposit operations, and
accounting and finance, to support future growth and the introduction of new
products and services.
FHLB advances increased $55.2 million to $200.0 million at December 31,
1997, from $144.8 million at December 31, 1996, an increase of 38.1%. Other
borrowings, composed of securities sold under agreements to repurchase,
increased $222.3 million to $279.9 million at December 31, 1997 from $57.6
million at December 31, 1996, an increase of 385.9%. At December 31, 1997,
subordinated debt, net of original issue discount, consisting of the 9.5% Senior
Subordinated Debentures of the Corporation (the "9.5% Subordinated Debentures")
issued in February 1997, and the 11.5% Subordinated Debentures of the
Corporation (the "11.5% Subordinated Debentures" and, together with the 9.5%
Subordinated Debentures, the "Subordinated Debentures") issued by the
Corporation in the second quarter of 1994 totaled $29.6 million. In June 1997,
the Corporation formed TCT I for the purpose of offering and selling in a
private placement an aggregate of $10.0 million in shares of capital securities,
Series A, which have an annual dividend rate of 11.0% payable semi-annually,
beginning in December 1997.
Stockholders' equity increased $21.1 million to $45.8 million at December
31, 1997 from $24.7 million at December 31, 1996. The increase is the result of
the receipt of $15.3 million in proceeds from the issuance of the Preferred
Stock in February 1997, the receipt of $1.5 million from the issuance of 162,461
shares of Common Stock in February 1997 in exchange for the assets of Arbor
Capital Partners Inc., a former affiliate of the Corporation, $4.2 million in
net income, and an unrealized gain on securities available for sale of $642,000,
net of taxes, in 1997, which increased the Corporation's stockholders' equity,
but did not affect the Corporation's results of operations.
LIQUIDITY
Liquidity represents the Corporation's ability to raise funds to support
asset growth, fund operations and meet obligations, including deposit
withdrawals, maturing liabilities, and other payment obligations, to maintain
reserve requirements and to otherwise meet its ongoing obligations. During the
past three years, the Corporation has met its liquidity needs primarily through
financing activities, consisting principally of increases in core deposit
accounts, maturing short-term investments, loans and repayments of investment
securities, and to a lesser extent, sales of loans or securities. The
Corporation believes that it will be able to renew or replace its funding
sources at then existing market rates, which may be higher or lower than current
rates. Pursuant to applicable OTS regulations, TeleBank is required to maintain
an average liquidity ratio of 5.0% of certain borrowings and its deposits, which
requirement it fully met during 1997 and 1996. Effective November 24, 1997, this
requirement has been lowered to 4.0%. See "Business -- Government Regulation --
Liquidity Requirements."
The Corporation seeks to maintain a stable funding source for future
periods in part by attracting core deposit accounts, which are accounts that
tend to be relatively stable even in a changing interest rate environment.
Typically, accounts that maintain a relatively high balance and time deposit
accounts provide a relatively stable source of funding. Retail deposits
increased $38.3 million to $560.5 million, an increase of 7.3% during the three
months ended March 31, 1998. Retail customer accounts increased 4.6% from the
prior quarter to approximately 22,000 accounts at March 31, 1998. Savings
deposits increased $11.7 million to $123.6 million during the year ended
December 31, 1997, an increase of 10.5%. CDs increased $120.0 million to $398.6
million during the year ended December 31, 1997, an increase of 43.1%.
32
<PAGE> 35
The following table shows the changes in deposits for each of the periods
indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------- MARCH 31,
1995 1996 1997 1998
------------ -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period.................... $212,411 $306,500 $390,486 $522,221
Deposits in excess of withdrawals................. 76,866 62,629 105,777 30,278
Interest credited on deposits..................... 17,223 21,357 25,958 8,055
-------- -------- -------- --------
Balance at end of period.......................... $306,500 $390,486 $522,221 $560,554
======== ======== ======== ========
</TABLE>
The Corporation also relies upon borrowed funds to provide liquidity. The
Corporation's total borrowings increased $277.5 million to $ 479.9 million at
December 31, 1997, an increase of 137.1%. Advances from the FHLB increased $55.2
million to $200.0 million during 1997, an increase of 38.1%. Securities sold
under agreements to repurchase increased $222.3 million to $279.9 million at
December 31, 1997, an increase of 386.1%. At December 31, 1997, TeleBank had
approximately $154.0 million in additional borrowing capacity.
At December 31, 1997, the Corporation had outstanding approximately $31.0
million face amount of Subordinated Debentures. In addition, at the same date,
the Corporation also had outstanding $10.0 million face amount of the Existing
Junior Subordinated Debentures and $16.2 million of Preferred Stock. The
Corporation's aggregate annual interest expense on the Subordinated Debentures
and the Existing Junior Subordinated Debentures is $4.4 million and the annual
dividend payment on the Preferred Stock is $648,000. Subject to the approval of
the OTS and compliance with federal regulations, TeleBank pays a dividend to the
Corporation semi annually in an amount equal to the aggregate debt service and
dividend obligations. Under the terms of the indenture pursuant to which the
11.5% Subordinated Debentures were issued and the terms of the Existing
Subordinated Debentures, 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 interest expense for one
year on both the 11.5% Subordinated Debentures and the Existing Junior
Subordinated Debentures. The Corporation had $48.6 million in liquid assets at
December 31, 1997.
CAPITAL
At March 31, 1998, TeleBank was in compliance with all of its regulatory
capital requirements and its capital ratios exceeded the ratios for "well
capitalized" institutions under OTS regulations.
33
<PAGE> 36
The following table sets forth TeleBank's regulatory capital levels at
March 31, 1998 in relation to the regulatory requirements in effect at the dates
specified in the table. The information below is based upon the Corporation's
understanding of the regulations and interpretations currently in effect and may
be subject to change.
<TABLE>
<CAPTION>
REQUIRED TO BE WELL
REQUIRED FOR CAPITALIZED UNDER
CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands) ------- ----- --------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Core Capital (to adjusted tangible
assets)............................ $31,726 5.08 >$24,999 > 4.0 >$31,248 > 5.0
Tangible Capital (to tangible
assets)............................ 31,711 5.07 > 9,374 > 1.5 N/A N/A
Tier I Capital (to risk weighted
assets)............................ 31,726 9.69 N/A N/A > 19,654 > 6.0
Total Capital (to risk weighted
assets)............................ 34,104 10.41% > 26,205 > 8.0% > 32,756 > 10.0%
As of December 31, 1997:
Core Capital (to adjusted tangible
assets)............................ $52,617 5.06 >$41,606 > 4.0 >$52,008 > 5.0
Tangible Capital (to tangible
assets)............................ 52,608 5.06 > 15,602 > 1.5 N/A N/A
Tier I Capital (to risk weighted
assets)............................ 52,617 11.25 N/A N/A > 28,057 > 6.0
Total Capital (to risk weighted
assets)............................ 55,701 11.91% > 37,409 > 8.0% > 46,761 > 10.0%
As of March 31, 1998 (Unaudited):
Core Capital (to adjusted tangible
assets)............................ $54,533 5.48 >$39,783 > 4.0 >$49,728 > 5.0
Tangible Capital (to tangible
assets)............................ 54,526 5.48 > 14,918 > 1.5 N/A N/A
Tier I Capital (to risk weighted
assets)............................ 54,533 11.00 N/A N/A > 29,844 > 6.0
Total Capital (to risk weighted
assets)............................ 57,859 11.60% > 39,792 > 8.0% > 49,739 > 10.0%
</TABLE>
34
<PAGE> 37
RATE/VOLUME TABLE
The following table allocates the period-to-period changes in the
Corporation'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 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.
<TABLE>
<CAPTION>
1996 VS. 1995 1997 VS. 1996 MARCH 31, 1998 VS. MARCH 31, 1997
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------- --------------------------- ----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------- -------- -------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Interest-earning assets:
Loans receivable,
net(1)................. $ 6,333 $ (968) $ 5,365 $12,732 $(1,092) $11,640 $3,060 $(267) $2,793
Mortgage-backed and
related securities..... (9,307) (9,307) (18,614) -- -- -- -- -- --
Investment
securities(2).......... 16 (134) (118) 220 (27) 193 44 (26) 18
Mortgage-backed and
related securities
available-for-sale..... 16,404 (45) 16,359 373 (682) (309) 1,440 (171) 1,269
Investment securities
available-for-sale(3)... 2,194 (305) 1,889 809 8 817 476 31 507
Federal funds sold....... 2 (8) (6) 54 2 56 (10) 4 (6)
Trading account.......... 17 (185) (168) 562 562 1,124 275 274 549
------- -------- -------- ------- ------- ------- ------ ----- ------
Total
interest-earning
assets............. $15,659 $(10,952) $ 4,707 $14,750 $(1,229) $13,521 $5,285 $(155) $5,130
------- -------- -------- ------- ------- ------- ------ ----- ------
Interest-bearing liabilities:
Savings deposits......... $ 2,803 $ (100) $ 2,703 $ 1,111 $ 454 $ 1,565 $ 43 $ 18 $ 61
Time deposits............ 2,208 (596) 1,612 3,315 (279) 3,036 2,567 10 2,577
FHLB advances............ 972 (292) 680 2,400 796 3,196 384 71 455
Other borrowings......... (1,778) (446) (2,224) 2,838 (466) 2,372 1,073 46 1,119
Subordinated debt........ -- 112 112 1,207 (128) 1,079 257 (20) 237
------- -------- -------- ------- ------- ------- ------ ----- ------
Total
interest-bearing
liabilities........ 4,205 (1,322) 2,883 10,871 377 11,248 4,324 125 4,449
------- -------- -------- ------- ------- ------- ------ ----- ------
Change in net interest
income..................... $11,454 $ (9,630) $ 1,824 $ 3,879 $(1,606) $ 2,273 $ 961 $(280) $ 681
======= ======== ======== ======= ======= ======= ====== ===== ======
</TABLE>
- ---------------
(1) Includes mortgage and other loans.
(2) Includes interest-bearing deposits, repurchase agreements, investment
securities held-to-maturity, and FHLB stock.
(3) Interest income and average yields on municipal bonds, included in
investment securities, are presented on a tax equivalent basis.
35
<PAGE> 38
YIELD TABLE
The following table presents certain consolidated balance sheet data,
income and expense and related interest yields and rates at December 31, 1997,
and for each of the preceding three years and for the three months ended March
31, 1998, as set forth 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 is traditionally
used as an indication of the profitability of a savings institution. 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.
36
<PAGE> 39
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 MARCH 31, 1998
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE 1998 AVERAGE
BALANCE INC./EXP. YIELD/COST BALANCE INC./EXP. YIELD/COST BALANCE BALANCE
-------- --------- ---------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
(UNAUDITED) (UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable,
net................ $279,038 $23,089 8.28% $441,819 $34,729 7.86% $ 557,057 $545,827
Mortgage-backed &
related
securities......... -- -- -- -- -- -- -- --
Investment
securities......... 12,841 871 6.79 16,203 1,064 6.48 38,874 14,859
Mortgage-backed &
related securities,
available for
sale............... 221,656 17,955 8.10 226,064 17,646 7.81 260,152 271,001
Investment
securities,
available for
sale............... 61,169 3,959 6.47 73,649 4,776 6.49 123,963 109,270
Federal funds sold... 842 44 5.22 1,844 100 5.37 -- 951
Trading account...... -- -- -- 12,581 1,124 8.81 42,129 29,672
-------- ------- ------ -------- ------- ------ ---------- --------
Total interest-
earning
assets......... $575,546 $45,918 7.98% $772,160 $59,439 7.70% $1,022,175 $971,580
Non-interest earning
assets................. 26,929 41,465 25,978 27,382
-------- -------- ---------- --------
Total assets..... $602,475 $813,625 $1,048,153 $998,962
======== ======== ========== ========
Interest-bearing
liabilities:
Savings deposits..... $ 99,346 $ 4,815 4.85% $120,901 $ 6,380 5.28% $ 123,435 $123,391
Time deposits........ 258,870 16,542 6.39 311,740 19,578 6.28 437,119 416,702
Brokered callable
certificates of
deposit............ -- -- -- -- -- -- 42,286 22,720
FHLB advances........ 120,678 6,689 5.54 160,681 9,885 6.07 190,000 177,055
Other borrowings..... 68,154 4,569 6.70 117,515 6,941 5.83 153,970 163,059
Subordinated debt,
net................ 17,250 2,200 12.75 27,434 3,279 11.95 29,672 29,944
-------- ------- ------ -------- ------- ------ ---------- --------
Total interest-
bearing
liabilities.... $564,298 $34,815 6.14% $738,271 $46,063 6.21% $ 976,482 $932,871
-------- ------- ------ -------- ------- ------ ---------- --------
Non-interest-bearing
liabilities............ 15,900 25,719 15,605 23,591
-------- -------- ---------- --------
Total
liabilities.... $580,198 $763,990 $ 992,087 $956,462
Trust preferred
securities..... -- 9,597 9,526 --
Total
stockholders'
equity......... 22,277 40,038 46,540 42,500
-------- -------- ---------- --------
Total liabilities and
stockholders' equity... $602,475 $813,625 $1,048,153 $998,962
======== ======== ========== ========
Excess of
interest-earning assets
over interest-bearing
liabilities/net
interest income........ $ 11,248 $11,103 $ 33,889 $13,376 $ 45,693 $ 38,709
======== ======= ======== ======= ========== ========
Net interest spread..... 1.84% 1.49%
====== ======
Net interest
margin(1).............. 1.94% 1.73%
====== ======
Ratio of
interest-earning assets
to interest-bearing
liabilities............ 101.99% 104.59%
====== ======
<CAPTION>
(In thousands)
INTEREST AVERAGE
INC. /EXP. YIELD /COST
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Interest-earning assets:
Loans receivable,
net................ $10,358 7.59%
Mortgage-backed &
related
securities......... -- --
Investment
securities......... 246 6.68
Mortgage-backed &
related securities,
available for
sale............... 5,074 7.49
Investment
securities,
available for
sale............... 1,736 6.35
Federal funds sold... 14 5.82
Trading account...... 549 7.41
------- ------
Total interest-
earning
assets......... $17,977 7.40%
Non-interest earning
assets.................
Total assets.....
Interest-bearing
liabilities:
Savings deposits..... $ 1,629 5.36%
Time deposits........ 6,433 6.26
Brokered callable
certificates of
deposit............ 374 6.67
FHLB advances........ 2,718 6.14
Other borrowings..... 2,385 5.85
Subordinated debt,
net................ 880 11.75
------- ------
Total interest-
bearing
liabilities.... $14,419 6.23%
------- ------
Non-interest-bearing
liabilities............
Total
liabilities....
Trust preferred
securities.....
Total
stockholders'
equity.........
Total liabilities and
stockholders' equity...
Excess of
interest-earning assets
over interest-bearing
liabilities/net
interest income........ $ 3,558
=======
Net interest spread..... 1.17%
======
Net interest
margin(1).............. 1.47%
======
Ratio of
interest-earning assets
to interest-bearing
liabilities............ 104.15%
======
</TABLE>
- ---------------
(1) Net interest margin is the ratio of annualized net interest income to
average interest-earning assets.
37
<PAGE> 40
As a result of the Corporation's strategy of offering high value savings
and investment products through alternative distribution channels, the
Corporation's interest rate spread is lower than that of traditional depository
institutions. The Corporation's interest rate spread was 1.84%, 1.49%, and 1.17%
for 1996, 1997, and the three months ended March 31, 1998, respectively. The
Corporation's net interest margin on interest-earning assets for such periods
was 1.94%, 1.73%, and 1.47%, respectively.
INTEREST RATE SENSITIVITY MANAGEMENT
The Corporation actively monitors its net interest rate sensitivity
position. Effective interest rate sensitivity management seeks to ensure that
net interest income and the market value of equity are protected from the impact
of changes in interest rates.
The Corporation employs an interest rate risk management process that
allows risk-taking within well-defined limits. The Corporation has implemented a
risk measurement guideline employing "market value of equity" and "gap"
methodologies and other measures. By actively managing the maturities of its
interest-sensitive assets and liabilities, the Corporation seeks to maintain
relatively consistent net interest spreads and mitigate much of the interest
rate risk associated with such assets and liabilities.
The Corporation's policy seeks to reduce the variability of the market
value of its equity in a variety of interest rate environments. The Corporation
uses the concept of fair value of equity (FVE), which represents the net fair
value of the Corporation's financial assets and liabilities, including
off-balance sheet hedges, and monitors the sensitivity of changes in its FVE
with respect to various interest rate environments. The Corporation seeks to
maximize net interest income, while limiting changes in the FVE within changing
interest rate environments to prescribed levels deemed acceptable by the
Corporation. The Corporation utilizes sensitivity analysis to evaluate the rate
and extent of changes to its FVE in various market environments.
The Corporation utilizes interest rate swaps, caps, swaptions, floors,
collars, financial options and other mortgage derivative products to reduce the
variability of FVE and its overall interest rate risk exposure. The Board of
Directors of TeleBanc Financial and TeleBank prohibit the use of the
aforementioned financial instruments for speculative purposes.
The Corporation also monitors 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.
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<PAGE> 41
The following table sets forth an interest rate sensitivity analysis for
the Corporation at March 31, 1998.
<TABLE>
<CAPTION>
REPRICING REPRICING REPRICING
BALANCE AT WITHIN WITHIN WITHIN REPRICING
MARCH 31, PERCENT 0-3 4-12 1-5 MORE THAN
1998 OF TOTAL MONTHS MONTHS YEARS 5 YEARS
---------- -------- ----------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net...... $ 557,057 54.50% $ 67,409 $ 176,729 $ 226,467 $ 86,452
Mortgage-backed securities,
available-for-sale and
trading.................. 302,281 29.57 61,891 81,073 83,260 76,057
Investment securities
available for sale,
interest-bearing accounts
and FHLB stock........... 162,837 15.93 72,892 371 46,192 43,382
---------- ------ ----------- --------- --------- --------
Total interest-earning
assets................... 1,022,175 100.00% 202,192 258,173 355,919 205,891
======
Non-interest-earning assets:... 25,978
----------
Total assets............... $1,048,153
==========
Interest-bearing liabilities:
Savings deposits........... $ 123,435 12.64% $ 123,435 $ -- $ -- $ --
Time deposits.............. 479,405 49.09 31,241 158,061 287,413 2,690
FHLB advances.............. 190,000 19.46 180,000 10,000 -- --
Other borrowings........... 153,970 15.77 153,970 -- -- --
Subordinated debt.......... 29,672 3.04 -- -- 29,672 --
---------- ------ ----------- --------- --------- --------
Total interest-bearing
liabilities.............. 976,482 100.00% 488,646 168,061 317,085 2,690
======
Non-interest-bearing
liabilities.................. 15,605
----------
Total liabilities.......... 992,087
Total trust preferred...... 9,526
Stockholders' equity........... 46,540
----------
Total liabilities and
stockholders' equity......... $1,048,153
==========
Periodic repricing difference
(periodic gap)............... $ (286,454) $ 90,112 $ 38,834 $203,201
Cumulative repricing difference
(cumulative gap)............. $ (286,454) $(196,342) $(157,508) $ 45,693
Cumulative gap to total
assets....................... (27.3)% (18.7)% (15.0)% 4.4%
Cumulative gap to total assets
hedge affected(1)............ (6.5)% 2.1% (12.6)% 4.4%
</TABLE>
- ---------------
(1) The hedge effected cumulative gap to total assets includes the effect of
hedging instruments on the Corporation's gap at March 31, 1998. 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 the market's estimate of the likelihood the cap strike will be
met or exceeded. The estimated net cash flows are used in the gap
calculations.
Shortcomings are inherent in gap analysis because certain assets and
liabilities may not move proportionately as interest rates change. Based on
TeleBank's projected March 31, 1998 simulation analysis, the Corporation
estimates that a hypothetical instantaneous 100 basis point rise in rates would
cause TeleBank's FVE to decrease by 8.6%.
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<PAGE> 42
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation on the Corporation is different from the impact on
an industrial company because substantially all of the assets and liabilities of
the Corporation are monetary in nature and interest rates and inflation rates do
not always move in concert. 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 Corporation's ability to manage
interest rate sensitivity and, by such management, reduce the inflationary
impact upon performance. The most direct impact of an extended period of
inflation would be to increase interest rates and to place upward pressure on
the operating expenses of the Corporation. However, the actual effect of
inflation on the net interest income of the Corporation would depend on the
extent to which the Corporation was able to maintain a spread between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities, which would depend to a significant extent on its
asset-liability sensitivity. 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. The effect of inflation on the Corporation's results of operations
for the past three years has been minimal.
YEAR 2000 ISSUES
The Corporation utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems include various
software packages licensed to the Corporation by outside vendors and a client
server core processing system both of which are run on in-house computer
networks. In 1997, the Corporation initiated a review and assessment of all
hardware and software to confirm that it will function properly in the year
2000. The Corporation's core processing software vendor and the majority of the
vendors which have been contacted have indicated that their hardware and/or
software are Year 2000 compliant. Testing will be performed for compliance.
Although the Corporation may incur additional expenses during the next two years
to confirm Year 2000 compliance and to remedy problems, if any, the Corporation
does not anticipate that such expenditures will be material or that Year 2000
compliance will otherwise have a material effect on the Corporation's financial
condition or results of operations.
CHANGES IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" were issued in June 1997. SFAS 130 requires
that certain financial activity typically disclosed in stockholders' equity be
reported in the financial statements as an adjustment to net income in
determining comprehensive income. SFAS 131 requires the reporting of selected
segmented information in quarterly and annual reports. The Corporation
implemented SFAS No. 130 effective for the first quarter of 1998 and will
implement SFAS No. 131 effective for the year ending December 31, 1998. The
Corporation does not anticipate any material financial impact from the
implementation of SFAS Nos. 130 and 131.
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<PAGE> 43
BUSINESS
OVERVIEW
The Corporation is a leading national provider of high value savings,
investment and other financial products and services. The Corporation utilizes a
branchless banking strategy to offer financial products and services to
customers nationwide and to maintain its low cost structure through the use of
alternative delivery channels, such as telephones, the Internet, ATMs, facsimile
and mail. The Corporation's broad selection of high value savings and investment
products generally have higher interest rates or carry lower fees than similar
products offered by traditional, branch-based financial institutions. The
Corporation also emphasizes high quality customer service and provides customers
with "anywhere, anytime" convenience for accessing its financial products and
services. The Corporation intends to broaden its financial products and services
to include in 1998 annuities, residential mortgage loans, credit cards and
mutual funds. At March 31, 1998, the Corporation had more than 22,000 customer
accounts, $560.6 million in retail deposits and $1.0 billion in assets.
INDUSTRY BACKGROUND
Financial Services
The financial services industry, including depository institutions (such as
banks and savings and loan associations), securities brokerage firms, mutual
fund companies, insurance companies and other financial institutions, is the
fifth largest industry in the United States. In 1997, deposits held in financial
institutions in the United States totaled more than $4 trillion and the total
assets of such institutions was more than $6 trillion, according to the fourth
quarter FDIC Quarterly Banking Profile. Financial institutions earn revenues
principally in the forms of interest income earned on assets and fees or
commissions. In 1997, according to the FDIC Quarterly Banking Profile,
depository institutions recognized more than $203 billion in revenues in the
form of net interest income alone.
The financial services industry is currently experiencing rapid market
change, which is characterized by the demand for alternative delivery channels
for products and services, the emergence of nationwide full-service financial
institutions and growing price competition. Increasingly, customers are seeking
higher value products that offer higher returns or lower fees, as well as access
to financial products and services through anywhere, anytime technology-based
delivery channels, such as the Internet, telephones, ATMs and facsimile. To
compete effectively for customer savings and investment dollars in this
environment, financial institutions have attempted to diversify product lines
and increase access to prospective customers through both the geographic
expansion of traditional branch and office networks and the use of alternative
delivery channels. As a result, customers increasingly are exposed to a wider
selection of products and services that can satisfy their financial demands.
Electronic Commerce
Over the past 30 years, the use of electronic media, such as electronic
data interchanges, private telephone networks, credit cards, ATMs and electronic
bill payment systems, to facilitate commercial functions has become routine.
Over the last several years, the development of network technologies, the growth
of personal computers in the home and workplace and faster and cheaper Internet
access have converged to establish the necessary infrastructure to support
broad-based electronic commerce. The growth of the Internet, in particular, is
evidenced in the significant increase in the number of domain names in recent
years. According to the Commerce Report, from July 1993 to July 1997, the number
of domain names increased from 26,000 to 1,301,000. The Commerce Report also
estimates that traffic on the Internet is doubling every 100 days.
The increasing functionality, accessibility and overall usage of the
Internet has made it an attractive channel for electronic commerce. According to
the Commerce Report, analysts predict that businesses will trade as much as $300
billion annually over the Internet during the next five years. Currently within
the financial services industry, Internet banking is relatively new and the
market for such services is relatively undeveloped. According to the April 1998
Online Banking Report, only 163 banks in the United States permitted customers
to review balances, transfer funds and pay bills on the financial institutions'
web sites.
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<PAGE> 44
Like the rapid proliferation of ATMs in recent years, the growth of online
banking as the newest medium through which banks can offer their customers
remote access to their accounts is significant. According to the Commerce
Report, approximately 4.5 million households were banking online in 1997, and
that number is expected to increase to 10 to 16 million households by the year
2000.
THE CORPORATION'S SOLUTION
The Corporation's branchless banking strategy permits the Corporation to
offer high value financial services and products to customers nationwide and to
maintain a low cost structure through the use of alternative delivery channels,
such as the telephone, the Internet, ATMs, facsimile and mail. The Corporation
also emphasizes customer service by attentive and knowledgeable employees and
convenience for customers in accessing its financial product offerings. The
Corporation intends to use these low-cost, scaleable alternative delivery
channels to continue to increase its core deposit base and to market and sell
other financial and investment products, including insurance products,
residential mortgage loans, credit cards and mutual funds.
The Corporation's solution offers the following benefits to customers:
Broad Selection of High Value Financial Products. The Corporation believes
that its use of alternative delivery channels permits it to operate nationally,
but with a lower cost structure than many traditional depository institutions.
Such a low cost structure allows the Corporation to offer a broad selection of
"high value" savings and investment products, which have higher interest rates
and lower fees than traditional, branch-based financial institutions. Building
on its low-cost alternative delivery channels, the Corporation intends to expand
its product offerings to include credit cards and, through strategic alliances
with third party providers, annuities, residential mortgage loans and mutual
funds.
High Quality Service. The Corporation also capitalizes on its low cost
structure by prioritizing and investing in its customer service. Recognizing
that superior customer service is critical for attracting and retaining
customers, the Corporation uses its highly trained, primarily college-educated
customer service representatives, known as "TeleBankers," both to sell savings
and investment products and to serve existing customers from the Corporation's
call center. TeleBankers can access electronically data relating to the customer
accounts and information about additional product requests, which the
Corporation believes promotes better customer service and offers substantial
cross-marketing opportunities. Based on data generated by the Corporation's
automatic call distributor system, over the past three months, the average time
that an existing or prospective customer waited to speak with a TeleBanker on
the telephone is approximately 10 seconds. In contrast to many of its
competitors, the Corporation offers free ATM transactions through the Cirrus
network and free Internet banking to customers.
Convenience. The Corporation emphasizes anywhere, anytime convenience to
existing and prospective customers by offering several different media through
which a customer can consummate his or her financial transactions or otherwise
communicate with the Corporation. The Corporation believes that its alternative
delivery channels permit customers to choose the most convenient method and time
to transact business. For example, customers may open a new account, invest in a
financial product or service or conduct an electronic financial transaction by
telephone (1-800-TELEBANK), through the Internet via the Corporation's Web site
at www.telebankonline.com, by facsimile or by mail. The Corporation's customer
service call center operates from 8:00 a.m. to 12:00 a.m. EST/EDT Monday through
Friday, and from 8:00 a.m. to 6:00 p.m. EST/EDT on Saturdays. Customers also can
access TeleBank's computer-operated voice response system 24 hours a day, seven
days per week.
THE CORPORATION'S STRATEGY
The Corporation's objective is to be the premier national provider of high
value savings, investment and other financial products, without the overhead and
operating cost infrastructure of traditional financial institutions. To achieve
this objective, the Corporation has adopted a growth strategy that includes the
following key elements:
Increase TeleBank Brand Visibility Nationally. The Corporation seeks to
build the "TeleBank" franchise identity based on its high value savings and
investment products, superior customer service and anywhere, anytime
convenience. The Corporation believes that building the TeleBank brand will
increase
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<PAGE> 45
customer conversion and retention rates, customer referrals, the number of
accounts per customer and customer receptivity to new products. In pursuing this
strategy, the Corporation plans to increase significantly its marketing
expenditures for the foreseeable future to implement a targeted, national
advertising campaign and marketing initiative.
Expand Customer Base. The Corporation seeks to attract new customers to
expand its stable customer and core deposit base by further leveraging its
scaleable alternative delivery channels. The Corporation intends to continue to
employ targeted marketing techniques designed to attract more profitable
customers, rather than adopting the geographically-based marketing approach
often used by traditional financial institutions. In addition, the Corporation
intends to attract new customers by establishing additional affinity
relationships through strategic alliances. The Corporation currently has
affinity relationships with 10 organizations with more than one million members
in the aggregate. Such organizations include the National Association of
Realtors and the National Council of Senior Citizens. Additionally, while the
Corporation does not anticipate many such opportunities, it may pursue selective
acquisitions of complementary financial institutions.
Broaden Product Lines and Increase Cross-Marketing Initiatives. The
Corporation intends to leverage further its national distribution platforms
through expanded product offerings and increased cross-marketing efforts. The
Corporation monitors customer inquiries about additional financial products and
services and seeks to provide new product offerings based, in part, on customer
requests. The Corporation intends to broaden its savings and financial and
investment products by the end of 1998 to offer credit cards and, through
strategic alliances, fixed-rate and variable annuities, residential mortgage
loans and mutual funds. The Corporation currently has contractual arrangements
with several non-affiliated insurance companies, including USG Annuity & Life
Company and Jackson National Life Insurance Company, through which the
Corporation intends to offer fixed-rate annuities commencing in 1998, subject to
required regulatory approvals and other contingencies. The Corporation also
intends to offer residential mortgage loans through E-Loan.
Outsource Non-Core Operations. To maintain its relatively low operating
costs and to capitalize on the technical capabilities of selected vendors, the
Corporation intends to continue to outsource specific non-core operations and
systems. The Corporation currently outsources check processing, check imaging,
statement rendering, Internet processing and home page hosting. The Corporation
generally determines whether to outsource a particular service or operations
based on anticipated cost savings to the Corporation, while continuing to
provide high quality service to its customers. Companies to which the
Corporation outsources services or operations include M&I Data Services, Inc.
and Security First Technologies.
Maintain Conservative Asset Strategy. The Corporation intends to continue
its conservative asset investment strategy of purchasing and managing pools of
one-to-four family residential mortgage loans and investment-grade
mortgage-backed securities. The Corporation does not currently originate
residential mortgage or other loans. Management believes that purchasing assets,
including residential mortgage loans and mortgage-backed securities, lowers its
loan investment costs and permits the Corporation to manage the geographic
diversification of its loan portfolio, in an effort to reduce its exposure to
regional economic downturns.
MARKETING
The Corporation has developed a multiple channel, consumer-oriented direct
marketing model designed to reach potential customers and build brand awareness
nationally. Based upon demographics and current regional banking conditions, the
Corporation targets key consumer markets through a variety of advertising and
promotional media, including print advertising in national periodicals, local
newspapers and specialty publications; Internet advertising; national radio
advertising predominately on talk/news stations; direct mail campaigns; public
relations; and affinity marketing programs. To fund its marketing activities,
the Corporation increased its marketing budget to $1.8 million in 1997 from
$930,000 in 1996 and has substantially increased its marketing budget for 1998.
In addition to its national advertising, the Corporation undertakes more
concentrated advertising campaigns on a regional basis, utilizing print, radio
and billboards to build further brand awareness and target less rate-sensitive
consumers. As these regional campaigns penetrate each market, management plans
to combine them into a unified, national campaign. As part of these efforts, the
Corporation intends to establish,
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<PAGE> 46
on a test basis, low-cost, small regional business development offices to
coordinate marketing activities and asset acquisition activities in a geographic
region. The Corporation currently has a small regional business development
office in Los Angeles. Management believes that such offices will increase
customer response rates and sales of products to new and existing customers in
the regions in which such offices are located, while maintaining the
Corporation's low-cost operating structure.
Customer Incentive Programs
In addition to the Corporation's traditional advertising methods, the
Corporation employs the following programs designed to leverage its existing
account base to sell additional products and services and attract new customers.
Refer-A-Saver. In 1995, TeleBank introduced its Refer-a-Saver program,
pursuant to which it pays cash to existing customers who refer new customers to
TeleBank. This program, which lowers the marketing cost associated with each new
customer by approximately two-thirds, is responsible for nearly 10% of all new
customers.
Preferred Saver. As an incentive to maintain multiple accounts with
TeleBank, TeleBank offers lower minimum balances and higher rates on select
products for customers with multiple accounts through its Preferred Saver
program. Currently, approximately 30% of TeleBank's customers are enrolled in
this program. Multiple account holders are more profitable for TeleBank because
they marketing expense per dollar deposited by such customers is lower than that
for new accounts, the cost of funds per depositor is lower and customer loyalty
and franchise value.
Affinity Programs
The Corporation's affinity marketing efforts are designed to reach targeted
groups of consumers with the endorsement of their membership organization. In
1996, TeleBank started its PartnersPlus Affinity program by contracting with
professional and other organizations to promote the Corporation's savings and
investment products. The Corporation believes that such programs increase
customer conversion rates as a result of the association's third party
endorsement. Currently, TeleBank has affinity programs with 10 organizations,
with a total of more than one million members, and is currently exploring
possible affinity programs with several additional organizations comprising more
than five million members. The current PartnersPlus Affinity program
participants include the National Association of Realtors, the Association of
Women's Health, Obstetric and Neonatal Nurses and the National Council of Senior
Citizens.
STRATEGIC ALLIANCES
The Corporation continually seeks to complement current value-based product
selection by forming strategic alliances with established third party financial
service providers to develop and market new products and services. In addition,
the Corporation gains new distribution channels by offering its own product line
through consumer networks of its alliance participants. For example, the
Corporation has established strategic alliances with USG Annuity & Life Company
and Jackson National Life Insurance Company to provide annuities through
TeleDirect and with E-Loan to provide residential mortgage loans. The
Corporation has also entered into a strategic alliance with E'Trade through
which the Company and E'Trade intend to co-market each other's financial
products and services to new or existing customers. The Corporation's marketing
strategy also includes joint marketing initiatives that highlight the
Corporation's alternative delivery platform. For instance, the Corporation
believes that an alliance with a Web search engine to offer the Corporation's
products and services to targeted groups of customers through the search
engine's home page would be an effective platform through which to market the
Corporation's products and services, as well as its alternative delivery
platforms. By expanding its product line and its Internet and services
accessibility, the Corporation seeks to leverage its existing customer base to
cross-sell these new products, thereby capturing such benefits as lower customer
acquisition costs and higher profit margins.
GOVERNMENT REGULATION
General. TeleBanc Financial, as a savings and loan holding company, and
TeleBank, as a federally chartered savings bank, are subject to extensive
regulation, supervision and examination by the OTS as their
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<PAGE> 47
primary federal regulator. TeleBank also is subject to regulation, supervision
and examination by the FDIC and as to certain matters by the Federal Reserve
Board. See the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 3 of the Notes to the Consolidated Financial
Statements of the Corporation as to the effect of certain laws, rules and
regulations on the operations of the Corporation and TeleBank. Set forth below
is a description of certain key aspects of these regulatory requirements and of
certain recent regulatory developments.
Thrift Charter Legislation. In September 1996, legislation (the "1996
Legislation") was enacted to address the undercapitalization of SAIF, of which
TeleBank 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. TeleBank 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, TeleBank's
deposit insurance premiums to the SAIF were reduced as of September 30, 1996.
TeleBank expects that its future deposit insurance premiums will continue to be
lower than the premiums it paid prior to the SAIF recapitalization.
The 1996 Legislation requires the merger of the Bank Insurance Fund and
SAIF into a single deposit insurance fund on January 1, 1999, but only if the
thrift charter is eliminated by that date. Congress has been considering various
forms of financial modernization legislation some of which would have required a
federally chartered savings bank, such as TeleBank, to convert its charter to a
national or state bank charter. However, the House of Representatives passed a
financial modernization bill on May 13, 1998, that would not require TeleBank to
convert its charter. Nevertheless, if legislation ultimately were to be enacted
that required TeleBank to convert its charter, the Corporation would become a
bank holding company subject to Federal Reserve Board regulation.
In the absence of appropriate "grandfather" provisions, such legislation
could have an adverse effect on TeleBank and the Corporation. Such legislation
could, for example, subject the Corporation to regulatory capital requirements
for the first time and place limitations on the type of business activities it
can conduct, although the Corporation's current activities would remain
permissible under the legislation considered by the United States Congress to
date. The Corporation is unable to predict whether, and in what form, any such
legislation is likely to be enacted and the effect such legislation might have
on the Corporation and TeleBank.
Regulatory Capital Levels of TeleBank. As a federal savings bank, TeleBank
is subject to minimum capital requirements prescribed by federal statute and OTS
regulations. At March 31, 1998, TeleBank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios were 5.5%, 5.5%, 11.0%, and 11.6%,
respectively. TeleBank's capital ratios exceeded the requirements under FIRREA
as well as the standards established for "well capitalized" institutions under
the prompt corrective action regulations established pursuant to FDICIA.
FDICIA requires OTS to take "prompt corrective action" with respect to
savings associations that do not meet minimum capital requirements. The OTS's
prompt corrective action regulation establishes five capital categories for
thrift institutions: well capitalized, adequately capitalized, undercapitalized,
severely undercapitalized and critically undercapitalized. The OTS has the
discretion under the prompt corrective action regulation to reclassify an
institution from one category to the next lower category, for example, from
"well capitalized" to "adequately capitalized," if, after notice and an
opportunity for a hearing, the OTS determines that the institution is in an
unsafe or unsound condition or has received and has not corrected a less than
satisfactory examination rating for asset quality, management, earnings or
liquidity.
The OTS has indefinitely delayed implementation of an interest rate risk
component of its risk-based capital regulation pending the testing of an OTS
appeals process. Under that component, an institution that would experience a
change in "portfolio equity" in an amount in excess of 2.0% of the institution's
assets as a result of a 200 basis point increase or decrease in the general
level of interest rates would be required to maintain additional amounts of
risk-based capital based on the lowest interest rate exposure at the end of the
three previous quarters. At March 31, 1998, TeleBank would not have been
required to maintain additional amounts of risk-based capital had the interest
rate risk component of the capital regulations been in effect.
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<PAGE> 48
If TeleBank were to become "undercapitalized" under the prompt corrective
action regulations, it would be required by statute to file a capital
restoration plan with the OTS setting forth, among other things, the steps
TeleBank would take to become "adequately capitalized." The OTS could refuse to
accept the plan unless TeleBanc Financial guaranteed in writing TeleBank's
compliance with the plan. The aggregate liability of TeleBanc Financial under
such a commitment would be limited to the lesser of (i) an amount equal to 5.0%
of TeleBank's total assets at the time that TeleBank became "undercapitalized"
and (ii) the amount necessary to bring TeleBank into compliance with all
applicable capital standards as of the time that TeleBank fails to comply with
its capital plan. If TeleBanc Financial refused to provide the guarantee,
TeleBank would be subject to the more restrictive supervisory actions applicable
to "significantly undercapitalized" institutions. Moreover, if TeleBank were to
become "critically undercapitalized" (which is defined to include institutions
that still have a positive net worth) it would be subject to the appointment of
a receiver or conservator.
TeleBank's ability to maintain or increase its capital levels in future
periods will be subject, among other things, to general economic conditions. As
a result, although TeleBank's regulatory capital ratios at March 31, 1998 met
the ratios established for "well capitalized" institutions, there can be no
assurance that TeleBank will be able to maintain levels of capital sufficient to
continue to meet the standards for classification as "well capitalized" under
the prompt corrective action standards.
Qualified Thrift Lender Requirement. For TeleBank to exercise the powers
granted to federally chartered savings institutions and maintain full access to
FHLB advances, it must constitute a qualified thrift lender ("QTL"). A savings
association will constitute a QTL if its qualified thrift investments continue
to equal or exceed 65% of its portfolio assets on a monthly average basis in
nine out of every 12 months. At March 31, 1998, TeleBank's qualified thrift
investments constituted 85.75% of portfolio assets, and TeleBank has been in
compliance with this requirement for at least nine out of the prior 12 months.
Qualified thrift investments generally consist of various housing related
loans and investments (such as residential construction and mortgage loans, home
improvement loans, mobile home loans, home equity loans and mortgage-backed
securities), small business loans, credit card and educational loans, and shares
of stock issued by any FHLB, the Federal Home Loan Mortgage Corporation or the
Federal National Mortgage Association. In addition, the following assets may be
categorized as qualified thrift investments in an amount not to exceed 20% of
the savings association's aggregate portfolio assets: (i) 50% of the dollar
amount of residential mortgage loans originated and sold within 90 days of
origination; (ii) investments in securities of a service corporation that
derives at least 80% of its income from residential housing finance; (iii) 200%
of loans and investments made to acquire, develop or construct starter homes or
homes in credit needy areas (subject to certain conditions); (iv) 200% of loans
for the purchase or construction of churches, schools, community service
facilities, nursing homes and hospitals in credit needy areas; and (v) consumer
loans (other than credit card and education loans). For purposes of the QTL
test, the term "portfolio assets" means the savings association's total assets
minus goodwill and other intangible assets, the value of property used by the
savings association to conduct its business, and liquid assets held by the
savings association in an amount up to 20% of its total assets.
A savings association that fails to constitute a QTL must limit its future
investments and activities (including branch development and payments of
dividends) to those permitted for both savings associations and national banks.
Additionally, any such savings association will be ineligible to receive further
FHLB advances and, beginning three years after the loss of QTL status, will be
required to repay outstanding FHLB advances and dispose of, or discontinue, any
pre-existing investment or activities not permitted for both savings
associations and national banks. Finally, within one year of the loss of QTL
status, the holding company of a savings association must register as a bank
holding company and will be subject to all statutes applicable to bank holding
companies, including capital requirements. While the restrictions on the
investments and activities of TeleBank and the Corporation that would be imposed
if TeleBank were to fail the QTL test should not have a material adverse effect
on the Corporation or TeleBank based on their current operations, the loss of
FHLB advances could adversely affect TeleBank's liquidity.
Restrictions on Brokered Deposits. A depository institution that is not
"well capitalized" under OTS prompt correction action regulations is prohibited
from accepting or renewing deposits through a deposit broker or offering rates
of interest on insured deposits that are "significantly higher than the
prevailing rates of
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interest on deposits offered by other insured depository institutions in such
depository institution's normal market area" unless a waiver is received from
the FDIC. Institutions that receive a waiver from FDIC are nevertheless subject
to limits on the rates of interest they may pay on such deposits. In January
1998, TeleBank began to use brokers to acquire CDs that contain call features.
At March 31, 1998, TeleBank had approximately $42.3 million in deposits obtained
through such brokers in the form of callable CDs. If TeleBank failed to remain
well capitalized under the prompt corrective action regulations, it would no
longer be permitted to sell callable CDs through a broker, and the regulatory
restrictions on deposit interest rates could adversely affect TeleBank's
operations in light of TeleBank's strategy of offering premium yield deposits.
Community Reinvestment Act. As an FDIC-insured savings association,
TeleBank is subject to the Community Reinvestment Act of 1977 ("CRA"), under
which it has a continuing and affirmative obligation to help meet the credit
needs of its local communities, including low- and moderate-income neighborhoods
(i.e., its assessment area). In addition, the OTS is required under the CRA to
take into account TeleBank's CRA record in determining whether to approve
various applications. As a result of TeleBank's non-traditional operating plan,
specifically its nationwide operations and its lack of direct lending
activities, there is considerable uncertainty as to how to evaluate TeleBank's
CRA performance. Currently, TeleBank has designated Arlington County, Virginia
as its "assessment area" and is evaluated on the basis of its acquisition of
residential mortgage loans secured by property located in this area. Based on an
OTS examination dated as of February 18, 1997, TeleBank was rated "satisfactory"
for CRA purposes. TeleBank has requested that OTS designate it a "wholesale"
institution under recent revisions to CRA regulations. Such a designation would
provide the OTS with greater flexibility in reviewing TeleBank's CRA record,
including permitting TeleBank to define a broader assessment area and giving
greater emphasis to services provided by TeleBank to low- and moderate-income
areas.
Sources of Funds for Cash Dividends. The Corporation has traditionally
invested substantially all of its available liquid assets in TeleBank. The
liquidity and ability of the Corporation to pay dividends to its stockholders is
primarily derived from, and dependent on, the ability of TeleBank to pay
dividends to the Corporation. In general, TeleBank pays dividends to the
Corporation only to the extent that funds are needed to cover operating
expenses, to service the debt of the Corporation and to pay dividends to
preferred stockholders. In addition, TeleBank's ability to pay dividends on its
common stock is subject to certain restrictions. The Corporation does not
currently intend to contribute all of the net proceeds of the Offering to
TeleBank. Any restrictions on TeleBank's payment of dividends could adversely
affect the Corporation's ability of the Corporation to make payments on its debt
and pay dividends on any outstanding preferred stock.
The OTS prompt corrective action regulation prohibits thrift institutions,
such as TeleBank, from making "capital distributions" (defined to include a cash
distribution or a stock redemption, but excluding dividends in the form of
additional shares of capital stock) unless the institution is at least
"adequately capitalized." Currently, an institution is considered "adequately
capitalized" for this purpose if it has a leverage (or core capital) ratio of at
least 4.0%, a tier 1 risk-based capital ratio of at least 4.0%, and a total
risk-based capital ratio of at least 8.0%. At March 31, 1998, TeleBank's
leverage, tier 1 risk-based and total risk-based capital ratios of 5.5%, 11.0%,
and 11.6%, respectively, met the ratios established for "well capitalized"
institutions and, thus, exceeded the ratios established for "adequately
capitalized" institutions.
Under the current OTS capital distribution regulation, as long as TeleBank
meets the OTS capital requirements before and after the payment of dividends, it
may pay out dividends without prior OTS approval equal to the higher of (i) 100%
of net income to date over the calendar year and 50% of surplus capital existing
at the beginning of the calendar year or (ii) 75% of its net income over the
most recent four-quarter period. The OTS could require prior approval if it were
to determine that TeleBank was "in need of more than normal supervision." In
addition, the OTS retains general discretion to prohibit any otherwise permitted
capital distribution on general safety and soundness grounds, and must be given
30 days' advance notice of all capital distributions, during which time it may
object to any proposed distribution.
Recently proposed revisions to the OTS capital distribution regulation
would conform the definition of "capital distribution" to the definition used in
the OTS prompt corrective action regulation. Under the proposal, TeleBank would
continue to be required to provide a notice to the OTS 30 days prior to the
declaration of a dividend. The proposal would not impose a quantitative
limitation on the amount of
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permissible capital distributions, but the OTS could disapprove a capital
distribution if the institution would not be at least adequately capitalized
under the OTS prompt correction action regulation following the distribution, if
the distribution raised safety or soundness concerns, or if the distribution
violated a prohibition contained in any statute, regulation, or agreement
between the institution and the OTS, or a condition imposed on the institution
by the OTS. The OTS would consider the amount of the distribution when
determining whether it raised safety or soundness concerns.
Interest on Deposits. Various proposals have been introduced in the
Congress to permit the payment of interest on required reserve balances, and to
permit savings institutions and other regulated financial institutions to pay
interest on business demand accounts. While this legislation appears to have
strong support from many constituencies, the Corporation is unable to predict
whether such legislation will be enacted.
Other Regulatory Proposals. During 1997 and 1998, the OTS continued its
comprehensive review of its regulations to eliminate duplicative, unduly
burdensome and unnecessary regulations. The OTS revised or has proposed revising
regulations addressing electronic banking operations, deposit accounts,
application processing and management of interest rate risk, investment
securities and derivatives activities. The proposal on electronic banking
operations would expand the services that TeleBank can provide electronically by
permitting savings institutions to engage in any activity through electronic
means that they may conduct through more traditional delivery mechanisms,
including opening new deposit accounts and the establishment of loan accounts.
The proposal also would allow savings institutions to market and sell electronic
capacities and by-products to third parties if the capacities and by-products
are acquired or developed in good faith as part of providing financial services.
Liquidity Requirements. Recently adopted revisions to the OTS liquidity
requirements lowered the minimum liquidity requirement for a federal savings
institution from 5% to 4%, but made clear that an institution must maintain
sufficient liquidity to ensure its safe and sound operation. The revisions also
added certain mortgage-related securities and residential mortgage loans to the
types of assets that can be used to meet liquidity requirements, and provided
alternatives for measuring compliance with the requirements.
ATM Surcharge Legislation. Various proposals have been introduced in
Congress to restrict or prohibit an operator of an ATM from requiring
non-customers to pay surcharges to use that operator's ATM. The Corporation is
unable to predict at this time whether such legislation will be enacted.
EMPLOYEES
At May 31, 1998, the Corporation had 67 full-time employees, and 16
part-time employees. Management considers its relations with its employees to be
excellent. The Corporation's employees are not represented by any collective
bargaining group. The Issuer has no employees.
PROPERTIES
The Corporation leases its principal office located at 1111 North Highland
Street, Arlington, Virginia. The Corporation leases approximately 19,000 square
feet in that location. The lease expires in 2005. Beginning in March 1998, the
Corporation leased approximately 1,500 square feet of office space in Los
Angeles, California as a small business development office. The Corporation
believes that its facilities are adequate for its current operations. The Issuer
neither leases nor owns any real property.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Corporation or
the Issuer is a party or to which any of their respective property is subject.
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DESCRIPTION OF SERIES A CAPITAL SECURITIES
This summary of certain terms and provisions of the Series A Capital
Securities, which describes the material provisions thereof, does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the Series A Trust Agreement, including the definitions therein of certain
terms, and the Trust Indenture Act, to each of which reference is hereby made.
Wherever particular defined terms of the Series A Trust Agreement (as amended or
supplemented from time to time) are referred to herein, such defined terms are
incorporated herein by reference. The form of the Series A Trust Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
forms a part.
GENERAL
The Series A Capital Securities of the Issuer will rank pari passu, and
payments will be made thereon pro rata, with the Series A Common Securities of
the Issuer except as described under "-- Subordination of Series A Common
Securities." Legal title to the Series A Subordinated Debentures will be held by
the Property Trustee in trust for the benefit of the holders of the Series A
Securities. The Series A Guarantee executed by the Corporation for the benefit
of the holders of the Series A Capital Securities will be a guarantee on a
subordinated basis with respect to the Series A Capital Securities but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Series A Capital Securities when the Issuer does not have
funds on hand available to make such payments. See "Description of Series A
Guarantee."
DISTRIBUTIONS
The Series A Capital Securities represent beneficial ownership interests in
the Issuer, and Distributions on the Series A Capital Securities will be
cumulative, will accumulate from the date of original issuance and will be
payable at the annual rate of % on the stated Liquidation Amount of
$25.00, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each, a "Distribution Date"), to the holders of the
Series A Capital Securities on the relevant record dates. The record dates for
the Series A Capital Securities will be, for so long as the Series A Capital
Securities remain in book-entry form, one Business Day (as defined below) prior
to the relevant Distribution Date and, in the event the Series A Capital
Securities are not in book-entry form, the 15th day of the month in which the
relevant Distribution Date occurs. Distributions will accumulate from the date
of original issuance. The first Distribution Date for the Series A Capital
Securities will be September 30, 1998. The period beginning on and including the
date of original issuance and ending on but excluding the first Distribution
Date and each successive period beginning on and including a Distribution Date
and ending on but excluding the next succeeding Distribution Date is herein
called a "Distribution Period." The amount of Distributions payable for any
Distribution Period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any Distribution Date would otherwise fall on a
day that is not a Business Day, such Distribution Date shall be postponed to the
next day that is a Business Day (without any additional Distributions or other
payment in respect of such delay) unless it would thereby fall in the next
calendar year, in which event the Distribution Date shall be brought forward to
the immediately preceding Business Day. 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 or a day on which the
principal corporate trust office of the Property Trustee is closed for business.
So long as no Debenture Event of Default occurred and is continuing, the
Corporation has the right under the Indenture to defer payment of interest on
the Series A Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Series A Subordinated Debentures. As a consequence of any such
deferral of interest payments by the Corporation, quarterly Distributions on the
Series A Capital Securities by the Issuer will also be deferred during any such
Extension Period. Distributions to which holders of the Series A Capital
Securities are entitled will accumulate additional Distributions thereon at the
rate of % per annum, compounded quarterly from the relevant payment date for
such Distributions. The term "Distributions" as used herein shall include any
such
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additional Distributions. 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, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Corporation
(including other series of Junior Subordinated Debentures) that rank pari passu
with or junior in interest to the Series A 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 if such guarantee ranks
pari passu with or junior in interest to the Series A Subordinated Debentures
(other than (a) dividends or distributions in capital stock of the Corporation,
(b) any declaration of a dividend in connection with the implementation of a
shareholders' rights plan or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Series A Guarantee, (d) purchases of
Common Stock related to the issuance of Common Stock or rights under any of the
Corporation's benefit plans for its directors, officers or employees, related to
the issuance of Common Stock or rights under a dividend reinvestment and stock
purchase plan, or related to the issuance of Common Stock (or securities
convertible into or exchangeable for Common Stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of such
Extension Period and (e) guarantee payments with respect to the guarantee by the
Corporation of the Existing Capital Securities to the extent such payments are
made pari passu with payments with respect to the Series A Guarantee). Prior to
the termination of any such Extension Period, the Corporation may further defer
the payment of interest on the Series A Subordinated Debentures, provided that
no Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Series A Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of % per
annum, compounded quarterly, to the extent permitted by applicable law), the
Corporation may elect to begin a new Extension Period. There is no limitation on
the number of times that the Corporation may elect to begin an Extension Period.
See "Description of Series A Subordinated Debentures -- Option to Defer Interest
Payments" and "Certain Federal Income Tax Consequences -- Interest Income and
Original Issue Discount."
The revenue of the Issuer available for distribution to holders of Series A
Capital Securities will be limited to payments under the Series A Subordinated
Debentures in which the Issuer will invest the proceeds from the issuance and
sale of its Series A Securities. See "Description of Series A Subordinated
Debentures." If the Corporation does not make interest payments on the Series A
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Series A Capital Securities. The payment of
Distributions (if and to the extent the Issuer has funds legally available for
the payment of such Distributions and cash sufficient to make such payments) is
guaranteed by the Corporation on the basis set forth herein under "Description
of Series A Guarantee."
The Corporation has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series A
Subordinated Debentures.
REDEMPTION OR EXCHANGE
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of the Series A Subordinated Debentures, whether at Stated Maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Series A Capital Securities, upon not less
than 30 nor more than 60 days notice prior to the date fixed for redemption, at
a redemption price, with respect to the Series A Capital Securities (the
"Redemption Price"), equal to the aggregate Liquidation Amount of such Series A
Capital Securities, plus accumulated and unpaid Distributions thereon to the
date of redemption (the "Redemption Date"). See "Description of Series A
Subordinated Debentures -- Redemption." If less than all of the Series A
Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then
the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the Series A Capital Securities and the Series A Common
Securities.
The Corporation has the right to redeem the Series A Subordinated
Debentures (i) on or after , 2003, in whole at any time or in part from
time to time, or (ii) at any time, in certain circumstances as
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described under "Description of Series A Subordinated Debentures -- Conditional
Right to Redeem upon a Tax Event or Capital Treatment Event," in whole (but not
in part) within 90 days following the occurrence of a Tax Event or Capital
Treatment Event. A redemption of the Series A Subordinated Debentures would
cause a mandatory redemption of the Series A Securities.
Distribution of Series A Subordinated Debentures to Holders. The
Corporation will have the right at any time to terminate the Issuer and, after
satisfaction of liabilities to creditors of the Issuer as required by applicable
law, to cause the Series A Subordinated Debentures to be distributed to the
holders of the Series A Capital Securities in exchange therefor upon liquidation
of the Issuer. Such right is subject to the Corporation's having received any
regulatory approval then required under applicable capital guidelines or
policies.
Under current United States federal income tax law and interpretations and
assuming, as expected, the Issuer is treated as a grantor trust, a distribution
of Series A Subordinated Debentures in exchange for the Series A Capital
Securities should not be a taxable event to holders of the Series A Capital
Securities. Should there be a change in law, a change in legal interpretation, a
Tax Event or other circumstances, however, the distribution could be a taxable
event to holders of the Series A Capital Securities. See "Certain Federal Income
Tax Consequences -- Distribution of Series A Subordinated Debentures to Holders
of Series A Capital Securities." If the Corporation elects neither to redeem the
Series A Subordinated Debentures prior to maturity nor to liquidate the Issuer
and distribute the Series A Subordinated Debentures to holders of the Series A
Capital Securities in exchange therefor, the Series A Capital Securities will
remain outstanding until the Stated Maturity of the Series A Subordinated
Debentures.
If the Corporation elects to liquidate the Issuer and thereby causes the
Series A Subordinated Debentures to be distributed to holders of the Series A
Capital Securities in exchange therefor upon liquidation of the Issuer, the
Corporation shall continue to have the right to redeem the Series A Subordinated
Debentures in certain circumstances upon the occurrence of a Tax Event or
Capital Treatment Event, as described under "Description of Series A
Subordinated Debentures -- Conditional Right to Redeem Upon a Tax Event or
Capital Treatment Event."
After the liquidation date fixed for any distribution of the Series A
Subordinated Debentures for the Series A Capital Securities, (i) the Series A
Capital Securities will no longer be deemed to be outstanding, (ii) the
depository or its nominee, as the record holder of the Series A Capital
Securities, will receive a registered global certificate or certificates
representing the Series A Subordinated Debentures to be delivered upon such
distribution and (iii) any certificates representing the Series A Capital
Securities not held by DTC or its nominee will be deemed to represent the Series
A Subordinated Debentures having a principal amount equal to the stated
Liquidation Amount of the Series A Capital Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
the Series A Capital Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the Series A Capital
Securities or the Series A Subordinated Debentures that may be distributed in
exchange for the Series A Capital Securities if a dissolution and liquidation of
the Issuer were to occur. Accordingly, the Series A Capital Securities that an
investor may purchase, or the Series A Subordinated Debentures that the investor
may receive on dissolution and liquidation of the Issuer, may trade at a
discount to the price that the investor paid to purchase the Series A Capital
Securities offered hereby.
Tax Event or Capital Treatment Event Redemption. If a Tax Event or Capital
Treatment Event in respect of the Series A Securities shall occur and be
continuing, the Corporation has the right to redeem the Series A Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of the Series A Securities in whole (but not in part) at the Redemption Price
within 90 days following the occurrence of such Tax Event or Capital Treatment
Event. In the event a Tax Event or Capital Treatment Event in respect of the
Series A Securities has occurred and is continuing and the Corporation does not
elect to redeem the Series A Subordinated Debentures and thereby cause a
mandatory redemption of the Series A Securities or to terminate the Issuer and
cause the Series A Subordinated Debentures to be distributed to
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holders of the Series A Securities in exchange therefor upon liquidation of the
Issuer as described above, such Series A Capital Securities will remain
outstanding.
Recently, the Internal Revenue Service ("IRS") asserted that the interest
payable on a security with terms that are similar to the terms of the Series A
Subordinated Debentures (but with a longer maturity than the Series A
Subordinated Debentures) was not deductible for United States federal income tax
purposes. The taxpayer in that case has filed a petition in the United States
Tax Court challenging the IRS's position on this matter. If this matter is in
fact litigated and the Tax Court were to sustain the IRS's position on this
matter, such judicial decision could constitute a Tax Event which could result
in an early mandatory redemption of the Series A Capital Securities.
"Like Amount" means (i) with respect to a redemption of the Series A
Capital Securities, the Series A Capital Securities having a Liquidation Amount
equal to that portion of the principal amount of the Series A Subordinated
Debentures to be contemporaneously redeemed in accordance with the Indenture,
the proceeds of which will be used to pay the Redemption Price of such Series A
Capital Securities, and (ii) with respect to a distribution of the Series A
Subordinated Debentures to holders of the Series A Capital Securities in
exchange therefor in connection with a dissolution or liquidation of the Issuer,
the Series A Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Series A Capital Securities of the holder.
The amount payable on the Series A Capital Securities in the event of any
liquidation of the Issuer is $25.00 per Series A Capital Security plus
accumulated and unpaid Distributions, which amount may be paid in the form of a
distribution of a Like Amount of Series A Subordinated Debentures.
"Tax Event" with respect to the Issuer means the receipt by the Issuer 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 proposed change)
in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which proposed change, pronouncement or decision is announced on or after the
date of issuance of the Series A Capital Securities under the Series A Trust
Agreement, there is more than an insubstantial risk that (i) the Issuer 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 Series A
Subordinated Debentures, (ii) interest payable by the Corporation on the Series
A 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 United
States federal income tax purposes, or (iii) the Issuer 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 "Capital Treatment Event" means that the Corporation shall have received
an opinion of independent bank regulatory counsel experienced in such matters to
the effect that the Series A Capital Securities, as a result of (a) any
amendment to or change (including any announced prospective change) in the laws
(or any regulations thereunder) of the United States or any rules, guidelines or
policies of the appropriate regulatory authorities or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of the original
issuance of the Series A Capital Securities, do not constitute, or within 90
days of the date thereof, will not constitute Tier 1 capital or its then
equivalent applied as if the Corporation or its successor were a bank holding
company under The Bank Holding Company Act of 1956, as amended; provided,
however, that the distribution of the Series A Subordinated Debentures in
connection with the liquidation of the Issuer by the Corporation shall not in
and of itself constitute a Capital Treatment Event unless such liquidation shall
have occurred in connection with a Tax Event.
REDEMPTION PROCEDURES
Series A Capital Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Series A Subordinated Debentures. Redemptions
of the Series A Capital Securities shall be made and the Redemption Price shall
be
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payable on each Redemption Date only to the extent that the Issuer has funds on
hand available for the payment of such Redemption Price. See also
"-- Subordination of Series A Common Securities."
If the Issuer gives notice of redemption in respect of the Series A Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, the Property Trustee will deposit irrevocably
with DTC funds sufficient to pay the Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of such Series A Capital Securities. See "Book-Entry Issuance." If the
Series A Capital Securities are no longer in book-entry form, the Property
Trustee, to the extent funds are available, will irrevocably deposit with the
paying agent (the "Paying Agent") for the Series A Capital Securities funds
sufficient to pay the Redemption Price and will give such Paying Agent
irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing the Series A
Capital Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for the Series A Capital Securities called for
redemption shall be payable to the holders of Series A 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 Series A Capital Securities
so called for redemption will cease, except the right of the holders of Series A
Capital Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Series A Capital Securities will cease to be
outstanding. In the event that payment of the Redemption Price in respect of
Series A Capital Securities called for redemption is improperly withheld or
refused and not paid either by the Issuer or by the Corporation pursuant to the
Series A Guarantee as described under "Description of Series A Guarantee,"
Distributions on the Series A Capital Securities will continue to accrue at the
then applicable rate, from the Redemption Date originally established by the
Issuer for the Series A Capital Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
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 Series A Capital Securities by tender, in
the open market or by private agreement.
Payment of the Redemption Price on Series A Capital Securities and any
distribution of Series A Subordinated Debentures to holders of Series A Capital
Securities shall be made to the applicable record holders thereof as they appear
on the register for Series A Capital Securities on the relevant record date,
which shall be one Business Day prior to the relevant Redemption Date or
liquidation date, as applicable; provided, however, that in the event that
Series A Capital Securities are not in book-entry form, the relevant record date
for Series A Capital Securities shall be a date at least 15 days prior to the
Redemption Date or liquidation date, as applicable.
If less than all of the Series A Capital Securities and Series A Common
Securities issued by the Issuer are to be redeemed on a Redemption Date, then
the aggregate Liquidation Amount of Series A Capital Securities and Series A
Common Securities to be redeemed shall be allocated pro rata to the Series A
Capital Securities and the Series A Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Series A Capital Securities
to be redeemed shall be selected on a pro rata basis not more than 60 days prior
to the Redemption Date by the Property Trustee from the outstanding Series A
Capital Securities not previously called for redemption, by such method as the
Property Trustee shall deem fair and appropriate. The Property Trustee shall
promptly notify the trust registrar in writing of the Series A Capital
Securities selected for redemption.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Series A Capital Securities
to be redeemed at its registered address.
SUBORDINATION OF SERIES A COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Series A
Capital Securities and Series A Common Securities, as applicable, shall be made
pro rata based on the Liquidation Amount of such Series A Capital Securities and
Series A Common Securities; provided, however, that if on any Distribution Date
or
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Redemption Date a Debenture Event of Default (as hereinafter defined) shall have
occurred and be continuing, no payment of any Distribution on, or Redemption
Price of, any of the Series A Common Securities, and no other payment on account
of the redemption, liquidation or other acquisition of such Series A Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all of the outstanding Series A Capital Securities for
all Distribution periods terminating on or prior thereto, or in the case of
payment of the Redemption Price, the full amount of such Redemption Price on all
of the outstanding Series A Capital Securities then called for redemption, shall
have been made or provided for, and all funds available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
or Redemption Price of, the Series A Capital Securities then due and payable.
In the case of any Event of Default (as hereinafter defined) under the
Series A Trust Agreement resulting from a Debenture Event of Default, the
Corporation as holder of such Series A Common Securities will be deemed to have
waived any right to act with respect to any such Event of Default under the
Series A Trust Agreement until the effect of all such Events of Default with
respect to such Series A Capital Securities have been cured, waived or otherwise
eliminated. Until all Events of Default under the Series A Trust Agreement with
respect to the Series A Capital Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of Series A Capital Securities and not on behalf of the Corporation as
holder of the Series A Common Securities, and only the holders of Series A
Capital Securities will have the right to direct the Property Trustee to act on
their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Series A Trust Agreement, the Issuer shall automatically
terminate upon expiration of its term and shall terminate on 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 Series A Subordinated
Debentures to the holders of Series A Capital Securities, if the Corporation, as
Depositor, has given written direction to the Property Trustee to terminate the
Issuer (subject to the Corporation having received prior approval of the
regulatory authorities, if required); (iii) redemption of all Series A Capital
Securities as described under "-- Redemption or Exchange"; and (iv) the entry of
an order for the dissolution of the Issuer by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer shall be liquidated by the Administrative Trustees and the
Property Trustee as expeditiously as such Issuer Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Issuer as provided by applicable law, to the holders of Series A Capital
Securities in exchange therefor a Like Amount of the Series A Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event such holders will be entitled to receive out of
the assets of the Issuer available for distribution to holders, after
satisfaction of liabilities to creditors of such Issuer as provided by
applicable law, an amount equal to, in the case of holders of Series A Capital
Securities, the aggregate Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Issuer has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Issuer on the Series A Capital Securities shall be paid on a pro rata basis. The
holder of the Series A Common Securities will be entitled to receive
distributions upon any such liquidation pro rata with the holders of Series A
Capital Securities, except that if a Debenture Event of Default has occurred and
is continuing, the Series A Capital Securities shall have a priority over the
Series A Common Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Series A Trust Agreement (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):
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(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Series A Subordinated Debentures -- Debenture Events
of Default"); or
(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable (subject to the deferral of
any distribution in the case of an Extension Period), and continuation of
such default for a period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Series A Capital Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Property Trustee in the Series A Trust
Agreement (other than a covenant or warranty a default in the performance
of which or the breach of which is dealt with in clause (ii) or (iii)
above), and continuation of such default or breach for a period of 90 days
after there has been given, by registered or certified mail, to the
defaulting Property Trustee by the holders of at least 25% in aggregate
Liquidation Amount of the outstanding Series A Capital Securities of the
Issuer, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under
the Series A Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Corporation to
appoint a successor Property Trustee within 90 days thereof.
The Series A Trust Agreement provides that within ten Business Days after
the Property Trustee has 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 Series A Capital Securities, the Administrative Trustees and the
Corporation, as Depositor, unless such Event of Default shall have been cured or
waived. The Corporation, as Depositor, 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 Series A Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Series
A Capital Securities shall have a preference over the Series A Common Securities
as described above. See "-- Subordination of Series A Common Securities" and
"-- Liquidation Distribution Upon Termination." The existence of an Event of
Default does not entitle the holders of Series A Capital Securities to
accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
the Property Trustee and the Delaware Trustee may be removed at any time by the
holder of the Series A 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 Series A Capital Securities. The Series A Trust Agreement provides
that in no event will the holders of the Series A 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
Series A Common Securities. No resignation or removal of the Property Trustee or
the Delaware 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 Series A Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, 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 Corporation, as the holder of the
Series A Common Securities, and the Administrative Trustees shall have the 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 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
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necessary or desirable, subject to the provisions of the Series A Trust
Agreement. In case a Debenture Event of Default has occurred and is continuing,
the Property Trustee alone shall have power to make such appointment.
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 Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Series A Trust
Agreement, provided such Person shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER
The Issuer may not merge with or into, consolidate, amalgamate or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below or as otherwise described in the Series A Trust Agreement. The
Issuer may, at the request of the Corporation, with the consent of the
Administrative Trustees and without the consent of the holders of the Series A
Capital Securities, merge with or into, consolidate, amalgamate, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to, a trust organized as such under the laws of any State; provided,
that (i) such successor entity either (a) expressly assumes all of the
obligations of the Issuer with respect to the Series A Capital Securities or (b)
substitutes for the Series A Capital Securities other securities having
substantially the same terms as the Series A Capital Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Series A
Capital Securities 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 as the holder of the Series A 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 Series A Capital Securities are then listed, if any,
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Series A Capital Securities (including any Successor Securities)
in any material respect, (v) such successor entity has a purpose substantially
identical to that of the Issuer, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Corporation has
received an opinion from independent counsel to the Issuer 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 Series A Capital Securities
(including any Successor Securities) in any material respect, and (b) following
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Issuer 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 (vii) 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 Series A Guarantee.
Notwithstanding the foregoing, an Issuer shall not, except with the consent of
holders of 100% in Liquidation Amount of the Series A Capital Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Issuer or the successor entity to
be classified as other than a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF SERIES A TRUST AGREEMENT
Except as provided below and under "Description of Series A
Guarantee -- Amendments and Assignments" and as otherwise required by law and
the Series A Trust Agreement, the holders of the Series A Capital Securities
will have no voting rights.
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The Series A 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 Series A Capital Securities (i) to cure any
ambiguity, correct or supplement any provisions in such 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 Series A Trust Agreement,
which shall not be inconsistent with the other provisions of the Series A Trust
Agreement, or (ii) to modify, eliminate or add to any provisions of such Series
A Trust Agreement to such extent as shall be necessary to ensure that the Issuer
will be classified for United States federal income tax purposes as a grantor
trust at all times that any Series A Capital Securities are outstanding or to
ensure that the Issuer will not be required to register as an "investment
company" under the Investment Company Act; provided, however, that in the case
of either clause (i) or clause (ii), such action shall not adversely affect in
any material respect the interests of any holder of Series A Capital Securities,
and any such amendments of the Series A Trust Agreement shall become effective
when notice thereof is given to the holders of Series A Capital Securities. The
Series A Trust Agreement may be amended by the Issuer Trustees and the
Corporation with (i) the consent of holders representing not less than a
majority (based upon Liquidation Amounts) of the outstanding Series A Capital
Securities, and (ii) receipt by the Issuer Trustees of an opinion of counsel 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 Issuer's
status as a grantor trust for United States federal income tax purposes or the
Issuer's exemption from status as an "investment company" under the Investment
Company Act, provided that without the consent of each holder of Series A
Capital Securities, the Series A Trust Agreement may not be amended to (i)
change the amount or timing of any Distribution on the Series A Capital
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Series A Capital Securities as of a specified date
or (ii) restrict the right of a holder of Series A Capital Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as Series A 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
executing any trust or power conferred on the Property Trustee with respect to
such Series A Subordinated Debentures, (ii) waive any past default that is
waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Series A Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Indenture or Series A Subordinated Debentures, where such consent shall
be required, without, in each case, obtaining the prior approval of the holders
of a majority in aggregate Liquidation Amount of all outstanding Series A
Capital Securities; provided, however, that where a consent under the Indenture
would require the consent of each holder of Series A Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of the Series A Capital Securities. The Issuer
Trustees shall not revoke any action previously authorized or approved by a vote
of the holders of the Series A Capital Securities except by subsequent vote of
the holders of the Series A Capital Securities. The Property Trustee shall
notify each holder of Series A Capital Securities of any notice of default it
receives with respect to the Series A Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Series A 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 such action would not cause the Issuer to be classified as other than a
grantor trust for United States federal income tax purposes.
Any required approval of holders of Series A Capital Securities may be
given at a meeting of holders of Series A Capital Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause a notice
of any meeting at which holders of Series A 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 Series A Capital Securities
in the manner set forth in the Series A Trust Agreement.
No vote or consent of the holders of Series A Capital Securities will be
required for the Issuer to redeem and cancel the Series A Capital Securities in
accordance with the Series A Trust Agreement.
Notwithstanding that holders of Series A Capital Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Series A Capital Securities that are owned by the Corporation,
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the Issuer Trustees or any affiliate of the Corporation or any Issuer Trustees,
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
REGISTRATION OF SERIES A CAPITAL SECURITIES
The Series A Capital Securities will be represented by global certificates
registered in the name of DTC or its nominee. Beneficial interests in the Series
A Capital Securities will be shown on, and transfers thereof will be effected
only through, records maintained by Participants. Except as described below,
Series A Capital Securities in certificated form will not be issued in exchange
for the global certificates. See "Book-Entry Issuance."
Upon the issuance of a Series A global capital security, and the deposit of
such Series A global capital security with DTC, DTC will credit, on its
book-entry registration and transfer system, the respective aggregate
Liquidation Amounts of the individual Series A Capital Securities represented by
such Series A global capital security to the accounts of Participants, which may
include Euroclear and Cedel. Such accounts shall be designated by the dealers,
underwriters or agents with respect to Series A Capital Securities. Ownership of
beneficial interests in the Series A global capital security will be limited to
Participants or persons that may hold interests through Participants including
Euroclear and Cedel. Ownership of beneficial interests in the Series A global
capital security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC (with respect to interests of
Participants) and the records of Participants (with respect to interests of
persons who hold through Participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in the Series A global capital security.
So long as DTC is the registered owner of the Series A global capital
security, DTC will be considered the sole owner or holder of the Series A
Capital Securities represented by such Series A global capital security for all
purposes under the Series A Trust Agreement governing the Series A Capital
Securities. Except as provided below, owners of beneficial interests in the
Series A global capital security will not be entitled to have any of the
individual Series A Capital Securities registered in their names, will not
receive or be entitled to receive physical delivery of any such Series A Capital
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Series A Trust Agreement.
A Series A global capital security shall be exchangeable for Series A
Capital Securities registered in the names of persons other than DTC or its
nominee only if (i) DTC notifies the Issuer that it is unwilling or unable to
continue as a depository for such Series A global capital security and no
successor depository shall have been appointed, or if at any time DTC ceases to
be a clearing agency registered under the Exchange Act at a time when DTC is
required to be so registered to act as such depository, (ii) the Issuer in its
sole discretion determines that such global security shall be so exchangeable or
(iii) there shall have occurred and be continuing a Debenture Event of Default
with respect to the Series A Subordinated Debentures. Any global security that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
definitive certificates registered in such names as DTC shall direct. It is
expected that such instructions will be based upon directions received by DTC
from its Participants with respect to ownership of beneficial interests in such
Series A global capital security. In the event that Series A Capital Securities
are issued in definitive form, such Series A Capital Securities will be in
denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Payments on and any distributions of Series A Subordinated Debentures in
exchange for Series A Capital Securities represented by a Series A global
capital security will be made to DTC, as the depository for the Series A Capital
Securities. In the event Series A Capital Securities are issued in certificated
form, the Liquidation Amount and Distributions will be payable, the transfer of
the Series A Capital Securities will be registrable, Series A Subordinated
Debentures will be distributed in exchange for Series A Capital Securities
following a termination of the Issuer, and Series A Capital Securities will be
exchangeable for Series A Capital Securities of other denominations of a like
aggregate Liquidation Amount, at the principal corporate trust office of the
Property Trustee in Wilmington, Delaware, or at the offices of any paying agent
or transfer
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agent appointed by the Administrative Trustees, provided that payment of any
Distribution may be made at the option of the Administrative Trustees by check
mailed to the address of the persons entitled thereto or by wire transfer. None
of the Corporation, the Property Trustee, any Paying Agent, or the securities
registrar for the Series A Capital Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests of the Series A global capital securities
representing the Series A Capital Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests. In
addition, if the Series A Capital Securities are issued in certificated form,
the record dates for payment of Distributions will be the 15th day of the month
in which the relevant Distribution payment is scheduled to be paid. 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 "Book-Entry Issuance."
The Corporation expects that DTC, upon receipt of any payment of
Liquidation Amount, Redemption Price, premium or Distributions in respect of the
Series A global capital security representing any of the Series A Capital
Securities, immediately will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interest in the aggregate
Liquidation Amount of the Series A global capital security for the Series A
Capital Securities as shown on the records of DTC. The Corporation also expects
that payments by Participants to owners of beneficial interests in the Series A
global capital security held through such Participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.
PAYMENT AND PAYING AGENCY
Payments in respect of the Series A Capital Securities shall be made to
DTC, which shall credit the relevant accounts at the Depository on the
applicable Distribution Dates or, if the Series A Capital Securities are not
held by DTC, 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 shall initially be the Property Trustee and any co-paying agent chosen by
the Property Trustee and 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 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.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Series A Capital Securities.
Registration of transfers of Series A Capital Securities will be effected
without charge by or on behalf of the Issuer, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Issuer will not be required to register or cause to be
registered the transfer of Series A Capital Securities after Series A Capital
Securities 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 Series A Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Property Trustee is under no obligation to exercise any of the powers vested in
it by the Series A Trust Agreement at the request of any holder of Series A
Capital 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
Series A Trust Agreement or is unsure of the application of any provision of the
Series A Trust Agreement and the matter is not one on which holders of Series A
Capital Securities are entitled under the Series A Trust
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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 Series A Capital
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 Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as other than a grantor trust for United
States federal income tax purposes and so that the Series A Subordinated
Debentures will be treated as indebtedness of the Corporation for United States
federal income tax purposes. In this connection, the Corporation and the
Administrative Trustees are authorized to take any action, not inconsistent with
applicable law, the Certificate of Trust of the Issuer or the Series A Trust
Agreement, that the Corporation and the Administrative Trustees determine in
their discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Series A Capital Securities.
The Series A Trust Agreement provides that holders of the Series A Capital
Securities have no preemptive or similar rights.
The Issuer may not borrow money or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF SERIES A SUBORDINATED DEBENTURES
This summary of certain terms and provisions of the Series A Subordinated
Debentures set forth below, which describes the material provisions thereof,
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Indenture, and the Trust Indenture Act, to each of which
reference is hereby made. The Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Wilmington Trust
Company will act as indenture trustee ("Debenture Trustee") under the Indenture.
The Indenture is qualified under the Trust Indenture Act. Whenever particular
defined terms of the Indenture (as supplemented or amended from time to time)
are referred to herein, such defined terms are incorporated herein by reference.
Concurrently with the issuance of the Series A Capital Securities, the
Issuer will invest the proceeds thereof, together with the consideration paid by
the Corporation for the Series A Common Securities, in the Series A Subordinated
Debentures issued by the Corporation. The Series A Subordinated Debentures will
bear interest at the annual rate of % of the principal amount thereof,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each, an "Interest Payment Date"), commencing September 30, 1998,
and at maturity to the person in whose name each Series A Subordinated Debenture
is registered at the close of business on the record date next preceding such
Interest Payment Date. The period beginning on and including the date of
original issuance of the Series A Subordinated Debentures and ending on but
excluding the first Interest Payment Date and each successive period beginning
on and including an Interest Payment Date and ending on but excluding the next
succeeding Interest Payment Date is herein called an "Interest Period." It is
anticipated that, until the liquidation, if any, of the Issuer, each Series A
Subordinated Debenture will be held by the Property Trustee in trust for the
benefit of the holders of the Series A Capital Securities. The amount of
interest payable for any Interest Period will be computed on the basis of a
360-day year of twelve 30-day months. In the event that any Interest Payment
Date would otherwise fall on a day that is not a Business Day, such Interest
Payment Date shall be postponed to the next day that is a Business Day (without
any interest or other payment in respect of any such delay) unless it would
thereby fall in the next calendar year, in which event the Interest Payment Date
shall be brought forward to the immediately preceding Business Day. 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 of % per annum, compounded quarterly from the relevant Interest
Payment Date. The term "interest" as used herein shall include quarterly
interest payments and interest on quarterly interest payments not paid on the
applicable Interest Payment Date, as applicable. Notwithstanding anything to the
contrary set forth above,
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if the maturity date falls on a day that is not a Business Day, the payment of
principal and interest will be paid on the next succeeding Business Day, with
the same force and effect as if made on such maturity date and no interest on
such payments will accrue from and after the maturity date.
The Series A Subordinated Debentures will be issued as a series of junior
subordinated deferrable interest debentures under the Indenture.
The Series A Subordinated Debentures will mature on , 2028
(the "Stated Maturity").
The Series A Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt of the Corporation.
See "-- Subordination." Substantially all of the Corporation's existing
indebtedness constitutes Senior Debt. Because the Corporation is a holding
company, the right of the Corporation to participate in any distribution of
assets of any subsidiary, including TeleBank, upon such subsidiary's liquidation
or reorganization or otherwise, is subject to the prior claims of creditors of
that subsidiary, except to the extent that the Corporation may itself be
recognized as a creditor of that subsidiary. Accordingly, the Series A
Subordinated Debentures and the Series A Guarantee will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries, and holders of Series A Subordinated Debentures and beneficiaries
of the Series A Guarantee should look only to the assets of the Corporation for
payments on the Series A Subordinated Debentures or under the Series A
Guarantee. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Corporation, including Senior Debt, whether
under the Indenture, any other existing indenture or any other indenture that
the Corporation may enter into in the future or otherwise. See
"-- Subordination."
OPTION TO DEFER INTEREST PAYMENTS
So long as no Debenture Event of Default has occurred and is continuing,
the Corporation has the right under the Indenture at any time or from time to
time during the term of the Series A Subordinated Debentures to defer payment of
interest on the Series A Subordinated Debentures for a period not exceeding 20
consecutive quarterly periods with respect to each Extension Period, provided
that no Extension Period may extend beyond the Stated Maturity of the Series A
Subordinated Debentures. At the end of such Extension Period, the Corporation
must pay all interest then accrued and unpaid on the Series A Subordinated
Debentures (together with interest on such unpaid interest at the rate of
% per annum, compounded quarterly from the relevant Interest Payment
Date, to the extent permitted by applicable law). During an Extension Period,
interest will accrue and holders of Series A Subordinated Debentures (or holders
of Series A Capital Securities while such series is outstanding) will be
required to accrue interest income for United States federal income tax
purposes. 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, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Corporation (including other
series of Junior Subordinated Debentures) that rank pari passu with or junior in
interest to the Series A 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 if such guarantee ranks pari passu with or
junior in interest to the Series A Subordinated Debentures (other than (a)
dividends or distributions in capital stock of the Corporation, (b) any
declaration of a dividend in connection with the implementation of a
shareholders' rights plan, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Series A Guarantee, (d) purchases of
Common Stock related to the issuance of Common Stock or rights under any of the
Corporation's benefit plans for its directors, officers or employees, related to
the issuance of Common Stock or rights under a dividend reinvestment and stock
purchase plan, or related to the issuance of Common Stock (or securities
convertible into or exchangeable for Common Stock) as consideration in an
acquisition transaction that was entered into prior to the commencement of such
Extension Period and (e) guarantee payments with respect to the guarantee by the
Corporation of the Existing Capital Securities to the extent such payments are
made pari passu with payments with respect to the Series A Guarantee). Prior to
the termination of any such
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Extension Period, the Corporation may further defer the payment of interest on
the Series A Subordinated Debentures, provided that no Extension Period may
exceed 20 consecutive quarterly periods or extend beyond the Stated Maturity of
the Series A Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the rate of % per annum, compounded quarterly, to the
extent permitted by applicable law), 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 to begin such Extension Period at least one
Business Day prior to the earlier of (i) the date Distributions on the Series A
Capital Securities would have been payable except for the election to begin such
Extension Period, (ii) the date the Administrative Trustees are required to give
notice to the New York Stock Exchange, the Nasdaq National Market or other
applicable stock exchange or automated quotation system on which the Series A
Capital Securities may then be listed or quoted or to holders of Series A
Subordinated Debentures of the record date for such Distributions or (iii) the
date such Distributions are payable, but in any event not less than one Business
Day prior to such record date. The Debenture Trustee shall give notice of the
Corporation's election to begin a new Extension Period to the holders of the
Series A Subordinated Debentures. There is no limitation on the number of times
that the Corporation may elect to begin an Extension Period.
TRUST COSTS AND EXPENSES
In the Indenture, the Corporation, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Series A Capital
Securities) and all costs and expenses of the Issuer (including costs and
expenses relating to the organization of the Issuer, the fees and expenses of
the Issuer Trustees and the costs and expenses relating to the operation of the
Issuer) and to pay any and all taxes and all costs and expenses with respect
thereto (other than United States withholding taxes) to which the Issuer might
become subject.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on Series A Subordinated
Debentures (other than any Series A Subordinated Debentures represented by
global certificates) 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 (i) by check mailed to the
address of the person entitled thereto as such address shall appear in the
securities register, except in the case of global certificates or (ii) by
transfer to an account maintained by the person entitled thereto as specified in
the securities register, provided that proper transfer instructions have been
received by the Record Date. Payment of any interest on Series A Subordinated
Debentures will be made to the person in whose name such Series A Subordinated
Debentures are 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; however, the Corporation will at all times be required to maintain a
paying agent in each place of payment for the Series A 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 or
interest on any Series A Subordinated Debenture and remaining unclaimed for two
years after such principal or interest has become due and payable shall, at the
request of the Corporation, be repaid to the Corporation and the holder of such
Series A Subordinated Debenture shall thereafter look, as a general unsecured
creditor, only to the Corporation for payment thereof.
REDEMPTION
Subject to the Corporation's having received any regulatory approval then
required, the Series A Subordinated Debentures are redeemable prior to maturity
at the option of the Corporation (i) on or after , 2003, in whole
at any time or in part from time to time or (ii) at any time, in certain
circumstances as described under "-- Conditional Right to Redeem upon a Tax
Event or Capital Treatment
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Event," in whole (but not in part) within 90 days following the occurrence of a
Tax Event or Capital Treatment Event. The proceeds of any such redemption will
be used by the Issuer to redeem the Series A Capital Securities.
The redemption price with respect to the Series A Subordinated Debentures
shall be equal to 100% of the principal amount of the Series A Subordinated
Debentures so redeemed plus accrued and unpaid interest thereon to the date of
redemption.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Series A Subordinated
Debentures to be redeemed at its registered address. Unless the Corporation
defaults in payment of the redemption price, on and after the redemption date,
interest will cease to accrue on such Series A Subordinated Debentures or
portions thereof called for redemption.
DISTRIBUTION OF SERIES A SUBORDINATED DEBENTURES
As described under "Description of Series A Capital
Securities -- Redemption or Exchange," under certain circumstances involving the
termination of the Issuer, Series A Subordinated Debentures may be distributed
to the holders of the Series A Capital Securities in exchange therefor upon
liquidation of the Issuer after satisfaction of liabilities to creditors of the
Issuer as provided by applicable law. If distributed to holders of Series A
Capital Securities, the Series A Subordinated Debentures initially will be
issued in the form of one or more global securities and DTC, or any successor
depository for the Series A Capital Securities, will act as depository for the
Series A Subordinated Debentures. It is anticipated that the depository
arrangements for the Series A Subordinated Debentures would be substantially
identical to those in effect for the Series A Capital Securities. See
"Description of Series A Capital Securities -- Registration of Series A Capital
Securities" and "Book-Entry Issuance." If Series A Subordinated Debentures are
distributed to the holders of Series A Capital Securities in exchange therefor
upon the liquidation of the Issuer, the Corporation will use its best efforts to
list the Series A Subordinated Debentures on the Nasdaq National Market or such
other stock exchanges or automated quotation systems, if any, on which the
Series A Capital Securities are then listed or quoted. There can be no assurance
as to the market price of any Series A Subordinated Debentures that may be
distributed to the holders of Series A Capital Securities.
CONDITIONAL RIGHT TO REDEEM UPON A TAX EVENT OR CAPITAL TREATMENT EVENT
If a Tax Event or a Capital Treatment Event occurs and either (i) in the
opinion of counsel to the Corporation experienced in such matters, there would
in all cases, after effecting the termination of the Issuer and the distribution
of the Series A Subordinated Debentures to the holders of the Series A Capital
Securities in exchange therefor upon liquidation of the Issuer, be more than an
insubstantial risk that an Adverse Tax Consequence (as defined in "Risk
Factors -- Risk Factors Relating to the Series A Capital Securities --
Redemption Upon Tax Event or Capital Treatment Event") would continue to exist,
(ii) in the reasonable determination of the Corporation, after effecting the
termination of the Issuer and the distribution of the Series A Subordinated
Debentures to the holders of the Series A Capital Securities in exchange
therefor upon liquidation of the Issuer, be more than an insubstantial risk that
the Corporation or its successor would not be entitled to treat an amount equal
to the Liquidation Amount of the Series A Capital Securities as Tier 1 capital
or its then equivalent applied as if the Corporation or its successor were a
bank holding company under the Bank Holding Company Act of 1956, as amended or
(iii) the Series A Subordinated Debentures are not held by the Issuer, then the
Corporation shall have the right to redeem the Series A Subordinated Debentures,
in whole but not in part, at any time within 90 days following the occurrence of
a Tax Event or Capital Treatment Event at a redemption price equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon to the
date of redemption. See "Description of Series A Capital
Securities -- Redemption or Exchange" and "-- Liquidation Distribution upon
Termination."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Series A Subordinated
Debentures to be redeemed at its registered address. Unless the Corporation
defaults in payment of the redemption price, on and after the redemption date,
interest will cease to accrue on such Series A Subordinated Debentures or
portions thereof called for redemption.
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REGISTRATION OF SERIES A SUBORDINATED DEBENTURES
The Series A Subordinated Debentures will be registered in the name of the
Issuer. In the event that the Series A Subordinated Debentures are distributed
to holders of Series A Capital Securities, it is anticipated that the depository
and other arrangements for the Series A Subordinated Debentures will be
substantially identical to those in effect for the Series A Capital Securities,
as applicable. See "Description of Series A Capital Securities -- Registration
of Series A Capital Securities."
RESTRICTIONS ON CERTAIN PAYMENTS
The Corporation will also covenant, as to the Series A Subordinated
Debentures, 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,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Corporation (including other series of Junior Subordinated
Debentures) that rank pari passu with or junior in interest to the Series A
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 if such guarantee ranks pari passu with or junior in interest to the
Series A Subordinated Debentures (other than (a) dividends or distributions in
capital stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a shareholders' rights plan, or the
redemption or repurchase of any such rights pursuant thereto, (c) payments under
the Series A Guarantee with respect to the Series A Capital Securities, (d)
purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Corporation's benefit plans for its directors, officers or
employees, related to the issuance of Common Stock or rights under a dividend
reinvestment and stock purchase plan, or related to the issuance of Common Stock
(or securities convertible into or exchangeable for Common Stock) as
consideration in an acquisition transaction that was entered into prior to the
commencement of any of the events described in (i), (ii), and (iii) below and
(e) guarantee payments with respect to the guarantee by the Corporation of the
Existing Capital Securities to the extent such payments are made pari passu with
payments with respect to the Series A Guarantee) if at such time (i) there shall
have occurred any event of which the Corporation has actual knowledge (a) that
with the giving of notice or the lapse of time, or both, would constitute a
Debenture Event of Default with respect to the Series A Subordinated Debentures
of such series and (b) in respect of which the Corporation shall not have taken
reasonable steps to cure, (ii) if such Series A Subordinated Debentures are held
by the Issuer of the Series A Capital Securities, the Corporation shall be in
default with respect to its payment of any obligations under the Guarantee
relating to such Series A Capital Securities or (iii) the Corporation shall have
given notice of its election of an Extension Period as provided in the Indenture
with respect to the Series A Subordinated Debentures of such series and shall
not have rescinded such notice, or such Extension Period, or any extension
thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time the Corporation and the Debenture Trustee may, without
the consent of the holders of the Series A Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of the
Series A Subordinated Debentures or the holders of the Series A Capital
Securities so long as they remain outstanding) 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 not less than a majority in principal amount of
the outstanding Series A Subordinated Debentures affected, to modify the
Indenture in a manner adversely affecting the rights of the holders of the
Series A Subordinated Debentures in any material respect; provided, that no such
modification may, without the consent of the holder of each outstanding Series A
Subordinated Debenture so affected, (i) change the Stated Maturity of the Series
A Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon or (ii) reduce the
percentage of principal amount of Series A Subordinated Debentures of any
series, the holders of which are required to consent to any such modification
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of the Indenture, provided further that, in the case of Series A Subordinated
Debentures, so long as any Series A Capital Securities remain outstanding, (a)
no such modification may be made that adversely affects the holders of such
Series A Capital Securities in any material respect, and no termination of the
Indenture may occur, and no waiver of any event of default or compliance with
any covenant under the Indenture may be effective, without the prior consent of
the holders of at least a majority of the aggregate Liquidation Amount of all
outstanding Series A Capital Securities affected unless and until the principal
of the Series A Subordinated Debentures and all accrued and unpaid interest
thereon have been paid in full and certain other conditions have been satisfied,
and (b) where a consent under the Indenture would require the consent of each
holder of Series A Subordinated Debentures, no such consent shall be given by
the Property Trustee without the prior consent of each holder of Series A
Capital Securities.
In addition, the Corporation and the Debenture Trustee may execute, without
the consent of any holder of the Series A Subordinated Debentures, any
supplemental Indenture for the purpose of creating any new series of junior
subordinated debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Series A Subordinated Debentures that has occurred
and is continuing constitutes a "Debenture Event of Default" with respect to the
Series A Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Series A
Subordinated Debentures when due (subject to the deferral of any interest
payment in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Series A
Subordinated Debentures when due whether at maturity or upon redemption; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written notice
to the Corporation from the Debenture Trustee or the holders of at least
25% in aggregate outstanding principal amount of the Series A Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Corporation.
The holders of a majority in aggregate outstanding principal amount of
Series A Subordinated Debentures have 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 Series A Subordinated Debentures may declare the
principal due and payable immediately upon a Debenture Event of Default; should
the Debenture Trustee or such holders of such Series A Subordinated Debentures
fail to make such declaration, the holders of at least 25% in aggregate
Liquidation Amount of the Series A Capital Securities shall have such right. The
holders of a majority in aggregate outstanding principal amount of Series A
Subordinated Debentures may annul such declaration, and if such holders of the
Series A Subordinated Debentures fail to annul such declaration and waive such
default, the holders of a majority in aggregate Liquidation Amount of the Series
A Capital Securities affected shall have such right.
The holders of a majority in aggregate outstanding principal amount of
Series A Subordinated Debentures affected thereby may, on behalf of the holders
of all Series A Subordinated Debentures, waive any default, except a default in
the payment of principal or interest (unless such default 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) 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
Series A Subordinated Debenture. Should the holders of Series A Subordinated
Debentures fail to waive such default, the holders of a majority in aggregate
Liquidation Amount of the Series A Capital Securities affected shall have such
right. The Corporation is required to file annually with the Debenture Trustee a
certificate as to whether or not the Corporation is in compliance with all the
conditions and covenants applicable to it under the Indenture.
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In case a Debenture Event of Default shall occur and be continuing as to
the Series A Subordinated Debentures, the Property Trustee will have the right
to declare the principal of and the interest on the Series A Subordinated
Debentures, and any other amounts payable under the Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
the Series A Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF SERIES A CAPITAL SECURITIES
If a Debenture Event of Default with respect to the Series A Subordinated
Debentures has occurred and is continuing and such event is attributable to the
failure of the Corporation to pay interest or principal on such Series A
Subordinated Debentures on the date such interest or principal is due and
payable, a holder of Series A Capital Securities may institute a Direct Action
against the Corporation for enforcement of payment to such holder of the
principal of or interest on the Series A Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Series A
Capital Securities of such holder. 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 Series A Capital Securities outstanding. If
the right to bring a Direct Action is removed, the Issuer may become subject to
the reporting obligations under the Exchange Act. The Corporation shall have the
right under the Indenture to set-off any payment made to such holder of Series A
Capital Securities by the Corporation in connection with a Direct Action.
The holders of the Series A 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 Series A Subordinated Debentures unless there
shall have been an Event of Default under the Series A Trust Agreement. See
"Description of Series A 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 and
assets substantially as an entirety to any Person, and no Person shall
consolidate with or merge into the Corporation or convey, transfer or lease its
properties and assets 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 and assets 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 Series A Subordinated
Debentures issued under the Indenture; (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; (iii) such transaction is not prohibited under the
Series A Trust Agreement and Series A Guarantee and does not give rise to any
breach or violation of the Series A Trust Agreement or Series A Guarantee, and
(iv) certain other conditions as prescribed by the Indenture are met.
The general provisions of the Indenture do not afford holders of the Series
A Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Corporation that may adversely affect holders of the
Series A Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Series A
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 their Stated Maturity 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 in the currency or currencies in which the Series A Subordinated
Debentures are payable sufficient to pay and discharge the entire indebtedness
on the Series A Subordinated Debentures not previously delivered to the
Debenture Trustee for cancellation, for the principal and interest to the date
of the deposit or to the Stated Maturity, 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
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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 Series
A Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets of the Corporation upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Corporation, the holders of Senior Debt will first
be entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of Series A
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the principal of (and premium, if any) or interest, if any, on the
Series A Subordinated Debentures; provided, however, that holders of Senior Debt
shall not be entitled to receive payment of any such amounts to the extent that
such holders would be required by the subordination provisions of such Senior
Debt to pay such amounts over to the obligees on trade accounts payable or other
liabilities arising in the ordinary course of the Corporation's business.
In the event of the acceleration of the maturity of Series A Subordinated
Debentures, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon (including any amounts due upon acceleration thereof) before the
holders of Series A Subordinated Debentures will be entitled to receive or
retain any payment in respect of the principal of (or premium, if any) or
interest, if any, on the Series A Subordinated Debentures; provided, however,
that holders of Senior Debt shall not be entitled to receive payment of any such
amounts to the extent that such holders would be required by the subordination
provisions of such Senior Debt to pay such amounts over to the obligees on trade
accounts payable or other liabilities arising in the ordinary course of the
Corporation's business.
No payments on account of principal or interest in respect of the Series A
Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt or an event of
default with respect to any Senior Debt resulting in the acceleration of the
maturity thereof, or if any judicial proceeding shall be pending with respect to
any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person 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 such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person 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 such Person; (vi) every
obligation of such Person for claims in respect of derivative products such as
interest and foreign exchange rate contracts, commodity contracts 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, such Person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Corporation whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Series A Subordinated Debentures or to other
Debt which is pari passu with, or subordinated to, the Series A Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include
(i) any Debt of the Corporation which when incurred and without respect to any
election
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under Section 1111(b) of the United States Bankruptcy Code of 1978, as amended,
was without recourse to the Corporation, (ii) any Debt of the Corporation to any
of its subsidiaries, (iii) Debt to any employee of the Corporation, (iv) Debt
which by its terms is subordinated to trade accounts payable or accrued
liabilities arising in the ordinary course of business to the extent that
payments made to the holders of such Debt by the holders of the Series A
Subordinated Debentures as a result of the subordination provisions of the
Indenture would be greater than such payments otherwise would have been as a
result of any obligation of such holders of such Debt to pay amounts over to the
obligees on such trade accounts payable or accrued liabilities arising in the
ordinary course of business as a result of subordination provisions to which
such Debt is subject, and (v) any other debt securities issued pursuant to the
Indenture.
The Indenture places no limitation on the amount of Senior Debt that may be
incurred by the Corporation. The Corporation expects from time to time to incur
additional indebtedness and other obligations constituting Senior Debt.
GOVERNING LAW
The Indenture is, and the Series A Subordinated Debentures will be,
governed by and construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
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 Series A 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.
BOOK-ENTRY ISSUANCE
DTC will act as securities depository for all of the Series A Capital
Securities. The Series A Capital Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global certificates will be issued for the Series A
Capital Securities of the Issuer, representing in the aggregate the total number
of the Series A Capital Securities, and will be deposited with the Property
Trustee as custodian for DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. "Direct Participants" include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain custodial relationships with Direct
Participants, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Series A Capital Securities within the DTC system must be made
by or through Direct Participants, which will receive a credit for the Series A
Capital Securities on DTC's records. The ownership interest of each actual
purchaser of each Series A Capital Security ("Beneficial Owner") is in turn to
be
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recorded on the Direct and Indirect Participants' records, including Euroclear
and Cedel. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Series A Capital Securities. Transfers of
ownership interests in the Series A Capital Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Series A Capital Securities, except in the event that use of the
book-entry system for the Series A Capital Securities is discontinued.
Transfers between Participants will be effected in accordance with DTC's
procedures and will be settled in same-day funds. Transfers between participants
in Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Cross-market transfers between Participants, on the one hand, and Euroclear
participants or Cedel participants, on the other hand, will be effected in DTC
in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may
be, by its respective depository; however, such cross-market transactions will
require delivery of instructions to Euroclear or Cedel, as the case may be, by
the counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the Series A Capital Securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Series A Capital Security from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear participant or Cedel participant, during the securities
settlement processing day (which must be a business day for Euroclear and Cedel,
as the case may be) immediately following the DTC settlement date. Cash received
in Euroclear or Cedel as a result of sales of interests in a Series A Capital
Security by or through a Euroclear or Cedel participant to a Participant in DTC
will be received with value on the DTC settlement date but will be available in
the relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following the DTC settlement date.
DTC has no knowledge of the actual Beneficial Owners of the Series A
Capital Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Series A Capital Securities are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Series A Capital Securities. If less than all of the Series A Capital
Securities are being redeemed, DTC's current practice is to determine by lot the
amount of the interest of each Direct Participant to be redeemed.
Although voting with respect to the Series A Capital Securities is limited
to the holders of record of the Series A Capital Securities, in those instances
in which a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to the Series A Capital Securities. Under its usual
procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to the
relevant Trustee as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts such Series A Capital Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
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Distribution payments on the Series A Capital Securities, to the extent
funds legally available therefor have been received by the relevant Trustee,
will be made by such Trustee to DTC. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participant and not of DTC, the
relevant Trustee, the Issuer thereof or the Corporation, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to DTC are the responsibility of the relevant Trustee
(to the extent such Trustee has actually received such amounts for
distribution), disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to any of the Series A Capital Securities at any time by giving
reasonable notice to the relevant Trustee and the Corporation. In the event that
a successor securities depository is not obtained, definitive Series A Capital
Security certificates representing such Series A Capital Securities are required
to be printed and delivered. The Corporation, at its option, may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). After a Debenture Event of Default, the holders of a
majority in Liquidation Amount of Series A Capital Securities may determine to
discontinue the system of book-entry transfers through DTC. In any such event,
definitive certificates for such Series A Capital Securities will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuer and the Corporation believe to be
accurate, but the Issuer and the Corporation assume no responsibility for the
accuracy thereof. Neither the Issuer nor the Corporation has any responsibility
for the performance by DTC or its Participants of their respective obligations
as described herein or under the rules and procedures governing their respective
operations.
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DESCRIPTION OF SERIES A GUARANTEE
The Series A Guarantee will be executed and delivered by the Corporation
concurrently with the issuance by the Issuer of the Series A Capital Securities
for the benefit of the holders from time to time of Series A Capital Securities.
Wilmington Trust Company will act as Guarantee Trustee under the Series A
Guarantee for the purposes of compliance with the Trust Indenture Act and the
Series A Guarantee will be qualified as an indenture under the Trust Indenture
Act. This summary of certain provisions of the Guarantee, which summarizes the
material terms thereof, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the Series A
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act, to each of which reference is hereby made. The form of the Series
A Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. Reference in this summary to Series A Capital
Securities means the Series A Capital Securities to which the Series A Guarantee
relates. The Guarantee Trustee will hold the Series A Guarantee for the benefit
of the holders of the Series A Securities.
GENERAL
The Series A Guarantee guarantees to the holders of the Series A Capital
Securities the following payments (the "Guarantee Payments") to the extent not
paid by the Issuer: (i) any accumulated and unpaid Distributions required to be
paid on the Series A Capital Securities, to the extent that the Issuer has funds
on hand available therefor at such time, (ii) the redemption price with respect
to any Series A Capital Securities called for redemption, to the extent that the
Issuer has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of the Issuer
(unless the Series A Subordinated Debentures are distributed to holders of the
Series A 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 Issuer has funds on hand available therefor at such time,
and (b) the amount of assets of the Issuer remaining available for distribution
to holders of the Series A Capital Securities after payment of creditors of the
Issuer as required by applicable law.
The holders of not less than a majority in aggregate 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 Guarantee
Trustee in respect of the Series A Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Series A Guarantee.
Any holder of the Series A Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series A
Guarantee without first instituting a legal proceeding against the Issuer, the
Guarantee Trustee or any other person or entity. If the Corporation were to
default on its obligation to pay amounts payable under the Series A Subordinated
Debentures, the Issuer would lack funds for the payment of Distributions or
amounts payable on redemption of the Series A Capital Securities or otherwise,
and, in such event, holders of the Series A Capital Securities would not be able
to rely upon the Guarantee for payment of such amounts. Instead, if a Debenture
Event of Default shall have occurred and be continuing and such event is
attributable to the failure of the Corporation to pay interest on or principal
of the Series A Subordinated Debentures on the applicable payment date, then a
holder of Series A Capital Securities may institute a Direct Action against the
Corporation pursuant to the terms of the Indenture for enforcement of payment to
such holder of the principal of or interest on such Series A Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Series A Capital Securities of such holder. In connection with such
Direct Action, the Corporation will have a right of set-off under the Indenture
to the extent of any payment made by the Corporation to such holder of Series A
Capital Securities in the Direct Action. Except as described herein, holders of
Series A Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Series A Subordinated Debentures or
assert directly any other rights in respect of the Series A Subordinated
Debentures. The Series A Trust Agreement provides that each holder of Series A
Securities by acceptance thereof agrees to the provisions of the Series A
Guarantee and the Indenture.
If the Corporation does not make interest payments on the Series A
Subordinated Debentures held by the Issuer, the Issuer will not be able to pay
Distributions on the Series A Capital Securities and will not have funds legally
available therefor. The Series A Guarantee will rank subordinate and junior in
right of payment
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to all Senior Debt of the Corporation. See "-- Status of the Guarantee." 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 that subsidiary, except to the extent the Corporation may
itself be recognized as a creditor of that subsidiary. Accordingly, the
Corporation's obligations under the Series A Guarantee will be effectively
subordinated to all existing and future liabilities of the Corporation's
subsidiaries, and claimants should look only to the assets of the Corporation
for payments thereunder. The Series A Guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of the Corporation, including Senior
Debt, whether under the Indenture, any other existing indenture or any other
indenture that the Corporation may enter into in the future or otherwise.
The Corporation has, through the Series A Guarantee, the Series A Trust
Agreement, the Series A Subordinated Debentures and the Indenture, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer's
obligations under the Series A 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 Issuer's obligations under the Series A Capital Securities. See
"Relationship Among the Series A Capital Securities, the Series A Subordinated
Debentures and the Series A Guarantee."
STATUS OF THE GUARANTEE
The Series A Guarantee will constitute an unsecured obligation of the
Corporation and will rank subordinate and junior in right of payment to all
Senior Debt of the Corporation in the same manner as the Series A Subordinated
Debentures.
The Series A Guarantee will rank pari passu with all other guarantees
issued by the Corporation, including the guarantee issued in connection with the
Existing Capital Securities. The Series A Guarantee will constitute a guarantee
of payment and not of collection (i.e. the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its rights under the
Series A Guarantee without first instituting a legal proceeding against any
other person or entity). The Series A Guarantee will be held for the benefit of
the holders of the Series A Capital Securities. The Series A Guarantee will not
be discharged except by payment of the guarantee payments in full to the extent
not paid by the Issuer or upon distribution to the holders of the Series A
Capital Securities of the Series A Subordinated Debentures. The Series A
Guarantee places no limitation on the amount of additional Senior Debt that may
be incurred by the Corporation. The Corporation expects from time to time to
incur additional indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENTS
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Series A Capital Securities (in which case no vote
will be required), the Series A Guarantee may not be amended without the prior
approval of the holders of not less than a majority of the aggregate Liquidation
Amount of such outstanding Series A Capital Securities. The manner of obtaining
any such approval will be as set forth under "Description of Series A Capital
Securities -- Voting Rights; Amendment of Series A Trust Agreement." All
guarantees and agreements contained in the Series A Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Corporation
and shall inure to the benefit of the holders of the Series A Capital Securities
then outstanding.
EVENTS OF DEFAULT
An event of default under the Series A 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 payment default,
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 aggregate 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 Guarantee Trustee in respect of the
Series A Guarantee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Series A Guarantee.
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Any holder of Series A Capital Securities may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series A
Guarantee without first instituting a legal proceeding against the Issuer, the
Guarantee Trustee or any other person or entity.
The Corporation, as guarantor, is 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
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 Series A Guarantee,
undertakes to perform only such duties as are specifically set forth in the
Series A Guarantee and, after default with respect to the Series A Guarantee,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Series A Guarantee at the request of any holder of
Series A Capital Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Series A Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of the Series A Capital Securities,
upon full payment of the amounts payable upon liquidation of the Issuer or upon
distribution of Series A Subordinated Debentures to the holders of the Series A
Capital Securities in exchange therefor. The Series A Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of the Series A Capital Securities must restore payment of any sums paid
under such Series A Capital Securities or the Series A Guarantee.
GOVERNING LAW
The Series A Guarantee will be governed by and construed in accordance with
the laws of the State of New York.
RELATIONSHIP AMONG THE SERIES A CAPITAL SECURITIES,
THE SERIES A SUBORDINATED DEBENTURES
AND THE SERIES A GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Series A Capital
Securities (to the extent the Issuer has funds legally available for the payment
of such Distributions and other amounts) are irrevocably guaranteed by the
Corporation as and to the extent set forth under "Description of Series A
Guarantee." Taken together, the Corporation's obligations under the Series A
Subordinated Debentures, the Indenture, the Series A Trust Agreement and the
Series A Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the Series A 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
Issuer's obligations under the Series A Capital Securities. If and to the extent
that the Corporation does not make payments on the Series A Subordinated
Debentures, the Issuer will not pay Distributions or other amounts due on the
Series A Capital Securities. The Series A Guarantee does not cover payment of
Distributions when the Issuer does not have sufficient funds to pay such
Distributions. In such event, the remedy of a holder of Series A Capital
Securities is to institute a legal proceeding directly against the Corporation
pursuant to the terms of the Indenture for enforcement of payment of amounts
equal to such Distributions to such holder. The obligation of the
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Corporation under the Series A Guarantee is subordinate and junior in right of
payment to all Senior Debt of the Corporation.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Series A Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Series A Capital Securities,
primarily because (i) the aggregate principal amount of the Series A
Subordinated Debentures will be equal to the sum of the aggregate stated
Liquidation Amount of the Series A Capital Securities and Series A Common
Securities; (ii) the interest rate and interest and other payment dates on
Series A Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Series A Capital Securities; (iii)
the Corporation shall pay for any and all costs, expenses and liabilities of the
Issuer except the Issuer's obligations to holders of the Series A Capital
Securities under the Series A Capital Securities; and (iv) the Series A Trust
Agreement further provides that the Issuer will not engage in any activity that
is not consistent with the limited purposes of such Issuer.
Notwithstanding anything to the contrary in the Indenture, the Corporation
has the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Corporation has theretofore made, or is concurrently
on the date of such payment making, a payment under the Series A Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF SERIES A CAPITAL SECURITIES
A holder of any Series A Capital Security may institute a legal proceeding
directly against the Corporation to enforce its rights under the Series A
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the Issuer or any other person or entity.
A default or event of default under any Senior Debt of the Corporation
would not constitute a default or Event of Default. However, in the event of
payment defaults under, or acceleration of, Senior Debt of the Corporation, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Series A Subordinated Debentures until such Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on Series A Subordinated Debentures would
constitute a Debenture Event of Default.
LIMITED PURPOSE OF ISSUER
The Series A Capital Securities evidence a beneficial interest in the
Issuer, and the Issuer exists for the sole purpose of issuing the Series A
Capital Securities and Series A Common Securities and investing the proceeds
thereof in Series A Subordinated Debentures. A principal difference between the
rights of a holder of Series A Capital Securities and a holder of Series A
Subordinated Debentures is that a holder of Series A Subordinated Debentures is
entitled to receive from the Corporation the principal amount of and interest
accrued on Series A Subordinated Debentures held, while a holder of Series A
Capital Securities is entitled to receive Distributions from such Issuer (or
from the Corporation under the Series A Guarantee) if and to the extent such
Issuer has funds legally available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding up or liquidation of
the Issuer involving the liquidation of the Series A Subordinated Debentures,
after satisfaction of liabilities to creditors of the Issuer as required by
applicable law, the holders of the Series A Capital Securities will be entitled
to receive, out of the assets held by such Issuer, the Liquidation Distribution
in cash. See "Description of the Series A Capital Securities -- Liquidation
Distribution Upon Termination." Upon any voluntary or involuntary liquidation or
bankruptcy of the Corporation, the Property Trustee, as holder of the Series A
Subordinated Debentures, would be a subordinated creditor of the Corporation,
subordinated in right of payment to all Senior Debt as set forth in the
Indenture, but entitled to receive payment in full of principal and interest
before any stockholders of the Corporation receive payments or distributions.
Because the Corporation is the guarantor under the Series A Guarantee and has
agreed to pay for all costs, expenses and liabilities of the Issuer (other than
the
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Issuer's obligations to the holders of the Series A Capital Securities), the
positions of a holder of Series A Capital Securities and a holder of the Series
A Subordinated Debentures relative to other creditors and to stockholders of the
Corporation in the event of liquidation or bankruptcy of the Corporation are
expected to be substantially the same.
DESCRIPTION OF COMMON STOCK OFFERING
Simultaneously with the Offering, the Corporation is offering for sale to
the public, pursuant to the Common Stock Offering, 4,100,000 shares of Common
Stock (and an additional 615,000 shares of Common Stock if the over-allotment
option is exercised in full by the underwriters of the Common Stock Offering).
The Corporation does not intend to complete the Offering unless the Common Stock
Offering is consummated.
Upon completion of the Common Stock Offering, the Corporation will have
11,114,448 shares of Common Stock issued and outstanding.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Shaw Pittman Potts & Trowbridge, special tax counsel to
the Corporation and the Issuer ("Tax Counsel"), the following summary accurately
describes the material United States federal income tax consequences that may be
relevant to the purchase, ownership and disposition of Series A Capital
Securities. Unless otherwise stated, this summary deals only with Series A
Capital Securities held as capital assets by United States Persons (defined
below) who purchase the Series A Capital Securities upon original issuance at
their original offering price. As used herein, a "United States Person" means a
person that is (i) an individual citizen or resident of the United States, (ii)
a corporation organized under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, (iv) any trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States Persons have the
authority to control all substantial decisions of such trust or (v) a
partnership to the extent the interests therein are owned by any of the persons
described in clauses (i), (ii), (iii) or (iv) above. The tax treatment of a
holder may vary depending on his, her or its particular situation. This summary
does not address all the tax consequences that may be relevant to a particular
holder or to holders who may be subject to special tax treatment, such as banks,
real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors, or foreign
investors. In addition, this summary does not include any description of any
alternative minimum tax consequences or the tax laws of any state, local or
foreign government that may be applicable to a holder of Series A Capital
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
The authorities on which this summary is based are subject to various
interpretations and the opinions of Tax Counsel are not binding on the Internal
Revenue Service ("IRS") or the courts, either of which could take a contrary
position. Moreover, no rulings have been or will be sought from the IRS with
respect to the transactions described herein. Accordingly, there can be no
assurance that the IRS will not challenge the opinions expressed herein or that
a court would not sustain such a challenge. Nevertheless, Tax Counsel has
advised that it is of the view that, if challenged, the opinions expressed
herein would be sustained by a court with jurisdiction in a properly presented
case.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES A
CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER UNITED STATES FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL OR OTHER TAX LAWS. FOR A
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DISCUSSION OF THE POSSIBLE REDEMPTION OF THE SERIES A CAPITAL SECURITIES UPON
THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE "DESCRIPTION OF THE SERIES A CAPITAL
SECURITIES -- REDEMPTION OR EXCHANGE."
CLASSIFICATION OF THE ISSUER
In connection with the issuance of the Series A Capital Securities, Tax
Counsel is of the opinion that, under current law and assuming compliance with
the terms of the Series A Trust Agreement, and based on certain facts and
assumptions contained in such opinion, the Issuer will be classified as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes. As a result, each beneficial owner of Series
A Capital Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Series A Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or original issue discount that is paid or accrued
on the Series A Subordinated Debentures. See "-- Interest Income and Original
Issue Discount."
CLASSIFICATION OF THE SERIES A SUBORDINATED DEBENTURES
The Corporation, the Issuer and the holders of the Series A Capital
Securities (by acceptance of a beneficial interest in a Series A Capital
Security) will agree to treat the Series A Subordinated Debentures as
indebtedness for all United States tax purposes. In connection with the issuance
of the Series A Subordinated Debentures, Tax Counsel is of the opinion that,
under current law, and based on certain representations, facts and assumptions
set forth in such opinion, the Series A Subordinated Debentures will be
classified as indebtedness for United States federal income tax purposes. No
assurance can be given, however, that the IRS will not challenge such position
or, if challenged, that such a challenge will not be successful. The remainder
of this discussion assumes that the Series A Subordinated Debentures will be
treated as indebtedness of the Corporation for United States federal income tax
purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations, the Series A Subordinated Debentures
will not be considered to have been issued with "original issue discount"
("OID") within the meaning of Section 1273(a) of the Code. Accordingly, except
as set forth below, stated interest on the Series A Subordinated Debentures
generally will be included in income by a Securityholder at the time such
interest income is paid or accrued in accordance with such Securityholder's
regular method of tax accounting.
If, however, the Corporation exercises its right to defer payments of
interest on the Series A Subordinated Debentures, the Series A Subordinated
Debentures will become OID instruments at such time and all Securityholders will
be required to accrue the stated interest on the Series A Subordinated
Debentures on a daily basis during the Extension Period, even though the
Corporation will not pay such interest until the end of the Extension Period,
and even though some Securityholders may use the cash method of tax accounting.
Moreover, thereafter the Series A Subordinated Debentures will be taxed as OID
instruments for as long as they remain outstanding. Thus, even after the end of
the Extension Period, all Securityholders would be required to continue to
include the stated interest on the Series A Subordinated Debentures in income on
a daily economic accrual basis, regardless of their method of tax accounting and
in advance of receipt of the cash attributable to such interest income. Under
the OID economic accrual rules, a Securityholder would accrue an amount of
interest income each year that approximates the stated interest payments called
for under the terms of the Series A Subordinated Debentures, and actual cash
payments of interest on the Series A Subordinated Debentures would not be
reported separately as taxable income. Any amount of OID included in a
Securityholder's gross income (whether or not during an Extension Period) will
increase such Securityholder's tax basis in its Series A Capital Securities, and
the amount of Distributions received by a Securityholder with respect to such
Series A Capital Securities will reduce the tax basis of such Series A Capital
Securities.
The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS
could take a contrary position. If the IRS were to
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assert successfully that the stated interest on the Series A Subordinated
Debentures was OID regardless of whether the Corporation exercises its right to
defer payments of interest on such debentures, all Securityholders would be
required to include such stated interest in income on a daily economic accrual
basis as described above.
Corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Series A
Capital Securities.
DISTRIBUTION OF SERIES A SUBORDINATED DEBENTURES TO HOLDERS OF SERIES A CAPITAL
SECURITIES
Under current law, a distribution by the Issuer of the Series A
Subordinated Debentures as described under the caption "Description of the
Series A Capital Securities -- Redemption or Exchange" will be non-taxable and
will result in the Securityholder receiving directly its pro rata share of the
Series A Subordinated Debentures previously held indirectly through the Issuer,
with a holding period and aggregate tax basis equal to the holding period and
aggregate tax basis such Securityholder had in its Series A Capital Securities
before such distribution. If, however, the liquidation of the Issuer were to
occur because the Issuer is subject to United States federal income tax with
respect to income accrued or received on the Series A Subordinated Debentures as
a result of a Tax Event or otherwise, the distribution of Series A Subordinated
Debentures to Securityholders by the Issuer could be a taxable event to the
Issuer and each Securityholder, and a Securityholder would recognize gain or
loss as if the Securityholder had exchanged its Series A Capital Securities for
the Series A Subordinated Debentures it received upon the liquidation of the
Issuer. A Securityholder will accrue interest in respect of Series A
Subordinated Debentures received from the Issuer in the manner described above
under "-- Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF SERIES A CAPITAL SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Series A
Capital Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized by the Securityholder on the sale or
redemption of the Series A Capital Securities (except to the extent that such
amount realized is characterized as a payment in respect of accrued but unpaid
interest on such Securityholder's allocable share of the Series A Subordinated
Debentures that such Securityholder had not included in income previously) and
the Securityholder's adjusted tax basis in the Series A Capital Securities sold
or redeemed. Such gain or loss generally will be taxable as long-term capital
gain or loss if the Securityholder held the Series A Capital Securities that it
sold or redeemed for more than one year. Capital gains of individuals derived
with respect to capital assets held for more than one year are eligible for
reduced rates of taxation depending upon the holding period of such capital
assets. Securityholders should consult their own tax advisors regarding capital
gains rates applicable to them. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for federal income tax
purposes.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any
Securityholder that is not a United States Person. As discussed above, the
Series A Capital Securities will be treated as evidence of an indirect
beneficial ownership interest in the Series A Subordinated Debentures. See
"-- Classification of the Issuer." Thus, under present United States federal
income tax law, and subject to the discussion below concerning backup
withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Issuer (or the Corporation) or
any paying agent of principal or interest (which for purposes of this
discussion includes any OID) on the Series A Capital Securities (or the
Series A Subordinated Debentures) to a Non-United States Holder, provided
(i) that such Non-United States Holder 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 within the meaning of section 871(h)(3)
of the Code and the regulations thereunder, (ii) such Non-United States
Holder is not a controlled foreign corporation that is related to the
Corporation through stock ownership, (iii) such Non-United States Holder is
not a bank whose
77
<PAGE> 80
receipt of interest on the Series A Subordinated Debentures is described in
section 881(c)(3)(A) of the Code and (iv) such Non-United States Holder
satisfies the statement requirement (described generally below) set forth
in section 871(h) and section 881(c) of the Code and the regulations
thereunder; and
(b) no withholding of United States federal income tax will be
required with respect to any gain realized by a Non-United States Holder
upon the sale or other disposition of the Series A Capital Securities (or
the Series A Subordinated Debentures).
To satisfy the requirement referred to in (a)(iv) above, the Non-United
States Holder, or a financial institution holding the Series A Capital
Securities on behalf of such owner, must provide, in accordance with specified
procedures, to the Issuer or its paying agent, a statement to the effect that
the Non-United States Holder is not a United States Person. Currently, these
requirements will be met if (1) the Non-United States Holder provides his name
and address, and certifies, under penalties of perjury, that it is not a United
States Person (which certification may be made on an IRS Form W-8 (or successor
form)) or (2) a financial institution holding the Series A Capital Securities on
behalf of the Non-United States Holder certifies, under penalties of perjury,
that such statement has been received by it and furnishes the Issuer or the
paying agent with a copy thereof. Under recently finalized Treasury regulations
(the "Final Regulations"), the statement requirement referred to in (a)(iv)
above may also be satisfied with other documentary evidence for interest paid
after December 31, 1999 with respect to an offshore account or through certain
foreign intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of interest made
to such Non-United States Holder will be subject to a 30% United States federal
withholding tax unless the Beneficial Owner provides the Issuer or its paying
agent, as the case may be, with a properly executed (1) IRS Form 1001 (or a
successor form) claiming an exemption from, or a reduction of, such withholding
tax under the benefit of a tax treaty or (2) IRS Form 4224 (or a successor form)
stating that interest paid on the Series A Capital Securities (or the Series A
Subordinated Debentures) is not subject to such withholding tax because it is
effectively connected with the Beneficial Owner's conduct of a trade or business
in the United States. Under the Final Regulations, Non-United States Holders
generally will be required to provide an IRS Form W-8 in lieu of an IRS Form
1001 or an IRS Form 4224, although alternative documentation may be applicable
in certain situations and certain forms and statements in effect on certain
dates during the transition period described in Notice 98-16, I.R.B. 1998-15
(March 27, 1998), may expire and become ineffective, thus requiring the filing
of new replacement certificates or statements.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Series A Capital Securities (or the Series A
Subordinated Debentures) is effectively connected with the conduct of such trade
or business, the Non-United States Holder, although exempt from the withholding
tax discussed above, will be subject to United States federal income tax on such
interest on a net income basis in the same manner as if it were a United States
Person. In addition, if such Non-United States Holder is a foreign corporation,
it may be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits for the taxable year, subject to adjustments. For
this purpose, such interest income would be included in such foreign
corporation's earnings and profits. Under the Final Regulations, Non-United
States Holders will generally be required to provide IRS Form W-8 in lieu of IRS
Form 1001 and IRS Form 4224, although alternative documentation may be
applicable in certain situations and certain forms and statements in effect on
certain dates during the transition period described in Notice 98-16 may expire
and become ineffective, thus requiring the filing of new replacement
certificates or statements.
Any gain realized upon the sale or other disposition of the Series A
Capital Securities (or the Series A Subordinated Debentures) generally will not
be subject to United States federal income tax unless (i) such gain is
effectively connected with a United States trade or business of the Non-United
States Holder, (ii) in the case of a Non-United States Holder who is an
individual, such individual is present in the United States for 183 days or more
in the taxable year of such sale, exchange or retirement, and certain other
conditions are met, or (iii) in the case of any gain representing accrued
interest on the Series A Subordinated Debentures, the "portfolio interest"
requirements described above are not satisfied.
78
<PAGE> 81
HOLDERS SHOULD CONSULT NOTICE 98-16 AND THEIR OWN TAX ADVISORS ABOUT THE
NEW RULES CONCERNING WITHHOLDING ON NON-UNITED STATES HOLDERS AND THE RELATED
TRANSITION RULES.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest, including OID, accrued on the Series A Capital
Securities held of record by United States Persons (other than corporations and
other exempt Securityholders), if any, will be reported to the IRS. "Backup"
withholding at a rate of 31% will apply to payments of interest to non-exempt
United States Persons unless the Securityholder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Series A Capital Securities
to or through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
establishes an exemption from information reporting and backup withholding.
Non-United States Holders are generally exempt from the information and
backup withholding rules but may be required to comply with certain
certification and identification requirements to prove their exemption.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information is
furnished to the IRS.
It is anticipated that income on the Series A Capital Securities will be
reported to holders on Form 1099 and mailed to holders of the Series A Capital
Securities by January 31 following each calendar year.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an investment
in the Series A Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the documents
and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as defined in Section
3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of ERISA) are
not subject to the requirements of ERISA or Section 4975 of the Code; however,
governmental plans may be subject to similar provisions under applicable state
laws.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Issuer would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in the Issuer
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Issuer would not be deemed to be "plan assets" of investing Plans
if, at all times, less than 25% of the value of each class of equity
79
<PAGE> 82
interests in the Issuer were held by Plans, other employee benefit plans not
subject to ERISA or Section 4975 of the Code (such as governmental, church and
foreign plans), and entities holding assets deemed to be "plan assets" of any
Plan (collectively, "Benefit Plan Investors"), or if the Series A Capital
Securities were "publicly-offered securities" for purposes of the Plan Assets
Regulation. No assurance can be given that the Series A Capital Securities held
by Benefit Plan Investors will be less than 25% of the total value of such
Series A Capital Securities at the completion of the Offering or thereafter, and
no monitoring or other measures will be taken with respect to the satisfaction
of the conditions to this exception. In addition, no assurance can be given that
the Series A Capital Securities would be considered to be "publicly-offered
securities" under the Plan Assets Regulation. All of the Series A Common
Securities will be purchased and initially held by the Corporation.
Certain transactions involving the Issuer could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Series A Capital Securities were acquired
with "plan assets" of such Plan and the assets of the Issuer were deemed to be
"plan assets" of Plans investing in the Issuer. For example, if the Corporation
were a Party in Interest with respect to a Plan (either directly or by reason of
its ownership of TeleBank or other subsidiaries), extensions of credit between
the Corporation and the Issuer (as represented by the Series A Subordinated
Debentures and the Series A Guarantee) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive
relief were available under an applicable administrative exemption (see below).
In addition, if the Corporation were considered to be a fiduciary with respect
to the Issuer as a result of certain powers it holds (such as the powers to
remove and replace the Property Trustee and the Administrative Trustees), it is
possible that the optional redemption or acceleration of the Series A
Subordinated Debentures would be considered to be prohibited transactions under
Section 406(b) of ERISA and Section 4975(c)(1)(E) of the Code. IN AN ATTEMPT TO
AVOID SUCH PROHIBITED TRANSACTIONS, EACH INVESTING PLAN, BY PURCHASING SERIES A
CAPITAL SECURITIES, WILL BE DEEMED TO HAVE DIRECTED THE ISSUER TO INVEST IN THE
SERIES A SUBORDINATED DEBENTURES AND TO HAVE APPOINTED THE PROPERTY TRUSTEE.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the Series A Capital
Securities. Those class exemptions are PTCE 96-23 (for certain transactions
determined by in-house asset managers), PTCE 95-60 (for certain transactions
involving insurance company general accounts), PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts), and PTCE 84-14 (for
certain transactions determined by independent qualified asset managers).
Because the Series A Capital Securities may be deemed to be equity
interests in the Issuer for purposes of applying ERISA and Section 4975 of the
Code, the Series A Capital Securities may not be purchased or held by any Plan,
any entity whose underlying assets include "plan assets" by reason of any Plan's
investment in the entity (a "Plan Asset Entity") or any person investing "plan
assets" of any Plan, unless such purchaser or holder is exempt from any
prohibited transactions because of the relief provided under PTCE 96-23, 95-60,
91-38, 90-1 or 84-14 or another applicable exemption. Any purchaser or holder of
the Series A Capital Securities or any interest therein will be deemed to have
represented by its purchase and holding thereof that it either (a) is not a Plan
or a Plan Asset Entity and is not purchasing such securities on behalf of or
with "plan assets" of any Plan or (b) is exempt from any prohibited transactions
because of the relief provided under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or
another applicable exemption with respect to such purchase or holding. If a
purchaser or holder of the Series A Capital Securities that is a Plan or a Plan
Asset Entity elects to rely on an exemption other than PTCE 96-23, 95-60, 91-38,
90-1 or 84-14, the Corporation and the Issuer may require a satisfactory opinion
of counsel or other evidence with respect to the availability of such exemption
for such purchase and holding.
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES THAT MAY BE IMPOSED
UPON PERSONS INVOLVED IN NON-EXEMPT PROHIBITED TRANSACTIONS, IT IS PARTICULARLY
IMPORTANT THAT FIDUCIARIES OR OTHER PERSONS CONSIDERING PURCHASING THE SERIES A
CAPITAL SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN CONSULT WITH
THEIR COUNSEL REGARDING THE POTENTIAL CONSEQUENCES IF THE ASSETS OF THE ISSUER
WERE DEEMED TO BE "PLAN ASSETS" AND THE AVAILABILITY OF EXEMPTIVE RELIEF UNDER
PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANY OTHER APPLICABLE EXEMPTION.
80
<PAGE> 83
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), the Corporation and the Issuer
have agreed that the Issuer will sell to each of the Underwriters named below,
and each of such Underwriters has severally agreed to purchase from the Issuer,
the respective number of Series A Capital Securities set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A CAPITAL SECURITIES
---------------------------
<S> <C>
CIBC Oppenheimer Corp.......................................
Legg Mason Wood Walker, Incorporated........................
BancAmerica Robertson Stephens..............................
---------
Total.................................................. 1,100,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Series A Capital
Securities if any are taken.
The Underwriters propose initially to offer the Series A Capital Securities
in part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession not in excess of $ per Series A Capital
Security. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per Series A Capital Security to certain brokers and
dealers. After the Series A Capital Securities are released for sale to the
public, the initial public offering price and other selling terms may from time
to time be varied by the Underwriters.
In view of the fact that the proceeds from the sale of the Series A Capital
Securities will be used to purchase the Series A Subordinated Debentures issued
by the Corporation, the Underwriting Agreement provides that the Corporation
will pay as Underwriters' compensation for the Underwriters' arranging the
investment in such Series A Subordinated Debentures of such proceeds an amount
of $ per Series A Capital Security for the accounts of the several
Underwriters.
The Corporation and the Issuer have agreed that, during the period
beginning from the date of the Underwriting Agreement and continuing to and
including the earlier of (i) the termination of trading restrictions on the
Series A Capital Securities, as determined by the Underwriters, and (ii) the
closing date, they will not offer, sell, contract to sell or otherwise dispose
of, any other beneficial interests in the assets of the Issuer, or any preferred
securities or any other securities of the Issuer or the Corporation which are
substantially similar to the Series A Capital Securities, including any
guarantee of such securities, or any securities convertible into or exchangeable
for or representing the right to receive preferred securities or any such
substantially similar securities of either the Issuer or the Corporation,
without the prior written consent of the Underwriters, except for the Series A
Capital Securities offered in connection with this Offering.
Prior to the Offering, there has been no public market for the Series A
Capital Securities. Although the Underwriters have indicated to the Corporation
and the Issuer that they intend to make a market in the Series A Capital
Securities, they are not obligated to do so and may discontinue any such
market-making activities at any time without notice. No assurance can be given
as to the liquidity of the trading markets for the Series A Capital Securities.
The Corporation and the Issuer have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
It is expected that delivery of the Series A Capital Securities will be
made against payment therefor on or about , 1998, as agreed upon by the
Corporation, the Issuer and the Underwriters in accordance with Rule 15c6-1
under the Exchange Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment services to the
Corporation and its affiliates, for which such Underwriters or their affiliates
have received or will receive customary fees and commissions.
81
<PAGE> 84
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Series A Capital
Securities. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act, pursuant to
which such persons may bid for or purchase Series A Capital Securities for the
purpose of stabilizing the market price for Series A Capital Securities. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Series A Capital Securities in connection with the
Offering than they are committed to purchase from the Issuer, and in such case
may purchase Series A Capital Securities in the open market following completion
of the Offering to cover all or a portion of the Series A Capital Securities. In
addition, CIBC Oppenheimer Corp., on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters, whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of the other Underwriters, the selling concession with respect to
Series A Capital Securities that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Series A Capital Securities at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Series A
Capital Securities, the enforceability of the Series A Trust Agreement and the
formation of the Issuer will be passed upon by Morris, James, Hitchens &
Williams, special Delaware counsel to the Corporation and the Issuer. The
validity of the Series A Guarantee and the Series A Subordinated Debentures will
be passed upon for the Corporation by Shaw Pittman Potts & Trowbridge and for
the Underwriters by Simpson Thacher & Bartlett. Shaw Pittman Potts & Trowbridge
and Simpson Thacher & Bartlett will rely on the opinion of Morris, James,
Hitchens & Williams as to certain matters of Delaware law. Shaw Pittman Potts &
Trowbridge will rely on the opinion of Simpson Thacher & Bartlett as to matters
of New York law. Certain matters relating to United States federal income tax
considerations described in this Prospectus will be passed upon for the
Corporation by Shaw Pittman Potts & Trowbridge.
EXPERTS
The Consolidated Financial Statements of the Corporation as of December 31,
1996 and 1997 and for each of the three years in the period ending December 31,
1997 included in this Prospectus and Registration Statement to the extent
indicated in their report have been audited by Arthur Andersen LLP, independent
certified public accountants, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
82
<PAGE> 85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Financial Condition -- As of
December 31, 1996 and 1997................................ F-3
Consolidated Statements of Operations -- For the Years Ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Changes in Stockholders'
Equity -- For the Years Ended December 31, 1995, 1996 and
1997...................................................... F-5
Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of TeleBanc Financial Corporation and Subsidiaries
We have audited the accompanying consolidated statements of financial
condition of TeleBanc Financial Corporation (a Delaware Corporation) and
Subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years ended December 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TeleBanc Financial
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Vienna, VA
June 22, 1998
F-2
<PAGE> 87
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 3,259 $ 92,156
Trading securities.......................................... -- 21,110
Investment securities available-for-sale.................... 78,826 91,237
Mortgage-backed securities available-for-sale............... 184,743 319,203
Loans receivable held for sale.............................. 166,064 149,086
Loans receivable, net....................................... 185,757 391,618
Other assets................................................ 29,316 35,942
-------- ----------
Total assets........................................... $647,965 $1,100,352
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................... $390,486 $ 522,221
Advances from the Federal Home Loan Bank of Atlanta......... 144,800 200,000
Securities sold under agreements to repurchase.............. 57,581 279,909
Subordinated debt, net...................................... 16,586 29,614
Other liabilities........................................... 13,854 13,212
-------- ----------
Total liabilities...................................... 623,307 1,044,956
Corporation--Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Corporation................ -- 9,572
Commitments and contingencies............................... -- --
Stockholders' equity:
4% Cumulative Preferred Stock, $0.01 par value, 500,000
shares authorized
Series A, 18,850 issued and outstanding................ -- 9,634
Series B, 4,050 issued and outstanding................. -- 2,070
Series C, 7,000 issued and outstanding................. -- 3,577
Common stock, $0.01 par value, 29,500,000 shares authorized;
4,099,000 and 4,458,322 issued and outstanding at December
31, 1996 and 1997 40 44
Additional paid-in capital.................................. 14,617 16,185
Retained earnings........................................... 7,905 11,576
Unrealized gain on securities available-for-sale, net of
tax....................................................... 2,096 2,738
-------- ----------
Total stockholders' equity............................. 24,658 45,824
-------- ----------
Total liabilities and stockholders' equity............. $647,965 $1,100,352
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 88
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Interest income:
Loans.................................................. $17,726 $23,089 $34,729
Mortgage-backed and related securities................. 20,205 17,955 17,646
Investment securities.................................. 2,347 4,690 5,702
Trading securities..................................... -- -- 1,124
Other.................................................. 233 66 100
------- ------- -------
Total interest income............................. 40,511 45,800 59,301
Interest expense:
Deposits............................................... 17,033 21,357 25,958
Advances from the Federal Home Loan Bank of Atlanta.... 5,985 6,689 9,885
Repurchase agreements.................................. 6,839 4,569 6,941
Subordinated debt...................................... 2,089 2,200 3,279
------- ------- -------
Total interest expense............................ 31,946 34,815 46,063
------- ------- -------
Net interest income............................... 8,565 10,985 13,238
Provision for loan losses.............................. 1,722 919 921
------- ------- -------
Net interest income after provision for loan
losses.......................................... 6,843 10,066 12,317
------- ------- -------
Non-interest income:
Gain on sale of available-for-sale securities.......... 3,412 935 982
Gain on sale of loans.................................. 232 874 1,148
Gain on trading securities............................. -- -- 1,204
Fees, service charges, and other....................... 133 947 759
------- ------- -------
Total non-interest income......................... 3,777 2,756 4,093
Non-interest expenses:
General and administrative expenses:
Compensation and employee benefits................ 3,030 3,690 4,909
SAIF assessment................................... -- 1,671 --
Other............................................. 2,531 3,014 4,133
------- ------- -------
Total general and administrative expenses......... 5,561 8,375 9,042
Other non-interest expenses:
Net operating cost of real estate acquired through
foreclosure.......................................... 430 238 278
Amortization of goodwill and other intangibles......... 249 462 822
------- ------- -------
Total other non-interest expenses...................... 679 700 1,100
------- ------- -------
Total non-interest expenses............................ 6,240 9,075 10,142
------- ------- -------
Income before income tax expense and minority
interest........................................ 4,380 3,747 6,268
Income tax expense................................ 1,660 1,195 1,657
Minority interest in subsidiary................... -- -- 394
------- ------- -------
Net income........................................ 2,720 2,552 4,217
Preferred stock dividends......................... -- -- 546
------- ------- -------
Net income available to common stockholders....... $ 2,720 $ 2,552 $ 3,671
======= ======= =======
Earnings per share:
Basic.................................................. $ 0.66 $ 0.62 $ 0.84
Diluted................................................ $ 0.66 $ 0.58 $ 0.57
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 89
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
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, 1994..... $ -- $40 $14,617 $ 2,633 $ (262) $17,028
Net income........................ -- -- -- 2,720 -- 2,720
Unrealized gain on
available-for-sale securities,
net of tax effect............... -- -- -- -- 1,817 1,817
------- --- ------- ------- ------ -------
Balances at December 31, 1995..... -- 40 14,617 5,353 1,555 21,565
Net income........................ -- -- -- 2,552 -- 2,552
Unrealized gain on
available-for-sale securities,
net of tax effect............... -- -- -- -- 541 541
------- --- ------- ------- ------ -------
Balances at December 31, 1996..... -- 40 14,617 7,905 2,096 24,658
Net income........................ -- -- -- 4,217 -- 4,217
Common stock issued............... -- 4 1,568 -- -- 1,572
Issuance of 4% cumulative
preferred stock, Series A....... 9,634 -- -- -- -- 9,634
Issuance of 4% cumulative
preferred stock, Series B....... 2,070 -- -- -- -- 2,070
Issuance of 4% cumulative
preferred stock, Series C....... 3,577 -- -- -- -- 3,577
Dividends on 4% cumulative
preferred stock................. -- -- -- (546) -- (546)
Unrealized gain on
available-for-sale securities,
net of tax effect............... -- -- -- -- 642 642
------- --- ------- ------- ------ -------
Balances at December 31, 1997..... $15,281 $44 $16,185 $11,576 $2,738 $45,824
======= === ======= ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 90
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 2,720 $ 2,552 $ 4,217
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Minority interest....................................... -- -- 394
Equity in losses of subsidiaries........................ -- 274 1,129
Depreciation, amortization and discount accretion....... (2,153) (1,516) (1,038)
Provision for loan losses............................... 1,722 919 921
Provision for losses on foreclosed real estate.......... 213 78 19
Other gains and losses, net............................. (153) (1,011) (1,624)
Deferred income tax provision........................... (559) (224) (445)
Proceeds from sales of loans held-for-sale.............. -- 27,865 60,145
Purchases of loans held-for-sale........................ -- (91,943) (72,804)
Net realized gains on available-for-sale securities,
loans held-for-sale and trading....................... (3,412) (935) (2,613)
Purchases of trading assets............................. -- -- (100,630)
Proceeds from sale of trading assets.................... -- -- 80,990
Increase in accrued interest receivable................. (4,954) (2,220) (1,492)
Increase in accrued expenses and other liabilities...... 2,693 3,730 345
Increase in other assets................................ (80) (2,433) (3,373)
Interest credited to deposits........................... 17,033 21,361 25,958
--------- --------- ---------
Net cash (used in) provided by operating activities......... 13,070 (43,503) (9,901)
--------- --------- ---------
Cash flows from investing activities:
Net increase in loans................................... (98,439) (90,717) (269,036)
Equity investments in subsidiaries...................... -- (2,359) (1,736)
Purchases of available-for-sale securities.............. (122,785) (356,882) (395,675)
Proceeds from sale of available-for-sale securities..... 71,084 220,293 144,718
Proceeds from maturities of and principal payments on
available-for-sale securities......................... 39,646 201,547 197,036
Net sales (purchases) of premises and equipment......... (537) (842) 110
Proceeds from sale of foreclosed real estate............ -- 1,156 1,563
--------- --------- ---------
Net cash used in investing activities....................... (111,031) (27,804) (323,020)
--------- --------- ---------
Cash flows from financing activities:
Net increase in non-interest bearing demand, savings and
NOW deposit accounts.................................. 77,056 62,625 105,777
Increase in advances from FHLB.......................... 59,000 273,500 322,000
Payments on advances from FHLB.......................... (49,500) (234,200) (266,800)
Net increase (decrease) in securities sold under
agreements to repurchase.............................. 14,292 (36,324) 222,328
Net increase in other borrowed funds.................... -- -- 13,028
Issuance of trust preferred stock, net.................. -- -- 9,572
Increase in common stock and additional
paid-in-capital....................................... -- -- 16,853
Interest paid to minority interest in subsidiary........ -- -- (394)
Dividends paid on common and preferred stock............ -- -- (546)
--------- --------- ---------
Net cash provided by financing activities................... 100,848 65,601 421,818
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 2,887 (5,706) 88,897
Cash and cash equivalents at beginning of period............ 6,078 8,965 3,259
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 8,965 $ 3,259 $ 92,156
========= ========= =========
Supplemental information:
Interest paid on deposits and borrowed funds................ $ 29,852 $ 32,660 $ 45,440
Income taxes paid........................................... 950 972 2,473
Gross unrealized gain (loss) on marketable securities
available-for-sale........................................ 2,926 795 873
Tax effect of gain (loss) on available-for-sale
securities................................................ 1,109 254 231
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
TeleBanc Financial Corporation ("TeleBanc" or the "Corporation") is a
savings and loan holding company organized under the laws of Delaware in 1994.
The primary business of the Corporation is the activities conducted by TeleBank
(the "Bank"), formerly known as Metropolitan Bank for Savings, F.S.B., TeleBanc
Capital Markets, Inc. ("TCM"), formerly known as Arbor Capital Partners, Inc.
("Arbor"), and TeleBanc Capital Trust I ("TCT"). The Bank is a federally
chartered savings bank, which provides deposit accounts insured by the Federal
Deposit Insurance Corporation ("FDIC") to customers nationwide. TCM is a
registered investment advisor, funds manager, and broker-dealer. TCT is a
business trust formed for the purpose of issuing capital securities and
investing the proceeds in junior subordinated debentures issued by the
Corporation.
The Bank, through its wholly-owned subsidiary TeleBanc Servicing
Corporation ("TSC"), funded 50% of the capital commitment for two new entities,
AGT Mortgage Services, LLC ("AGT") and AGT PRA, LLC ("AGT PRA"). AGT services
performing loans and administers workouts for troubled or defaulted loans for a
fee. Management ceased operation of AGT on July 31, 1997. 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. The net equity investment in AGT PRA at December 31, 1997 is $2.1
million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
TeleBank, TCM, TCT, and TSC, a wholly owned subsidiary of the Bank. All
significant intercompany transactions and balances are eliminated in
consolidation. The investment in AGT PRA is accounted for under the equity
method.
STOCK DIVIDEND
On June 22, 1998, the Corporation's shareholders approved the distribution
of a 100% stock dividend on its outstanding Common Stock. The effect of the
stock dividend has been retroactively applied in the Consolidated Financial
Statements for all periods presented.
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, trading
securities, and the valuation of real estate acquired in connection with
foreclosures and mortgage servicing rights.
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.
F-7
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Corporation generally classifies its debt and marketable equity
securities in one of three categories: held-to-maturity, trading, or
available-for-sale. In December 1995, the Corporation reclassified the existing
held-to-maturity investment and mortgage-backed securities portfolios as
available-for-sale.
Trading securities are bought and held principally for the purpose of
selling 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 Corporation had $21.1 million classified as
trading securities at December 31, 1997. No securities were classified as
trading securities at December 31, 1996. For the period ending December 31,
1997, the Corporation recognized $564,000 in realized gains from the sale of
trading assets and $640,000 in unrealized appreciation of trading assets. 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 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. 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 Corporation and intended for sale in the
secondary market are carried at lower of cost or estimated market value in the
aggregate. The market value of these mortgage loans is determined by obtaining
market quotes for loans with similar characteristics.
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 Corporation'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 ASSETS
Nonperforming assets consist of loans for which interest is no longer being
accrued, loans which have been restructured in order to increase the 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
F-8
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on nonaccrual loans is recognized as interest income or applied to principal
when it is doubtful that full payment will be collected.
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
recognized as part of the loss or gain upon sale and not amortized or accreted,
respectively.
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 income 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
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 Corporation in the management
of its interest-rate risk. The Corporation 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.
In order to be eligible for hedge accounting treatment, high correlation must be
probable at the inception of the hedge and must be maintained throughout the
hedge period. Once high correlation ceases, any gain or loss on the hedge, up to
the time high correlation ceased, should be recognized to the extent the results
of the hedging instrument were not offset by the effects of interest rate
changes on the hedged item. Upon the sale or disposition of the hedged item, the
hedging instrument should be marked-to-market with changes recorded in the
income statement.
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.
F-9
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
Other assets include purchased loan servicing rights, premiums paid on
interest rate caps, and prepaid assets. The Bank services the loans underlying
these servicing rights. The cost of the loan servicing rights is amortized in
proportion to, and over the period of, the estimated net servicing income. For
the period ending December 31, 1997, amortization expense of loan servicing
rights was $547,000. 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, 1997,
the amortized cost and fair value of the loan servicing rights were $3.3 million
and $3.4 million, respectively. No valuation allowance was recognized at
December 31, 1997.
Effective January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standards No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities ("SFAS 125"), as amended by
Statement of Financial Accounting Standards No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125--An Amendment of FASB
Statement No. 125 ("SFAS 127"). The implementation of SFAS 125 did not have a
material impact on the company's final position.
COMMITMENTS AND CONTINGENT LIABILITIES
In managing the Corporation's interest-rate risk, the Corporation 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 Corporation and can effectively alter the interest sensitivity of segments
of the balance sheet for specified periods of time.
The Corporation 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 interest rate 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.
RECLASSIFICATIONS
Certain reclassifications of the 1995 and 1996 financial statements have
been made to conform to the 1997 presentation.
3. CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-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
F-10
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets. Management believes, as of December 31, 1997, that the Bank meets all
capital adequacy requirements to which it is subject. As of December 31, 1996
and 1997, 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:
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES: ACTION PROVISIONS:
---------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ -------- ------ -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Core Capital (to adjusted tangible
assets)........................ $31,726 5.08% .$24,999 .4.0% .$31,248 .5.0%
Tangible Capital (to tangible
assets)........................ $31,711 5.07% .$ 9,374 .1.5% N/A N/A
Tier I Capital (to risk weighted
assets)........................ $31,726 9.69% N/A N/A .$19,654 .6.0%
Total Capital (to risk weighted
assets)........................ $34,104 10.41% .$26,205 .8.0% .$32,756 .10.0%
As of December 31, 1997:
Core Capital (to adjusted tangible
assets)........................ $52,617 5.06% .$41,606 .4.0% .$52,008 .5.0%
Tangible Capital (to tangible
assets)........................ $52,608 5.06% .$15,602 .1.5% N/A N/A
Tier I Capital (to risk weighted
assets)........................ $52,617 11.25% N/A N/A .$28,057 .6.0%
Total Capital (to risk weighted
assets)........................ $55,701 11.91% .$37,409 .8.0% .$46,761 .10.0%
</TABLE>
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.
F-11
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT SECURITIES
The cost basis and estimated fair values of investment securities
available-for-sale at December 31, 1996 and 1997, by contractual maturity, are
shown below:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUES
--------- ---------- ---------- -----------
(IN THOUSANDS)
<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
======= ====== ==== =======
1997:
Due within one year:
Agency notes........................... $ 539 $ -- $ -- $ 539
Other investments...................... 323 1 -- 324
Due within one to five years:
Municipal bonds........................ 565 12 -- 577
Other investments...................... 25,038 16 -- 25,054
Certificate of deposit................. 499 -- -- 499
Due within five to ten years:
Corporate debt......................... 7,433 242 -- 7,675
Municipal bonds........................ 3,562 130 -- 3,692
Other investments...................... 175 -- -- 175
Due after ten years:
Agency notes........................... 21,608 398 (40) 21,966
Equities............................... 15,038 436 (50) 15,424
Corporate debt......................... 11,103 797 -- 11,900
Municipal bonds........................ 3,200 212 -- 3,412
------- ------ ---- -------
$89,083 $2,244 $(90) $91,237
======= ====== ==== =======
</TABLE>
The proceeds from sale and 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. The proceeds from sale and 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 and gross realized gains and losses on investment securities
available-for-sale that were sold in 1997 were $25.9 million, $423,000, and
$34,000, respectively.
F-12
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Corporation 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
Corporation'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 1997, by contractual maturity, are shown as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUES
--------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
======== ====== ======= ========
1997:
Due within one year:
Agencies............................... $ 939 $ -- $ -- $ 939
Due within one to five years:
Agencies............................... 627 2 (6) 623
Private issuer......................... 2,643 -- (22) 2,621
Due within five to ten years:
Private issuer......................... 5,982 39 -- 6,021
Due after ten years:
Agencies............................... 23,907 124 (27) 24,004
Private Issuer......................... 143,889 2,971 (1,443) 145,417
Collateralized mortgage obligations.... 139,663 536 (621) 139,578
-------- ------ ------- --------
$317,650 $3,672 $(2,119) $319,203
======== ====== ======= ========
</TABLE>
The Corporation pledged $61.4 million and $104.1 million of private issuer
mortgage-backed securities as collateral for repurchase agreements at December
31, 1996 and 1997, respectively. The proceeds from sale and 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.
The proceeds from sale and 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. The proceeds from sale and gross realized gains and losses
on mortgage-backed securities available-for-sale that were sold in 1997 were
$112.4 million, $845,000 and $253,000, respectively.
F-13
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LOANS RECEIVABLE
Loans receivable at December 31, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans (principally conventional):
Secured by one-to-four family residences.............. $359,563 $547,734
Secured by commercial real estate..................... 4,017 3,009
Secured by mixed-use property......................... 1,180 856
Secured by five or more dwelling units................ 1,516 1,447
Secured by land....................................... 781 378
-------- --------
367,057 553,424
Less:
Net deferred loan origination fees.................... (42) (34)
Unamortized discounts, net............................ (13,750) (9,938)
-------- --------
Total first mortgage loans................................. 353,265 543,452
Other loans:
Home equity and second mortgage loans................. 1,208 541
Other................................................. 305 305
-------- --------
354,778 544,298
Less: allowance for loan losses............................ (2,957) (3,594)
-------- --------
Net loans receivable............................. $351,821 $540,704
======== ========
</TABLE>
The mortgage loans are located primarily in California, New York, and
Virginia according to the following percentages 15.1%, 13.3%, and 7.4%,
respectively. As of December 31, 1997, the mortgage loan portfolio consisted of
variable rate loans of $335.2 million, or 62%, and fixed rate loans of $205.5
million, or 38%. The weighted average maturity of mortgage loans secured by one
to four family residences is 266 months as of December 31, 1997.
The unpaid principal balance of mortgage loans owned by the Corporation but
serviced by other companies was $203.9 million and $301.5 million at December
31, 1996 and 1997, respectively.
Loans past due 90 days or more, and therefore on non-accrual status at
December 31, 1996 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
First mortgage loans:
Secured by one-to-four family residences............... $ 8,979 $10,802
Secured by commercial real estate...................... 1,217 635
Home equity and second mortgage loans....................... 54 --
------- -------
Total............................................. $10,250 $11,437
======= =======
</TABLE>
The interest accrual balance for each loan that enters non-accrual is
reversed from income. If all nonperforming loans had been performing during
1995, 1996, and 1997, the Bank would have recorded $365,000, $789,000 and
$739,000, respectively, in additional interest income. There were no commitments
to lend additional funds to these borrowers as of December 31, 1996 and 1997.
F-14
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the allowance for loan losses for the years ended December 31,
1995, 1996 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of the year.................... $ 989 $2,311 $2,957
Provision for loan losses......................... 1,722 919 921
Charge-offs, net.................................. (400) (273) (284)
------ ------ ------
Balance, end of year.............................. $2,311 $2,957 $3,594
====== ====== ======
</TABLE>
According to Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan, ("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 Corporation 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 1997:
<TABLE>
<CAPTION>
AMOUNT OF
TOTAL RECORDED
RECORDED INVESTMENT
INVESTMENT IN AMOUNT OF NET OF
IMPAIRED SPECIFIC SPECIFIC
DESCRIPTION OF LOANS LOANS RESERVES RESERVES
-------------------- ------------- --------- ----------
(IN THOUSANDS)
<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 -- 184
------- ------ ------
Total...................................... $ 435 $ 8 $ 427
======= ====== ======
1997:
Impaired loans:
Commercial real estate.......................... $ 635 $ 248 $ 387
One-to-four family.............................. 10,802 1,760 9,042
------- ------ ------
Total...................................... $11,437 $2,008 $9,429
======= ====== ======
Restructured loans:
Commercial real estate.......................... $ 248 $ -- $ 248
One-to-four family.............................. 177 -- 177
------- ------ ------
Total...................................... $ 425 $ -- $ 425
======= ====== ======
</TABLE>
The average recorded investment in impaired loans, with identified losses,
as of December 31, 1995, 1996 and 1997 was $2.0 million, $2.2 million and $2.3
million, respectively. The related amount of interest income the Corporation
would recognize as additional interest income for the years ended December 31,
1995, 1996
F-15
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1997 was $365,000, $789,000, and $739,000, respectively. The Corporation'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 Corporation's method for non-accrual loans,
interest received on impaired loans is recognized as interest income or applied
to principal when it is doubtful that full payment will be collected.
7. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure at December 31, 1996 and December
31, 1997 was $1.2 million and $681,000, respectively. Activity in the allowance
for real estate losses for the years ended December 31, 1995, 1996, and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.................................. $ 92 $ 213 $ 65
Provision for real estate losses............................ 256 77 19
Charge-offs................................................. (135) (225) (84)
----- ----- ----
Balance, end of year........................................ $ 213 $ 65 $ --
===== ===== ====
</TABLE>
8. LOANS SERVICED FOR OTHERS
Mortgage loans serviced by the Bank for others are not included in the
accompanying consolidated statements of financial condition because the related
loans are not owned by the Corporation or any of its subsidiaries. The unpaid
principal balances of these loans at December 31, 1996 and 1997 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgage loans underlying pass-through securities:
Federal Home Loan Mortgage Corporation................. $ 2,843 $ 2,140
Federal National Mortgage Association.................. 11,548 28,417
------- -------
Subtotal............................................... $14,391 $30,557
Mortgage loan portfolio serviced for:
Other investors........................................ 31,465 27,125
------- -------
Total............................................. $45,856 $57,682
======= =======
</TABLE>
Custodial escrow balances held in connection with the foregoing loans
serviced were approximately $84,000 and $120,000 at December 31, 1996 and 1997,
respectively.
Included in other assets is purchased mortgage servicing rights of $2.8
million and $3.3 million as of December 31, 1996 and 1997, respectively.
9. DEPOSITS
The Bank initiates deposits directly with customers through contact on the
phone, the mail, and walk-in 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 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
F-16
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deposit liabilities assumed, plus the amount of the deposit liabilities (less
certain renewals) multiplied by 0.25 percent. Deposits at December 31, 1996 and
1997 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RATE AT
DECEMBER 31, AMOUNT PERCENT
------------- ------------------- -------------
1996 1997 1996 1997 1996 1997
----- ----- -------- -------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts, non
interest-bearing.................... --% --% $ 309 $ 761 --% 0.2%
Money market.......................... 5.10 5.26 109,835 122,185 28.1 23.4
Passbook savings...................... 3.00 3.00 1,758 665 0.5 0.1
Certificates of deposit............... 6.28 6.24 278,584 398,610 71.4 76.3
---- ---- -------- -------- ----- -----
Total....................... $390,486 $522,221 100.0% 100.0%
======== ======== ===== =====
</TABLE>
Certificates of deposit and money market accounts, classified by rates as
of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT 1996 1997
------ -------- --------
(IN THOUSANDS)
<S> <C> <C>
0- 1.99%................................................... $ 5,235 $ 5
2- 3.99%................................................... 148 --
4- 5.99%................................................... 210,481 231,048
6- 7.99%................................................... 170,056 289,046
8- 9.99%................................................... 1,709 696
10-11.99%................................................... 790 --
-------- --------
Total............................................. $388,419 $520,795
======== ========
</TABLE>
At December 31, 1997, scheduled maturities of certificates of deposit and
money market accounts are as follows:
<TABLE>
<CAPTION>
LESS THAN 1-2 2-3 3-4 4-5 5+
ONE YEAR YEARS YEARS YEARS YEARS YEARS TOTAL
--------- -------- ------- ------- ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
0- 1.99%............ $ 5 $ -- $ -- $ -- $ -- $ -- $ 5
2- 3.99%............ -- -- -- -- -- -- --
4- 5.99%............ 209,547 17,708 2,217 1,126 362 88 231,048
6- 7.99%............ 37,687 124,905 97,079 13,550 9,849 5,976 289,046
8- 9.99%............ 578 -- 82 -- 36 -- 696
10-11.99%............ -- -- -- -- -- -- --
-------- -------- ------- ------- ------- ------ --------
$247,817 $142,613 $99,378 $14,676 $10,247 $6,064 $520,795
======== ======== ======= ======= ======= ====== ========
</TABLE>
The aggregate amount of certificates of deposit with denominations greater
than or equal to $100,000 was $45.1 million and $47.5 million at December 31,
1996 and 1997, respectively.
F-17
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense on deposits for the years ended December 31, 1995, 1996,
and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Money market............................................. $ 2,036 $ 4,740 $ 6,353
Passbook savings......................................... 78 59 27
Certificates of deposit.................................. 14,919 16,558 19,578
------- ------- -------
Total.......................................... $17,033 $21,357 $25,958
======= ======= =======
</TABLE>
Accrued interest payable on deposits at December 31, 1996 and 1997 was
$667,000 and $728,000, respectively.
10. ADVANCES FROM THE FHLB OF ATLANTA
Advances to the Bank from the FHLB of Atlanta at December 31, 1996 and 1997
were as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
1996 RATE 1997 RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1996.......................................... $ -- 5.52% $ -- --%
1997.......................................... 64,800 5.56 -- --
1998.......................................... 41,000 5.53 71,000 5.61
1999.......................................... 39,000 5.60 129,000 5.69
-------- ---- -------- ----
Total............................... $144,800 5.56% $200,000 5.66%
======== ==== ======== ====
</TABLE>
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 1997, 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 1997,
the Corporation 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 $259.9 million at December
31, 1996 and 1997, respectively.
The Corporation 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.
F-18
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning borrowings under fixed and variable rate coupon
repurchase agreements is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Weighted average balance during the year.................... $68,920 $117,431
Weighted average interest rate during the year.............. 5.77% 5.76%
Maximum month-end balance during the year................... $97,416 $279,909
Balance at year-end......................................... $57,581 $279,909
Private issuer mortgage-backed securities underlying the
agreements as of the end of the year:
Carrying value, including accrued interest............. $61,418 $295,556
Estimated market value................................. $61,426 $295,500
</TABLE>
The securities sold under the repurchase agreements at December 31, 1997
are due in less than one year. The Corporation enters into sales of securities
under agreements to repurchase the same securities. Repurchase agreements are
collateralized by fixed and variable rate mortgage-backed securities or
investment grade securities. 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 repurchase agreements. If the counterparty in a
repurchase agreement was to fail, the Corporation may incur an accounting loss
for the excess collateral posted with the counterparty. As of December 31, 1997,
Lehman Brothers Inc. represents the only counterparty with which the
Corporation's amount at risk exceeded 10% of the Corporation's stockholders'
equity. The amount of risk at December 31, 1997 with Lehman Brothers Inc. was
$5.1 million with a weighted average maturity of 47 days.
12. SUBORDINATED DEBT
In May and June 1994, the Corporation 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 40 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 Corporation 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 Corporation under certain circumstances to incur
additional indebtedness, limits cash dividends and other capital distributions
by the Corporation, requires the maintenance of a reserve equal to 100% of the
Corporation's annual interest expense on all indebtedness, restricts disposition
of the Bank or its assets, and limits transactions with affiliates. The annual
interest expense to service the subordinated debt is $2.0 million.
The total value of the 690,000 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 $3.828.
On February 28, 1997, the Corporation sold $29.9 million of units in the
form of 4% convertible preferred stock and 9.5% senior subordinated notes and
warrants to investment partnerships managed by Conning & Co., CIBC Wood Gundy
Argosy Merchant Fund 2, LLC, General American Life Insurance Corporation, PC
Investment Company, and The Northwestern Mutual Life Insurance Corporation. Upon
F-19
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the sale of the units, representatives from the Conning partnerships and the
CIBC Merchant Fund were appointed to the Corporation's Board. The units consist
of $13.7 million in 9.5% senior subordinated notes with 396,176 detachable
warrants, $16.2 million in 4.0% convertible preferred stock, and rights to
411,126 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 $4.75 with an
expiration date of February 28, 2005. The preferred stock consists of Series A
Voting Convertible Preferred Stock, Series B Nonvoting Convertible Preferred
Stock, and Series C Nonvoting Convertible Preferred Stock and is convertible to
2,399,486 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
aforementioned preferred stock has no liquidation preferences. The contingent
warrants may be exercised upon a change of control or at any time after February
19, 2002 ("Exercise Event"). If the Corporation'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
reached. The annual interest expense to service the senior subordinated notes is
$1.3 million and the annual dividend requirement on the preferred stock is
$648,000.
In June 1997, the Corporation 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 Corporation. The trust preferred securities mature in 2027 and
have an annual dividend rate of 11.0%, or $1.1 million, payable semi-annually,
beginning in December 1997. The net proceeds will be used, for general corporate
purposes, including to fund Bank operations and the creation and expansion of
its financial service and product operations.
13. EARNINGS PER 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.
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. Diluted earnings per
common share for the years ended December 31, 1995, 1996, and 1997 were
determined on the assumptions that the dilutive options and warrants were
exercised upon issuance. The options and warrants are deemed to be dilutive if
(a) the average market price of the related common stock for a period exceeds
the exercise price or (b) the security to be tendered is selling at a price
below that at which it may be tendered under the option or warrant agreement and
the resulting discount is sufficient to establish an effective exercise price
below the market price of the common stock obtainable upon exercise. The
Corporation's year to date weighted average number of common shares outstanding
was 4,099,000 at December 31, 1995 and 1996 and 4,382,910 at December 31, 1997.
For diluted earnings per share computation, weighted average shares outstanding
also include potentially dilutive securities.
F-20
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPS CALCULATION
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
FOR THE YEAR ENDED DECEMBER
31, 1995
---------------------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Basic earnings per share
Net income.................................................. $2,720 4,099 $0.66
=====
Options issued to management................................ -- 5
------ -----
Diluted earnings per share.................................. $2,720 4,104 $0.66
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
---------------------------
<S> <C> <C> <C>
Basic earnings per share
Net income.................................................. $2,552 4,099 $0.62
=====
Options issued to management................................ -- 182
Warrants.................................................... -- 125
------ -----
Diluted earnings per share.................................. $2,552 4,406 $0.58
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
---------------------------
<S> <C> <C> <C>
Net income.................................................. $4,217
Less: preferred stock dividends............................. (546)
------
Basic earnings per share
Income available to common shareholders..................... $3,671 4,383 $0.84
=====
Options issued to management................................ -- 510
Warrants.................................................... -- 501
Convertible preferred stock................................. 546 2,017
------ -----
Diluted earnings per share.................................. $4,217 7,411 $0.57
====== ===== =====
</TABLE>
14. INCOME TAXES
Income tax expense for the years ended December 31, 1995, 1996, and 1997 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current: Federal........................................... $2,038 $1,194 $1,881
State............................................. 181 225 221
------ ------ ------
2,219 1,419 2,102
Deferred: Federal........................................... (474) (78) (398)
State............................................. (85) (146) (47)
------ ------ ------
(559) (224) (445)
Total: Federal........................................... 1,564 1,116 1,483
State............................................. 96 79 174
------ ------ ------
$1,660 $1,195 $1,657
====== ====== ======
</TABLE>
F-21
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory Federal income tax rate to the
Corporation's effective income tax rate for the years ended December 31, 1995,
1996, and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
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................................................... (7.0) (3.6) (5.8)
Other....................................................... 6.7 (2.7) (6.0)
---- ---- ----
37.9% 31.9% 26.4%
==== ==== ====
</TABLE>
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 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Acquired Loan Servicing Rights......................... $ (12) $ --
Purchase Accounting Premium............................ (40) (75)
Depreciation........................................... (17) (44)
Tax Reserve in Excess of Base Year..................... (93) (134)
Tax Effect of Securities Available-for-sale Adjustment
to Fair Value (notes 4 and 5)......................... (1,030) (722)
FHLB Stock Dividends................................... (168) (129)
Other.................................................. (52) (89)
------- -------
Total............................................. (1,412) (1,193)
Deferred Tax Assets:
General Reserves & Real Estate Owned Losses............ 819 1,293
Other.................................................. 20 80
------- -------
Total............................................. 839 1,373
------- -------
Net Deferred Tax Asset (Liability).......................... $ (573) $ 180
======= =======
</TABLE>
The Corporation has a tax bad debt base year reserve of $264,000 for which
income taxes have not been provided. Certain distributions or transactions may
cause the Bank to recapture its tax bad debt base year reserve, resulting in
taxes of $100,000. 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.
15. FINANCIAL INSTRUMENTS
The Corporation is party to a variety of interest rate caps and swaps to
manage interest rate exposure. In general, the Corporation 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.
F-22
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest rate exchange agreements for the years ended December 31, 1996 and
1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Weighted average fixed rate payments........................ 5.97% 6.15%
Weighted average original term.............................. 5.0 yrs 4.6 yrs
Weighted average variable rate obligation................... 5.62% 5.81%
Notional amount............................................. $130,000 $205,000
</TABLE>
The Corporation enters into interest rate cap agreements to hedge
outstanding FHLB advances and repurchase agreements. Under the terms of the
interest rate cap agreements, the Corporation 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):
<TABLE>
<CAPTION>
EFFECTIVE NOTIONAL MATURITY
CAP STRIKE RATE DATE BALANCE DATE
--------------- ------------- -------- -------------
<S> <C> <C> <C>
4%........................................ July 1992 $10,000 July 1999
6%........................................ October 1996 $20,000 October 1999
7%........................................ January 1997 $10,000 January 2002
7%........................................ January 1995 $10,000 July 1998
7.5%....................................... July 1997 $25,000 July 1999
8%........................................ July 1997 $25,000 July 2000
8%........................................ June 1997 $25,000 June 2000
9%........................................ December 1994 $14,000 December 1998
10%....................................... April 1995 $10,000 January 2002
</TABLE>
The counterparties to the interest rate cap agreements are Goldman Sachs,
Lehman Brothers, Merrill Lynch, NationsBank, Nomura, Salomon Brothers, and UBS.
As of December 31, 1997, the associated credit risk with the aforementioned
counterparties are $332,000, $104,000, $117,000, $66,000, $30,000, $132,000, and
$605,000, respectively. The credit risk is attributable to the unamortized cap
premium and any amounts due from the counterparty as of December 31,1997. The
total amortization expense for premiums on interest rate caps was $213,000,
$638,000, and $777,000 for the years ended December 31, 1995, 1996, and 1997,
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 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.
F-23
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
SUBORDINATED 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 Corporation to terminate the agreement as
determined from market quotes.
The fair value of financial instruments as of December 31, 1996 and 1997 is
as follows:
<TABLE>
<CAPTION>
1996 1996 1997 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents...................... $ 3,259 $ 3,259 $ 92,156 $ 92,156
Investment securities available-for-sale....... 78,826 78,826 91,237 91,237
Mortgage-backed securities
available-for-sale........................... 184,743 184,743 319,203 319,203
Loans receivable............................... 351,821 365,401 540,704 562,270
Trading........................................ -- -- 21,110 21,110
Liabilities:
Deposits....................................... $390,486 $393,820 $522,221 $524,022
Advances from the FHLB Atlanta................. 144,800 144,800 200,000 200,000
Securities sold under agreements to
repurchase................................... 57,581 57,581 279,909 279,909
Subordinated debt, net......................... 16,586 16,625 29,614 30,953
Trust preferred................................ -- -- 9,572 10,000
Off-balance sheet instruments.................. -- 1,684 -- (1,342)
Commitments to purchase loans.................. -- -- -- --
</TABLE>
F-24
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. DISTRIBUTIONS
The Bank is subject to certain restrictions on the amount of dividends it
may declare without prior regulatory approval. At December 31, 1997,
approximately $10.6 million of retained earnings were available for dividend
declaration.
18. EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation sponsors an Employee Stock Ownership Plan ("ESOP"). All
full-time employees of the Corporation who meet limited qualifications
participate in the ESOP. Under the ESOP, the Corporation 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 1997, the Corporation
carried a $305,000 note receivable from the ESOP which was collateralized by the
Corporation's common stock. The ESOP owned 135,200 shares of the Corporation's
stock with approximately 64,000 and 78,000 shares vested at December 31, 1996
and 1997, respectively. The Corporation's contribution to the ESOP, which is
reflected in compensation expense, was $210,000, $224,000 and $247,000 for the
years ended December 31, 1995, 1996, and 1997, respectively.
19. STOCK BASED COMPENSATION
In 1996, officers and employees were issued 161,000 options to purchase
161,000 shares of TeleBanc common stock at prices ranging from $3.875 to
$4.4375. In 1997, the Corporation authorized and issued 698,402 options to
directors, officers and employees to purchase 698,402 shares of TeleBanc common
stock at prices ranging from $1.33 to $6.75. As of December 31, 1996 and 1997,
360,876 and 598,248 of the shares, respectively, were vested at exercise prices
ranging from $1.33 to $6.25. The maximum term for the outstanding options is 10
years. As of December 31, 1997, the total number of authorized options is
1,802,862. The options' exercise price was the market value of the stock at the
date of issuance.
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
OPTIONS (000'S) PRICE (000'S) PRICE (000'S) PRICE
------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year................. 484 $3.32 542 $3.26 704 $ 3.45
Granted.......................................... 64 2.75 162 4.09 698 6.26
Exercised........................................ -- -- -- -- 34 3.26
Forfeited........................................ 6 3.07 -- -- 38 5.70
Outstanding at end of year....................... 542 3.26 704 3.45 1,330 4.86
Options exercisable at year-end.................. 220 3.28 360 3.35 598 4.03
Weighted avg. fair value of options granted...... 0.91 1.31 1.75
</TABLE>
F-25
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about fixed options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING (000'S)
----------------------------------------------- OPTIONS EXERCISABLE (000'S)
WEIGHTED AVERAGE ----------------------------
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Less than $2.50........ 48 9.2 $1.33 10 $1.33
$2.50 - $3.74.......... 510 6.5 $3.275 404 $3.285
$3.75 - $4.99.......... 148 8.3 $4.105 60 $4.105
$5.00 - $6.24.......... -- -- -- -- --
$6.25 - $7.49.......... 624 9.2 $6.615 124 $6.615
----- ---
Less than
$2.50 - $7.49........ 1,330 8.0 $4.86 598 $4.03
===== ===
</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 6.00%, 5.25%, and 5.08% for
1995, 1996, and 1997, respectively; expected life of 10 years for all options
granted in 1995, 1996, and 1997; expected volatility of 16%, 23%, and 25% for
1995, 1996, and 1997, respectively.
The Corporation 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 Corporation's net income and net
income per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net income:
As reported....................................... $2,720 $2,552 $3,671
Pro forma......................................... $2,684 $2,409 $2,629
Basic earnings per share:
As reported....................................... $ 0.66 $ 0.62 $ 0.84
Pro forma......................................... $ 0.66 $ 0.59 $ 0.60
Diluted earnings per share:
As reported....................................... $ 0.66 $ 0.58 $ 0.57
Pro forma......................................... $ 0.66 $ 0.55 $ 0.43
</TABLE>
20. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. The principal commitments of the
Corporation are as follows:
At December 31, 1997, the Corporation was obligated under an operating
lease for office space with an original term of ten years. Net rent expense
under operating leases was approximately $127,000, $142,000, and $238,000 for
the years ended December 31, 1995, 1996, and 1997, respectively.
F-26
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The projected minimum rental payments under the terms of the lease are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
1998..................................................... $ 190,000
1999..................................................... 165,000
2000..................................................... 166,000
2001..................................................... 167,000
2002..................................................... 168,000
2003 and thereafter...................................... 267,000
----------
$1,123,000
==========
</TABLE>
As of December 31, 1997, the Corporation had commitments to purchase $24.0
million of mortgage loans.
The Corporation self-insures for a portion of health insurance expenses
paid by the Corporation as a benefit to its employees. At December 31, 1996 and
1997, there was no reserve needed for incurred but not reported claims under
this insurance arrangement.
21. SUBSEQUENT EVENTS
In the first quarter of 1998, TeleBanc signed a definitive merger agreement
(the "DFC Acquisition") to acquire Direct Financial Corporation ("DFC"). DFC is
the parent holding company of Premium Bank, a federal savings bank headquartered
in New Jersey. At December 31, 1997, DFC reported total assets of $326.1
million, loans receivable, net of $187.2 million, total deposits of $273.9
million and total stockholders' equity of $12.3 million. TeleBanc will pay $12
for each share of Direct Financial common stock or common stock equivalent. The
transaction is valued at approximately $26.4 million. The DFC Acquisition is
expected to be consummated in the summer of 1998, subject to regulatory
approvals.
Also in January 1998, TeleBanc announced that it had signed a definitive
acquisition agreement whereby MET Holdings will sell substantially all of its
assets, including approximately 2,866,162 shares of TeleBanc Common Stock owned
by MET Holdings, and assign substantially all of its liabilities, to TeleBanc.
Immediately following consummation of the acquisition, MET Holdings will
dissolve and distribute its remaining assets and liabilities to its
stockholders, assuming such dissolution is approved by the requisite number of
stockholders of MET Holdings and TeleBanc.
F-27
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash................................................... $ 159 $ 5,401
Investment securities available-for-sale............... 4,132 4,186
Mortgage-backed securities available-for-sale.......... 14,086 26,219
Loans receivable, net.................................. 305 566
Loan receivable held for sale.......................... -- 6,367
Trading................................................ -- 14,011
Equity in net assets of subsidiary..................... 34,130 58,976
Deferred charges....................................... 940 1,460
Other assets........................................... 1,099 4,806
------- --------
Total assets...................................... $54,851 $121,992
======= ========
Liabilities and Stockholders' Equity
Liabilities:
Subordinated debt...................................... $16,586 $ 39,614
Securities sold under agreements to repurchase......... 12,831 33,555
Accrued interest payable............................... 357 1,037
Taxes payable and other liabilities.................... 419 1,962
------- --------
Total liabilities................................. 30,193 76,168
------- --------
Stockholders' Equity
Preferred Stock........................................ -- 15,281
Common Stock........................................... 40 44
Additional Paid-in-Capital............................. 14,617 16,185
Retained earnings...................................... 7,905 11,576
Unrealized gain/loss on securities
available-for-sale.................................... 2,096 2,738
------- --------
Total stockholders' equity........................ 24,658 45,824
------- --------
Total liabilities and stockholders' equity........ $54,851 $121,992
======= ========
</TABLE>
F-28
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Interest income............................................. $ 429 $ 531 $ 2,683
Interest expense............................................ 2,111 2,163 4,352
------- ------- -------
Net interest loss........................................... (1,682) (1,632) (1,669)
Non interest income......................................... 92 133 13
Total general and administrative expenses................... 1,046 1,393 1,288
Non interest expenses....................................... 126 127 195
------- ------- -------
Net loss before equity in net income of subsidiary and
income taxes.............................................. (2,762) (3,019) (3,139)
Equity in net income of subsidiary.......................... 4,434 6,716 5,668
Income taxes................................................ (1,048) 1,145 (1,688)
Preferred stock dividend.................................... -- -- 546
------- ------- -------
Net income.................................................. $ 2,720 $ 2,552 $ 3,671
======= ======= =======
</TABLE>
F-29
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income............................................. $ 2,720 $ 2,552 $ 4,217
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries....... (4,434) (4,426) (5,668)
Purchases of loans held for sale....................... -- -- (6,367)
Net increase in trading securities..................... -- -- (14,011)
(Increase) decrease in other assets.................... 38 (686) (4,227)
Increase in accrued expenses and other liabilities..... 122 267 2,223
-------- --------- --------
Net cash provided by operating activities................... (1,554) (2,293) (23,833)
-------- --------- --------
Cash flows from investing activities:
Net (increase) decrease in loan to Employee Stock
Ownership Plan....................................... 60 (65) --
Net increase in loans.................................. -- -- (261)
Net (increase) decrease in equity investments.......... 2,089 2,074 (19,178)
Purchases of available-for-sale securities............. (20,771) (100,574) (92,862)
Proceeds from sale of available-for-sale securities.... 5,170 11,103 80,159
Proceeds from maturities of and principal payment on
available-for-sale securities........................ 14,619 76,910 1,158
Net sales (purchases) of premises and equipment........ (21) (37) --
-------- --------- --------
Net cash (used in) provided by investing activities......... 1,146 (10,589) (30,984)
-------- --------- --------
Cash flows from financing activities:
Net increase in securities sold under agreements to
repurchase........................................... -- 12,831 20,724
Increase in subordinated debt.......................... -- -- 23,028
Increase in common stock and additional
paid-in-capital...................................... -- -- 16,853
Dividends paid on common and preferred stock........... -- -- (546)
-------- --------- --------
Net cash provided by financing activities................... -- 12,831 60,059
-------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (408) (51) 5,242
-------- --------- --------
Cash and cash equivalents at beginning of period............ 618 210 159
-------- --------- --------
Cash and cash equivalents at end of period.................. $ 210 $ 159 $ 5,401
======== ========= ========
</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 $992,000 to TeleBanc for subordinated
interest expense payments for the years ended December 31, 1996 and 1997,
respectively.
F-30
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Condensed quarterly financial data for the years ended December 31, 1997
and 1996 is shown as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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 operating 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
======= ======= ======= =======
Basic earnings per share................................ $ 0.16 $ 0.19 $ (0.02) $ 0.30
Diluted earnings per share.............................. $ 0.16 $ 0.18 $ (0.02) $ 0.26
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income......................................... $12,837 $15,275 $14,821 $16,368
Interest expense........................................ 9,878 11,865 11,548 12,772
------- ------- ------- -------
Net interest income................................ 2,959 3,410 3,273 3,596
Provision for loan and lease losses..................... 243 308 120 250
Non-interest income..................................... 607 1,244 1,084 1,158
General and administrative expenses..................... 1,897 2,251 2,078 2,816
Other non-interest operating expenses................... 208 202 260 430
------- ------- ------- -------
Income before income taxes and minority interest... 1,218 1,893 1,899 1,258
Income tax expense...................................... 355 618 709 (25)
Minority interest in subsidiary......................... -- 67 285 42
Net income.............................................. 863 1,208 905 1,241
Preferred stock dividends............................... 60 162 162 162
------- ------- ------- -------
Net income after preferred stock dividends......... $ 803 $ 1,046 $ 743 $ 1,079
======= ======= ======= =======
Basic earnings per share................................ $ 0.19 $ 0.24 $ 0.16 $ 0.24
Diluted earnings per share.............................. $ 0.15 $ 0.16 $ 0.11 $ 0.16
</TABLE>
F-31
<PAGE> 116
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Financial Condition -- As of
December 31, 1997 and March 31, 1998...................... F-33
Consolidated Statements of Operations -- For the Three
Months Ended March 31, 1997 and 1998...................... F-34
Consolidated Statements of Changes in Stockholders'
Equity -- For the Three Months Ended March 31, 1997 and
1998...................................................... F-35
Consolidated Statements of Cash Flows -- For the Three
Months Ended March 31, 1997 and 1998...................... F-36
Notes to Consolidated Financial Statements -- For the Three
Months Ended March 31, 1997 and 1998...................... F-37
</TABLE>
F-32
<PAGE> 117
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 92,156 $ 31,559
Trading securities.......................................... 21,110 42,129
Investment securities available-for-sale.................... 91,237 123,963
Mortgage-backed securities available-for-sale............... 319,203 260,152
Loans receivable, net....................................... 391,618 418,676
Loans receivable held-for-sale.............................. 149,086 138,381
Other assets................................................ 35,942 33,293
---------- ----------
Total assets........................................... $1,100,352 $1,048,153
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Retail deposits............................................. $ 522,221 $ 560,554
Brokered callable certificates of deposit................... -- 42,286
Advances from the Federal Home Loan Bank of Atlanta......... 200,000 190,000
Securities sold under agreements to repurchase.............. 279,909 153,970
Subordinated debt, net...................................... 29,614 29,672
Other liabilities........................................... 13,212 15,605
---------- ----------
Total liabilities...................................... 1,044,956 992,087
---------- ----------
Corporation-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust Holding Soley Junior
Subordinated Debentures of the Corporation............... 9,572 9,526
Stockholders' Equity:
4% Cumulative preferred stock, $0.01 par value, 500,000
shares authorized
Series A, 18,850 issued and outstanding................ 9,634 9,634
Series B, 4,050 issued and outstanding................. 2,070 2,070
Series C, 7,000 issued and outstanding................. 3,577 3,577
Common stock, $0.01 par value, 29,500,000 shares authorized;
4,484,988 and 4,458,322 issued and outstanding at March
31, 1998 and December 31, 1997............................ 44 44
Additional paid-in-capital.................................. 16,185 16,365
Retained earnings........................................... 11,576 11,850
Accumulated other comprehensive income, net of tax.......... 2,738 3,000
---------- ----------
Total stockholders' equity............................. 45,824 46,540
---------- ----------
Total liabilities and stockholders' equity............. $1,100,352 $1,048,153
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 118
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1998
------- -------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans................................................... $ 7,557 $10,365
Mortgage-backed and related securities.................. 3,805 5,074
Investment securities................................... 1,444 1,786
Trading securities...................................... -- 636
Other................................................... 31 210
------- -------
Total interest income.............................. 12,837 18,071
------- -------
Interest expense:
Retail deposits......................................... 5,705 8,055
Brokered callable certificates of deposit............... -- 374
Advances from the Federal Home Loan Bank of Atlanta..... 2,073 2,718
Repurchase agreements................................... 1,457 2,451
Subordinated debt....................................... 643 879
------- -------
Total interest expense............................. 9,878 14,477
------- -------
Net interest income................................ 2,959 3,594
Provision for loan losses............................... 243 250
------- -------
Net interest income after provision for loan
losses........................................... 2,716 3,344
------- -------
Non-interest income:
Gain on sale of securities.............................. 238 891
Gain on sale of loans................................... 127 121
Gain on trading securities.............................. 23 62
Gain (loss) on equity investment........................ (109) 526
Fees, service charges, and other........................ 339 347
------- -------
Total non-interest income.......................... 618 1,947
------- -------
Non-interest expenses:
Selling, general and administrative expenses:
Compensation and employee benefits................. 1,176 1,950
Other.............................................. 721 1,939
------- -------
Total selling, general and administrative
expenses......................................... 1,897 3,889
------- -------
Other non-interest expenses:
Net operating costs of real estate acquired through
foreclosure............................................ 74 82
Amortization of goodwill and other intangibles.......... 134 233
------- -------
Total other non-interest expenses....................... 208 315
------- -------
Total non-interest expenses............................. 2,105 4,204
------- -------
Income before income tax expense................... 1,229 1,087
Income tax expense................................. 355 475
Minority interest in subsidiary.................... -- 176
------- -------
Net income......................................... $ 874 $ 436
======= =======
Preferred stock dividends.......................... 60 162
------- -------
Net income available to common stockholders........ $ 814 $ 274
======= =======
Other comprehensive income, before tax:
Unrealized holding gain (loss) on securities arising
during the period...................................... (1,017) 814
Less: reclassification adjustment for gains included in
net income............................................. (238) (891)
------- -------
Other comprehensive income, before tax...................... (1,255) (77)
Income tax expense related to reclassification adjustment
for gains on sale of securities........................... 90 339
------- -------
Other comprehensive income, net of tax...................... (1,165) 262
------- -------
Comprehensive income........................................ $ (351) $ 536
======= =======
Earnings per share:
Basic................................................... $ 0.19 $ 0.06
Diluted................................................. $ 0.15 $ 0.05
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE> 119
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
PREFERRED COMMON PAID-IN RETAINED INCOME (LOSS),
STOCK STOCK CAPITAL EARNINGS NET OF TAX TOTAL
--------- ------ ---------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996..... $ -- $40 $14,617 $ 7,905 $ 2,096 $24,658
Net income for the three months
ended March 31, 1997............ -- -- -- 874 -- 874
Stock issued...................... -- 4 1,270 -- -- 1,274
Issuance of 4% Cumulative
Preferred Stock, Series A....... 9,634 -- -- -- -- 9,634
Issuance of 4% Cumulative
Preferred Stock, Series B....... 2,070 -- -- -- -- 2,070
Issuance of 4% Cumulative
Preferred Stock, Series C....... 3,577 -- -- -- -- 3,577
Dividends on 4% Cumulative
Preferred Stock................. -- -- -- (60) -- (60)
Unrealized loss on available for
sale securities, net of tax
effect.......................... -- -- -- -- (1,165) (1,165)
------- --- ------- ------- ------- -------
Balances at March 31, 1997........ $15,281 $44 $15,887 $ 8,719 $ 931 $40,862
======= === ======= ======= ======= =======
Balances at December 31, 1997..... $15,281 $44 $16,185 $11,576 $ 2,738 $45,824
Net income for the three months
ended March 31, 1998............ -- -- -- 436 -- 436
Stock issued...................... -- -- 180 -- -- 180
Dividends on 4% Cumulative
Preferred Stock................. -- -- -- (162) -- (162)
Unrealized gain on available for
sale securities, net of tax
effect.......................... -- -- -- -- 262 262
------- --- ------- ------- ------- -------
Balances at March 31, 1998........ $15,281 $44 $16,365 $11,850 $ 3,000 $46,540
======= === ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 120
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net cash (used by) provided by operating activities......... $ 4,650 $ (4,776)
--------- ---------
Cash flows from investing activities:
Net increase in loans.................................. (84,134) (26,002)
Purchases of available-for-sale securities............. (124,251) (143,899)
Proceeds from sale of available-for-sale securities.... 10,640 151,543
Proceeds from maturities of and principal payments on
available-for-sale securities......................... 70,321 18,419
Proceeds from sale of foreclosed real estate........... 259 494
Equity investment in subsidiaries...................... (700) (724)
Net purchases of premises and equipment................ (277) (226)
--------- ---------
Net cash used in investing activities....................... $(128,142) $ (395)
--------- ---------
Cash flows from financing activities:
Net increase in deposits............................... 4,517 80,619
Net increase in subordinated debt...................... 12,858 --
Increase in advances from Federal Home Loan Bank of
Atlanta............................................... 107,000 87,500
Payment on advances from Federal Home Loan Bank of
Atlanta............................................... (86,800) (97,500)
Net increase in borrowed funds......................... -- 52
Net (decrease) increase in securities sold under
agreements to repurchase.............................. 74,685 (125,939)
Increase in common stock, preferred stock, and
additional paid-in-capital............................ 16,555 180
Interest paid to minority interest in subsidiary....... -- (176)
Dividends paid on common and preferred stock........... (60) (162)
--------- ---------
Net cash (used in) provided by financing activities......... $ 128,755 $ (55,426)
--------- ---------
Net (decrease) increase in cash and cash equivalents........ 5,263 (60,597)
Cash and cash equivalents at beginning of period............ 3,259 92,156
--------- ---------
Cash and cash equivalents at end of period.................. $ 8,522 $ 31,559
========= =========
Supplemental information:
Interest paid on deposits and borrowed funds................ $ 8,647 $ 13,692
Income taxes paid........................................... 260 242
Gross unrealized gain (loss) on securities
available-for-sale........................................ (1,638) 465
Tax effect of gain (loss) on available-for-sale
securities................................................ $ (473) $ 203
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The Corporation operates its business principally through two wholly owned
subsidiaries, TeleBank, a federally chartered savings bank ("TeleBank"), and
TeleBanc Capital Markets, Inc. ("TCM"). TeleBank offers savings and investment
products insured up to applicable limits by the Federal Deposit Insurance
Corporation (the "FDIC"), and TCM is a registered broker-dealer and investment
advisor specializing in one-to-four family mortgage loans and mortgage-backed
securities. TCM manages the portfolios of TeleBanc Financial and TeleBank. The
Corporation also owns all of the beneficial interests represented by common
securities in a Delaware trust, TeleBanc Capital Trust I ("TCT I"), which was
formed solely for the purpose of issuing capital securities. In 1997, TCT I
issued $10.0 million 11.0% Capital Securities, Series A and invested the net
proceeds in the Corporation's 11.0% Junior Subordinated Deferrable Interest
Debentures, Series A (the "TCT I Junior Subordinated Debentures"). TeleBank,
through its wholly owned subsidiary TeleBanc Servicing Corporation ("TSC"), owns
50% of 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. The
accompanying consolidated financial statements include the accounts of TeleBank,
TCM, TCT, and TSC, a wholly owned subsidiary of the bank. All significant
intercompany transactions and balances are eliminated in consolidation. The
investment, $2.9 million, in AGT PRA is accounted for under the equity method.
The financial statements as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 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 March 31,
1998 and the results of consolidated operations for the three months ended March
31, 1998 and 1997. The results of consolidated operations for the three months
ended March 31, 1998 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, 1997, included in the Corporation's Annual Report to
Stockholders for 1997, should be read in conjunction with these statements.
Certain prior year's amounts have been reclassified to conform to the
current year's presentation.
Effective January 1, 1998, PRA changed its method of accounting from the
cost recovery method to the installment method, resulting in income of $547,000.
This change is not expected to have a material effect on the full year's results
of operations.
2. EARNINGS PER SHARE
Basic earnings per common share, as required by Statement of Financial
Accounting Standards No. 128, is computed by dividing adjusted net income by the
total of the weighted average number of common shares outstanding during the
respective periods. Diluted earnings per common share for the quarters ended
March 31, 1998 and 1997 were determined on the assumptions that the dilutive
options and warrants were exercised upon issuance. The options and warrants are
deemed to be dilutive if (a) the average market price of the related common
stock for a period exceeds the exercise price or (b) the security to be tendered
is selling at a price below that at which it may be tendered under the option or
warrant agreement and the resulting discount is sufficient to establish an
effective exercise price below the market price of the common stock obtainable
upon exercise. The Corporation's quarter to date weighted average number of
common shares outstanding was 4,467,610 at March 31, 1998 and 4,212,176 at March
31, 1997. For diluted earnings per share computation, weighted average shares
outstanding also include potentially dilutive securities.
F-37
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
EPS CALCULATION
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<CAPTION>
<S> <C> <C> <C>
Basic earnings per share
Net income.............................................. $ 813,755 4,212,176 $0.19
=====
Options issued to management............................ -- 380,102
Warrants................................................ -- 362,016
Convertible preferred stock............................. 60,287 835,776
--------- ---------
Diluted earnings per share.............................. $ 874,042 5,790,070 $0.15
========= ========= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
<S> <C> <C> <C>
Net income.............................................. $ 436,408
Less: preferred stock dividends......................... (161,965)
---------
Basic earnings per share
Income available to common shareholders................. $ 274,443 4,467,610 $0.06
=====
Options issued to management............................ -- 666,360
Warrants................................................ -- 623,012
Convertible preferred stock............................. -- --
--------- ---------
Diluted earnings per share.............................. $ 274,443 5,756,982 $0.05
========= ========= =====
</TABLE>
3. RECENT EVENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"), effective for fiscal years beginning after December 15, 1997. This
statement requires that certain financial activity typically disclosed in
stockholders' equity be reported in the financial statements as an adjustment to
net income in determining comprehensive income. The Corporation adopted SFAS 130
effective January 1, 1998. As a result, comprehensive income for the periods
ending March 31, 1998 and 1997 are reported in the Consolidated Statement of
Operations.
Consistent with its operating strategy, the Corporation has signed an
agreement to acquire DFC, a thrift holding company and its federally chartered
savings bank subsidiary, Premium Bank, in a transaction expected to be
consummated in the summer of 1998, subject to regulatory approval. TeleBanc
Financial is acquiring DFC because DFC has employed a direct marketing strategy
similar to that of the Corporation, and thus presents the opportunity for the
Corporation to acquire the deposits and customers of a financial institution
without acquiring significant infrastructure. DFC currently operates from a
single branch in New Jersey located outside of Philadelphia, Pennsylvania, and
its customer and deposit base is concentrated in the Mid-Atlantic region of the
United States. The Corporation does intend to retain a significantly scaled down
portion of DFC's employees and intends to close DFC's single branch location.
The Corporation may open a regional business development office in the location
of the former DFC branch. DFC also originates residential mortgage loans,
although the Corporation intends to discontinue mortgage loan origination upon
its acquisition of DFC. DFC also offers credit cards to its customers through a
relationship with First Data Resources and Card Management Services. In 1998, in
reliance upon DFC's existing credit card relationships, the Corporation also
intends to offer its customers co-branded credit cards.
At March 31, 1998, DFC reported total assets of $320.3 million, loans
receivable, net of $181.2 million, total deposits of $288.7 million and total
stockholders' equity of $12.3 million. TeleBanc will pay approxi-
F-38
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
mately $21.4 million in the transaction, and will assume approximately $6
million in liabilities which the Corporation intends to repay at the time the
transaction is consummated.
In April 1998, the shareholders of TeleBanc and MET Holdings ("MET") voted
to approve and adopt the Amended and Restated Acquisition Agreement, dated as of
March 17, 1998. Subsequently, TeleBanc completed the acquisition of MET whereby
MET sold substantially all of its assets, including 2,866,162 shares of TeleBanc
common stock owned by MET, and assigned substantially all of its liabilities to
TeleBanc in exchange for 2,876,162 shares of TeleBanc common stock.
F-39
<PAGE> 124
- ------------------------------------------------------
- ------------------------------------------------------
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 THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CORPORATION, THE ISSUER
OR BY THE UNDERWRITERS. 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. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE
HEREUNDER AND THEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THE INFORMATION HEREIN OR THEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
CORPORATION OR THE ISSUER SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus............................... 1
Available Information.................... 4
Incorporation of Certain Documents by
Reference.............................. 4
Summary.................................. 6
Summary Consolidated Financial Data...... 10
TeleBanc Capital Trust II................ 11
Risk Factors............................. 12
TeleBanc Financial Corporation........... 20
Recent Developments...................... 20
Use of Proceeds.......................... 21
Consolidated Ratios of Earnings to Fixed
Charges................................ 21
Accounting Treatment..................... 21
Capitalization........................... 23
Selected Pro Forma Condensed Consolidated
Statement of Financial Condition and
Statement of Operations................ 24
Selected Consolidated Financial Data..... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 27
Business................................. 41
Description of Series A Capital
Securities............................. 49
Description of Series A Subordinated
Debentures............................. 60
Book-Entry Issuance...................... 68
Description of Series A Guarantee........ 71
Relationship Among the Series A Capital
Securities, the Series A Subordinated
Debentures and the Series A
Guarantee.............................. 73
Description of Common Stock Offering..... 75
Certain Federal Income Tax Consequences.. 75
Certain ERISA Considerations............. 79
Underwriting............................. 81
Validity of Securities................... 82
Experts.................................. 82
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
TELEBANC CAPITAL
TRUST II
$27,500,000
% BENEFICIAL UNSECURED
SECURITIES, SERIES A
(Liquidation Amount $25
per Capital Security)
fully and unconditionally guaranteed,
as described herein, by
[TELEBANK LOGO]
--------------------
PROSPECTUS
--------------------
CIBC OPPENHEIMER
LEGG MASON WOOD WALKER
INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses, other than the SEC registration fee, are estimated.
All expenses of this offering will be paid by the Corporation.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 7,375
Trustee's fees.............................................. 13,500
Blue Sky fees and expenses.................................. 5,000
Transfer agent's and registrar's fees and expenses.......... 1,500
Printing expenses........................................... 22,500
Accounting fees and expenses................................ 27,000
Legal fees and expenses (other than Blue Sky fees and
expenses)................................................. 37,500
Miscellaneous............................................... 30,625
--------
Total............................................. $145,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware (the "GCL") provides
that a corporation may limit the liability of each director to the corporation
or its stockholders for monetary damages, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases; and (iv) for any
transaction from which the director derived an improper personal benefit. The
Amended and Restated Certificate of Incorporation of TeleBanc Financial
Corporation provides for the elimination and limitation of the personal
liability of the directors of TeleBanc Financial Corporation for monetary
damages to the fullest extent permitted by the GCL.
The Bylaws of the Corporation provide for the indemnification of any person
who is or was a director, officer, trustee, employee, or agent of TeleBanc
Financial Corporation or, is or was serving at the request of TeleBanc Financial
Corporation as a director, officer, trustee, employee, or agent of another
corporation, association, partnership, joint venture, trust, employee benefit
plan or other enterprise.
Directors, officers, employees or agents of TeleBanc Financial Corporation
(or any person who is or was serving at the request of TeleBanc Financial
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) may be insured against certain liabilities for their actions,
as such, by an insurance policy obtained by the Corporation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Form of Indenture of TeleBanc Financial Corporation relating
to the Series A Subordinated Debentures
4.2* Form of Certificate of Series A Subordinated Debentures
4.3** Certificate of Trust of TeleBanc Capital Trust II
4.4** Declaration of Trust of TeleBanc Capital Trust II
4.5 Form of Amended and Restated Trust Agreement for TeleBanc
Capital Trust II
4.6* Form of Capital Security Certificate for TeleBanc Capital
Trust II
4.7 Form of Guarantee Agreement of TeleBanc Financial
Corporation relating to the Series A Capital Securities
</TABLE>
II-1
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
5.1* Opinion and consent of Shaw, Pittman, Potts & Trowbridge as
to the legality of the Series A Subordinated Debentures and
the Guarantee to be issued by TeleBanc Financial Corporation
5.2* Opinion of Morris, James, Hitchens & Williams, special
Delaware counsel, as to legality of the Series A Capital
Securities to be issued by TeleBanc Capital Trust II
8* Opinion of Shaw, Pittman, Potts & Trowbridge, special tax
counsel, as to certain federal income tax matters
10.1 1994 Stock Option Plan (incorporated by reference herein to
Exhibit 10.1 to the Corporation's Registration Statement on
Form S-1, dated March 25, 1994, File No. 33-76930)
10.2 1997 Stock Option Plan (incorporated by reference herein to
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,
dated March 31, 1997)
10.3 Employee Stock Ownership Plan of the Corporation
10.4 Agreement and Plan of Merger by and between the Corporation
and Direct Financial Corporation, dated January 14, 1998
(incorporated by reference herein to Exhibit 10.4 to the
Corporation's Registration Statement on Form S-2, dated May
15, 1998, File No. 333-52871)
10.5 Registration Rights Agreement, dated June 5, 1997, among the
Corporation, TeleBanc Capital Trust I and the Initial
Purchaser (incorporated by reference herein to Exhibit 4.8
to the Corporation's Registration Statement on Form S-4,
dated December 8, 1997, File No. 333-40399)
10.6 Unit Purchase Agreement, dated February 19, 1997, among the
Corporation and the Purchasers identified therein
(incorporated by reference herein to Exhibit 10.1 to the
Corporation's Current Report on 8-K, dated March 17, 1997)
10.7 Amended and Restated Acquisition Agreement, dated February
19, 1997, among the Corporation, Arbor Capital Partners,
Inc., MET Holdings, Inc., and William M. Daugherty
(incorporated by reference herein to Exhibit 10.2 to the
Corporation's Current Report on 8-K, dated March 17, 1997)
10.8 Liquidated Damages Agreement, dated June 9, 1997, by and
among the Corporation, TeleBanc Capital Trust I, and the
Initial Purchaser (incorporated by reference herein to
Exhibit 4.9 to the Corporation's Registration Statement on
Form S-4, dated December 8, 1997, File No. 333-40399)
10.9 Tax Allocation Agreement, dated April 7, 1994, between
TeleBank and the Corporation (incorporated by reference
herein to Exhibit 10.3 to Amendment No. 1 to the
Corporation's Registration Statement on Form S-1, dated May
3, 1994, File No. 33-76930)
10.10 Indenture dated June 9, 1997, between the Corporation and
Wilmington Trust Company, as Debenture Trustee (incorporated
by reference herein to the Corporation's Form S-4, dated
December 8, 1997, File No. 333-40399)
10.11 Form of Indenture between the Corporation and Wilmington
Trust Company as Trustee (incorporated by reference herein
to Exhibit 4.3 to the Corporation's Registration Statement
on Form S-1, dated March 25, 1994, File No. 33-76930)
10.12 Conversion Agreement dated May 15, 1998 by and among the
Corporation and certain investors named therein
12.1** Computation of ratio of earnings to fixed charges
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Shaw, Pittman, Potts & Trowbridge (included in
Exhibit 5.1)
23.3* Consent of Morris, James, Hitchens & Williams (included in
Exhibit 5.2)
24** Power of Attorney of certain officers and directors of
TeleBanc Financial Corporation (included on signature page
to the Registration Statement)
25.1 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Amended and Restated
Declaration of Trust of TeleBanc Capital Trust II
25.2 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Indenture
</TABLE>
II-2
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
25.3 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Series A Guarantee for
the benefit of the holders of Series A Capital Securities of
TeleBanc Capital Trust II
</TABLE>
- ---------------
* To be filed by Amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended may be permitted to directors, officers and controlling
persons of each undersigned Registrant pursuant to the foregoing provisions, or
otherwise, each Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
each undersigned Registrant of expenses incurred or paid by a director, officer
or controlling person of each 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 the
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Each undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Each undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by each Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TeleBanc
Financial Corporation certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Arlington, in the Commonwealth of Virginia, on
this second day of July, 1998.
TELEBANC FINANCIAL CORPORATION
By: /s/ MITCHELL H. CAPLAN
------------------------------------
MITCHELL H. CAPLAN
VICE CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dated indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
--------- -------- ----
<S> <C> <C>
/s/ DAVID A. SMILOW* Chairman of the Board
- ------------------------------------------
DAVID A. SMILOW July 2, 1998
/s/ MITCHELL H. CAPLAN Vice Chairman of the Board, Chief Executive
- ------------------------------------------ Officer and President (principal executive
MITCHELL H. CAPLAN officer) July 2, 1998
/s/ AILEEN LOPEZ PUGH Executive Vice President and Chief
- ------------------------------------------ Financial Officer (principal financial and
AILEEN LOPEZ PUGH accounting officer) July 2, 1998
/s/ DAVID DECAMP* Director
- ------------------------------------------
DAVID DECAMP July 2, 1998
/s/ DEAN C. KEHLER* Director
- ------------------------------------------
DEAN C. KEHLER July 2, 1998
/s/ STEVEN F. PIAKER* Director
- ------------------------------------------
STEVEN F. PIAKER July 2, 1998
/s/ MARK ROLLINSON* Director
- ------------------------------------------
MARK ROLLINSON July 2, 1998
/s/ ARLEN W. GELBARD* Director
- ------------------------------------------
ARLEN W. GELBARD July 2, 1998
---------------
* By: /s/ AILEEN LOPEZ PUGH
------------------------------------
AILEEN LOPEZ PUGH
PURSUANT TO POWER OF ATTORNEY
</TABLE>
II-4
<PAGE> 129
Pursuant to the requirements of the Securities Act of 1933, TeleBanc
Capital Trust II certifies that it has reasonable grounds to believe that it
meets all the requirements for filing this Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Arlington, and Commonwealth of Virginia, on
this second day of July, 1998.
TELEBANC CAPITAL TRUST II
By: /s/ DAVID A. SMILOW*
------------------------------------
DAVID A. SMILOW
ADMINISTRATIVE TRUSTEE
By: /s/ MITCHELL H. CAPLAN
------------------------------------
MITCHELL H. CAPLAN
ADMINISTRATIVE TRUSTEE
By: /s/ AILEEN LOPEZ PUGH
------------------------------------
AILEEN LOPEZ PUGH
ADMINISTRATIVE TRUSTEE
- ---------------------------------------------------------
* By: /s/ AILEEN LOPEZ PUGH
---------------------------------
AILEEN LOPEZ PUGH
PURSUANT TO POWER OF ATTORNEY
II-5
<PAGE> 130
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
1.1 Form of Underwriting Agreement
4.1 Form of Indenture of TeleBanc Financial Corporation relating
to the Series A Subordinated Debentures
4.2* Form of Certificate of Series A Subordinated Debentures
4.3** Certificate of Trust of TeleBanc Capital Trust II
4.4** Declaration of Trust of TeleBanc Capital Trust II
4.5 Form of Amended and Restated Trust Agreement for TeleBanc
Capital Trust II
4.6* Form of Capital Security Certificate for TeleBanc Capital
Trust II
4.7 Form of Guarantee Agreement of TeleBanc Financial
Corporation relating to the Series A Capital Securities
5.1* Opinion and consent of Shaw, Pittman, Potts & Trowbridge as
to the legality of the Series A Subordinated Debentures and
the Guarantee to be issued by TeleBanc Financial Corporation
5.2* Opinion of Morris, James, Hitchens & Williams, special
Delaware counsel, as to the legality of the Series A Capital
Securities to be issued by TeleBanc Capital Trust II
8* Opinion of Shaw, Pittman, Potts & Trowbridge, special tax
counsel, as to certain federal income tax matters
10.1 1994 Stock Option Plan (incorporated by reference herein to
Exhibit 10.1 to the Corporation's Registration Statement on
Form S-1, dated March 25, 1994, File No. 33-76930)
10.2 1997 Stock Option Plan (incorporated by reference herein to
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,
dated March 31, 1997)
10.3 Employee Stock Ownership Plan of the Corporation
10.4 Agreement and Plan of Merger by and between the Corporation
and Direct Financial Corporation, dated January 4, 1998
(incorporated by reference herein to Exhibit 10.4 to the
Corporation's Registration Statement on Form S-2, dated May
15, 1998, File No. 333-52871)
10.5 Registration Rights Agreement, dated June 5, 1997, among the
Corporation, TeleBanc Capital Trust I and the Initial
Purchaser (incorporated by reference herein to Exhibit 4.8
to the Corporation's Registration Statement on Form S-4,
dated December 8, 1997, File No. 333-40399)
10.6 Unit Purchase Agreement, dated February 19, 1997, among the
Corporation and the Purchasers identified therein
(incorporated by reference herein to Exhibit 10.1 to the
Corporation's Current Report on 8-K, dated March 17, 1997)
10.7 Amended and Restated Acquisition Agreement, dated February
19, 1997, among the Corporation, Arbor Capital Partners,
Inc., MET Holdings, Inc., and William M. Daugherty
(incorporated by reference herein to Exhibit 10.2 to the
Corporation's Current Report on 8-K, dated March 17, 1997)
10.8 Liquidated Damages Agreement, dated June 9, 1997, by and
among the Corporation, TeleBanc Capital Trust I, and the
Initial Purchaser (incorporated by reference herein to
Exhibit 4.9 to the Corporation's Registration Statement on
Form S-4, dated December 8, 1997, File No. 333-40399)
10.9 Tax Allocation Agreement, dated April 7, 1994, between
TeleBank and the Corporation (incorporated by reference
herein to Exhibit 10.3 to Amendment No. 1 to the
Corporation's Registration Statement on Form S-1, dated May
3, 1994, File No. 33-76930)
10.10 Indenture dated June 9, 1997, between the Corporation and
Wilmington Trust Company, as Debenture Trustee (incorporated
by reference herein to the Corporation's Registration
Statement on Form S-4, dated December 8, 1997, File No.
333-40399)
</TABLE>
II-6
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
10.11 Form of Indenture between the Corporation and Wilmington
Trust Company as Trustee (incorporated by reference herein
to Exhibit 4.3 to the Corporation's Registration Statement
on Form S-1, dated March 25, 1994, File No. 33-76930)
10.12 Conversion Agreement, dated May 15, 1998, by and among the
Corporation and certain investors named therein
12.1** Computation of ratio of earnings to fixed charges
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Shaw, Pittman, Potts & Trowbridge (included in
Exhibit 5.1)
23.3* Consent of Morris, James, Hitchens & Williams (included in
Exhibit 5.2)
24** Power of Attorney of certain officers and directors of
TeleBanc Financial Corporation (included on signature page
to the Registration Statement)
25.1 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Amended and Restated
Declaration of Trust of TeleBanc Capital Trust II
25.2 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Indenture
25.3 Form T-1 Statement of Eligibility of Wilmington Trust
Company to act as trustee under the Series A Guarantee for
the benefit of the holders of Capital Securities of TeleBanc
Capital Trust II
</TABLE>
- ---------------
* To be filed by Amendment.
** Previously Filed.
II-7
<PAGE> 1
EXHIBIT 1.1
$27,500,000
TeleBanc Capital Trust II
BLUS(SM)
% Beneficial Unsecured Securities, Series A
(Liquidation Amount $25 per Capital Security)
UNDERWRITING AGREEMENT
July --, 1998
CIBC Oppenheimer Corp.
As Representative of the several
Underwriters named in
Schedule I attached hereto.
Oppenheimer Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Telebanc Capital Trust II (the "Trust"), a statutory business
trust created under the Business Trust Act (the "Delaware Act") of the State of
Delaware, and TeleBanc Financial Corporation, a Delaware corporation (the
"Company"), propose to sell to you and the other underwriters named in Schedule
I to this Agreement (the "Underwriters"), for whom you are acting as
representative (the "Representative"), an aggregate of 1,100,000 shares of its
- --% Beneficial Unsecured Securities, Series A (liquidation amount $25 per
Capital Security) (the "Capital Securities").
The Capital Securities will be guaranteed by the Company with
respect to distributions and amounts payable upon liquidation or redemption of
such Capital Securities (the "Guarantee") pursuant to the Guarantee Agreement
(the "Guarantee Agreement"), to be entered into between the Company and
Wilmington Trust Company, as trustee (the "Guarantee Trustee"), for the benefit
of holders from time to time of the Capital Securities. The Company will be
the owner of all of the beneficial ownership interests represented by the
common securities (the "Common Securities") of the Trust. Proceeds from the
sale of Capital Securities to the Underwriters and from the concurrent sale of
Common Securities to the Company will be used to purchase ---% Series A
Subordinated Debentures, due July --, 2028 (the "Debentures") of the Company.
The Debentures will be issued by the Company pursuant to an Indenture (the
"Indenture"), to be entered into between the Company and Wilmington Trust
Company, as trustee (the "Debenture Trustee"). This Agreement, the Indenture,
the Debentures, the Trust Agreement (as defined in Section 4(s)) and the
Guarantee Agreement are referred to collectively as the "Operative Documents."
1. Sale and Purchase of the Capital Securities.
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement, the
Trust and the Company agree to sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not
<PAGE> 2
2
jointly, to purchase the respective number of Capital Securities set forth
opposite the name of such Underwriter on Schedule I to this Agreement at a
purchase price of 100% of the liquidation amount thereof (the "Initial Price"),
plus accrued distributions, if any, from July --, 1998 to the Closing Date (as
hereinafter defined).
2. Delivery and Payment. Delivery of the Capital Securities
to the Representative for the respective accounts of the Underwriters, and
payment of the purchase price by wire transfer or certified or official bank
check or checks payable in immediately available (same day) funds to the Trust,
shall take place at the offices of Simpson Thacher & Bartlett at 425 Lexington
Avenue, New York, New York at 10:00 a.m., New York City time, on the third
business day following the date of this Agreement, or at such time on such
other date, not later than ten business days after the date of this Agreement,
as shall be agreed upon by the Trust, the Company and the Representative (such
time and date of delivery and payment are called the "Closing Date"). On the
Closing Date, the Trust shall deliver or cause to be delivered to you for the
account of each Underwriter against payment to or upon the order of the Trust
of the purchase price in Federal or other funds immediately available in New
York City, the Capital Securities in the form of one or more permanent global
securities in definitive form (the "Global Securities") deposited with the
Property Trustee as custodian for the Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee for DTC. Interests in any
permanent Global Securities will be held only in book-entry form through DTC.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of each
Underwriter hereunder.
As compensation for the Underwriters' commitment and in view of
the fact that proceeds from the sale of Capital Securities to the Underwriters
will be used to purchase the Debentures, the Company shall pay, on the Closing
Date to the Underwriters a commission of $--- per Capital Security purchased by
the Underwriters on the Closing Date by wire transfer of immediately available
(same day) funds to a bank account designated by the Representative.
3. Registration Statement and Prospectus; Public Offering.
The Company and the Trust have prepared in conformity with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and the
published rules and regulations thereunder (the "Rules") adopted by the
Securities and Exchange Commission (the "Commission") a registration statement
on Form S-2 (No. 333-53689), including a preliminary prospectus relating to the
Capital Securities, and have filed with the Commission the Registration
Statement (as hereinafter defined) and such amendments thereof as may have been
required to the date of this Agreement. Such Registration Statement has been
declared effective by the Commission, and no further amendments thereto or
supplements thereof have been filed by the Company or the Trust with the
Commission. Copies of such Registration Statement (including all amendments
thereof) and of the related preliminary prospectus have heretofore been
delivered by the Company and the Trust to you. The term "Preliminary
Prospectus" means any preliminary prospectus (as described in Rule 430 of the
Rules) included at any time as a part of the Registration Statement. The
Registration Statement as amended at the time and on the date it became
effective (the "Effective Date"), including all exhibits and information, if
any, deemed to be part of the Registration Statement pursuant to Rule 424(b)
and Rule 430A of the Rules, is called the "Registration Statement." The term
"Prospectus" means the prospectus in the form first used to confirm sales of
the Capital Securities (whether such prospectus was included in the
Registration Statement at the time of
<PAGE> 3
3
effectiveness or was subsequently filed with the Commission pursuant to Rule
424(b) of the Rules). Reference made herein to the Registration Statement, any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any documents incorporated by reference therein pursuant to Item 12 of
Form S-2 under the Securities Act as of the date of such Preliminary Prospectus
or Prospectus, as the case may be.
The Company and the Trust understand that the Underwriters
propose to make a public offering of the Capital Securities as set forth in and
pursuant to the Prospectus as soon after the date of this Agreement as the
Representative deems advisable. The Company and the Trust hereby confirm that
the Underwriters and dealers have been authorized to distribute or cause to be
distributed each Preliminary Prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company and the
Trust furnish amendments or supplements thereto to the Underwriters).
4. Representations and Warranties of the Trust and the
Company. The Trust and the Company, jointly and severally, hereby represent and
warrant to, and agree with, each Underwriter as follows:
(a) On the Effective Date the Registration Statement complied,
and on the date of the Prospectus, on the date any post-effective
amendment to the Registration Statement shall become effective, on the
date any supplement or amendment to the Prospectus is filed with the
Commission and on the Closing Date, the Registration Statement and the
Prospectus (and any amendment thereof or supplement thereto) will
comply, in all material respects, with the applicable provisions of
the Securities Act and the Rules and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations
of the Commission thereunder. The Registration Statement did not, as
of the Effective Date, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and
on the other dates referred to above, neither the Registration
Statement nor the Prospectus, nor any amendment thereof or supplement
thereto, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. When any
Preliminary Prospectus was first filed with the Commission (whether
filed as part of the Registration Statement or any amendment thereto
or pursuant to Rule 424(a) of the Rules) and when any amendment
thereof or supplement thereto was first filed with the Commission,
such Preliminary Prospectus as amended or supplemented complied in all
material respects with the applicable provisions of the Securities Act
and the Rules and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.
Notwithstanding the foregoing, the Company and the Trust make no
representation or warranty as to the following information (the
"Underwriters' Information") contained in the Prospectus: the first
sentence of the last paragraph of text on the front page of the
Prospectus, concerning the terms of the offering by the Underwriters;
the paragraph on the inside front cover page of the Prospectus
concerning stabilization by the Underwriters; the third paragraph of
text under the caption "Underwriting" in the Prospectus, concerning
the terms of the offering by the Underwriters; and the last paragraph
of text under the caption "Underwriting" in the Prospectus. The
Company and the Trust acknowledge that the
<PAGE> 4
4
Underwriters' Information constitute the only information furnished in
writing by the Representative on behalf of the several Underwriters
specifically for inclusion in the Registration Statement, any
Preliminary Prospectus or the Prospectus.
(b) The documents incorporated by reference in the
Registration Statement and the Prospectus, when they were filed with
the Commission, conformed in all material respects to the requirements
of the Exchange Act and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein not
misleading.
(c) The consolidated financial statements of the Company
(including all notes and schedules thereto) included in the
Registration Statement and Prospectus present fairly the financial
condition, the results of operations and cash flows and stockholders'
equity and the other information purported to be shown therein of the
Company and its subsidiaries (as defined in Section 12) at the
respective dates and for the respective periods to which they apply;
and such financial statements have been prepared in conformity with
generally accepted accounting principles, consistently applied
throughout the periods involved, except as otherwise disclosed therein
and all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results for such periods have
been made.
(d) Arthur Andersen LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during
the periods covered by their reports, were independent public
accountants as required by the Securities Act and the Rules.
(e) The Company and each of TeleBanc and TeleBanc Capital
Markets, Inc. (collectively, the "Subsidiaries") have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, are
qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification, except where the failure to so qualify
will not have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole, and have all corporate power necessary to own or hold their
respective properties, to operate their branches and to conduct the
businesses in which they are engaged; and none of the subsidiaries of
the Company (other than each of the Subsidiaries) is a "significant
subsidiary", as such term is defined in Rule 405 of the Rules. The
deposit accounts of TeleBanc are insured by the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC")
to the fullest extent permitted by law and the rules and regulations
of the FDIC, and no proceedings for the termination of such insurance
are pending or threatened.
(f) The Company and each of the Subsidiaries owns, possesses or
has obtained all governmental licenses, permits, certificates,
consents, orders, approvals and other authorizations required under
the laws of the State of Delaware, the United States and any other
jurisdiction in which the Company or the Subsidiaries transact
business in order to own or lease, as the case may be, and to operate
its properties and to conduct its business as presently conducted and
as described in the Prospectus; all of such
<PAGE> 5
5
licenses, permits, certificates, consents, orders, approvals and
authorizations are in full force and effect and neither the Company
nor any of the Subsidiaries has received any notice of proceedings
relating to any revocation or modification thereof.
(g) The Company and the Subsidiaries each have good and
marketable title in fee simple to all real property and good title to
all personal property owned by it, in each case free and clear of all
liens, encumbrances and defects except such as do not materially
affect the value of such property or do not materially interfere with
the use made of such property by the Company or such Subsidiary; and
all real property and buildings held under lease by the Company or any
of the Subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and do
not interfere with the use made of such property and buildings by the
Company or such Subsidiary.
(h) There is no action, suit, investigation or proceeding,
governmental or otherwise, pending or, to the Company's best
knowledge, threatened or contemplated (and the Company does not know
of any basis therefor) to which the Company or any of its Subsidiaries
is or may be a party or of which the business or property of the
Company or any of its Subsidiaries is or may be subject in either case
that is material to the Company and its Subsidiaries, taken as a
whole, or which is required to be disclosed in the Prospectus.
(i) Except as disclosed in or contemplated by the Registration
Statement and the Prospectus, subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any material adverse change in the
business, financial condition, management or results of operations of
the Company and its Subsidiaries whether or not arising from
transactions in the ordinary course of business, and neither the
Company nor any of its Subsidiaries has sustained any material loss or
interference with its assets, businesses or properties from fire,
explosion, earthquake, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree.
(j) Except as may be disclosed in the Prospectus, the business
of the Company and the Subsidiaries has been conducted in all material
respects in compliance with all applicable laws, rules and regulations
of the State of Delaware, the United States and any other jurisdiction
in which the Company or any of the Subsidiaries transact business, and
of any regulatory agency or authority therein, which laws are material
to the operations of the Company and its Subsidiaries, taken as a
whole. Neither the Company nor any of the Subsidiaries is in violation
in any material respect of any term or provision of its charter or
by-laws or other governing documents or of any franchise, license,
permit, judgment, decree, order, statute, rule, regulation, directive,
policy or guideline to which it or its property may be subject, except
for such violations which could not, individually or in the aggregate,
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
(k) No default exists, and no event has occurred which with
notice or lapse of time or both would constitute a default, in the due
performance and observance of any term, covenant or condition by the
Company or any of the Subsidiaries of any material
<PAGE> 6
6
agreement, indenture, mortgage, deed of trust, note or any other
material agreement or material instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or their
respective properties or businesses may be bound.
(l) Neither the execution, delivery and performance of the
Operative Documents by the Company and the Trust nor the consummation
of any of the transactions contemplated hereby or thereby will
conflict with or result in the breach or violation of any term or
provision of, or constitute a default (or an event which with notice
or lapse of time or both would constitute a default) under, or require
any consent or waiver under, or result in the creation or imposition
of any lien, charge, claim, encumbrance or security interest on any
properties or assets of the Company or any of the Subsidiaries
pursuant to the terms of, any material agreement, indenture, mortgage
or other material agreement or material instrument to which the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the property or
assets of the Company or any of its Subsidiaries is subject, nor will
such actions violate the charter or by-laws or other governing
document of the Company or any of its Subsidiaries or any applicable
law, rule, regulation, decision, order or decree of any court or
governmental agency or governmental authority having jurisdiction over
the Company or any of its Subsidiaries or any of their properties,
except for such violations which will not have a material effect on
the Company.
(m) No consent, approval, authorization or order of, or filing,
registration, or qualification with, any governmental agency or
authority is required in connection with the execution, delivery and
performance by the Company and the Trust of the Operative Documents or
the consummation of the transactions contemplated hereby and taken
thereby, except (A) as may be required under the Securities Act and
the Rules, the Exchange Act, or the Blue Sky laws of the various
states of the United States in connection with any sales of Capital
Securities therein or (B) as have already been obtained or made.
(n) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules which
have not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as
permitted by the Rules.
(o) The Company's capitalization is as set forth in the
Prospectus; all of the issued shares of capital stock of each of the
Subsidiaries of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned by the
Company, directly or indirectly, free and clear of all liens,
encumbrances, equities or claims of any third parties; and no holder
of any security of the Company has the right to have any security
owned by such holder included in the Registration Statement.
(p) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected
therein, neither the Company nor any of the Subsidiaries has (i)
issued or granted any securities (other than shares of the Company's
common stock issued [under the Company's Dividend Reinvestment Common
Stock Purchase Plan], pursuant to the exercise of outstanding stock
options
<PAGE> 7
7
or to employees or directors under bonus or other compensation plans
or arrangements) or incurred any material liability or obligation,
whether fixed or contingent, except for liabilities or obligations
incurred in the ordinary course of its banking business, (ii) entered
into any transaction not in the ordinary course of its banking
business, or (iii) declared or paid any dividend or made any
distribution on any shares of its capital stock (other than regularly
declared quarterly dividends) or redeemed, purchased or otherwise
acquired or agreed to redeem, purchase or otherwise acquire any shares
of its capital stock.
(q) The Capital Securities and the Common Securities have been
duly and validly authorized and, when issued and delivered against
payment therefor as provided herein, will be duly and validly issued,
fully paid and non-assessable; and the Capital Securities and the
Common Securities, when issued and delivered, will conform in all
material respects to the descriptions thereof contained in the
Prospectus.
(r) The Indenture has been duly authorized, and when duly
executed by the proper officers of the Company (assuming due execution
and delivery by the Indenture Trustee) and delivered by the Company
will constitute a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing; and the Debentures
have been duly authorized and, when duly executed, authenticated,
issued and delivered as contemplated in the Indenture, will constitute
valid and binding obligations of the Company entitled to the benefits
of the Indenture and enforceable in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing; and the
Debentures, when issued and delivered, will conform in all material
respects to the description thereof contained in the Prospectus.
(s) The Trust has been duly created and is validly existing as
a statutory business trust in good standing under the Delaware Act
with the trust power and authority to own property and conduct its
business as described in the Prospectus, and has conducted and will
conduct no business other than the transactions contemplated by this
Agreement as described in the Prospectus; the Trust is not a party to
or bound by any agreement or instrument other than this Agreement, the
Amended and Restated Trust Agreement (the "Trust Agreement") among the
Company, Wilmington Trust Company, as property trustee (the "Property
Trustee") and as Delaware trustee (the "Delaware Trustee") and the
individuals named therein as the Administrative Trustees (the
"Administrative Trustees", and together with the Property Trustee and
the Delaware Trustees, the "Trustees"), and the agreements and
instruments contemplated by the Trust Agreement and described in the
Prospectus; the Trust has no liabilities or obligations other than
those arising out of the transactions contemplated by this Agreement
and the agreements and instruments contemplated by the Trust Agreement
and described in the Prospectus; and the Trust is not a party to or
subject to any action, suit or proceeding of any nature.
<PAGE> 8
8
(t) The Trust Agreement has been duly authorized by the
Company and, when duly executed and delivered by the Company and the
Trustees, will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally, general equitable
principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing, and will
conform in all material respects to the description thereof contained
in the Prospectus. Each of the Administrative Trustees is an employee
of the Company and has been duly authorized by the Company to serve in
such capacity and to execute and deliver the Trust Agreement.
(u) The Guarantee Agreement has been duly authorized and, when
duly executed and delivered by the proper officers of the Company and
the Guarantee Trustee, will constitute a valid and legally binding
agreement of the Company enforceable against the Company in accordance
with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing; and
the Guarantee Agreement, when executed and delivered, will conform in
all material respects to the description thereof contained in the
Prospectus.
(v) This Agreement has been duly authorized, executed and
delivered by each of the Company and the Trust.
(w) Neither the Trust nor the Company nor any subsidiary of the
Company is required to register as an "investment company" within the
meaning of such term under the Investment Company Act of 1940 (the
"Investment Company Act") and the rules and regulations of the
Commission thereunder as a result of the consummation of the
transactions contemplated by the Operative Documents.
(x) The conditions for use of Form S-2 by the Company and the
Trust, as set forth in the General Instructions thereto, have been
satisfied.
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Capital
Securities on the Closing Date are subject to each of the following terms and
conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(A)(a) of this Agreement.
(b) No order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus shall have been or shall be
in effect and no order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the Commission, and
any requests for additional information on the part of the Commission
(to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Representative.
<PAGE> 9
9
(c) No Underwriter shall have been advised by the Company or
shall have discovered and disclosed to the Company that the
Registration Statement or the Prospectus or any amendment or
supplement thereto, contains an untrue statement of fact which, in the
opinion of counsel to the Underwriters, is material, or omits to state
a fact which, in the opinion of counsel to the Underwriters, is
material and is required to be stated therein or is necessary to make
the statements therein, in light of the circumstances under which they
are made, not misleading.
(d) The representations and warranties of the Trust and the
Company contained in this Agreement and in the certificates delivered
pursuant to Section 5(e) shall be true and correct when made and on
and as of the Closing Date as if made on such date and each of the
Trust and the Company shall have performed all covenants and
agreements and satisfied all the conditions contained in this
Agreement required to be performed or satisfied by it at or before the
Closing Date.
(e) The Representative shall have received on the Closing Date
a certificate, addressed to the Representative and dated the Closing
Date, of the chief executive or chief operating officer and the chief
financial officer of the Company, to the effect that the signers of
such certificate have carefully examined the Registration Statement,
the Prospectus and this Agreement and that (i) the representations and
warranties of the Company contained in this Agreement are true and
correct in all material respects as if made on and as of the Closing
Date with the same effect as if made on the Closing Date, and the
Company has performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or
satisfied by it at or prior to the Closing Date, including without
limitation, the condition set forth in Section 5(n) and (ii) they have
carefully examined the Registration Statement and the Prospectus and,
in their opinion (A) as of the Effective Date, the Registration
Statement and the Prospectus did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date no event has occurred
which should have been set forth in a supplement to the Prospectus or
an amendment to the Registration Statement.
(f) The Representative shall have received at the time this
Agreement is executed and on the Closing Date a signed letter from
Arthur Andersen LLP addressed to the Representative and dated,
respectively, the date of this Agreement and the Closing Date, in form
and substance reasonably satisfactory to the Representative,
confirming that they are independent accountants within the meaning of
the Securities Act and the Rules and are in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission and stating in
effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Securities
Act and the Rules;
(ii) on the basis of a reading of the financial statements
and amounts included or incorporated by reference in the
Registration Statement
<PAGE> 10
10
and the Prospectus, carrying out certain procedures (but not an
examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such
letter, a reading of the minutes of the meetings of the
shareholders and board of directors of the Company and its
Subsidiaries, and inquiries of certain officials of the Company
who have responsibility for financial and accounting matters of
the Company and its Subsidiaries, nothing came to their
attention which caused them to believe that there were any
changes, increases or decreases, as of the date of the letter,
in consolidated net interest income, net income, long-term debt
or capital stock compared to the same period in the prior year
or as of December 31, 1997, as the case may be, except in all
instances for changes, increases or decreases set forth or
contemplated in the Registration Statement or as otherwise set
forth in this letter; and
(iii) they have performed certain other procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature set forth in the
Registration Statement and the Prospectus agrees with the
financial statements or accounting or other records of the
Company and is arithmetically correct.
References to the Registration Statement and the Prospectus in this paragraph
(h) are to such documents as amended and supplemented at the date of such
letters.
(g) The Representative shall have received on the Closing Date
from Shaw Pittman Potts & Trowbridge, counsel to the Company and the
Trust, an opinion, addressed to the Representative and dated the
Closing Date, and stating in effect that:
(i) The Company and each of the Subsidiaries have been
duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions
of incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification except where the failure to so qualify will not
have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries, taken
as a whole, and have all corporate power necessary to own or
hold their respective properties, to operate their branches and
conduct the business in which they are engaged as described in
the Prospectus;
(ii) The Company's capitalization is as set forth in the
Prospectus; and all of the issued shares of capital stock of
each of the Subsidiaries of the Company have been duly and
validly authorized and issued and are fully paid and
non-assessable and, to the best of such counsel's knowledge, are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims; and no holder of
any security of the Company has the right, under the Company's
certificate of incorporation or by-laws or any agreement or
instrument known to such counsel, to have any security owned by
such holder included in the Registration Statement.
<PAGE> 11
11
(iii) The Registration Statement was declared effective
under the Securities Act at the time and on the date specified
in such counsel's opinion and to the best knowledge of such
counsel, no stop order or other order suspending the
effectiveness of the Registration Statement has been issued and
no proceedings for that purpose are pending before the
Commission under the Securities Act.
(iv) The Registration Statement and the Prospectus
and any further amendments or supplements thereto made by the
Company prior to the Closing Date (other than the financial
statements and related notes and schedules therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act
and the Rules; and the documents incorporated by reference in
the Prospectus (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion), when they were filed with the Commission, complied as
to form in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission
thereunder.
(v) The Company and the Trust meet all the conditions
necessary for the use of Form S-2 in connection with the
issuance and sale of the Capital Securities, the Guarantee and
the Debentures.
(vi) To the best knowledge of such counsel, the
businesses of the Company and the Subsidiaries have been
conducted in all material respects in compliance with all
applicable laws, rules and regulations of the State of Delaware
and the United States, which laws are material to the operations
of the Company and the Subsidiaries, taken as a whole. To the
best knowledge of such counsel, neither the Company nor any of
the Subsidiaries is in violation of or conflict with any term or
provision of its charter or by-laws or other governing documents
and neither the Company nor any of the Subsidiaries is in
violation of any franchise, license, permit, judgment, decree,
order, statute, rule, regulation, directive, policy or guideline
to which it or its property may be subject, except for such
violations which could not, individually or in the aggregate,
have a material adverse effect on the Company and the
Subsidiaries, taken as a whole.
(vii) To the best knowledge of such counsel, no default
exists, and no event has occurred which with notice or lapse of
time or both would constitute a default, in the due performance
and observance of any term, covenant or condition by the Company
or any of the Subsidiaries of any material agreement, indenture,
mortgage, deed of trust, note or any other material agreement or
material instrument to which the Company or any of the
Subsidiaries is a party or by which it or its properties or
businesses may be bound.
(viii) The execution, delivery and performance of the
Operative Documents by the Company and the Trust and the
consummation of the transactions contemplated hereby and thereby
will not conflict with or result in the breach or violation of
any term or provision of, or constitute a default (or
<PAGE> 12
12
an event which with notice or lapse of time or both would
constitute a default) under, or require any consent or waiver
under, or result in the creation or imposition of any lien,
charge, claim, encumbrance or security interest on any
properties or assets of the Company or any of its Subsidiaries
pursuant to the terms of, any material agreement, indenture,
mortgage or other material agreement or material instrument
known to such counsel to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the property or assets
of the Company or any of its Subsidiaries is subject, nor will
such actions violate the charter or by-laws or other governing
document of the Company or any of its Subsidiaries or any
applicable law, rule or administrative regulation of any court
or governmental agency or governmental authority having
jurisdiction over the Company or any of its Subsidiaries or any
of their properties, except for such violations which could not
have, individually or in the aggregate, a material adverse
effect on the Company.
(ix) No consent, approval, authorization or order of or
filing, registration, or qualification with any governmental
agency or authority is required in connection with the execution
and delivery by the Company and the Trust of the Operative
Documents and the consummation of the transactions contemplated
hereby except (A) as may be required under the Exchange Act or
the Blue Sky laws of the various states of the United States in
connection with any sales of Capital Securities therein or (B)
as have already been obtained or made.
(x) This Agreement has been duly authorized, executed and
delivered by the Company and duly executed and delivered by the
Trust.
(xi) The Trust Agreement has been duly authorized,
executed and delivered by the Company.
(xii) The Indenture has been duly authorized, executed
and delivered by the Company and (assuming due authorization,
execution and delivery thereof by the Indenture Trustee)
constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing; and the Debentures have been duly authorized, executed,
issued and delivered by the Company as contemplated in the
Indenture and (assuming due authentication by the Indenture
Trustee) constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in
accordance with their terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
<PAGE> 13
13
(xiii) The Guarantee Agreement has been duly authorized,
executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Guarantee Trustee,
constitutes a valid and legally binding obligation of the
Company enforceable against the Company in accordance with its
terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
(xiv) The statements contained in the Prospectus under
the caption "Certain United States Federal Income Tax
Consequences" are accurate in all material respects and
constitute a fair summary of the matters set forth therein;
(xv) To the best of such counsel's knowledge,
there are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules
which have not been so described or filed as required.
(xvi) The statements in the Prospectus under the
captions "Description of Series A Capital Securities,"
"Description of Series A Subordinated Debentures," "Description
of Series A Guarantee," and "Relationship Among the Series A
Capital Securities, the Series A Subordinated Debentures and the
Series A Guarantee," insofar as such statements constitute a
summary of documents referred to therein or matters of law, are
fair summaries in all material respects and accurately present
the information called for with respect to such documents and
matters.
(xvii) To the best knowledge of such counsel, there is
no action, suit, investigation or proceeding, governmental or
otherwise, pending, threatened or contemplated to which the
Company or any of its Subsidiaries is or may be a party or of
which the business or property of the Company or any of its
Subsidiaries is or may be subject in either case that is
required to be disclosed in the Prospectus.
(xviii) Neither the Trust nor the Company nor any
subsidiary of the Company is required to register as an
investment company under the Investment Company Act as a result
of the transactions contemplated by the Operative Documents.
To the extent deemed advisable by such counsel, they may rely as
to matters of fact on certificates of responsible officers of the
Company and public officials and on the opinions of other counsel
satisfactory to the Representative as to matters which are governed by
laws other than the Delaware General Corporation Law and the federal
laws of the United States of America; provided that such counsel shall
state that in their opinion the Underwriters and they are justified in
relying on such other opinions. Copies of such certificates and other
opinions shall be furnished to the Representative and counsel for the
Underwriters.
<PAGE> 14
14
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company, representatives of the Representative and representatives
of the independent certified public accountants of the Company, at
which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and the Prospectus (except as specified in
the foregoing opinion), on the basis of the foregoing, no facts have
come to the attention of such counsel which lead such counsel to
believe that the Registration Statement at the time it became
effective (except with respect to the financial statements and notes
and schedules thereto and other financial data, as to which such
counsel need express no belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus as amended or supplemented (except
with respect to the financial statements and notes and schedules
thereto and other financial data, as to which such counsel need make
no statement), as of its issue date and at the date of such opinion,
contained any untrue statement of a material fact or omitted 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.
(h) On the Closing Date there shall have been furnished to the
Representative the opinion (addressed to the Underwriters) of Morris,
James, Hitchens & Williams, as special Delaware counsel to the Trust
and the Company, dated the Closing Date, and in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Trust has been duly created and is validly
existing in good standing as a business trust under the Delaware
Act, and all filings required under the laws of the State of
Delaware with respect to the creation and valid existence of the
Trust as a business trust have been made;
(ii) Under the Delaware Act and the Trust
Agreement the Trust has the trust power and authority to own its
property and conduct its business as set forth in the Trust
Agreement;
(iii) The Trust Agreement constitutes a valid and
binding obligation of the Company and the Trustees, and is
enforceable against the Company and the Trustees in accordance
with its terms, subject, as to enforcement, to the effect upon
the Trust Agreement of (i) bankruptcy, insolvency, moratorium,
receivership, reorganization, liquidation, fraudulent transfer
and other similar laws relating to the rights and remedies of
creditors generally, (ii) principles of equity, including
applicable law relating to fiduciary duties (regardless of
whether considered and applied in a proceeding in equity or at
law), and (iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification or
contribution;
(iv) Under the Delaware Act and the Trust
Agreement, the Trust has the trust power and authority (i) to
execute and deliver, and to perform its obligations under, the
Underwriting Agreement and (ii) to issue and perform its
obligations under the Capital Securities and the Common
Securities;
<PAGE> 15
15
(v) Under the Delaware Act and the Trust Agreement, the
execution and delivery by the Trust of this Agreement, and the
performance by the Trust of its obligations hereunder, have been
duly authorized by all necessary trust action on the part of the
Trust;
(vi) The Capital Securities have been duly
authorized by the Trust Agreement and are duly and validly
issued and, subject to the qualifications set forth herein,
fully paid and nonassessable undivided beneficial interests in
the assets of the Trust and are entitled to the benefits of the
Trust Agreement. The holders of the Capital Securities, 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. Such counsel may note
that the holders of Capital Securities may be obligated,
pursuant to the Trust Agreement, (i) to provide indemnity and/or
security in connection with and pay taxes or governmental
charges arising from transfers or exchanges of certificates of
Capital Securities and the issuance of replacement certificates
of Capital Securities, and (ii) to provide security or indemnity
in connection with requests of or directions to the Property
Trustee to exercise its rights and powers under the Trust
Agreement;
(vii) Under the Delaware Act and the Trust
Agreement, the issuance of the Capital Securities is not subject
to preemptive rights;
(viii) The issuance and sale by the Trust of the
Capital Securities and Common Securities, the execution,
delivery and performance by the Trust of the Underwriting
Agreement, the consummation by the Trust of the transactions
contemplated hereby and compliance by the Trust with its
obligations hereunder, and the performance by the Company, as
depositor, of its obligations under the Trust Agreement (A) do
not violate (i) any of the provisions of the certificate of
trust of the Trust or the Trust Agreement or (ii) any applicable
Delaware law or administrative regulation (except that such
counsel need express no opinion with respect to the securities
laws of the State of Delaware) and (B) do not require any
consent, approval, license, authorization or validation of, or
filing or registration with, any Delaware legislative,
administrative or regulatory body under the laws or
administrative regulations of the State of Delaware (except that
such counsel need express no opinion with respect to the
securities laws of the state of Delaware); and
(ix) Assuming that the Trust derives no income
from or in connection with sources within the State of Delaware
and has no assets, activities (other than maintaining the
Delaware Trustee and the filing of documents with the Secretary
of State of the State of Delaware) or employees in the State of
Delaware, the holders of the Capital Securities (other than
those holders of Capital Securities who reside or are domiciled
in the State of Delaware) will have no liability for income
taxes imposed by the State of Delaware solely as a result of
their participation in the Trust, and the Trust will not be
liable for any income tax imposed by the State of Delaware.
<PAGE> 16
16
(i) On the Closing Date there shall have been furnished to the
Representative the opinion (addressed to the Underwriters) of Simpson
Thacher & Bartlett, counsel for the Underwriters, with respect to, as
applicable, the incorporation of the Company, the Registration
Statement, the Prospectus (other than financial statements and other
financial data included therein) and other related matters as the
Representative may reasonably request, and such counsel shall have
received such documents and information as they may reasonably request
to enable them to pass upon such matters.
(j) The Capital Securities to be purchased on the Closing Date
by the Underwriters shall have been approved for listing on the NASDAQ
National Market System.
(k) All corporate proceedings and other legal matters incident
to the authorization, form and validity of the Operative Documents,
the Registration Statement and the Prospectus shall be satisfactory in
all respects to counsel for the Underwriters, and the Representative
shall have been furnished with such additional documents and
certificates as the Representative or counsel for the Underwriters may
reasonably request related to this Agreement, the Prospectus or the
transactions contemplated hereby.
(l) [Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the
Company's debt securities by any "nationally recognized statistical
rating organization," as that term is defined by the Commission for
purposes of Rule 436(g)(2) of the Rules and (ii) no such organization
shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the
Company's debt securities.]
6. Covenants of the Trust and the Company. (A) The Trust and
the Company covenant and agree as follows:
(a) To prepare the Prospectus in a form approved by the
Representative and file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than the second business day following
the execution and delivery of this Agreement, and to promptly advise
the Representative (i) when any amendment to the Registration
Statement shall have become effective, (ii) of any request by the
Commission for any amendment of the Registration Statement or the
Prospectus or for any additional information, (iii) of the prevention
or suspension of the use of any Preliminary Prospectus or the
Prospectus or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose, and
(iv) of the receipt by the Trust or the Company of any notification
with respect to the suspension of the qualification of the Capital
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. Neither the Trust nor
the Company shall file any amendment of the Registration Statement or
supplement to the Prospectus unless the Trust or the Company has
furnished the Representative a copy for its review prior to filing and
shall not file any such proposed amendment or supplement to which the
Representative reasonably object. Each of the Trust and the Company
shall use its
<PAGE> 17
17
best efforts to prevent the issuance of any such stop order and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Capital
Securities is required to be delivered under the Securities Act and
the Rules, any event occurs as a result of which the Prospectus as
then amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend or
supplement the Prospectus to comply with the Securities Act or the
Rules, to promptly shall prepare and file with the Commission, subject
to the second sentence of paragraph (a) of this Section 6(A), an
amendment or supplement which shall correct such statement or omission
or an amendment which shall effect such compliance.
(c) To make generally available to its security holders and to
the Representative as soon as practicable, but not later than 45 days
after the end of the 12-month period beginning at the end of the
fiscal quarter of the Company during which the Effective Date occurs
(or 90 days if such 12-month period coincides with the Company's
fiscal year), an earning statement (which need not be audited) of the
Company, covering such 12-month period, which shall satisfy the
provisions of Section 11(a) of the Securities Act or Rule 158 of the
Rules.
(d) To furnish to the Representative and counsel for the
Underwriters, without charge, (i) signed copies of the Registration
Statement (including all exhibits thereto and amendments thereof) and
to each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and all amendments thereof (ii) copies of
any document incorporated by reference in the Prospectus (including
exhibits thereto) and, (iii) so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or the
Rules, as many copies of any preliminary prospectus and the Prospectus
and any amendments thereof and supplements thereto as the
Representative may reasonably request.
(e) To cooperate with the Representative and its counsel in
endeavoring to qualify the Capital Securities for offer and sale under
the laws of such jurisdictions as the Representative may designate and
to maintain such qualifications in effect so long as required for the
distribution of the Capital Securities.
(f) For a period of five years after the date of this
Agreement, to supply to the Representative, copies of such financial
statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of
its capital stock and to furnish to the Representative a copy of each
annual or other report it shall be required to file with the
Commission.
(g) Without the prior written consent of the Representative,
for a period of 180 days after the date of this Agreement, not to
offer, issue, sell, contract to sell or otherwise dispose of any
additional securities of the Trust or the Company substantially
similar to the Capital Securities or any securities convertible into
or exchangeable for or that represent the right to receive any such
similar securities.
<PAGE> 18
18
(h) On or before completion of this offering the Company and
the Trust shall make all filings required under applicable securities
laws and by the NASDAQ National Market System.
(B) Each of the Trust and the Company agrees to pay, or reimburse if
paid by the Representative, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and expenses
incident to the public offering of the Capital Securities and the performance
of the obligations of the Trust and the Company under this Agreement including
those relating to: (i) the preparation, printing, filing and distribution of
the Registration Statement including all exhibits thereto, each Preliminary
Prospectus, the Prospectus, all amendments and supplements to the Registration
Statement and the Prospectus, and the printing, filing and distribution of this
Agreement; (ii) the preparation and delivery of certificates for the Capital
Securities to the Underwriters; (iii) the registration or qualification of the
Capital Securities for offer and sale under the securities or Blue Sky laws of
the various jurisdictions referred to in Section 6(A)(e), including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such registration and qualification and the preparation, printing,
distribution and shipment of preliminary and supplementary Blue Sky memoranda;
(iv) the furnishing (including costs of shipping and mailing) to the
Representative and to the Underwriters of copies of each Preliminary
Prospectus, the Prospectus and all amendments or supplements to the Prospectus,
and of the several documents required by this Section to be so furnished, as
may be reasonably requested for use in connection with the offering and sale of
the Capital Securities by the Underwriters or by dealers to whom Capital
Securities may be sold; (v) the furnishing (including costs of shipping and
mailing) to the Representative and to the Underwriters of copies of all reports
and information required by Section 6(A)(vi); (vi) inclusion of the Capital
Securities for quotation on the NASDAQ National Market System and (vii) all
transfer taxes, if any, with respect to the sale and delivery of the Capital
Securities by the Trust to the Underwriters. Subject to the provisions of
Section 9, the Underwriters agree to pay, whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated, all costs
and expenses incident to the performance of the obligations of the Underwriters
under this Agreement not payable by the Company or the Trust pursuant to the
preceding sentence, including, without limitation, the fees and disbursements
of counsel for the Underwriters.
7. Indemnification.
(a) The Trust and the Company agree, jointly and severally, to
indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all
losses, claims, damages and liabilities, joint or several (including
any reasonable investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or
other Federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto, or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading;
<PAGE> 19
19
provided, however, that such indemnity shall not inure to the benefit
of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the
sale of the Capital Securities to any person by such Underwriter if
such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration
Statement or the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with information furnished in writing
to the Company by the Representative on behalf of any Underwriter
specifically for use therein. This indemnity agreement will be in
addition to any liability which the Trust and the Company may
otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Trust and the Company, each person, if
any, who controls the Trust or the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act,
each director of the Company, and each officer of the Trust or of the
Company who signs the Registration Statement, to the same extent as
the foregoing indemnity from the Trust and the Company to each
Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was contained
in the Underwriters' Information.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party
in respect of which a claim is to be made against an indemnifying
party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided
for in Section 7(a) or 7(b) shall be available to any party who shall
fail to give notice as provided in this Section 7(c) if the party to
whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give
such notice but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit
or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses, except as
provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in
which case the indemnifying parties shall not have the right to
direct the
<PAGE> 20
20
defense of such action on behalf of the indemnified party) or
(iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement
of any action, suit, proceeding or claim effected without its written
consent.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) is due in accordance with its terms but for any reason is held to
be unavailable from the Trust or the Company, each of the Trust, the Company,
and the Underwriters shall contribute to the aggregate losses, claims, damages
and liabilities (including any investigation, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claims asserted, but after deducting any
contribution received by the Trust or the Company from persons other than the
Underwriters, such as persons who control the Trust or the Company within the
meaning of the Securities Act, officers of the Trust or of the Company who
signed the Registration Statement and directors of the Company, who may also be
liable for contribution) to which the Trust, the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Trust and the Company on the one hand and the
Underwriters on the other from the offering of the Capital Securities or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Trust and the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Trust, the
Company and the Underwriters shall be deemed to be in the same proportion as
(x) the total proceeds from the offering before deducting expenses) received by
the Trust and the Company, as set forth in the table on the cover page of the
Prospectus, bear to (y) the underwriting discounts received by the
Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Trust and the Company or the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact related to information supplied by the
Trust and the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Trust, the Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, (i) in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Capital Securities purchased by such
Underwriter hereunder, and (ii) the Trust and the Company shall be liable and
responsible for any amount in excess of such underwriting discount; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Trust or the
<PAGE> 21
21
Company within the meaning of the Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each officer of the Trust or of the Company who
shall have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Trust and the Company,
subject in each case to clauses (i) and (ii) in the immediately preceding
sentence of this Section 8. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section, notify such party or
parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than under this Section.
No party shall be liable for contribution with respect to any action, suit,
proceeding or claim settled without its written consent. The Underwriter's
obligations to contribute pursuant to this Section 8 are several in proportion
to their respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with
respect to the Capital Securities to be purchased on the Closing Date by the
Representative by notifying the Trust and the Company at any time:
(a) in the absolute discretion of the Representative at or
before the Closing Date: (i) if on or prior to such date, any domestic
or international event or act or occurrence has materially disrupted,
or in the opinion of the Representative will in the future materially
disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United
States of America is such as to make it, in the judgment of the
Representative, inadvisable to proceed with the offering; (iii) if
there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international
conditions on the financial markets in the United States of America is
such as to make it, in the judgment of the Representative, inadvisable
or impracticable to market the Capital Securities; (iv) if trading in
the Capital Securities has been suspended by the Commission or trading
generally on the New York Stock Exchange, Inc. or on the American
Stock Exchange, Inc. has been suspended or limited, or minimum or
maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said
exchanges or by order of the Commission, the National Association of
Securities Dealers, Inc., or any other governmental or regulatory
authority; or (v) if a banking moratorium has been declared by any
state or Federal authority, or
(b) at or before the Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its
provisions, neither the Trust nor the Company shall be under any liability to
any Underwriter, and no Underwriter shall be under any liability to the Trust
and the Company, except that (y) if this Agreement is terminated by the
Representative or the Underwriters because of any failure, refusal or inability
on the part of the Trust or the Company to comply with the terms or to fulfill
any of the conditions of this Agreement, the Trust or the Company will
reimburse the Underwriters for all out-of-pocket expenses (including the
reasonable fees and disbursements
<PAGE> 22
22
of their counsel) incurred by them in connection with the proposed purchase and
sale of the Capital Securities or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused
to purchase the Capital Securities agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Trust the Company or to the other Underwriters for damages
occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 9) to purchase on
the Closing Date the Capital Securities agreed to be purchased on the Closing
Date by such Underwriter or Underwriters, the Representative may find one or
more substitute underwriters to purchase such Capital Securities or make such
other arrangements as the Representative may deem advisable or one or more of
the remaining Underwriters may agree to purchase such Capital Securities in
such proportions as may be approved by the Representative, in each case upon
the terms set forth in this Agreement. If no such arrangements have been made
by the close of business on the business day following the Closing Date,
(a) if the number of Capital Securities to be purchased by the
defaulting Underwriters on the Closing Date shall not exceed 10% of
the Capital Securities that all the Underwriters are obligated to
purchase on the Closing Date, then each of the nondefaulting
Underwriters shall be obligated to purchase such Capital Securities on
the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum
number of Capital Securities that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section
10 by more than one ninth of such number of Capital Securities without
the written consent of such Underwriter, or
(b) if the number of Capital Securities to be purchased by the
defaulting Underwriters on the Closing Date shall exceed 10% of the
Capital Securities that all the Underwriters are obligated to purchase
on the Closing Date, then the Company and Trust shall be entitled to
an additional business day within which it may, but is not obligated
to, find one or more substitute underwriters reasonably satisfactory
to the Representative to purchase such Capital Securities upon the
terms set forth in this Agreement.
In any such case, either the Representative, the Trust or the
Company shall have the right to postpone the Closing Date for a period of not
more than five (5) business days in order that necessary changes and
arrangements (including any necessary amendments or supplements to the
Registration Statement or Prospectus) may be effected by the Representative,
the Trust and the Company. If the number of Capital Securities to be purchased
on the Closing Date by such defaulting Underwriter or Underwriters shall exceed
10% of the Capital Securities that all the Underwriters are obligated to
purchase on the Closing Date, and none of the nondefaulting Underwriters, the
Trust or the Company shall make arrangements pursuant to this Section within
the period stated for the purchase of the Capital Securities that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Capital Securities to be purchased on the Closing Date without
liability on the part of any nondefaulting Underwriter to the Trust and the
Company and without liability on the part of the Trust and the Company, except
in both cases as provided
<PAGE> 23
23
in Sections 6(B), 7, 8 and 9. The provisions of this Section shall not in any
way affect the liability of any defaulting Underwriter to the Trust, the
Company or the nondefaulting Underwriters arising out of such default. A
substitute underwriter hereunder shall become an Underwriter for all purposes
of this Agreement.
11. Miscellaneous. The respective agreements,
representations, warranties, indemnities and other statements of the Trust and
the Company or their officers and of the Underwriters set forth in or made
pursuant to this Agreement shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Trust or the
Company or any of the officers, directors or controlling persons referred to in
Sections 7 and 8 hereof, and shall survive delivery of and payment for the
Capital Securities. The provisions of Sections 6(B), 7, 8 and 9 shall survive
the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Trust and the Company, and each of their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, the Trust or the Company, and
directors and officers of the Trust and the Company, and each of their
respective successors and assigns, and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Capital Securities from any
Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representative, to CIBC Oppenheimer Corp., Oppenheimer
Tower, World Financial Center, New York, New York 10281 Attention:
____________, (b) if to the Trust or the Company, to the address of the Company
set forth on the cover page of the Registration Statement, Attention:
Secretary.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
<PAGE> 24
This Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
TELEBANC CAPITAL TRUST II
By
----------------------------------
Name:
Title:
TELEBANC FINANCIAL CORPORATION
By
----------------------------------
Name:
Title:
Confirmed:
CIBC OPPENHEIMER CORP.
As representative of the several
Underwriters named in Schedule I annexed
hereto.
By CIBC OPPENHEIMER CORP.
By
----------------------------
Name:
Title:
Underwriting Agreement
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Capital Securities
Securities Underwriter to be Purchased
---------------------- ---------------
<S> <C>
CIBC Oppenheimer Corp. ......................
Legg Mason Wood Walker Incorporated..........
BancAmerica Robertson Stephens...............
---------------
1,100,000
===============
</TABLE>
<PAGE> 1
EXHIBIT 4.1
TELEBANC FINANCIAL CORPORATION
AND
WILMINGTON TRUST COMPANY
TRUSTEE
JUNIOR SUBORDINATED INDENTURE
DATED AS OF ______________, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................................................1
SECTION 1.1. Definitions.........................................................................1
SECTION 1.2. Compliance Certificate and Opinions................................................10
SECTION 1.3. Forms of Documents Delivered to Trustee............................................10
SECTION 1.4. Acts of Holders....................................................................11
SECTION 1.5. Notices, Etc. to Trustee and Corporation...........................................13
SECTION 1.6. Notice to Holders; Waiver..........................................................13
SECTION 1.7. Conflict with Trust Indenture Act..................................................13
SECTION 1.8. Effect of Headings and Table of Contents...........................................14
SECTION 1.9. Successors and Assigns.............................................................14
SECTION 1.10. Separability Clause................................................................14
SECTION 1.11. Benefits of Indenture..............................................................14
SECTION 1.12. Governing Law......................................................................14
SECTION 1.13. Non-Business Days..................................................................14
ARTICLE II. SECURITY FORMS.......................................................................................15
SECTION 2.1. Forms Generally....................................................................15
SECTION 2.2. Form of Face of Security...........................................................15
SECTION 2.3. Form of Reverse of Security........................................................19
SECTION 2.4. Additional Provisions Required in Global Security..................................22
SECTION 2.5. Form of Trustee's Certificate of Authentication....................................22
ARTICLE III. THE SECURITIES......................................................................................23
SECTION 3.1. Title and Terms....................................................................23
SECTION 3.2. Denominations......................................................................25
SECTION 3.3. Execution, Authentication, Delivery and Dating.....................................25
SECTION 3.4. Temporary Securities...............................................................27
SECTION 3.5. Registration, Transfer and Exchange................................................27
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities...................................29
SECTION 3.7. Payment of Interest; Interest Rights Preserved.....................................30
SECTION 3.8. Persons Deemed Owners..............................................................31
SECTION 3.9. Cancellation.......................................................................31
SECTION 3.10. Computation of Interest............................................................32
SECTION 3.11. Deferrals of Interest Payment Dates................................................32
SECTION 3.12. Right of Set-Off...................................................................33
SECTION 3.13. Agreed Tax Treatment...............................................................33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.14. Shortening or Extension of Stated Maturity.........................................34
SECTION 3.15. CUSIP Numbers......................................................................34
ARTICLE IV. SATISFACTION AND DISCHARGE...........................................................................35
SECTION 4.1. Satisfaction and Discharge of Indenture............................................35
SECTION 4.2. Application of Trust Money.........................................................36
ARTICLE V. REMEDIES..............................................................................................36
SECTION 5.1. Events of Default..................................................................36
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.................................37
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee....................38
SECTION 5.4. Trustee May File Proofs of Claim...................................................39
SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities........................40
SECTION 5.6. Application of Money Collected.....................................................40
SECTION 5.7. Limitation on Suits................................................................41
SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest; Direct Action by Holders of Preferred Securities.....................41
SECTION 5.9. Restoration of Rights and Remedies.................................................42
SECTION 5.10. Rights and Remedies Cumulative.....................................................42
SECTION 5.11. Delay or Omission Not Waiver.......................................................42
SECTION 5.12. Control by Holders.................................................................43
SECTION 5.13. Waiver of Past Defaults............................................................43
SECTION 5.14. Undertaking for Costs..............................................................44
SECTION 5.15. Waiver of Usury, Stay or Extension Laws............................................44
ARTICLE VI. THE TRUSTEE..........................................................................................44
SECTION 6.1. Certain Duties and Responsibilities................................................44
SECTION 6.2. Notice of Defaults.................................................................46
SECTION 6.3. Certain Rights of Trustee..........................................................46
SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.............................47
SECTION 6.5. May Hold Securities................................................................47
SECTION 6.6. Money Held in Trust................................................................47
SECTION 6.7. Compensation and Reimbursement.....................................................47
SECTION 6.8. Disqualification; Conflicting Interests............................................48
SECTION 6.9. Corporate Trustee Required; Eligibility............................................48
SECTION 6.10. Resignation and Removal; Appointment of Successor..................................49
SECTION 6.11. Acceptance of Appointment by Successor.............................................51
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business........................52
SECTION 6.13. Preferential Collection of Claims Against Corporation..............................52
SECTION 6.14. Appointment of Authenticating Agent................................................52
ii
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE AND CORPORATION...............................................54
SECTION 7.1. Corporation to Furnish Trustee Names and Addresses of Holders......................54
SECTION 7.2. Preservation of Information, Communications to Holders.............................54
SECTION 7.3. Reports by Trustee.................................................................55
SECTION 7.4. Reports by Corporation.............................................................55
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE...............................................55
SECTION 8.1. Corporation May Consolidate, Etc., Only on Certain Terms...........................55
SECTION 8.2. Successor Corporation Substituted..................................................56
ARTICLE IX. SUPPLEMENTAL INDENTURES..............................................................................57
SECTION 9.1. Supplemental Indentures without Consent of Holders.................................57
SECTION 9.2. Supplemental Indentures with Consent of Holders....................................58
SECTION 9.3. Execution of Supplemental Indentures...............................................59
SECTION 9.4. Effect of Supplemental Indentures..................................................60
SECTION 9.5. Conformity with Trust Indenture Act................................................60
SECTION 9.6. Reference in Securities to Supplemental Indentures.................................60
ARTICLE X. COVENANTS.............................................................................................60
SECTION 10.1. Payment of Principal, Premium and Interest.........................................60
SECTION 10.2. Maintenance of Office or Agency....................................................61
SECTION 10.3. Money for Security Payments to be Held in Trust....................................61
SECTION 10.4. Statement as to Compliance.........................................................63
SECTION 10.5. Waiver of Certain Covenants........................................................63
SECTION 10.6. Payment of Trust Costs and Expenses................................................63
SECTION 10.7. Additional Covenants...............................................................64
SECTION 10.8. Calculation of Original Issue Discount.............................................64
ARTICLE XI. REDEMPTION OF SECURITIES.............................................................................65
SECTION 11.1. Applicability of This Article......................................................65
SECTION 11.2. Election to Redeem; Notice to Trustee..............................................65
SECTION 11.3. Selection of Securities to be Redeemed.............................................65
SECTION 11.4. Notice of Redemption...............................................................66
SECTION 11.5. Deposit of Redemption Price........................................................67
SECTION 11.6. Payment of Securities Called for Redemption........................................67
SECTION 11.7. Right of Redemption of Securities Initially Issued to a Trust......................68
iii
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XII. SINKING FUNDS.......................................................................................68
SECTION 12.1. Applicability of Article...........................................................68
SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities..............................68
SECTION 12.3. Redemption of Securities for Sinking Fund..........................................69
ARTICLE XIII. SUBORDINATION OF SECURITIES........................................................................70
SECTION 13.1. Securities Subordinate to Senior Debt..............................................70
SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc.....................................71
SECTION 13.3. Prior Payment to Senior Debt Upon Acceleration of Securities.......................72
SECTION 13.4. No Payment When Senior Debt in Default.............................................72
SECTION 13.5. Payment Permitted If No Default....................................................73
SECTION 13.6. Subrogation to Rights of Holders of Senior Debt....................................74
SECTION 13.7. Provisions Solely to Define Relative Rights........................................74
SECTION 13.8. Trustee to Effectuate Subordination................................................74
SECTION 13.9. No Waiver of Subordination Provisions..............................................75
SECTION 13.10. Notice to Trustee..................................................................75
SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent.....................76
SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Debt...................................76
SECTION 13.13. Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights...................................................................76
SECTION 13.14. Article Applicable to Paying Agents................................................76
SECTION 13.15. Certain Conversions or Exchanges Deemed Payment....................................77
SECTION 13.16. Trust Moneys Not Subordinated......................................................77
iv
</TABLE>
<PAGE> 6
JUNIOR SUBORDINATED INDENTURE, dated as of ________________, 1998,
between TELEBANC FINANCIAL CORPORATION, a Delaware corporation (hereinafter
called the "Corporation") having its principal office at 1111 North Highland
Street, Arlington, Virginia 22201, and WILMINGTON TRUST COMPANY, a Delaware
banking corporation, having its principal office at 100 North Market Street,
Wilmington, Delaware 19890, as Trustee (hereinafter called the "Trustee").
RECITALS OF THE CORPORATION
The Corporation has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in one or more series (the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Corporation of the proceeds from
the issuance from time to time by one or more business trusts (each, a "Trust,"
and, collectively, the "Trusts") of preferred interests in such Trusts (the
"Preferred Securities") and common interests in such Trust (the "Common
Securities" and, collectively with the Preferred Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the
Corporation and authenticated and delivered hereunder and duly issued by the
Corporation, the valid obligations of the Corporation, and to make this
Indenture a valid agreement of the Corporation, in accordance with their and its
terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of
the premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
1
<PAGE> 7
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
mean that set of principles consistent with those in use by the Corporation; and
(4) 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.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on
any interest on the Securities of any series the payment of which has not been
made on the applicable Interest Payment Date and which shall accrue at the rate
per annum specified or determined as specified in such Security from the
applicable Interest Payment Date.
"Additional Taxes" means the sum of any additional taxes, duties and
other governmental charges to which a Trust has become subject from time to time
as a result of a Tax Event.
"Administrative Trustee" means, in respect of any Trust, each Person
identified as an "Administrative Trustee" in the related Trust Agreement, solely
in such Person's capacity as Administrative Trustee of such Trust under such
Trust Agreement and not in such Person's individual capacity, or any successor
administrative trustee appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, no Trust to which
Securities have been issued shall be deemed to be an Affiliate of the
Corporation. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities of one or more series.
"Board of Directors" means either the board of directors of the
Corporation or any committee of that board duly authorized to act hereunder.
"Board Resolution" means 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, or such committee of the Board of Directors or
officers of the Corporation to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
2
<PAGE> 8
"Business Day" means any day other than (i) a Saturday or Sunday, (ii)
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 or (iii) a day on which the Corporate Trust Office of the Trustee,
or, with respect to the Securities of a series initially issued to a Trust, the
principal office of the Property Trustee under the related Trust Agreement, is
closed for business.
"Capital Treatment Event," with respect to the Trust, means that the
Corporation shall have received an Opinion of Counsel from independent bank
regulatory counsel experienced in such matters to the effect that the Preferred
Securities, as a result of (a) any amendment to or change (including any
announced prospective change) in the laws (or any regulations thereunder) of the
United States or any rules, guidelines or policies of the appropriate regulatory
authorities or (b) any official administrative pronouncement or judicial
decision for interpreting or applying such laws or regulations, which amendment
or change is effective or such pronouncement or decision is announced on or
after the date of the original issuance of the Preferred Securities, do not
constitute, or within 90 days of the date thereof, will not constitute Tier 1
Capital or its then equivalent applied as if the Corporation or its successor
were a bank holding company under The Bank Holding Company Act of 1956, as
amended; provided, however, that the distribution of the Securities in
connection with the liquidation of the Issuer by the Corporation shall not in
and of itself constitute a Capital Treatment Event unless such liquidation shall
have occurred in connection with a Tax Event.
"Commission" means 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" has the meaning specified in the first recital of
this Indenture.
"Common Stock" means the common stock, par value $0.01 per share, of
the Corporation.
"Corporation" means the Person named as the "Corporation" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Corporation" shall mean such successor Person.
"Corporation Request" and "Corporation Order" mean, respectively, the
written request or order signed in the name of the Corporation by the Chairman
of the Board of Directors, the Vice Chairman of the Board of Directors, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Secretary or an Assistant Secretary of the Corporation, and delivered to the
Trustee.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered,
which at the date hereof is Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890.
3
<PAGE> 9
"corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Debt" means, with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person 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 such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person 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 such Person; (vi) every
obligation of such Person for claims in respect of derivative products, such as
interest and foreign exchange rate contracts, commodity contracts, 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, such Person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor or otherwise.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Global
Securities, the Person designated as Depositary by the Corporation pursuant to
Section 3.1 with respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the Maturity thereof pursuant to Section 5.2.
"Distributions," with respect to the Securities issued by a Trust,
means amounts payable in respect of such Securities as provided in the related
Trust Agreement and referred to therein as "Distributions."
"Dollar" means the currency of the United States of America that, as at
the time of payment, is legal tender for the payment of public and private
debts.
"Event of Default" unless otherwise specified in the supplemental
indenture creating a series of Securities has the meaning specified in Article
V.
"Exchange Act" means the Securities Exchange Act of 1934 and any
statute successor thereto, in each case as amended from time to time.
"Existing Capital Securities" means the aggregate of the common
interests in and the $10 million of 11.0% preferred securities issued by
TeleBanc Capital Trust I in June, 1997 and guaranteed by the Corporation.
4
<PAGE> 10
"Expiration Date" has the meaning specified in Section 1.4(f).
"Extension Period" has the meaning specified in Section 3.11.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System, as from time to time constituted, or if at any time after the execution
of this Indenture the Federal Reserve is not existing and performing the duties
now assigned to it, then the body performing such duties at such time.
"Global Security" means a Security in the form prescribed in Section
2.4 evidencing all or part of a series of Securities, issued to the Depositary
or its nominee for such series, and registered in the name of such Depositary or
its nominee.
"Guarantee Agreement," with respect to the Securities issued by a
Trust, means the Guarantee Agreement substantially in the form attached hereto
as Annex C, or substantially in such form as may be specified as contemplated by
Section 3.1 with respect to the Securities of any series, in each case as
amended from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of each particular series of Securities established
as contemplated by Section 3.1.
"Interest Payment Date" means as to each series of Securities the
Stated Maturity of an installment of interest on such Securities.
"Junior Subordinated Payment" has the meaning specified in Section
13.2.
"Maturity" when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
"Notice of Default" means a written notice of the kind specified in
Section 5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of
the Board of Directors, a Vice Chairman of the Board of Directors, the President
or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary of the Corporation, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Corporation, and who shall be acceptable to the Trustee.
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<PAGE> 11
"Original Issue Date" means the date of issuance specified as such in
each Security.
"Outstanding" means, when used in reference to any Securities, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment or redemption price money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent in trust for the Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other
Securities have been authenticated and delivered or which have been paid
pursuant to Section 3.6, unless proof satisfactory to the Trustee is presented
that any such Securities are held by Holders in whose hands such Securities are
valid, binding and legal obligations of the Corporation;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Corporation or any other obligor upon the Securities or any Affiliate of
the Corporation or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee actually knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Corporation or any other obligor upon
the Securities or any Affiliate of the Corporation or such other obligor. Upon
the written request of the Trustee, the Corporation shall furnish to the Trustee
promptly an Officers' Certificate listing and identifying all Securities, if
any, known by the Corporation to be owned or held by or for the account of the
Corporation or any other obligor on the Securities or any Affiliate of the
Corporation or such obligor, and, subject to the provisions of Section 6.1, the
Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the
Corporation to pay the principal of (or premium, if any) or interest on any
Securities on behalf of the Corporation.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means, with respect to the Securities of any series,
the place or places where the principal of (and premium, if any) and interest on
the Securities of such series are payable pursuant to Sections 3.1 and 3.11.
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"Predecessor Security" of any particular Security means 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 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Preferred Securities" has the meaning specified in the first recital
of this Indenture.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any Trust, the commercial bank
or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such Trust under such
Trust Agreement and not in its individual capacity, or its successor in interest
in such capacity, or any successor property trustee appointed as therein
provided.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of a series, (i) in the case
of Securities of a series represented by one or more Global Securities, the
Business Day next preceding such Interest Payment Date and (ii) in the case of
Securities of a series not represented by one or more Global Securities, the
date which is fifteen days next preceding such Interest Payment Date (whether or
not a Business Day).
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee from time to time to administer
its corporate trust matters.
"Rights Plan" means a plan of the Corporation providing for the
issuance by the Corporation to all holders of its Common Stock of rights
entitling the holders thereof to subscribe for or purchase shares of Common
Stock or any class or series of preferred stock of the Corporation, which rights
(i) are deemed to be transferred with such shares of Common Stock, (ii) are not
exercisable and (iii) are also issued in respect of future issuances of Common
Stock, in each case until the occurrence of a specified event or events.
"S&P" means Standard & Poor's Ratings Services.
"Securities" means any debt securities or debt security, as the case
may be, authenticated and delivered under this Indenture.
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"Series A Guarantee," with respect to the Securities issued by a Trust,
means the guarantee by the Corporation of Distributions on such Securities to
the extent provided in the applicable Guarantee Agreement.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Corporation whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt of the Corporation, whether incurred on or prior to the date of this
Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are not superior in right of payment to the Securities or
to other Debt which is pari passu with, or subordinated to, the Securities,
provided, however, that Senior Debt shall not be deemed to include (a) any Debt
of the Corporation which, when incurred and without respect to any election
under Section 1111(b) of the Bankruptcy Reform Act of 1978, as amended, was
without recourse to the Corporation, (b) any Debt of the Corporation to any of
its Subsidiaries, (c) Debt to any employee of the Corporation, (d) Debt which by
its terms is subordinated to trade accounts payable or accrued liabilities
arising in the ordinary course of business to the extent that payments made to
the holders of such Debt by the holders of the Securities as a result of the
subordination provisions of this Indenture would be greater than such payments
otherwise would have been (absent giving effect to this clause (d)) as a result
of any obligation of such holders of such Debt to pay amounts over to the
obligees on such trade accounts payable or accrued liabilities arising in the
ordinary course of business as a result of subordination provisions to which
such Debt is subject, and (e) any Securities.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Security or any
installment of principal thereof or interest thereon means the date specified
pursuant to the terms of such Security as the date on which the principal of
such Security or such installment of interest thereon is due and payable, in the
case of such principal, as such date may be shortened or extended as provided
pursuant to the terms of such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Corporation or by
one or more other Subsidiaries, or by the Corporation and one or more other
Subsidiaries. For purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors, whether at all times
or only so long as no senior class of stock has such voting power by reason of
any contingency.
"Tax Event," with respect to a Trust, means the receipt by such Trust
of an Opinion of Counsel experienced in such matters to the effect that, as a
result of (a) any amendment to, or change (including any announced proposed
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or (b) any
official administrative pronouncement or judicial decision interpreting or
applying such laws or
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<PAGE> 14
regulations, which amendment or change is effective or which proposed change,
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities of such Trust, there is more than an insubstantial risk
that (i) such Trust is, or will be within 90 days of the date of such Opinion of
Counsel, subject to United States federal income tax with respect to income
received or accrued on the corresponding series of Securities issued by the
Corporation to such Trust, (ii) interest payable by the Corporation on such
corresponding series of Securities is not, or within 90 days of the date of such
Opinion of Counsel, will not be, deductible by the Corporation, in whole or in
part, for United States federal income tax purposes or (iii) such Trust is, or
will be within 90 days of the date of such Opinion of Counsel, subject to more
than a de minimis amount of other taxes, duties or other governmental charges.
"Trust" has the meaning specified in the first recital of this
Indenture.
"Trust Agreement," with respect to a Trust, means a Trust Agreement
substantially in the form attached hereto as Annex A, as amended by the form of
Amended and Restated Trust Agreement substantially in the form attached hereto
as Annex B, or substantially in such form as may be specified as contemplated by
Section 3.1 with respect to the Securities of any series, in each case as
amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder and,
if at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
Section 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of
this Indenture.
"Vice President," when used with respect to the Corporation, means any
duly appointed vice president, whether or not designated by a number or a word
or words added before or after the title "vice president."
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SECTION 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Corporation to the Trustee to
take any action under any provision of this Indenture, the Corporation shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent (including covenants, compliance with which constitutes a condition
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 (including covenants the
compliance with which constitutes a condition precedent), if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 10.5) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(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 each such individual, he has
made or caused to be 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, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Corporation may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer or counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a
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certificate or opinion of, or representations by, an officer or officers of the
Corporation stating that the information with respect to such factual matters is
in the possession of the Corporation, unless such counsel rendering such Opinion
of Counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given to or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent or
proxy duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
is or are delivered to the Trustee, and, where it is hereby expressly required,
to the Corporation. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act" of
the Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent or proxy shall be
sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Corporation, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a Person acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Corporation
in reliance thereon, whether or not notation of such action is made upon such
Security.
(f) The Corporation may set any day as a record date for the purpose of
determining the
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Holders of Outstanding Securities entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided or permitted by this Indenture to be given, made or taken by Holders of
Securities of such series, provided that the Corporation may not set a record
date for, and the provisions of this paragraph shall not apply with respect to,
the giving or making of any notice, declaration, request or direction referred
to in the next paragraph. If any record date is set pursuant to this paragraph,
the Holders of the relevant Outstanding Securities on such record date, and no
other Holders, shall be entitled to take the relevant action, whether or not
such Holders remain Holders after such record date, provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of the relevant
Outstanding Securities on such record date. Nothing in this paragraph shall be
construed to prevent the Corporation from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of the relevant Outstanding Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this paragraph, the Corporation, at its own expense, shall cause notice of such
record date, the proposed action by Holders and the applicable Expiration Date
to be given to the Trustee in writing and to each Holder of the relevant
Securities in the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 5.2, (iii) any request to institute proceedings referred
to in Section 5.7(2) or (iv) any direction referred to in Section 5.12, in each
case with respect to the relevant Securities. If any record date is set pursuant
to this paragraph, the Holders of the relevant Outstanding Securities on such
record date, and no other Holders, shall be entitled to join in such notice,
declaration, request or direction, whether or not such Holders remain Holders
after such record date, provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of the relevant Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action for which a record date has
previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be cancelled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of the
relevant Outstanding Securities on the date such action is taken. Promptly after
any record date is set pursuant to this paragraph, the Trustee, at the
Corporation's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the
Corporation in writing and to each Holder of the relevant Securities in the
manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of the relevant Outstanding Securities in the manner set forth in
Section 10.6, on or prior to
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the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section, the party hereto which
set such record date shall be deemed to have initially designated the 180th day
after such record date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 1.5. Notices, Etc. to Trustee and Corporation.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Preferred Securities or
the Corporation shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, or
(2) the Corporation by the Trustee, any Holder or any holder of
Preferred Securities shall be sufficient for every purpose (except as otherwise
provided in Section 5.1) hereunder if in writing and mailed, first class,
postage prepaid, to the Corporation addressed to it at the address of its
principal office specified in the first paragraph of this instrument or at any
other address previously furnished in writing to the Trustee by the Corporation.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
SECTION 1.7. Conflict with Trust Indenture Act.
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If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive, of the Trust
Indenture Act through operation of Section 318(c) thereof, such imposed duties
shall control.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Corporation shall
bind its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision of this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Debt, the Holders of the Securities and, to the
extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and 9.2,
the holders of Preferred Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES THEREOF.
SECTION 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day) except that, if
such Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day (in each case with the same force
and effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity).
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ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
The Securities of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article, or
in such other form or forms as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with applicable tax laws or the rules of any
securities exchange or automated quotation system on which the Securities may be
listed or traded or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities. If
the form of Securities of any series is established by action taken pursuant to
a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Corporation and
delivered to the Trustee at or prior to the delivery of the Corporation Order
contemplated by Section 3.3 with respect to the authentication and delivery of
such Securities.
The Trustee's certificates of authentication shall be substantially in
the form set forth in this Article.
The definitive Securities shall be typewritten, printed, lithographed
or engraved or produced by any combination of these methods, if required by any
securities exchange or automated quotation system on which the Securities may be
listed or traded, on a steel engraved border or steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
or automated quotation system on which the Securities may be listed or traded,
all as determined by the officers executing such Securities, as evidenced by
their execution of such securities.
SECTION 2.2. Form of Face of Security.
TELEBANC FINANCIAL CORPORATION CUSIP ____
__% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
No. $
TELEBANC FINANCIAL CORPORATION, a corporation organized and existing
under the laws of the state of Delaware (hereinafter called the "Corporation",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to , or registered
assigns, the principal sum of Dollars on __________ __, ____[; provided that the
Corporation may, subject to certain conditions set forth in
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Section 3.14 of the Indenture, (i) shorten the Stated Maturity of the principal
of this Security to a date not earlier than __________, and (ii) extend the
Stated Maturity of the principal of this Security at any time on one or more
occasions, but in no event to a date later than __________]. The Corporation
further promises to pay interest on said principal sum from , or from the most
recent interest payment date (each such date, an "Interest Payment Date") on
which interest has been paid or duly provided for, [monthly] [quarterly]
[semi-annually] [if applicable, insert (subject to deferral as set forth
herein)] in arrears on [insert applicable Interest Payment Dates] of each year,
commencing , , at the rate of % per annum, until the principal hereof shall
have become due and payable, [if applicable, insert plus Additional Interest, if
any,] until the principal hereof is paid or duly provided for or made available
for payment [if applicable, insert -and on any overdue principal 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 rate of % per
annum, compounded [monthly] [quarterly] [semi-annually]. The amount of interest
payable for any period shall be computed on the basis of twelve 30-day months
and a 360-day year. The amount of interest payable for any partial period shall
be computed on the basis of the number of days elapsed in a 360-day year of
twelve 30-day months. In the event that any date on which interest is payable on
this Security is not a Business Day, then a payment of the interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date the payment was originally payable.
A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in New York, New York, Wilmington, DE or
Arlington, VA are authorized or required by law or executive order to remain
closed or (iii) a day on which the Corporate Trust Office of the Trustee is
closed for business. 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 is registered at the close of business on the Regular
Record Date for such interest installment, which shall be the [insert definition
of Regular Record Dates]. Any such interest installment not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and may either 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 for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange or automated quotation system on which
the Securities of this series may be listed or traded, and upon such notice as
may be required by such exchange or self-regulatory organization, all as more
fully provided in said Indenture.
[If applicable, insert - So long as no Event of Default has occurred
and is continuing, the Corporation shall have the right at any time during the
term of this Security to defer payment of interest on this Security, at any time
or from time to time, for up to consecutive [monthly] [quarterly] [semi-annual]
interest payment periods with respect to each deferral period (each an
"Extension Period"), during which Extension Periods the Corporation shall have
the right to make partial payments of interest on any Interest Payment Date, and
at the end of which the Corporation shall pay all interest then accrued and
unpaid (together with Additional Interest thereon to the
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<PAGE> 22
extent permitted by applicable law); provided, however, that no Extension Period
shall extend beyond the Stated Maturity of the principal of this Security;
provided, further, that during any such Extension Period, the Corporation 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 Corporation's
capital stock or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Corporation
that rank pari passu with or junior in interest to the Securities of such series
or (iii) make any guarantee payments with respect to any guarantee by the
Corporation of the debt securities of any Subsidiary of the Corporation if such
guarantee ranks pari passu with or junior in interest to the Securities of such
series (other than (a) dividends or distributions in capital stock of the
Corporation, (b) any declaration of a dividend in connection with the
implementation of a Rights Plan or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Series A Guarantee, (d)
purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Corporation's benefit plans for its directors, officers or
employees, related to the issuance of Common Stock or rights under a dividend
reinvestment and stock purchase plan, or related to the issuance of Common Stock
(or securities convertible into or exchangeable for Common Stock) as
consideration in an acquisition transaction that was entered into prior to the
commencement of such Extension Period) and (e) guarantee payments with respect
to the guarantee by the Corporation of the Existing Capital Securities to the
extent such payments are made pari passu with payments with respect to the
Series A Guarantee). Prior to the termination of any such Extension Period, the
Corporation may further defer the payment of interest, provided that no
Extension Period shall exceed __ consecutive [months] [quarters] [semi-annual]
periods or extend beyond the Stated Maturity of the principal of this Security.
Upon the termination of any such Extension Period and upon the payment of all
accrued and unpaid interest and any Additional Interest then due, 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 shall give the Holder of this
Security and the Trustee notice of its election to begin any Extension Period at
least one Business Day prior to the next succeeding Interest Payment Date on
which interest on this Security would be payable but for such deferral [if
applicable, insert - or, with respect to the Securities issued to a Trust, so
long as such Securities are held by such Trust, prior to the earlier of (i) the
next succeeding date on which Distributions on the Preferred Securities would be
payable but for such deferral or (ii) the date the Administrative Trustees are
required to give notice to any securities exchange or other applicable
self-regulatory organization or to holders of such Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date]].
Payment of principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Corporation maintained for
that purpose in the United States, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts [if applicable, insert -; provided, however, that at the option of
the Corporation payment of interest may be made (i) by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Securities Register or (ii) by wire transfer in immediately available funds at
such place and to such account as may be designated in writing at least 15 days
before the relevant Interest Payment Date by the Person entitled thereto as
specified in the Securities Register].
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<PAGE> 23
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payments to the prior
payment in full of all Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Debt, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE> 24
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
duly executed under its corporate seal.
TELEBANC FINANCIAL CORPORATION
By:
[President or Vice President]
Attest:
[Secretary or Assistant Secretary]
SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Corporation (herein called the "Securities"), issued and to be issued in one or
more series under a Junior Subordinated Indenture, dated as of , 1998
(herein called the "Indenture"), between the Corporation and Wilmington Trust
Company, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Corporation and the Holders of the Securities, and of the terms upon which
the Securities are, and are to be, authenticated and delivered. This Security is
one of the series designated on the face hereof [, limited in aggregate
principal amount to $ ].
All terms used in this Security that are defined in the Indenture [if
applicable, insert -or in the Amended and Restated Trust Agreement, dated as of
_______ __, 1998, as amended (the "Trust Agreement")], among TeleBanc Financial
Corporation, as Depositor, and the Trustees named therein, shall have the
meanings assigned to them in the Indenture [if applicable, insert -or the Trust
Agreement, as the case may be].
[If applicable, insert--The Corporation may at any time, at its option,
on or after _________, ____, and subject to the terms and conditions of Article
XI of the Indenture, redeem this Security in whole at any time or in part from
time to time, without premium or penalty, at a redemption price equal to 100% of
the principal amount thereof plus accrued and unpaid interest [if applicable,
insert -including Additional Interest, if any] to the Redemption Date.]
[If applicable, insert -Upon the occurrence and during the continuation
of a Tax Event or a Capital Treatment Event in respect of a Trust, the
Corporation may, at its option, at any time within 90 days of the occurrence of
such Tax Event or Capital Treatment Event redeem this Security, in whole but not
in part, subject to the provisions of Section 11.7 and the other provisions of
Article
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<PAGE> 25
XI of the Indenture, at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest, including Additional Interest, if any,
to the Redemption Date.]
In the event of redemption of this Security in part only, a new
Security or Securities of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Corporation with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Corporation and the Trustee at any time to enter into a supplemental indenture
or indentures for the purpose of modifying in any manner the rights and
obligations of the Corporation and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of all series to be affected by such supplemental
indenture. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities of all series at the
time Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Corporation with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange hereof
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
[If the Security is not a Discount Security, -As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities of this series at the time Outstanding occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Securities of this series may
declare the principal amount of all the Securities of this series to be due and
payable immediately, by a notice in writing to the Corporation (and to the
Trustee if given by Holders), provided that, in the case of the Securities of
this series issued to a Trust, if upon an Event of Default, the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series fails to declare the principal of all the Securities of this
series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Preferred Securities then outstanding shall
have such right by a notice in writing to the Corporation and the Trustee; and
upon any such declaration the principal amount of and the accrued interest
(including any Additional Interest) on all the Securities of this series shall
become immediately due and payable, provided that the payment of principal and
interest (including any Additional Interest) on such Securities shall remain
subordinated to the extent provided in Article XIII of the Indenture.]
[If the Security is a Discount Security, -As provided in and subject to
the provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than such portion
of the principal amount as may be specified in the terms of this series may
declare an
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<PAGE> 26
amount of principal of the Securities of this series to be due and payable
immediately, by a notice in writing to the Corporation (and to the Trustee if
given by Holders), provided that, in the case of the Securities of this series
issued to a Trust, if upon an Event of Default, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Securities of this
series fails to declare the principal of all the Securities of this series to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Preferred Securities then outstanding shall have such
right by a notice in writing to the Corporation and the Trustee. Such amount
shall be equal to - insert formula for determining the amount. Upon any such
declaration, such amount of the principal of and the accrued interest (including
any Additional Interest) on all the Securities of this series shall become
immediately due and payable, provided that the payment of principal and interest
(including any Additional Interest) on such Securities shall remain subordinated
to the extent provided in Article XIII of the Indenture. Upon payment (i) of the
amount of principal so declared due and payable and (ii) of interest on any
overdue principal and overdue interest (in each case to the extent that the
payment of such interest shall be legally enforceable), all of the Corporation's
obligations in respect of the payment of the principal of and interest, if any,
on this Security shall terminate.]
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 on this Security at the times, place and rate, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Corporation maintained under Section 10.2 of the
Indenture duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Corporation and the Securities Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees. No service charge shall be made for any such
registration of transfer or exchange, but the Corporation may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Corporation, the Trustee and any agent of the Corporation or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Corporation, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Securities of this series are issuable only in registered form
without coupons in denominations of $ and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of such series of a different authorized denomination, as
requested by the Holder surrendering the same.
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<PAGE> 27
The Corporation and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.
SECTION 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the
provisions contained in Sections 2.2 and 2.3, bear a legend in substantially the
following form:
"This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Security is exchangeable for Securities registered
in the name of a person other than the Depositary or its nominee only in the
limited circumstances described in the Indenture and may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary."
SECTION 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
WILMINGTON TRUST COMPANY
as Trustee
By: _______________________________________
Authorized Signatory
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<PAGE> 28
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued from time to time in one or more series.
The following matters shall be established in or pursuant to a Board Resolution,
and set forth in an Officers' Certificate, or established in one or more
indentures supplemental hereto, prior to the issuance of Securities of a series:
(a) the title of the Securities of such series, which shall distinguish
the Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6 and except for any
Securities which, pursuant to the last paragraph of Section 3.3, are deemed
never to have been authenticated and delivered hereunder); provided, however,
that the authorized aggregate principal amount of such series may be increased
above such amount by a Board Resolution to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series
shall bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 3.11 or as otherwise set forth therein, of the Corporation
to defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any)
and interest on the Securities of such series shall be payable, the place or
places where the Securities of such series may be presented for registration of
transfer or exchange, and the place or places where notices and demands to or
upon the Corporation in respect of the Securities of such series may be made;
(f) the period or periods within which, or the date or dates on which,
if any, the price or prices at which and the terms and conditions upon which the
Securities of such series may be redeemed, in whole or in part, at the option of
the Corporation;
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<PAGE> 29
(g) the obligation or the right, if any, of the Corporation to redeem,
repay or purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions or upon the happening of a specified event,
or at the option of a Holder thereof, and the period or periods within which,
the price or prices at which, the currency or currencies (including currency
unit or units) in which and the other terms and conditions upon which Securities
of the series shall be redeemed, repaid or purchased, in whole or in part,
pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $25 and any integral multiple thereof;
(i) if other than Dollars, the currency or currencies (including
currency unit or units) in which the principal of (and premium, if any) and
interest, if any, on the Securities of the series shall be payable, or in which
the Securities of the series shall be denominated;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Corporation set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series that shall be payable upon
declaration of acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to
the Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the manner
in which such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall
initially be issuable in the form of a temporary Global Security representing
all or such portion of the Securities of such series and provisions for the
exchange of such temporary Global Security for definitive Securities of such
series;
(o) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form of one or more Global Securities and, in such
case, the respective Depositaries for such Global Securities, the form of any
legend or legends which shall be borne by any such Global Security in addition
to or in lieu of that set forth in Section 2.4 and any circumstances in addition
to or in lieu of those set forth in Section 3.5 in which any such Global
Security may be exchanged in whole or in part for Securities registered, and any
transfer of such Global Security in whole or in part may be registered, in the
name or names of Persons other than the Depositary for such Global Security or a
nominee thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of
such series;
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<PAGE> 30
(q) the terms of any right to convert or exchange Securities of such
series into any other securities or property of the Corporation, and the
additions or changes, if any, to this Indenture with respect to the Securities
of such series to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated
Trust Agreement and Guarantee Agreement, if different from the forms attached
hereto as Annexes A, B and C, respectively;
(s) the relative degree, if any, to which the Securities of the series
shall be senior to or be subordinated to other series of Securities in right of
payment, whether such other series of Securities are Outstanding or not; and
(t) any other terms of the Securities of such series (which terms shall
not be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical
except as to denomination and except as may otherwise be provided herein or in
or pursuant to such Board Resolution and set forth in such Officers' Certificate
or in any such indenture supplemental hereto.
If any of the terms of the Securities of any series are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the Secretary or an Assistant Secretary of the
Corporation and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior Debt
as provided in Article XIII.
SECTION 3.2. Denominations.
The Securities of each series shall be in registered form without
coupons and shall be issuable in denominations of $25 and any integral multiple
thereof, unless otherwise specified as contemplated by Section 3.1.
SECTION 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Corporation by its
President or one of its Vice Presidents under its corporate seal reproduced or
impressed thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Corporation shall bind the
Corporation, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities. At any time and from
time to time after the execution and delivery of this Indenture, the Corporation
may deliver
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<PAGE> 31
Securities of any series executed by the Corporation to the Trustee for
authentication, together with a Corporation Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Corporation
Order shall authenticate and make such Securities available for delivery. If the
form or terms of the Securities of the series have been established by or
pursuant to one or more Board Resolutions as permitted by Sections 2.1 and 3.1,
in authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 6.1) shall be fully protected in
relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or
pursuant to Board Resolution as permitted by Section 2.1, that such
form has been established in conformity with the provisions of this
Indenture;
(2) if the terms of such Securities have been established by
or pursuant to Board Resolution as permitted by Section 3.1, that such
terms have been established in conformity with the provisions of this
Indenture;
(3) that such Securities, when authenticated and delivered by
the Trustee and issued by the Corporation in the manner and subject to
any conditions specified in such Opinion of Counsel, will constitute
valid and legally binding obligations of the Corporation enforceable in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and
(4) that all laws and requirements in respect of the execution
and delivery by the Corporation of such Securities have been complied
with.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Corporation Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Security shall be conclusive
evidence, and the only
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<PAGE> 32
evidence, that such Security has been duly authenticated and delivered
hereunder. Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the
Corporation, and the Corporation shall deliver such Security to the Trustee for
cancellation as provided in Section 3.9, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered
hereunder and shall not be entitled to the benefits of this Indenture.
SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the
Corporation may execute, and upon Corporation Order the Trustee shall
authenticate and make available for delivery, temporary Securities which are
printed, lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive Securities
of such series 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 evidenced by their execution of such
Securities.
If temporary Securities of any series are issued, the Corporation will
cause definitive Securities of such series to be prepared without unreasonable
delay. 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 of the Corporation designated for that
purpose without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Corporation shall execute and the Trustee
shall authenticate and make available for delivery in exchange therefor one or
more definitive Securities of the same series, of any authorized denominations
having the same Original Issue Date and Stated Maturity and having the same
terms as such temporary Securities. Until so exchanged, the temporary Securities
of any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series.
SECTION 3.5. Registration, Transfer and Exchange.
The Corporation shall cause to be kept at the Corporate Trust Office of
the Trustee a register in which, subject to such reasonable regulations as it
may prescribe, the Corporation shall provide for the registration of Securities
and of transfers of Securities. Such register is herein sometimes referred to as
the "Securities Register." The Trustee is hereby appointed "Securities
Registrar" for the purpose of registering Securities and transfers of Securities
as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Corporation designated for that purpose the Corporation
shall execute, and the Trustee shall authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated Maturity
and having the same terms.
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<PAGE> 33
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated Maturity
and having the same terms, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for exchange,
the Corporation shall execute, and the Trustee shall authenticate and make
available for delivery, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall
be the valid obligations of the Corporation, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall
(if so required by the Corporation or the Securities Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Corporation and the Securities Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or
exchange of Securities, but the Corporation may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Securities.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:
(1) Each Global Security authenticated under this Indenture
shall be registered in the name of the Depositary designated for such
Global Security or a nominee thereof and delivered to such Depositary
or a nominee thereof or custodian therefor, and each such Global
Security shall constitute a single Security for all purposes of this
Indenture.
(2) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities
registered, and no transfer of a Global Security in whole or in part
may be registered, in the name of any Person other than the Depositary
for such Global Security or a nominee thereof unless (A) such
Depositary (i) has notified the Corporation that it is unwilling or
unable to continue as Depositary for such Global Security or (ii) has
ceased to be a clearing agency registered under the Exchange Act at a
time when the Depositary is required to be so registered to act as
depositary, in either case unless the Corporation has approved a
successor Depositary within 90 days, (B) there shall have occurred and
be continuing an Event of Default with respect to such Global Security,
(C) the Corporation in its sole discretion determines that such Global
Security will be so exchangeable or transferable or (D) there shall
exist such circumstances, if any, in addition to or in lieu of the
foregoing as have been specified for this purpose as contemplated by
Section 3.1.
(3) Subject to Clause (2) above, any exchange of a Global
Security for other Securities may be made in whole or in part, and all
Securities issued in exchange for a
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<PAGE> 34
Global Security or any portion thereof shall be registered in such
names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global
Security or any portion thereof, whether pursuant to this Section,
Section 3.4, 3.6, 9.6 or 11.6 or otherwise, shall be authenticated and
delivered in the form of, and shall be, a Global Security, unless such
Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
Neither the Corporation nor the Trustee shall be required, pursuant to
the provisions of this Section, (a) to issue, transfer or exchange any Security
of any series during a period beginning at the opening of business 15 days
before the day of selection for redemption of Securities pursuant to Article XI
and ending at the close of business on the day of mailing of notice of
redemption or (b) to transfer or exchange any Security so selected for
redemption in whole or in part, except, in the case of any Security to be
redeemed in part, any portion thereof not to be redeemed.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with
such security or indemnity as may be required by the Corporation or the Trustee
to save each of them harmless, the Corporation shall execute and the Trustee
shall authenticate and make available for delivery in exchange therefor a new
Security of the same issue and series of like tenor and principal amount, having
the same Original Issue Date and Stated Maturity and bearing the same interest
rate as such mutilated Security, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Corporation and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Corporation or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Corporation shall execute and upon its request the Trustee shall authenticate
and make available for delivery, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same issue and series of like tenor and
principal amount, having the same Original Issue Date and Stated Maturity and
bearing the same interest rate as such destroyed, lost or stolen Security, and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Corporation in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Corporation may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
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Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Corporation, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date, shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in respect of Securities of such series, except that, unless
otherwise provided in the Securities of such series, interest payable on the
Stated Maturity of the principal of a Security shall be paid to the Person to
whom principal is paid. The initial payment of interest on any Security of any
series which is issued between a Regular Record Date and the related Interest
Payment Date shall be payable as provided in such Security or in the Board
Resolution pursuant to Section 3.1 with respect to the related series of
Securities. At the option of the Corporation, interest on any series of
Securities may be paid (i) by check mailed to the address of the Person entitled
thereto as it shall appear on the Securities Register of such series or (ii) by
wire transfer in immediately available funds at such place and to such account
as designated by the Person entitled thereto as specified in the Securities
Register of such series.
Any interest on any Security which is payable, but is not timely paid
or duly provided for, on any Interest Payment Date for Securities of such series
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Corporation, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Corporation may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities of such series in respect of which
interest is in default (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 Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Corporation shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed
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payment. The 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 Special Record
Date therefor to be mailed, first class, postage prepaid, to each Holder of a
Security of such series at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the
Corporation, cause a similar notice to be published at least once in a
newspaper, customarily published in the English language on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
but such publication shall not be a condition precedent to the establishment of
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 the
Securities of such series (or their respective Predecessor Securities) are
registered on such Special Record Date and shall no longer be payable pursuant
to the following Clause (2).
(2) The Corporation may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange or automated quotation system on which the Securities of the series in
respect of which interest is in default may be listed or traded and, upon such
notice as may be required by such exchange (or by the Trustee if the Securities
are not listed), if, after notice given by the Corporation to the Trustee of the
proposed payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.
Any interest on any Security which is deferred or extended pursuant to
Section 3.11 shall not be Defaulted Interest for the purposes of this Section
3.7.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
SECTION 3.8. Persons Deemed Owners.
The Corporation, the Trustee and any agent of the Corporation or the
Trustee may treat the Person in whose name any Security is registered as the
owner of such Security for the purpose of receiving payment of principal of and
(subject to Section 3.7) any interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Corporation, the Trustee nor any agent of the Corporation or the Trustee shall
be affected by notice to the contrary.
SECTION 3.9. Cancellation.
All Securities surrendered for payment, redemption, transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee, and any such Securities and Securities surrendered
directly to the Trustee for any such purpose shall be promptly canceled by it.
The Corporation may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the
Corporation may have acquired in any manner whatsoever, and all Securities so
delivered shall be promptly canceled by
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the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities shall be returned by the
Trustee to the Corporation and destroyed by the Corporation.
SECTION 3.10. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for
Securities of any series, interest on the Securities of each series for any
period shall be computed on the basis of a 360-day year of twelve 30-day months
and interest on the Securities of each series for any partial period shall be
computed on the basis of the number of days elapsed in a 360-day year of twelve
30-day months.
SECTION 3.11. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, so long as no Event of Default has
occurred and is continuing, the Corporation shall have the right, at any time
during the term of such series, from time to time to defer the payment of
interest on such Securities for such period or periods as may be specified as
contemplated by Section 3.1 (each, an "Extension Period") during which Extension
Periods the Corporation shall have the right to make partial payments of
interest on any Interest Payment Date. No Extension Period shall end on a date
other than an Interest Payment Date. At the end of any such Extension Period the
Corporation shall pay all interest then accrued and unpaid on the Securities
(together with Additional Interest thereon, if any, at the rate specified for
the Securities of such series to the extent permitted by applicable law) to the
Persons in whose names that Securities are registered at the close of business
on the Regular Record Date with respect to the Interest Payment Date at the end
of such Extension Period; provided, however, that no Extension Period shall
extend beyond the Stated Maturity of the principal of the Securities of such
series; provided, further, that during any such Extension Period, the
Corporation 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 Corporation's capital stock, (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Corporation that rank pari passu with or junior in interest to the Securities of
such series or (iii) make any guarantee payments with respect to any guarantee
by the Corporation of the debt securities of any Subsidiary of the Corporation
if such guarantee ranks pari passu with or junior in interest to the Securities
of such series (other than (a) dividends or distributions in the capital stock
of the Corporation, (b) any declaration of a dividend in connection with the
implementation of a Rights Plan, or the redemption or repurchase of any such
rights pursuant thereto, (c) payments under the Series A Guarantee, (d)
purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Corporation's benefit plans for its directors, officers or
employees, related to the issuance of Common Stock or rights under a dividend
reinvestment and stock purchase plan, or related to the issuance of Common Stock
(or securities convertible into or exchangeable for Common Stock) as
consideration in an acquisition transaction that was entered into prior to the
commencement of such Extension Period and (e) guarantee payments with respect to
the guarantee by the Corporation of the Existing Capital Securities to the
extent such payments are made pari passu with payments with respect to the
Series A Guarantee). Prior to the termination of any such Extension Period, the
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Corporation may further defer the payment of interest, provided that no
Extension Period shall exceed the period or periods specified in such Securities
or extend beyond the Stated Maturity of the principal of such Securities. Upon
termination of any Extension Period and upon the payment of all accrued and
unpaid interest and any Additional Interest 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 shall give the Holders of the
Securities of such series and the Trustee written notice of its election to
begin any such Extension Period at least one Business Day prior to the next
succeeding Interest Payment Date on which interest on Securities of such series
would be payable but for such deferral or, with respect to the Securities of a
series issued to a Trust, so long as such Securities are held by such Trust,
prior to the earlier of (i) the next succeeding date on which Distributions on
the Preferred Securities of such Trust would be payable but for such deferral or
(ii) the date the Administrative Trustees of such Trust are required to give
notice to any securities exchange or other applicable self-regulatory
organization or to holders of such Preferred Securities of the record date or
the date such Distributions are payable, but in any event not less than one
Business Day prior to such record date.
The Trustee shall promptly give notice, in the name and at the expense
of the Corporation, of the Corporation's election to begin any such Extension
Period to the Holders of the Outstanding Securities of such series.
SECTION 3.12. Right of Set-Off.
With respect to the Securities of a series issued to a Trust,
notwithstanding anything to the contrary in the Indenture, the Corporation shall
have the right to set-off any payment it is otherwise required to make
thereunder in respect of any such Security to the extent the Corporation has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Series A Guarantee relating to such Security or under Section
5.8 of the Indenture.
SECTION 3.13. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Corporation and,
by its acceptance of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a beneficial interest in, such Security intend that
such Security constitutes indebtedness and agree to treat such Security as
indebtedness for United States federal, local and state tax purposes.
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SECTION 3.14. Shortening or Extension of Stated Maturity.
If specified as contemplated by Section 2.1 or Section 3.1 with respect
to the Securities of a particular series, the Corporation shall have the right
to (i) shorten the Stated Maturity of the principal of the Securities of such
series at any time to any date not earlier than the first date on which the
Corporation has the right to redeem the Securities of such series, and (ii)
extend the Stated Maturity of the principal of the Securities of such series at
any time at its election for one or more periods, but in no event to a date
later than the 49th anniversary of the Original Issue Date of the Securities of
such series; provided that, if the Corporation elects to exercise its right to
extend the Stated Maturity of the principal of the Securities of such series
pursuant to clause (ii), above, at the time such election is made and at the
time of extension (A) the Corporation is not in bankruptcy, otherwise insolvent
or in liquidation, (B) the Corporation is not in default in the payment of any
interest or principal on such Securities, and (C) in the case of any series of
Securities held by a Trust, such Trust is not in arrears on payments of
Distributions on the Preferred Securities issued by such Trust and no deferred
Distributions are accumulated. In the event the Corporation elects to shorten or
extend the Stated Maturity of the Securities, it shall give written notice to
the Trustee, and the Trustee shall give notice of such shortening or extension
to the Holders, no less than 30 and no more than 60 days prior to the
effectiveness thereof. The Corporation's right to shorten the Stated Maturity of
the principal of the Securities of such series pursuant to clause (i) above is
subject to the Corporation having received prior approval of the federal
regulators if required under applicable capital guidelines or policies.
SECTION 3.15. CUSIP Numbers.
The Corporation in issuing the Securities may use "CUSIP" numbers (if
then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Corporation will promptly
notify the Trustee of any change in the CUSIP numbers.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Corporation Request, cease to be of further
effect (except as to any surviving rights of registration of transfer or
exchange of Securities herein expressly provided for and as otherwise provided
in this Section 4.1) and the Trustee, on demand of and at the expense of the
Corporation, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.6 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Corporation and thereafter repaid to the Corporation or discharged
from such trust, as provided in Section 10.3) have been delivered to the Trustee
for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year of the date of deposit, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the
name, and at the expense, of the Corporation,
and the Corporation, in the case of Clause (B) (i), (ii) or
(iii) above, has deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount in
the currency or currencies in which the Securities of such
series are payable sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal (and premium, if
any) and interest (including any Additional Interest) to the
date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Corporation has paid or caused to be paid all other sums
payable hereunder by the Corporation; and
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(3) the Corporation has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Corporation to the Trustee under Section 6.7, the obligations
of the Corporation to any Authenticating Agent under Section 6.14 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of clause
(1) of this Section, the obligations of the Trustee under Section 4.2 and the
last paragraph of Section 10.3 shall survive.
SECTION 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by the Trustee, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Corporation acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default," wherever used herein with respect to the Securities
of any series, means any one of the following events (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):
(1) default in the payment of any interest upon any Security of that
series, including any Additional Interest in respect thereof, when it becomes
due and payable, and continuance of such default for a period of 30 days
(subject to the deferral of any interest payment date in the case of an
Extension Period); or
(2) default in the payment of the principal of (or premium, if any, on)
any Security of that series at its Maturity; or
(3) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Corporation in this Indenture with respect to
that series (other than a covenant or warranty a default in the performance of
which or the breach of which 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
Trustee or to the Corporation and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding
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Securities of that series a written notice specifying such default or breach and
requiring it to be remedied; or
(4) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Corporation a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Corporation under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(5) the institution by the Corporation of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or the
making by it of an assignment for the benefit for creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due and
its willingness to be adjudicated a bankrupt, or the taking of corporate action
by the Corporation in furtherance of any such action; or
(6) any other Event of Default provided with respect to Securities of
that series.
SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all the Securities of
that series to be due and payable immediately, by a notice in writing to the
Corporation (and to the Trustee if given by Holders), provided that, in the case
of the Securities of a series issued to a Trust, if, upon an Event of Default,
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series fail to declare the principal amount (or,
if the Securities of that series are Discount Securities, such portion of the
principal amount as may be specified in the terms of that series) of all the
Securities of that series to be immediately due and payable, the holders of at
least 25% in aggregate liquidation amount of the corresponding series of
Preferred Securities then outstanding shall have such right by a notice in
writing to the Corporation and the Trustee; and upon any such declaration such
principal amount (or specified portion thereof) of and the accrued interest
(including any Additional Interest) on all the Securities of such series shall
become immediately due and payable. Payment of principal and interest (including
any Additional Interest) on such Securities shall remain subordinated to the
extent provided in Article XIII notwithstanding that such amount shall become
immediately due
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and payable as herein provided. If an Event of Default specified in Section
5.1(4) or 5.1(5) with respect to Securities of any series at the time
Outstanding occurs, the principal amount of all the Securities of that series
(or, if the Securities of that series are Discount Securities, such portion of
the principal amount of such Securities as may be specified by the terms of that
series) shall automatically, and without any declaration or other action on the
part of the Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Corporation and
the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Corporation has paid or deposited with the Trustee a sum
sufficient to pay:
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series which
has become due solely by such acceleration, have been cured or waived as
provided in Section 5.13; provided that, in the case of Securities of a series
held by a Trust, if the Holders of at least a majority in principal amount of
the Outstanding Securities of that series fails to rescind and annul such
declaration and its consequences, the holders of a majority in aggregate
Liquidation Amount (as defined in the Trust Agreement under which such Trust is
formed) of the related series of Preferred Securities then outstanding shall
have such right by written notice to the Corporation and the Trustee, subject to
the satisfaction of the conditions set forth in Clauses (1) and (2) above of
this Section 5.2.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Corporation covenants that if:
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(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if
any, on) any Security at the Maturity thereof, the Corporation will, upon demand
of the Trustee, pay to the Trustee, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal, including any sinking fund payment or analogous obligations (and
premium, if any) and interest (including any Additional Interest); and, in
addition thereto, all amounts owing the Trustee under Section 6.7.
If the Corporation fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Corporation or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Corporation or any other
obligor upon the Securities, wherever situated.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Corporation or any other obligor upon the
Securities or the property of the Corporation or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the
Securities of any series shall then be due and payable as therein expressed or
by declaration of acceleration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Corporation for the payment of overdue
principal (and premium, if any) or interest (including any Additional Interest))
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (or, if
the Securities of that series are Discount Securities, such portion of the
principal amount as may be due and payable pursuant to a declaration in
accordance with Section 5.2) (and premium, if any) and interest (including any
Additional Interest) owing and unpaid in respect to the Securities and to file
such other papers or documents as may be necessary or advisable and to take any
and all actions as are
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authorized under the Trust Indenture Act in order to have the claims of the
Holders and any predecessor to the Trustee under Section 6.7 allowed in any such
judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) in any such judicial proceeding is
hereby authorized by each Holder to make such payments to the Trustee for
distribution in accordance with Section 5.6, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
SECTION 5.5. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of all the amounts owing the Trustee and any
predecessor Trustee under Section 6.7, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or premium,
if any) or interest (including any Additional Interest), upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due
and unpaid upon such series of Securities for principal (and premium, if any),
interest (including any Additional Interest) and Additional Taxes, in respect of
which or for the benefit of which such money has been
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collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such series of Securities for principal (and premium,
if any) and interest (including any Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 5.7. Limitation on Suits.
No Holder of any Securities of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture
or for the appointment of a receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of security or indemnity has failed to institute any such proceeding;
and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
SECTION 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders of Preferred Securities.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.7)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder. In the case of Securities of a series held by a Trust, any holder of the
corresponding series of Preferred Securities held by such Trust shall
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have the right, upon the occurrence of an Event of Default described in Section
5.1(1) or 5.1(2), to institute a suit directly against the Corporation for
enforcement of payment to such holder of principal of (premium, if any) and
(subject to Section 3.7) interest (including any Additional Interest) on the
Securities having a principal amount equal to the aggregate Liquidation Amount
(as defined in the Trust Agreement under which such Trust is formed) of such
Preferred Securities of the corresponding series held by such holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Preferred Securities has
instituted any proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee, such Holder or such holder of
Preferred Securities, then and in every such case the Corporation, the Trustee,
the Holders and such holder of Preferred Securities shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee, the Holders and the holders of Preferred Securities shall continue as
though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security or any
holder of any Preferred Security to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee
or to the Holders and the right and remedy given to the holders of Preferred
Securities by Section 5.8 may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee, the Holders or the holders of Preferred
Securities, as the case may be.
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SECTION 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have
the right to decline to follow such direction if a Responsible Officer or
Officers of the Trustee shall, in good faith, determine that the proceeding so
directed would be unjustly prejudicial to the Holders not joining in any such
direction or would involve the Trustee in personal liability.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series and, in the case of any Securities of a
series issued to a Trust, the holders of a majority in Liquidation Amount (as
defined in the relevant Trust Agreement) of Preferred Securities issued by such
Trust may waive any past default hereunder and its consequences with respect to
such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series (unless all
Events of Default with respect to Securities of that series, other than the
non-payment of the principal of Securities of that series which has become due
solely by such acceleration, have been cured or annulled as provided in Section
5.3 and the Corporation has paid or deposited with the Trustee a sum sufficient
to pay all overdue installments of interest (including any Additional Interest)
on all Securities of that series, the principal of (and premium, if any, on) any
Securities of that series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Securities, and all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel), or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all
the Securities of such series or, in the case of a waiver by holders of
Preferred Securities issued by such Trust, by all holders of Preferred
Securities issued by such Trust.
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Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such 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 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
The Corporation covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any usury, stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Corporation (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provisions hereof are
specifically required to be furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 5.12 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture with respect
to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
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SECTION 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the Securities
Register, notice of such default, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including any Additional
Interest) on any Security of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities of such series; and provided, further,
that, in the case of any default of the character specified in Section 5.1(3),
no such notice to Holders of Securities of such series shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to Securities of such
series.
SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security 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 or direction of the Corporation mentioned herein shall
be sufficiently evidenced by a Corporation Request or Corporation Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel 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 reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
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(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Corporation,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the 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; and
(h) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture.
SECTION 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Corporation, and neither the Trustee nor any Authenticating Agent assumes
any responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture or of the Securities.
Neither the Trustee nor any Authenticating Agent shall be accountable for the
use or application by the Corporation of the Page Securities or the proceeds
thereof.
SECTION 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Corporation, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Corporation with the same rights it
would have if it were not Trustee, Authenticating Agent, Paying Agent,
Securities Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Corporation.
SECTION 6.7. Compensation and Reimbursement.
The Corporation, as borrower, agrees
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(1) to pay to the Trustee from time to time such compensation as shall
be agreed in writing between the Corporation and the Trustee for all services
rendered by it hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify each of the Trustee and any predecessor Trustee for,
and to hold it harmless against, any and all loss, liability, damage, claim or
expense (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) incurred without negligence or bad
faith, arising out of or in connection with the acceptance or administration of
this trust or the performance of its duties hereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. This
indemnification shall survive the termination of this Agreement.
To secure the Corporation's payment obligations in this Section, the
Corporation and the Holders agree that the Trustee shall have a lien prior to
the Securities on all money or property held or collected by the Trustee. Such
lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978, as amended, or any
successor statute.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing
herein shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of said Section 310(b).
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States of America or of any state or territory or the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal, state, territorial or District
of Columbia authority, or
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(b) a corporation or other Person organized and doing business under
the laws of a foreign government that is permitted to act as Trustee pursuant to
a rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees, in either case having a combined capital and
surplus of at least $50,000,000, subject to supervision or examination by
federal or state 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, 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 the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article. Neither
the Corporation nor any Person directly or indirectly controlling, controlled by
or under common control with the Corporation shall serve as Trustee for the
Securities of any series issued hereunder.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Corporation. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series, delivered to the Trustee and to
the Corporation. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after such removal, the
Trustee being removed may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Corporation or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall
fail to resign after written request therefor by the Corporation or by any such
Holder, or
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(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, (i) the Corporation, acting pursuant to the
authority of a Board Resolution, may remove the Trustee with respect to all
Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee with respect to all Securities and the appointment of a
successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities of one or more series, the Corporation, by a Board
Resolution, shall promptly appoint a successor Trustee with respect to the
Securities of that or those series. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Corporation and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee with respect to the Securities of such series and
supersede the successor Trustee appointed by the Corporation. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Corporation or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, subject to Section 5.14, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(f) The Corporation shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
by mailing written notice of such event by first-class mail, postage prepaid, to
the Holders of Securities of such series as their names and addresses appear in
the Securities Register. Each notice shall include the name of the successor
Trustee with respect to the Securities of such series and the address of its
Corporate Trust Office.
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SECTION 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Corporation and to the retiring Trustee
an instrument accepting such appointment, 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, trusts and duties of the retiring Trustee; but, on the
request of the Corporation or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Corporation,
the retiring Trustee and each successor Trustee with respect to the Securities
of one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts, and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Corporation or any successor Trustee,
such retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Corporation shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all rights, powers and trusts referred to
in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
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SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
SECTION 6.13. Preferential Collection of Claims Against Corporation.
If and when the Trustee shall be or become a creditor of the
Corporation (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection of
claims against the Corporation (or any such other obligor).
SECTION 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect
to one or more series of Securities which shall be authorized to act on behalf
of the Trustee to authenticate Securities of such series issued upon original
issue and upon exchange, registration of transfer or partial redemption thereof
or pursuant to Section 3.6, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Corporation and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any state or territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or state authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section the combined capital and surplus of such
Authenticating Agent 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, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
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Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Corporation. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
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 such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Corporation and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Corporation agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant
to this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities referred to in the within mentioned
Indenture.
Dated: ________________________________________
WILMINGTON TRUST COMPANY
As Trustee
By: ____________________________________
As Authenticating Agent
By: ____________________________________
Authorized Officer
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ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND CORPORATION
SECTION 7.1. Corporation to Furnish Trustee Names and Addresses of
Holders.
The Corporation will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after January 15 and July 15
in each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such January 1 and July 1, and
(b) at such other times as the 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,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Corporation and the Trustee that neither the Corporation nor the
Trustee nor any agent of either of them shall be held accountable by reason of
the disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
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SECTION 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within
sixty days after each May 15 following the date of this Indenture deliver to
Holders a brief report, dated as of such May 15, which complies with the
provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange or quotation system
upon which any Securities are listed and also with the Commission. The
Corporation will promptly notify the Trustee when any Securities are listed on
any stock exchange.
SECTION 7.4. Reports by Corporation.
The Corporation shall file with the Trustee and with the Commission,
and transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Corporation may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Corporation shall continue to file with the Commission and provide the
Trustee with the annual reports and the information, documents and other reports
which are specified in Sections 13 and 15(d) of the Exchange Act. The
Corporation also shall comply with the other provisions of Trust Indenture Act
Section 314(a). Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein,
including the Corporation's compliance with any of its covenants hereunder (as
to which the Trustee is entitled to rely exclusively on Officers' Certificates).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Corporation May Consolidate, Etc., Only on Certain Terms.
The Corporation shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, and no Person shall consolidate with or merge into
the Corporation or convey, transfer or lease its properties and assets
substantially as an entirety to the Corporation, unless:
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(1) in case the Corporation shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Corporation is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties and assets
of the Corporation substantially as an entirety shall be a corporation,
partnership or trust organized and existing under the laws of the United States
of America or any State or the District of Columbia and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on all
the Securities and the performance of every covenant of this Indenture on the
part of the Corporation to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series held by a Trust, such
consolidation, merger, conveyance, transfer or lease is permitted under the
related Trust Agreement and Series A Guarantee and does not give rise to any
breach or violation of the related Trust Agreement or Series A Guarantee; and
(4) the Corporation has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and any such supplemental indenture
complies with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with; and the Trustee, subject
to Section 6.1, may rely upon such Officers' Certificate and Opinion of Counsel
as conclusive evidence that such transaction complies with this Section 8.1.
SECTION 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Corporation with or into any
other Person, or any conveyance, transfer or lease by the Corporation of its
properties and assets substantially as an entirety to any Person in accordance
with Section 8.1, the successor Person formed by such consolidation or into
which the Corporation is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Corporation under this Indenture with the same effect as if
such successor Person had been named as the Corporation herein; and in the event
of any such conveyance, transfer or lease the Corporation shall be discharged
from all obligations and covenants under the Indenture and the Securities and
may be dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in
its own name or in the name of the Corporation, any or all of the Securities
issuable hereunder which theretofore shall not have been signed by the
Corporation and delivered to the Trustee; and, upon the written order of such
successor Person instead of the Corporation and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall make available for
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delivery any Securities which previously shall have been signed and delivered by
the officers of the Corporation to the Trustee for authentication pursuant to
such provisions and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Trustee on its behalf for the purpose
pursuant to such provisions. 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.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form may be made in the Securities thereafter to
be issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Corporation, when authorized by
a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form reasonably
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Corporation,
and the assumption by any such successor of the covenants of the Corporation
herein and in the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Corporation; or
(3) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Corporation for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be for
the benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Corporation; or
(5) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such additional Events of
Default are to be for the benefit of less than all series of Securities, stating
that such additional Events of Default are expressly being included solely for
the benefit of such series); or
(6) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only when
there is no Security Outstanding of any
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series created prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; or
(7) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Indenture, provided that such action pursuant to this clause (7)
shall not adversely affect the interest of the Holders of Securities of any
series in any material respect or, in the case of the Securities of a series
issued to a Trust and for so long as any of the corresponding series of
Preferred Securities issued by such Trust shall remain outstanding, the holders
of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11(b); or
(9) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act.
SECTION 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Corporation and
the Trustee, the Corporation, when authorized by a Board Resolution, and the
Trustee may enter into an indenture or indentures supplemental hereto 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 Securities of such series under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.11 or as otherwise
specified as contemplated by Section 2.1 or Section 3.1 with respect to the
deferral of the payment of interest on the Securities of any series, change the
Stated Maturity of the principal of, or any installment of interest (including
any Additional Interest) on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or reduce any premium payable upon the
redemption thereof, or reduce the amount of principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the Maturity
thereof pursuant to Section 5.2, or change the place of payment where, or the
coin or currency in which, any Security or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
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(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.5, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Security affected thereby; or
(4) modify the provisions in Article XIII of this Indenture with
respect to the subordination of Outstanding Securities of any series in a manner
adverse to the Holders thereof; provided, further, that, in the case of the
Securities of a series issued to a Trust, so long as any of the corresponding
series of Preferred Securities issued by such Trust remains outstanding, (i) no
such amendment shall be made that adversely affects the holders of such
Preferred Securities in any material respect, and no termination of this
Indenture shall occur, and no waiver of any Event of Default or compliance with
any covenant under this Indenture shall be effective, without the prior consent
of the holders of at least a majority of the aggregate Liquidation Amount (as
defined in the Trust Agreement under which such Trust is organized) of such
Preferred Securities then outstanding unless and until the principal (and
premium, if any) of the Securities of such series and all accrued and, subject
to Section 3.7, unpaid interest (including any Additional Interest) thereon have
been paid in full and (ii) no amendment shall be made to Section 5.8 of this
Indenture that would impair the rights of the holders of Preferred Securities
provided therein without the prior consent of the holders of each Preferred
Security then outstanding unless and until the principal (and premium, if any)
of the Securities of such series and all accrued and (subject to Section 3.7)
unpaid interest (including any Additional Interest) thereon have been paid in
full.
A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture that has expressly been included solely for
the benefit of one or more particular series of Securities or Preferred
Securities, or which modifies the rights of the Holders of Securities or holders
of Preferred Securities of such series with respect to such covenant or other
provision, shall be deemed not to affect the rights under this Indenture of the
Holders of Securities or holders of Preferred Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent have been complied with. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
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SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Corporation, bear a notation in form approved by the Corporation as to any
matter provided for in such supplemental indenture. If the Corporation shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Corporation, to any such supplemental indenture may be prepared
and executed by the Corporation and authenticated and delivered by the Trustee
in exchange for Outstanding Securities of such series.
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and Interest.
The Corporation covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest (including Additional Interest) on the Securities of that
series in accordance with the terms of such Securities and this Indenture.
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SECTION 10.2. Maintenance of Office or Agency.
The Corporation will maintain in each Place of Payment for any series
of Securities, an office or agency where Securities of that series may be
presented or surrendered for payment and an office or agency where Securities of
that series may be surrendered for transfer or exchange and where notices and
demands to or upon the Corporation in respect of the Securities of that series
and this Indenture may be served. The Corporation initially appoints the
Trustee, acting through its Corporate Trust Office, as its agent for said
purposes. The Corporation will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the
Corporation shall fail to maintain such office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Corporation hereby appoints the Trustee as its agent to receive
all such presentations, surrenders, notices and demands.
The Corporation may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all of such purposes, and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Corporation of its obligation to maintain an office or agency in
each Place of Payment for Securities of any series for such purposes. The
Corporation will give prompt written notice to the Trustee of any such
designation and any change in the location of any such office or agency.
SECTION 10.3. Money for Security Payments to be Held in Trust.
If the Corporation shall at any time act as its own Paying Agent with
respect to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of such
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
Whenever the Corporation shall have one or more Paying Agents, it will,
prior to 10:00 a.m. New York City time on each due date of the principal of or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal and
premium (if any) or interest, and (unless such Paying Agent is the Trustee) the
Corporation will promptly notify the Trustee of its failure so to act.
The Corporation will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
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(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest (including Additional Interest) on Securities in
trust for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Corporation (or any
other obligor upon the Securities) in the making of any payment of principal
(and premium, if any) or interest (including Additional Interest);
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to
it as a Paying Agent.
The Corporation may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Corporation Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Corporation or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Corporation or such Paying Agent; and, upon such payment by the Corporation or
any Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the 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 (including Additional Interest) on any Security and
remaining unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable shall (unless otherwise required by
mandatory provision of applicable escheat or abandoned or unclaimed property
law) be paid on Corporation Request to the Corporation, or (if then held by the
Corporation) shall (unless otherwise required by mandatory provision of
applicable escheat or abandoned or unclaimed property law) be discharged from
such trust; and the Holder of such Security shall thereafter, as an unsecured
general creditor, look only to the Corporation for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Corporation as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Corporation cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Corporation.
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SECTION 10.4. Statement as to Compliance.
The Corporation shall deliver to the Trustee, within 120 days after the
end of each calendar year of the Corporation ending after the date hereof, an
Officers' Certificate, one of the signatories of which shall be the principal
executive, principal financial or principal accounting officer of the
Corporation, covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof the Corporation is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Corporation
shall be in default, specifying all such defaults and the nature and status
thereof of which they may have knowledge. For the purpose of this Section 10.4,
compliance shall be determined without regard to any grace period or requirement
of notice provided pursuant to the terms of this Indenture.
SECTION 10.5. Waiver of Certain Covenants.
The Corporation may omit in any particular instance to comply with any
covenant or condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with
respect to the Securities of any series, if before or after the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities of such series shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Corporation in respect of
any such covenant or condition shall remain in full force and effect.
SECTION 10.6. Payment of Trust Costs and Expenses.
Since each Trust is being formed solely to facilitate an investment in
the Securities, the Corporation, in its capacity as the issuer of the
Securities, hereby covenants to pay all debts and obligations (other than with
respect to the Preferred Securities and Common Securities) and all costs and
expenses of each Trust (including, but not limited to, all costs and expenses
relating to the organization of the Trust, the fees and expenses of the Trustees
and all costs and expenses relating to the operation of the Trust) and to pay
any and all taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed on the Trust by the United States,
or any other taxing authority, so that the net amounts received and retained by
the Trust and the Property Trustee after paying such expenses will be equal to
the amounts the Trust and the Property Trustee would have received had no such
costs or expenses been incurred by or imposed on the Trust. The obligations of
the Corporation to pay all debts, obligations, costs and expenses of each Trust
(other than with respect to the Preferred Securities and Common Securities)
shall constitute additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture.
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SECTION 10.7. Additional Covenants.
The Corporation covenants and agrees with each Holder of Securities of
each series that it 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 Corporation's capital stock, (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Corporation that rank pari passu with or junior in interest to
the Securities of such series or (iii) make any guarantee payments with respect
to any guarantee by the Corporation of the debt securities of any subsidiary of
the Corporation if such guarantee ranks pari passu with or junior in interest to
the Securities of such series (other than (a) dividends or distributions in
capital stock of the Corporation, (b) any declaration of a dividend in
connection with the implementation of a Rights Plan or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Series A
Guarantee, (d) purchases of Common Stock related to the issuance of Common Stock
or rights under any of the Corporation's benefit plans for its directors,
officers or employees, related to the issuance of Common Stock or rights under a
dividend reinvestment and stock purchase plan, or related to the issuance of
Common Stock (or securities convertible into or exchangeable for Common Stock)
as consideration in an acquisition transaction that was entered into prior to
the commencement of any of the events described in (x), (y) and (z) below for
the Securities of such series, and (e) guarantee payments with respect to the
guarantee by the Corporation of the Existing Capital Securities to the extent
such payments are made pari passu with payments made with respect to the Series
A Guarantee) if at such time (x) there shall have occurred any event of which
the Corporation has actual knowledge that (A) with the giving of notice or the
lapse of time or both, would constitute an Event of Default with respect to the
Securities of such series and (B) in respect of which the Corporation shall not
have taken reasonable steps to cure, (y) if the Securities of such series are
held by a Trust, the Corporation shall be in default with respect to its payment
of any obligations under the Series A Guarantee relating to the Preferred
Securities issued by such Trust or (z) the Corporation shall have given notice
of its election to begin an Extension Period with respect to the Securities of
such series as provided herein and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
The Corporation also covenants with each Holder of Securities of a
series issued to a Trust (i) to maintain directly or indirectly 100% ownership
of the Common Securities of such Trust; provided, however, that any permitted
successor of the Corporation hereunder may succeed to the Corporation's
ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up
or liquidate such Trust, except (a) in connection with a distribution of the
Securities of such series to the holders of the Securities of such Trust in
liquidation of such Trust or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the related Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions of
such Trust Agreement, to cause such Trust to remain classified as a grantor
trust and not an association taxable as a corporation for United States federal
income tax purposes.
SECTION 10.8. Calculation of Original Issue Discount.
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The Corporation shall file with the Trustee promptly at the end of each
calendar year a written notice specifying the amount of original issue discount
(including daily rates and accrual periods) accrued on Outstanding Securities as
of the end of such year, if any.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Applicability of This Article.
Redemption of Securities of any series (whether by operation of a
sinking fund or otherwise) as permitted or required by any form of Security
issued pursuant to this Indenture shall be made in accordance with such form of
Security and this Article; provided, however, that if any provision of any such
form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern. Except as otherwise set forth
in the form of Security for such series, each Security of such series shall be
subject to partial redemption only in the amount of $25 or, in the case of the
Securities of a series issued to a Trust, $25, or integral multiples thereof.
SECTION 11.2. Election to Redeem; Notice to Trustee.
The election of the Corporation to redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In case of any redemption at the
election of the Corporation of the Securities, the Corporation shall, not less
than 30 nor more than 60 days prior to the Redemption Date (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee of such date
and of the principal amount of Securities of that series to be redeemed. In the
case of any redemption of Securities prior to the expiration of any restriction
on such redemption provided in the terms of such Securities, the Corporation
shall furnish the Trustee with an Officers' Certificate and an Opinion of
Counsel evidencing compliance with such restriction.
SECTION 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed
(unless all the Securities of such series and of a specified tenor are to be
redeemed or unless such redemption affects only a single Security), the
particular Securities to be redeemed shall be selected on a pro rata basis not
more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series not previously called for redemption, by
such method as the Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of a portion of the principal amount of any
Security of such series, provided that the unredeemed portion of the principal
amount of any Security shall be in an authorized denomination (which shall not
be less than the minimum authorized denomination) for such Security. If less
than all the Securities of such series and of a specified tenor are to be
redeemed (unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days
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prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series and specified tenor not previously called for redemption in
accordance with the preceding sentence.
The Trustee shall promptly notify the Corporation and the Securities
Registrar in writing of the Securities selected for partial redemption and the
principal amount thereof to be redeemed. For all purposes of this Indenture,
unless the context otherwise requires, all provisions relating to the redemption
of Securities shall relate, in the case of any Security redeemed or to be
redeemed only in part, to the portion of the principal amount of such Security
which has been or is to be redeemed. If the Corporation shall so direct,
Securities registered in the name of the Corporation, any Affiliate or any
Subsidiary thereof shall not be included in the Securities selected for
redemption.
SECTION 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not later than the thirtieth day, and not earlier than the
sixtieth day, prior to the Redemption Date, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities of each series to be redeemed, each notice
of redemption shall identify the Securities to be redeemed (including CUSIP
number, if a CUSIP number has been assigned to such Securities of such Series)
and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities of such particular series
and having the same terms are to be redeemed, the identification (and, in the
case of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due
and payable upon each such Security or portion thereof, and that interest
thereon, if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price; and
(f) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of
the Corporation shall be given by the Corporation or, at the Corporation's
request, by the Trustee in the name and at the expense of the Corporation and
shall not be irrevocable. 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, a failure to give such notice by mail
or any defect in the notice to
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the Holder of any Security designated for redemption as a whole or in part shall
not affect the validity of the proceedings for the redemption of any other
Security.
SECTION 11.5. Deposit of Redemption Price.
Prior to 12:00 noon New York City time on the Redemption Date specified
in the notice of redemption given as provided in Section 11.4, the Corporation
will deposit with the Trustee or with one or more Paying Agents (or if the
Corporation is acting as its own Paying Agent, the Corporation will segregate
and hold in trust as provided in Section 10.3) an amount of money sufficient to
pay the Redemption Price of, and any accrued interest (including Additional
Interest) on, all the Securities which are to be redeemed on that date.
SECTION 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4,
the Securities or portion of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable Redemption Price. On presentation and
surrender of such Securities at a Place of Payment in said notice specified, the
said securities or the specified portions thereof shall be paid and redeemed by
the Corporation at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date; provided,
however, that, unless otherwise specified as contemplated by Section 3.1,
installments of interest whose Stated Maturity is on or prior to the Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.7.
Upon presentation of any Security redeemed in part only, the
Corporation shall execute and the Trustee shall authenticate and make available
for delivery to the Holder thereof, at the expense of the Corporation, a new
Security or Securities of the same series, of authorized denominations, in
aggregate principal amount equal to the unredeemed portion of the Security so
presented and having the same Original Issue Date, Stated Maturity and terms. If
a Global Security is so surrendered, such new Security will also be a new Global
Security.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal of and premium, if any, on such
Security shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
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SECTION 11.7. Right of Redemption of Securities Initially Issued to a
Trust.
In the case of the Securities of a series initially issued to a Trust,
except as otherwise established pursuant to Section 3.1 for the Securities of a
Series, the Corporation, at its option, may redeem such Securities (i) on or
after the date five years after the Original Issue Date of such Securities, in
whole at any time or in part from time to time, or (ii) upon the occurrence and
during the continuation of a Tax Event or a Capital Treatment Event, at any time
within 90 days following the occurrence of such Tax Event or Capital Treatment
Event in respect of such Trust, in whole (but not in part), in each case at a
Redemption Price equal to 100% of the principal amount thereof; provided that
the Corporation's right to redeem such Securities pursuant to clause (i) or (ii)
above is subject to the Corporation having received the prior approval of the
Federal Reserve if required under applicable capital guidelines or policies.
ARTICLE XII
SINKING FUNDS
SECTION 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the
terms of any Securities of any series is herein referred to as a "mandatory
sinking fund payment," and any sinking fund payment in excess of such minimum
amount which is permitted to be made by the terms of such Securities of any
series is herein referred to as an "optional sinking fund payment." If provided
for by the terms of any Securities of any series, the cash amount of any sinking
fund payment may be subject to reduction as provided in Section 12.2. Each
sinking fund payment shall be applied to the redemption of Securities of any
series as provided for by the terms of such Securities.
SECTION 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment
with respect to any Securities of a series in cash, the Corporation may at its
option, at any time no more than 16 months and no less than 30 days prior to the
date on which such sinking fund payment is due, deliver to the Trustee
Securities of such series (together with the unmatured coupons, if any,
appertaining thereto) theretofore purchased or otherwise acquired by the
Corporation, except Securities of such series that have been redeemed through
the application of mandatory or optional sinking fund payments pursuant to the
terms of the Securities of such series, accompanied by a Corporation Order
instructing the Trustee to credit such obligations and stating that the
Securities of such series were originally issued by the Corporation by way of
bona fide sale or other negotiation for value; provided that the Securities to
be so credited have not been previously so credited. The Securities to
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be so credited shall be received and credited for such purpose by the Trustee at
the redemption price for such Securities, as specified in the Securities so to
be redeemed, for redemption through operation of the sinking fund and the amount
of such sinking fund payment shall be reduced accordingly.
SECTION 12.3. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Corporation will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the portion thereof, if any, which is to be satisfied by delivering and
crediting Securities pursuant to Section 12.2 and will also deliver to the
Trustee any Securities to be so delivered. Such Officers' Certificate shall be
irrevocable and upon its delivery the Corporation shall be obligated to make the
cash payment or payments therein referred to, if any, on or before the
succeeding sinking fund payment date. In the case of the failure of the
Corporation to deliver such Officers' Certificate (or, as required by this
Indenture, the Securities and coupons, if any, specified in such Officers'
Certificate), the sinking fund payment due on the succeeding sinking fund
payment date for such series shall be paid entirely in cash and shall be
sufficient to redeem the principal amount of the Securities of such series
subject to a mandatory sinking fund payment without the right to deliver or
credit securities as provided in Section 12.2 and without the right to make the
optional sinking fund payment with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in
cash plus any unused balance of any preceding sinking fund payments made with
respect to the Securities of any particular series shall be applied by the
Trustee (or by the Corporation if the Corporation is acting as its own Paying
Agent) on the sinking fund payment date on which such payment is made (or, if
such payment is made before a sinking fund payment date, on the sinking fund
payment date immediately following the date of such payment) to the redemption
of Securities of such series at the Redemption Price specified in such
Securities with respect to the sinking fund. Any sinking fund moneys not so
applied or allocated by the Trustee (or, if the Corporation is acting as its own
Paying Agent, segregated and held in trust by the Corporation as provided in
Section 10.3) for such series and together with such payment (or such amount so
segregated) shall be applied in accordance with the provisions of this Section
12.3. Any and all sinking fund moneys with respect to the Securities of any
particular series held by the Trustee (or if the Corporation is acting as its
own Paying Agent, segregated and held in trust as provided in Section 10.3) on
the last sinking fund payment date with respect to Securities of such series and
not held for the payment or redemption of particular Securities of such series
shall be applied by the Trustee (or by the Corporation if the Corporation is
acting as its own Paying Agent), together with other moneys, if necessary, to be
deposited (or segregated) sufficient for the purpose, to the payment of the
principal of the Securities of such series at Maturity. The Trustee shall select
the Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 11.3 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Corporation in the manner provided in
Section 11.4. Such notice having been duly given, the redemption of such
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Securities shall be made upon the terms and in the manner stated in Section
11.6. On or before each sinking fund payment date, the Corporation shall pay to
the Trustee (or, if the Corporation is acting as its own Paying Agent, the
Corporation shall segregate and hold in trust as provided in Section 10.3) in
cash a sum in the currency in which Securities of such series are payable
(except as provided pursuant to Section 3.1) equal to the principal and any
interest accrued to the Redemption Date for Securities or portions thereof to be
redeemed on such sinking fund payment date pursuant to this Section 12.3.
Neither the Trustee nor the Corporation shall redeem any Securities of
a series with sinking fund moneys or mail any notice of redemption of Securities
of such series by operation of the sinking fund for such series during the
continuance of a default in payment of interest, if any, on any Securities of
such series or of any Event of Default (other than an Event of Default occurring
as a consequence of this paragraph) with respect to the Securities of such
series, except that if the notice of redemption shall have been provided in
accordance with the provisions hereof, the Trustee (or the Corporation, if the
Corporation is then acting as its own Paying Agent) shall redeem such Securities
if cash sufficient for that purpose shall be deposited with the Trustee (or
segregated by the Corporation) for that purpose in accordance with the terms of
this Article XII. Except as aforesaid, any moneys in the sinking fund for such
series at the time when any such default or Event of Default shall occur and any
moneys thereafter paid into such sinking fund shall, during the continuance of
such default or Event of Default, be held as security for the payment of the
Securities and coupons, if any, of such series; provided, however, that in case
such default or Event of Default shall have been cured or waived herein, such
moneys shall thereafter be applied on the next sinking fund payment date for the
Securities of such series on which such moneys may be applied pursuant to the
provisions of this Section 12.3.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1. Securities Subordinate to Senior Debt.
The Corporation covenants and agrees, and each Holder of a Security, by
its acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article, the payment of the
principal of (and premium, if any) and interest (including any Additional
Interest) on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt.
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SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Corporation (each such event, if any, herein
sometimes referred to as a "Proceeding"), then the holders of Senior Debt shall
be entitled to receive payment in full of all amounts due or to become due on
such Senior Debt, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior Debt,
before the Holders of the Securities are entitled to receive or retain any
payment or distribution of any kind or character, whether in cash, property or
securities (including any payment or distribution which may be payable or
deliverable by reason of the payment of any other Debt of the Corporation
(including any series of the Securities) subordinated to the payment of the
Securities, such payment or distribution being hereinafter referred to as a
"Junior Subordinated Payment"), on account of principal of (or premium, if any)
or interest (including any Additional Interest) on the Securities or on account
of the purchase or other acquisition of Securities by the Corporation or any
Subsidiary and to that end the holders of Senior Debt shall be entitled to
receive, for application to the payment thereof, any payment or distribution of
any kind or character, whether in cash, property or securities, including any
Junior Subordinated Payment, which may be payable or deliverable in respect of
the Securities in any such Proceeding; provided, however, that holders of Senior
Debt shall not be entitled to receive payment of any such amounts to the extent
that such holders would be required by the subordination provisions of such
Senior Debt to pay such amounts over to the obligees on trade accounts payable
or other liabilities arising in the ordinary course of the Corporation's
business.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Corporation of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, before all amounts due or to become due on all Senior Debt are paid in
full or payment thereof is provided for in cash or cash equivalents or otherwise
in a manner satisfactory to the holders of Senior Debt, and if such fact shall,
at or prior to the time of such payment or distribution, have been made known to
the Trustee or, as the case may be, such Holder, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other Person making payment or distribution of assets of the Corporation for
application to the payment of all amounts due or to become due on all Senior
Debt remaining unpaid, to the extent necessary to pay all amounts due or to
become due on all Senior Debt in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Debt; provided, however,
that holders of Senior Debt shall not be entitled to receive payment of any such
amounts to the extent that such holders would be required by the subordination
provisions of such Senior Debt to pay such amounts over to the obligees on trade
accounts payable or other liabilities arising in the ordinary course of the
Corporation's business.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include shares of stock of
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the Corporation as reorganized or readjusted, or securities of the Corporation
or any other corporation provided for by a plan of reorganization or
readjustment which securities are subordinated in right of payment to all then
outstanding Senior Debt to substantially the same extent as the Securities are
so subordinated as provided in this Article. 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 of all or
substantially all of its properties and assets as an entirety to another Person
upon the terms and conditions set forth in Article VIII shall not be deemed a
Proceeding for the purposes of this Section if the Person formed by such
consolidation or into which the Corporation is merged or the Person which
acquires by sale such properties and assets as an entirety, as the case may be,
shall, as a part of such consolidation, merger, or sale comply with the
conditions set forth in Article VIII.
SECTION 13.3. Prior Payment to Senior Debt Upon Acceleration of
Securities.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior Debt
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Debt (including any amounts due upon acceleration), or provision shall be
made for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, before the Holders of the Securities
are entitled to receive any payment or distribution of any kind or character,
whether in cash, properties or securities (including any Junior Subordinated
Payment) by the Corporation on account of the principal of (or premium, if any)
or interest (including any Additional Interest) on the Securities or on account
of the purchase or other acquisition of Securities by the Corporation or any
Subsidiary; provided, however, that nothing in this Section shall prevent the
satisfaction of any sinking fund payment in accordance with this Indenture or as
otherwise specified as contemplated by Section 3.1 for the Securities of any
series by delivering and crediting pursuant to Section 12.2 or as otherwise
specified as contemplated by Section 3.1 for the Securities of any series
Securities which have been acquired (upon redemption or otherwise) prior to such
declaration of acceleration; provided, however, that holders of Senior Debt
shall not be entitled to receive payment of any such amounts to the extent that
such holders would be required by the subordination provisions of such Senior
Debt to pay such amounts over to the obligees on trade accounts payable or other
liabilities arising in the ordinary course of the Corporation's business.
In the event that, notwithstanding the foregoing, the Corporation shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Corporation.
The provisions of this Section shall not apply to any payment with
respect to which Section 13.2 would be applicable.
SECTION 13.4. No Payment When Senior Debt in Default.
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(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior Debt, or
in the event that any event of default with respect to any Senior Debt shall
have occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable, unless and until such event of default
shall have been cured or waived or shall have ceased to exist and such
acceleration shall have been rescinded or annulled, or (b) in the event any
judicial proceeding shall be pending with respect to any such default in payment
or such event or default, then no payment or distribution of any kind or
character, whether in cash, properties or securities (including any Junior
Subordinated Payment) shall be made by the Corporation on account of principal
of (or premium, if any) or interest (including any Additional Interest), if any,
on the Securities or on account of the purchase or other acquisition of
Securities by the Corporation or any Subsidiary, in each case unless and until
all amounts due or to become due on such Senior Debt are paid in full; provided,
however, that nothing in this Section shall prevent the satisfaction of any
sinking fund payment in accordance with this Indenture or as otherwise specified
as contemplated by Section 3.1 for the Securities of any series by delivering
and crediting pursuant to Section 12.2 or as otherwise specified as contemplated
by Section 3.1 for the Securities of any series Securities which have been
acquired (upon redemption or otherwise) prior to such default in payment or
event of default; provided, however, that holders of Senior Debt shall not be
entitled to receive payment of any such amounts to the extent that such holders
would be required by the subordination provisions of such Senior Debt to pay
such amounts over to the obligees on trade accounts payable or other liabilities
arising in the ordinary course of the Corporation's business.
In the event that, notwithstanding the foregoing, the Corporation shall
make any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Corporation.
The provisions of this Section shall not apply to any payment with
respect to which Section 13.2 would be applicable.
SECTION 13.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Corporation, at any time except
during the pendency of any Proceeding referred to in Section 13.2 or under the
conditions described in Sections 13.3 and 13.4, from making payments at any time
of principal of (and premium, if any) or interest (including Additional
Interest) on the Securities, or (b) the application by the Trustee of any money
deposited with it hereunder to the payment of or on account of the principal of
(and premium, if any) or interest (including any Additional Interest) on the
Securities or the retention of such payment by the Holders, if, at the time of
such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
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SECTION 13.6. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all amounts due or to become due on
all Senior Debt, or the provision for such payment in cash or cash equivalents
or otherwise in a manner satisfactory to the holders of Senior Debt, the Holders
of the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Debt pursuant to the provisions
of this Article (equally and ratably with the holders of all indebtedness of the
Corporation which by its express terms is subordinated to Senior Debt of the
Corporation to substantially the same extent as the Securities are subordinated
to the Senior Debt and is entitled to like rights of subrogation by reason of
any payments or distributions made to holders of such Senior Debt) to the rights
of the holders of such Senior Debt to receive payments and distributions of
cash, property and securities applicable to the Senior Debt until the principal
of (and premium, if any) and interest on the Securities shall be paid in full.
For purposes of such subrogation, no payments or distributions to the holders of
the Senior Debt of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled except for the provisions of this
Article, and no payments over pursuant to the provisions of this Article to the
holders of Senior Debt by Holders of the Securities or the Trustee, shall, as
among the Corporation, its creditors other than holders of Senior Debt, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Corporation to or on account of the Senior Debt.
SECTION 13.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Debt on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Corporation and the Holders of the
Securities, the obligations of the Corporation, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including any Additional Interest) on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Corporation of the
Holders of the Securities and creditors of the Corporation other than their
rights in relation to the holders of Senior Debt; or (c) prevent the Trustee or
the Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture including, without limitation,
filing and voting claims in any Proceeding, subject to the rights, if any, under
this Article of the holders of Senior Debt to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 13.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes
and directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination provided
in this Article and appoints the Trustee his or her attorney-in-fact for any and
all such purposes.
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SECTION 13.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt 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 or by any
act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Corporation with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Debt may, at any time and from to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Debt, 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, Senior Debt, or
otherwise amend or supplement in any manner Senior Debt or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding;
(ii) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in
any manner for the collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Corporation and any other Person.
SECTION 13.10. Notice to Trustee.
The Corporation shall give prompt written notice to the Trustee of any
fact known to the Corporation which would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Corporation or a holder of Senior Debt or from any trustee, agent or
representative therefor; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least two Business Days
prior to the date upon which by the terms hereof any monies may become payable
for any purpose (including, without limitation, the payment of the principal of
(and premium, if any) or interest (including any Additional Interest) on any
Security), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such monies and to apply
the same to the purpose for which they were received and shall not be affected
by any notice to the contrary which may be received by it within two Business
Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Debt (or a trustee therefor) to establish that
such notice has been given by a holder of Senior Debt (or a trustee therefor).
In the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior Debt to
participate in any payment or distribution pursuant to this Article, the Trustee
may request such Person to furnish evidence to the
75
<PAGE> 81
reasonable satisfaction of the Trustee as to the amount of Senior Debt 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, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Page Person to receive such payment.
SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Corporation referred
to in this Article, the Trustee, subject to the provisions of Section 6.1, and
the Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt 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.
SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee, in its capacity as trustee under this Indenture, shall not
be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not
be liable to any such holders if it shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Corporation or to any other Person
cash, property or securities to which any holders of Senior Debt shall be
entitled by virtue of this Article or otherwise. With respect to the holders of
Senior Debt, the Trustee undertakes to perform or to observe only such of its
covenants or obligations as are specifically set forth in this Article and no
implied covenants or obligations with respect to holders of Senior Debt shall be
read into this Indenture against the Trustee.
SECTION 13.13. Rights of Trustee as Holder of Senior Debt; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be held by it, to the same extent as any other holder of Senior Debt,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder. Nothing in this Article shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.7.
SECTION 13.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Corporation and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee.
76
<PAGE> 82
SECTION 13.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including any Additional Interest) on Securities
or on account of the purchase or other acquisition of Securities, and (b) the
payment, issuance or delivery of cash, property or securities (other than junior
securities) upon conversion or exchange of a Security shall be deemed to
constitute payment on account of the principal of such security. For the
purposes of this Section, the term "junior securities" means (i) shares of any
stock of any class of the Corporation and (ii) securities of the Corporation
which are subordinated in right of payment to all Senior Debt which may be
outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article.
SECTION 13.16. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments
from money held in trust under Article IV by the Trustee for the payment of
principal of, premium, if any, and interest on the Securities shall not be
subordinated to the prior payment of any Senior Debt of the Corporation or
subject to the restrictions set forth in this Article XIII and none of the
Holders shall be obligated to pay over any such amount to the Corporation or any
holder of Senior Debt of the Corporation or any other creditor of the
Corporation.
77
<PAGE> 83
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
TELEBANC FINANCIAL CORPORATION
By: ____________________________________
Name:
Title:
WILMINGTON TRUST COMPANY
as Trustee
By: ____________________________________
Name:
Title:
78
<PAGE> 84
TELEBANC FINANCIAL CORPORATION
Reconciliation and tie between the Trust Indenture Act of 1939
(including cross-references to provisions of Sections 310 to and including 317
which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended
by the Trust Reform Act of 1990, are a part of and govern the Indenture whether
or not physically contained therein) and the Junior Subordinated Indenture,
dated as of December 1, 1996.
<TABLE>
<CAPTION>
Trust Indenture Indenture
ACT SECTION SECTION
- ----------- -------
<S> <C>
Section 310(a)(1), (2) and (5)...............................................................6.9
(a)(3)............................................................................Not Applicable
(a)(4)............................................................................Not Applicable
(b)...............................................................................6.8
..................................................................................6.10
(c)...............................................................................Not Applicable
Section 311(a)...............................................................................6.13(a)
(b)...............................................................................6.13(b)
(b)(2)............................................................................7.3(a)(2)
..................................................................................7.3(a)(2)
Section 312(a)...............................................................................7.1
..................................................................................7.2(a)
(b)...............................................................................7.2(b)
(c)...............................................................................7.2(c)
Section 313(a)...............................................................................7.3(a)
(b)...............................................................................7.3(b)
(c)...............................................................................7.3(a), 7.3(b)
(d)...............................................................................7.3(c)
Section 314(a)(1), (2) and (3)...............................................................7.4
(a)(4)............................................................................10.5
(b)...............................................................................Not Applicable
(c)(1)............................................................................1.2
(c)(2)............................................................................1.2
(c)(3)............................................................................Not Applicable
(d)...............................................................................Not Applicable
(e)...............................................................................1.2
(f)...............................................................................Not Applicable
Section 315(a)..............................................................................6.1(a)
(b)...............................................................................6.2
..................................................................................7.3(a)(6)
</TABLE>
79
<PAGE> 85
<TABLE>
<CAPTION>
<S> <C>
(c)................................................................................6.1(b)
(d)................................................................................6.1(c)
(d)(1).............................................................................6.1(a)(1)
(d)(2).............................................................................6.1(c)(2)
(d)(3).............................................................................6.1(c)(3)
(e)................................................................................5.14
Section 316(a)................................................................................1.1
(a)(1) (A).........................................................................5.12
(a)(1) (B).........................................................................5.13
(a)(2).............................................................................Not Applicable
(b)................................................................................5.8
(c)................................................................................1.4(f)
Section 317(a)(1).............................................................................5.3
(a)(2).............................................................................5.4
(b)................................................................................10.3
Section 318(a)................................................................................1.7
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Junior Subordinated Indenture.
80
<PAGE> 1
EXHIBIT 4.5
AMENDED AND RESTATED
TRUST AGREEMENT
among
TELEBANC FINANCIAL CORPORATION, as Depositor,
WILMINGTON TRUST COMPANY,
as Property Trustee
and as Delaware Trustee,
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN,
and
THE SEVERAL HOLDERS (AS DEFINED HEREIN)
Dated as of ______________, 1998
TELEBANC CAPITAL TRUST II
<PAGE> 2
TELEBANC CAPITAL TRUST II
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Trust Agreement
Act Section Section
- --------------- ------------
(Section) 310 (a)(1)........................................ 8.7
(a)(2)........................................ 8.7
(a)(3)........................................ 8.9
(a)(4)........................................ 2.7(a)(ii)
(b)........................................... 8.8
(Section) 311 (a)........................................... 8.13
(b)........................................... 8.13
(Section) 312 (a)........................................... 5.7
(b)........................................... 5.7
(c)........................................... 5.7
(Section) 313 (a)........................................... 8.14(a)
(a)(4)........................................ 8.14(b)
(b)........................................... 8.14(b)
(c)........................................... 10.9
(d)........................................... 8.14(c)
(Section) 314 (a)........................................... 8.15
(b)........................................... Not Applicable
(c)(1)........................................ 8.16
(c)(2)........................................ 8.16
(c)(3)........................................ Not Applicable
(d)........................................... Not Applicable
(e)........................................... 1.1, 8.16
(Section) 315 (a)........................................... 8.1(a), 8.3(a)
(b)........................................... 8.2, 10.9
(c)........................................... 8.1(a)
(d)........................................... 8.1, 8.3
(e)........................................... Not Applicable
(Section) 316 (a)........................................... Not Applicable
(a)(1)(A)..................................... Not Applicable
(a)(1)(B)..................................... Not Applicable
(a)(2)........................................ Not Applicable
(b)........................................... 5.14
(c)........................................... 6.7
(Section) 317 (a)(1)........................................ Not Applicable
(a)(2)........................................ Not Applicable
<PAGE> 3
Trust Indenture Trust Agreement
Act Section Section
- --------------- ------------
(b)........................................... 5.9
(Section) 318 (a)........................................... 10.11
- ----------
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to
be a part of the Trust Agreement.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS.............................................................. 2
ARTICLE II CONTINUATION OF THE TRUST 10
Section 2.1 Name............................................................ 11
Section 2.2 Office of the Delaware Trustee; Principal Place of Business..... 11
Section 2.3 Initial Contribution of Trust Property; Organizational Expenses. 11
Section 2.4 Issuance of the Series A Capital Securities..................... 11
Section 2.5 Issuance of the Series A Common Securities; Subscription and
Purchase of Series A Subordinated Debentures.................... 12
Section 2.6 Declaration of Trust............................................ 12
Section 2.7 Authorization to Enter into Certain Transactions................ 12
Section 2.8 Assets of Trust................................................. 16
Section 2.9 Title to Trust Property......................................... 16
ARTICLE III PAYMENT ACCOUNT......................................................... 16
Section 3.1 Payment Account................................................. 16
ARTICLE IV DISTRIBUTION; REDEMPTION................................................. 16
Section 4.1 Distributions................................................... 17
Section 4.2 Redemption...................................................... 18
Section 4.3 Subordination of Series A Common Securities..................... 20
Section 4.4 Payment Procedures.............................................. 20
Section 4.5 Tax Returns and Reports......................................... 21
Section 4.6 Payment of Expenses of the Trust................................ 21
Section 4.7 Payments under Indenture or Pursuant to Direct Actions.......... 21
ARTICLE V TRUST SECURITIES CERTIFICATES............................................ 21
Section 5.1 Initial Ownership............................................... 21
Section 5.2 The Trust Security Certificates................................. 22
Section 5.3 Execution and Delivery of Trust Security Certificates........... 22
Section 5.4 Registration of Transfer and Exchange of Capital
Securities Certificates......................................... 22
Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.................................................... 24
Section 5.6 Persons Deemed Securityholders.................................. 24
Section 5.7 Access to List of Securityholders' Names and Addresses.......... 24
Section 5.8 Maintenance of Office or Agency................................. 24
Section 5.9 Appointment of Paying Agent..................................... 25
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 5.10 Ownership of Series A Common Securities by Depositor............ 25
Section 5.11 Book-Entry Series A Capital Security Certificates; Common
Securities Certificate.......................................... 26
Section 5.12 Notices to Clearing Agency...................................... 27
Section 5.13 Definitive Series A Capital Security Certificates............... 27
Section 5.14 Rights of Securityholders....................................... 27
Section 5.15 CUSIP Numbers................................................... 30
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING................................ 29
Section 6.1 Limitations on Voting Rights.................................... 30
Section 6.2 Notice of Meetings.............................................. 31
Section 6.3 Meetings of Capital Securityholders............................. 31
Section 6.4 Voting Rights................................................... 32
Section 6.5 Proxies, etc.................................................... 32
Section 6.6 Securityholder Action by Written Consent........................ 32
Section 6.7 Record Date for Voting and Other Purposes....................... 32
Section 6.8 Acts of Securityholders......................................... 33
Section 6.9 Inspection of Records........................................... 34
ARTICLE VII REPRESENTATIONS AND WARRANTIES.......................................... 33
Section 7.1 Representations and Warranties of the Property Trustee and
the Delaware Trustee........................................... 34
Section 7.2 Representations and Warranties of Depositor..................... 35
ARTICLE VIII THE TRUSTEES........................................................... 34
Section 8.1 Certain Duties and Responsibilities............................. 36
Section 8.2 Certain Notices................................................. 37
Section 8.3 Certain Rights of Property Trustee.............................. 38
Section 8.4 Not Responsible for Recitals or Issuance of Securities.......... 40
Section 8.5 May Hold Securities............................................. 40
Section 8.6 Compensation; Indemnity; Fees................................... 40
Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees.... 41
Section 8.8 Conflicting Interests........................................... 42
Section 8.9 Co-Trustees and Separate Trustee................................ 42
Section 8.10 Resignation and Removal; Appointment of Successor............... 43
Section 8.11 Acceptance of Appointment by Successor.......................... 45
Section 8.12 Merger, Conversion, Consolidation or Succession to Business..... 45
Section 8.13 Preferential Collection of Claims Against Depositor or Trust.... 46
Section 8.14 Reports by Property Trustee..................................... 46
Section 8.15 Reports to the Property Trustee................................. 47
Section 8.16 Evidence of Compliance with Conditions Precedent................ 47
Section 8.17 Number of Trustees.............................................. 47
Section 8.18 Delegation of Power............................................. 48
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE IX TERMINATION, LIQUIDATION AND MERGER...................................... 47
Section 9.1 Termination Upon Expiration Date................................ 49
Section 9.2 Early Termination............................................... 49
Section 9.3 Termination..................................................... 49
Section 9.4 Liquidation..................................................... 49
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements
of the Trust.................................................... 51
ARTICLE X MISCELLANEOUS PROVISIONS
Section 10.1 Limitation of Rights of Securityholders......................... 52
Section 10.2 Liability of the Series A Common Securityholder................. 52
Section 10.3 Amendment....................................................... 52
Section 10.4 Separability.................................................... 54
Section 10.5 Governing Law................................................... 54
Section 10.6 Payments Due on Non-Business Day................................ 54
Section 10.7 Successors...................................................... 54
Section 10.8 Headings........................................................ 54
Section 10.9 Reports, Notices and Demands.................................... 54
Section 10.10 Agreement Not to Petition....................................... 55
Section 10.11 Trust Indenture Act; Conflict with Trust Indenture Act.......... 55
Section 10.12 Acceptance of Terms of Trust Agreement, Series A Guarantee
and Indenture................................................... 56
Section 10.13 Holders are Parties............................................. 56
Section 10.14 Counterparts.................................................... 57
</TABLE>
iii
<PAGE> 7
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ___________ 1998,
among (i) TeleBanc Financial Corporation, a Delaware corporation (including any
successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, a
banking corporation organized under the laws of the State of Delaware, as
property trustee (the "Property Trustee"), and as Delaware trustee (the
"Delaware Trustee" and, in its separate corporate capacity and not in its
capacity as Property Trustee or Delaware Trustee, "WTC"), (iii) David A. Smilow,
an individual, Mitchell H. Caplan, an individual, and Aileen Lopez Pugh, an
individual, each of whose address is c/o TeleBanc Financial Corporation, 1111
North Highland Street, Arlington, Virginia 22201 (each an "Administrative
Trustee" and collectively the "Administrative Trustees") (the Property Trustee,
the Delaware Trustee and the Administrative Trustees referred to collectively as
the "Trustees") and (iv) the several Holders, as hereinafter defined.
WITNESSETH
WHEREAS, the Depositor and the Delaware Trustee have heretofore duly
declared and established a business trust, TeleBanc Capital Trust II (the
"Trust") pursuant to the Delaware Business Trust Act by the entering into that
certain Declaration of Trust, dated as of May 22, 1998 (the "Original Trust
Agreement"), and by the execution and filing with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on May 22, 1998, attached
as Exhibit A (the "Certificate of Trust"); and
WHEREAS, the Depositor and the Trustees desire to amend and restate
the Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Series A Common Securities (as
defined herein) by the Trust to the Depositor, (ii) the issuance and sale of the
Series A Capital Securities (as defined herein) by the Trust pursuant to the
Underwriting Agreement (as defined herein) and (iii) the acquisition by the
Trust from the Depositor of all of the right, title and interest in the Series A
Subordinated Debentures (as defined herein);
NOW THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, each party, for the benefit of the other
parties and for the benefit of the Securityholders (as defined herein), hereby
amends and restates the Original Trust Agreement in its entirety and agrees as
follows:
<PAGE> 8
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions.
For all purposes of this Trust Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act (as defined herein), either directly or by reference therein, have
the meanings assigned to them therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a
given Liquidation Amount and/or a given period, the amount of Additional
Interest (as defined in the Indenture) paid by the Depositor on a Like Amount of
Series A Subordinated Debentures for such period.
"Administrative Trustee" means each of the individuals identified as
an "Administrative Trustee" in the preamble to this Trust Agreement solely in
such individual's capacity as Administrative Trustee of the Trust and not in
such individual's individual capacity, or such Administrative Trustee's
successor in interest in such capacity, or any successor trustee appointed as
herein provided.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
2
<PAGE> 9
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises judging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of any substantial part of its property or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.10.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors, or such committee of the Board of
Directors or officers of the Depositor to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full force and effect on
the date of such certification, and delivered to the Trustees.
"Book-Entry Series A Capital Security Certificates" means a
beneficial interest in the Series A Capital Security Certificates, ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.11.
"Business Day" means any day other than (i) a Saturday or Sunday,
(ii) 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 or (iii) a day on which the Corporate Trust Office is
closed for business.
"Capital Treatment Event" means that the Depositor shall have
received an Opinion of Counsel from independent bank regulatory counsel
experienced in such matters to the effect that the Series A Capital Securities,
as a result of (a) any amendment to or change (including any announced
prospective change) in the laws (or any regulations thereunder) of the United
States or any rules, guidelines or policies of the appropriate regulatory
authorities or (b) any official administrative pronouncement or judicial
decision for interpreting or applying such laws or
3
<PAGE> 10
regulations which amendment or change is effective or such pronouncement or
decision is announced on or after the date of the original issuance of the
Series A Capital Securities, do not constitute, or within 90 days of the date
thereof, will not constitute Tier 1 capital applied as if the Depositor or its
successor were a bank holding company under The Bank Holding Company Act of
1956, as amended; provided, however, that the distribution of the Series A
Subordinated Debentures in connection with the liquidation of the Trust by the
Depositor shall not in and of itself constitute a Capital Treatment Event unless
such liquidation shall have occurred in connection with a Tax Event.
"Certificate Depository Agreement" means the agreement among the
Trust, the Depositor and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, relating to the Trust Security
Certificates, substantially in the form attached as Exhibit B, as the same may
be amended and supplemented from time to time.
"Certificate of Trust" has the meaning specified in the recitals
hereof, as amended from time to time.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. The Depository Trust Company will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the date of execution and delivery of this
Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the execution of this instrument 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.
"Corporate Trust Office" means the principal office of the Property
Trustee or Debenture Trustee located in Wilmington, Delaware.
"Debenture Event of Default" means an "Event of Default" as defined
in the Indenture.
"Debenture Maturity Date" means the date specified pursuant to the
terms of the Series A Subordinated Debentures as the date on which the principal
of the Series A Subordinated Debentures is due and payable.
4
<PAGE> 11
"Debenture Redemption Date" means, with respect to any Series A
Subordinated Debentures to be redeemed under the Indenture, the date fixed for
redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as defined in the
Indenture.
"Debenture Trustee" means Wilmington Trust Company, a Delaware
banking corporation, as trustee under the Indenture, and any successor trustee
appointed as provided therein.
"Definitive Series A Capital Security Certificates" means either or
both (as the context requires) of (a) Series A Capital Security Certificates
issued as Book-Entry Series A Capital Security Certificates as provided in
Section 5.11(a) and (b) Series A Capital Security Certificates issued in
certificated, fully registered form as provided in Section 5.13.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the Person identified as the "Delaware
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Delaware Trustee of the Trust and not in its individual capacity, or its
successor in interest in such capacity, or any successor trustee appointed as
herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.1.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (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) the occurrence of a Debenture Event of Default; or
(b) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(c) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
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(d) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trustees in this Trust Agreement (other than
a covenant or warranty a default in the performance or breach of which is dealt
with in clause (b) or (c) above) and continuation of such default or breach for
a period of 90 days after there has been given, by registered or certified mail,
to the defaulting Trustee or Trustees by the Holders of at least 25% in
Aggregate Liquidation Amount of the Outstanding Series A Capital 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
(e) the occurrence of a Bankruptcy Event with respect to the
Property Trustee and the failure by the Depositor to appoint a successor
Property Trustee within 90 days thereof.
"Expiration Date" has the meaning specified in Section 9.1.
"Federal Reserve" means the Board of Governors of the Federal
Reserve System, as from time to time constituted, or if at any time after the
execution of this Trust Agreement the Federal Reserve is not existing and
performing the duties now assigned to it, then the body performing such duties
at such time.
"Indenture" means the Junior Subordinated Indenture, dated as of
__________, 1998, between the Depositor and the Debenture Trustee, as trustee,
as amended or supplemented from time to time.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed
of trust, adverse ownership interest, hypothecation, assignment, security
interest or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Series A Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture, the proceeds of which will be used to pay the
Redemption Price of such Trust Securities, and (b) with respect to a
distribution of Series A Subordinated Debentures to Holders of Trust Securities
in connection with a dissolution or liquidation of the Trust, Series A
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the Holder to whom such Series A Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust
Security.
"Liquidation Date" means the date on which the Series A Subordinated
Debentures are to be distributed to Holders of Trust Securities in connection
with a termination and liquidation of the Trust pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in Section
9.4(d).
"1940 Act" means the Investment Company Act of 1940, as amended.
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"Officers' Certificate" means a certificate signed by the Chairman
of the Board of Directors, the Vice Chairman of the Board of Directors, the
Chief Executive Officer, the President or a Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Depositor, and delivered to the appropriate Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 8.16 shall be the
principal executive, financial or accounting officer of the Depositor. Any
Officers' Certificate delivered with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Trust, the Property Trustee or the Depositor, and who shall be
reasonably acceptable to the Property Trustee.
"Original Trust Agreement" has the meaning specified in the recitals
to this Trust Agreement.
"Outstanding", when used with respect to Trust Securities, means, as
of the date of determination, all Trust Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Trust Securities theretofore cancelled by the Securities
Registrar or delivered to the Securities Registrar for cancellation;
(b) Trust Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Trust Securities; provided that, if such
Trust Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in
lieu of which other Trust Securities have been executed and delivered pursuant
to this Trust Agreement, including pursuant to Sections 5.4, 5.5, 5.11 and 5.13;
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provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Series A Capital Securities have given any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Series A Capital Securities owned by the Depositor, any Trustee or any Affiliate
of the Depositor or any Trustee shall be disregarded and deemed not to be
Outstanding, except that (a) in determining whether any Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Series A Capital Securities that such Trustee
actually knows to be so owned shall be so disregarded and (b) the foregoing
shall not apply at any time when all of the Outstanding Series A Capital
Securities are owned by the Depositor, one or more of the Trustees and/or any
such Affiliate. Series A Capital Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Administrative Trustees the pledgee's right so to act with
respect to such Series A Capital Securities and that the pledgee is not the
Depositor or any Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner of a
Book-Entry Series A Capital Security Certificate as reflected in the records of
the Clearing Agency or, if a Clearing Agency Participant is not the beneficial
owner, then as reflected in the records of a Person maintaining an account with
such Clearing Agency (directly or indirectly, in accordance with the rules of
such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.9 and shall initially be WTC.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with WTC in its corporate trust
department for the benefit of the Securityholders in which all amounts paid in
respect of the Series A Subordinated Debentures will be held and from which the
Property Trustee, through the Paying Agent, shall make payments to the
Securityholders in accordance with Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint
venture, trust, limited liability company or corporation, unincorporated
organization or government or any agency or political subdivision thereof.
"Property Trustee" means the Person identified as the "Property
Trustee" in the preamble to this Trust Agreement solely in its capacity as
Property Trustee of the Trust heretofore created and continued hereunder and not
in its individual capacity, or its successor in interest in such capacity, or
any successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the Debenture
Maturity Date shall be a Redemption Date for a Like Amount of Trust Securities.
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"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, paid by the Depositor upon the concurrent
redemption of a Like Amount of Series A Subordinated Debentures, allocated on a
pro rata basis (based on Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.4.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Trust Securities is registered in the Securities Register; any such
Person shall be a beneficial owner within the meaning of the Delaware Business
Trust Act; provided, however, that in determining whether the Holders of the
requisite amount of Series A Capital Securities have voted on any matter
provided for in this Trust Agreement, then for the purpose of any such
determination, so long as Definitive Series A Capital Security Certificates have
not been issued, the term Securityholders or Holders as used herein shall refer
to the Owners. Where it is necessary to distinguish between the Holders of
Series A Capital Securities and the Holder of the Series A Common Securities,
"Capital Securityholder" shall denote the former, and "Series A Common
Securityholder" shall denote the latter.
"Series A Capital Security" means an undivided preferred beneficial
interest in the assets of the Trust, having a Liquidation Amount of $25 and
having the rights provided therefor in this Trust Agreement, including the right
to receive Distributions and a Liquidation Distribution as provided herein.
"Series A Capital Security Certificate" means a certificate
evidencing ownership of Series A Capital Securities, substantially in the form
attached as Exhibit D.
"Series A Common Security" means an undivided common beneficial
interest in the assets of the Trust, having a Liquidation Amount of $25 and
having the rights provided therefor in this Trust Agreement, including the right
to receive Distributions and a Liquidation Distribution as provided herein.
"Series A Common Security Certificate" means a certificate
evidencing ownership of Series A Common Securities, substantially in the form
attached as Exhibit C.
"Series A Guarantee" means the Guarantee Agreement executed and
delivered by the Depositor and Wilmington Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Trust Securities, as amended from time to
time.
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"Series A Subordinated Debentures" means the $27,500,000 aggregate
principal amount of the Depositor's __% Junior Subordinated Deferrable Interest
Debentures, Series A, issued pursuant to the Indenture.
"Tax Event" means the receipt by 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 proposed change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which proposed
change, pronouncement or decision is announced on or after the date of issuance
of the Series A Capital Securities under this Trust Agreement, there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date of such Opinion of Counsel, subject to United States federal income tax
with respect to income received or accrued on the Series A Subordinated
Debentures, (ii) interest payable by the Depositor on the Series A Subordinated
Debentures is not, or within 90 days of the date of such Opinion of Counsel,
will not be, deductible by the Depositor, 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 of Counsel, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Trust" means the Delaware business trust created and continued
hereby and identified in the recitals hereof.
"Trust Agreement" means this Amended and Restated Trust Agreement,
as the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including (i) all exhibits hereto and (ii) for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Series A Subordinated Debentures, (b)
any cash on deposit in, or owing to, the Payment Account and (c) all proceeds
and rights in respect of the foregoing.
"Trust Security" means any one of the Series A Common Securities or
the Series A Capital Securities.
"Trust Security Certificate" means any one of the Series A Common
Security Certificates or the Series A Capital Security Certificates.
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"Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Underwriters" means, collectively, CIBC Oppenheimer Corp., Legg
Mason Wood Walker, Incorporated and BancAmerica Robertson Stephens.
"Underwriting Agreement" means the Pricing Agreement, dated as of
__________, 1998, among the Trust, the Depositor and the Underwriters.
"WTC" has the meaning specified in the preamble to this Trust
Agreement.
ARTICLE II
CONTINUATION OF THE TRUST
Section 2.1 Name.
The Trust continued hereby shall be known as "TeleBanc Capital Trust
II," as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Trustees, in which name the Trustees engage in the transactions
contemplated hereby, make and execute contracts and other instruments on behalf
of the Trust and sue and be sued.
Section 2.2 Office of the Delaware Trustee; Principal Place of
Business.
The address of the Delaware Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890, or such other address in the State of Delaware as
the Delaware Trustee may designate by written notice to the Securityholders and
the Depositor. The principal executive office of the Trust is c/o TeleBanc
Financial Corporation, 1111 North Highland Street, Arlington, Virginia 22201.
Section 2.3 Initial Contribution of Trust Property; Organizational
Expenses.
The Property Trustee acknowledges receipt in trust from the
Depositor in connection with the Original Trust Agreement of the sum of $10,
which constituted the initial Trust Property. The Depositor shall pay
organizational expenses of the Trust as they arise or shall, upon request of any
Trustee, promptly reimburse such Trustee for any such expenses paid by such
Trustee. The Depositor shall make no claim upon the Trust Property for the
payment of such expenses.
Section 2.4 Issuance of the Series A Capital Securities.
As of _______________, 1998, the Depositor, on behalf of the Trust
and pursuant to the Original Trust Agreement, executed and delivered the
Underwriting Agreement. Contemporaneously with the execution and delivery of
this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 5.2 and deliver to the
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Underwriters named in the Underwriting Agreement Series A Capital Security
Certificates, registered in the name of the nominee of the initial Clearing
Agency, in an aggregate amount of 1,100,000 Series A Capital Securities having
an aggregate Liquidation Amount of $27,500,000, against receipt of an aggregate
purchase price of $27,500,000 which amount such Administrative Trustee shall
promptly deliver to the Property Trustee.
Section 2.5 Issuance of the Series A Common Securities; Subscription
and Purchase of Series A Subordinated Debentures.
Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 5.2 and deliver to the Depositor Series A Common
Security Certificates, registered in the name of the Depositor, in an aggregate
amount of __________ Series A Common Securities having an aggregate Liquidation
Amount of $______________ against payment by the Depositor of an aggregate
purchase price of $____________, which amount such Administrative Trustee shall
promptly deliver to the Property Trustee. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor Series A Subordinated Debentures, registered in the name of
the Trust and having an aggregate principal amount equal to $25,000,000, and, in
satisfaction of the purchase price, the Property Trustee, on behalf of the
Trust, shall deliver to the Depositor the sum of $_________________ (being the
sum of the amounts delivered to the Property Trustee pursuant to (i) the second
sentence of Section 2.4 and (ii) the first sentence of this Section 2.5).
Section 2.6 Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue
and sell Trust Securities, (b) to use the proceeds from such sale to acquire the
Series A Subordinated Debentures and (c) to engage in those activities necessary
or incidental thereto. The Depositor hereby appoints the Trustees as trustees of
the Trust, to have all the rights, powers and duties to the extent set forth
herein, and the Trustees hereby accept such appointment. The Property Trustee
hereby declares that it will hold the Trust Property in trust upon and subject
to the conditions set forth herein for the benefit of the Trust and the
Securityholders. The Administrative Trustees shall have all rights, powers and
duties set forth herein and in accordance with applicable law with respect to
accomplishing the purposes of the Trust. 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 Property Trustee or the Administrative
Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of
the Trust for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Delaware Business Trust Act.
Section 2.7 Authorization to Enter into Certain Transactions.
(a) The Trustees shall conduct the affairs of the Trust in
accordance with the terms of this Trust Agreement. Subject to the limitations
set forth in paragraph (b) of this Section and Article VIII and in accordance
with the following provisions (i) and (ii), the Trustees shall have
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the authority to enter into all transactions and agreements determined by the
Trustees to be appropriate in exercising the authority, express or implied,
otherwise granted to the Trustees under this Trust Agreement, and to perform all
acts in furtherance thereof, including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting
singly or collectively, shall have the power and authority to act on behalf of
the Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, the Certificate
Depository Agreement and such other agreements as may be necessary
or desirable in connection with the purposes and function of the
Trust;
(C) assisting in the registration of the Series A
Capital Securities under the Securities Act of 1933, as amended, and
under state securities or blue sky laws, and the qualification of
this Trust Agreement as a trust indenture under the Trust Indenture
Act;
(D) assisting in the listing, if any, of the Series A
Capital Securities upon such national securities exchange or
exchanges or automated quotation system or systems as shall be
determined by the Depositor and the registration of the Series A
Capital Securities under the Securities Exchange Act of 1934, as
amended, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of
default) and other information regarding the Trust Securities and
the Series A Subordinated Debentures to the Securityholders in
accordance with this Trust Agreement;
(F) the appointment of a Paying Agent and Securities
Registrar in accordance with this Trust Agreement;
(G) registering transfer of the Trust Securities in
accordance with this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(I) unless otherwise required by the Delaware Business
Trust Act or the Trust Indenture Act, to execute on behalf of the
Trust (either acting alone or together with any or all of the
Administrative Trustees) any documents that the
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Administrative Trustees have the power to execute pursuant to this
Trust Agreement; and
(J) the taking of any action incidental to the foregoing
as the Trustees may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement for
the benefit of the Securityholders (without consideration of the
effect of any such action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the
power, duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Series A Subordinated Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Series A Subordinated Debentures in
the Payment Account;
(D) the distribution through the Paying Agent of amounts
owed to the Securityholders in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and
privileges of a holder of the Series A Subordinated Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities and the Series A
Subordinated Debentures to the Securityholders in accordance with
this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware; and
(I) except as otherwise provided in this Section
2.7(a)(ii), the Property Trustee shall have none of the duties,
liabilities, powers or the authority of the Administrative Trustees
set forth in Section 2.7(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein,
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(iii) take any action that would cause the Trust to fail or cease to qualify as
a "grantor trust" for United States federal income tax purposes, (iv) incur any
indebtedness for borrowed money or issue any other debt, (v) take or consent to
any action that would result in the placement of a Lien on any of the Trust
Property, (vi) invest any proceeds received by the Trust from holding the Series
A Subordinated Debentures, but shall distribute all such proceeds to Holders of
Trust Securities pursuant to the terms of this Trust Agreement and of the Trust
Securities; (vii) acquire any assets other than the Trust Property, (viii)
possess any power or otherwise act in such a way as to vary the Trust Property,
(ix) possess any power or otherwise act in such a way as to vary the terms of
the Trust Securities in any way whatsoever (except to the extent expressly
authorized in this Trust Agreement or by the terms of the Trust Securities) or
(x) issue any securities or other evidences of beneficial ownership of, or
beneficial interest in, the Trust other than the Trust Securities. The
Administrative Trustees shall defend all claims and demands of all Persons at
any time claiming any Lien on any of the Trust Property adverse to the interest
of the Trust or the Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Series A Capital
Securities, the Depositor shall have the right and responsibility to assist the
Trust with respect to, or effect on behalf of the Trust, the following (and any
actions taken by the Depositor in furtherance of the following prior to the date
of this Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the
Commission and the execution on behalf of the Trust of one or more
registration statements on the appropriate form in relation to the
Series A Capital Securities, including any amendments thereto;
(ii) the determination of the states in which to take
appropriate action to qualify or register for sale all or part of
the Series A Capital Securities and the determination of any and all
such acts, other than actions which must be taken by or on behalf of
the Trust, and the advice to the Trustees of actions they must take
on behalf of the Trust, and the preparation for execution and filing
of any documents to be executed and filed by the Trust or on behalf
of the Trust, as the Depositor deems necessary or advisable in order
to comply with the applicable laws of any such states;
(iii) the preparation for filing by the Trust and
execution on behalf of the Trust of an application to the Nasdaq
National Market for listing upon notice of issuance of any Series A
Capital Securities and filing with such exchange or self-regulatory
organization such notifications and documents as may be necessary
from time to time to maintain such listing;
(iv) the negotiation of the terms of, and the execution
and delivery of, the Underwriting Agreement providing for the sale
of the Series A Capital Securities; and
(v) the taking of any other actions necessary or
desirable to carry out any of the foregoing activities.
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(d) Notwithstanding anything herein to the contrary, the
Administrative Trustees are authorized and directed to conduct the affairs of
the Trust and to operate the Trust so that the Trust will not be deemed to be an
"investment company" required to be registered under the 1940 Act, or fail to be
classified as a grantor trust for United States federal income tax purposes and
so that the Series A Subordinated Debentures will be treated as indebtedness of
the Depositor for United States federal income tax purposes. In this connection,
the Depositor and the Administrative Trustees are authorized to take any action,
not inconsistent with applicable law, the Certificate of Trust or this Trust
Agreement, that each of the Depositor and any Administrative Trustee determines
in its discretion to be necessary or desirable for such purposes, as long as
such action does not adversely affect in any material respect the interests of
the Holders of the Series A Capital Securities.
Section 2.8 Assets of Trust.
The assets of the Trust shall consist solely of the Trust Property.
Section 2.9 Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in
the Property Trustee (in its capacity as such) and shall be held and
administered by the Property Trustee for the benefit of the Trust and the
Securityholders in accordance with this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
Section 3.1 Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits in and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the Payment
Account shall be held by the Property Trustee in the Payment Account for the
exclusive benefit of the Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal of or interest or premium on,
and any other payments or proceeds with respect to, the Series A Subordinated
Debentures. Amounts held in the Payment Account shall not be invested by the
Property Trustee.
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ARTICLE IV
DISTRIBUTIONS; REDEMPTION
Section 4.1 Distributions.
(a) The Trust Securities represent undivided beneficial ownership
interests in the Trust Property, and Distributions (including Additional
Amounts) will be made on the Trust Securities at the rate and on the dates that
payments of interest (including Additional Interest, as defined in the
Indenture) are made on the Series A Subordinated Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be
cumulative, and will accumulate whether or not there are funds of
the Trust available for the payment of Distributions. Distributions
shall accrue from September 30, 1998, and, except in the event (and
to the extent) that the Depositor exercises its right to defer the
payment of interest on the Series A Subordinated Debentures pursuant
to the Indenture, shall be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing on
September 30, 1998. If any date on which a Distribution is otherwise
payable on the Trust Securities is not a Business Day, then the
payment of such Distribution shall be made on the next succeeding
day that is a Business Day (without any additional Distributions or
other payment in respect of such delay) except that, if such
Business Day is in the next succeeding calendar year, payment of
such Distribution 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 this Section 4.1(a), a "Distribution Date").
(ii) Assuming payments of interest on the Series A
Subordinated Debentures are made when due (and before giving effect
to Additional Amounts, if applicable), Distributions on the Trust
Securities shall be payable at a rate of _____% per annum of the
Liquidation Amount of the Trust Securities, the rate per annum
provided for in the Series A Subordinated Debentures. The amount of
Distributions payable for any period shall be computed on the basis
of a 360-day year of twelve 30-day months. The amount of
Distributions payable for any period shall include the Additional
Amounts, if any.
(iii) Distributions on the Trust Securities shall be
made by the Property Trustee from the Payment Account and shall be
payable on each Distribution Date only to the extent that the Trust
has funds then on hand and available in the Payment Account for the
payment of such Distributions.
(b) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities on the relevant record date, which
shall be one Business Day prior to such Distribution Date; provided, however,
that in the event that the Series A Capital Securities do not remain in
book-entry-only form, the relevant record date shall be the 15th day of the
month in which the relevant
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Distribution Date occurs without giving effect to the third sentence of Section
4.1(a)(i) (whether or not such record date is a Business Day).
Section 4.2 Redemption.
(a) On each Debenture Redemption Date and on the Debenture Maturity
Date, the Trust will be required to redeem a Like Amount of Trust Securities at
the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities
are to be redeemed, the identification and the total Liquidation
Amount of the particular Trust Securities to be redeemed;
(v) that on the Redemption Date the Redemption Price
will become due and payable upon each such Trust Security to be
redeemed and that Distributions thereon will cease to accrue on and
after said date; and
(vi) if the Series A Capital Securities are no longer in
book-entry-only form, the place and address where the Holders shall
surrender their Series A Capital Security Certificates.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption or payment at Debenture Maturity Date. Redemptions of the Trust
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Trust has funds then on hand and
available in the Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect
of any Series A Capital Securities, then, by 12:00 noon, New York City time, on
the Redemption Date, subject to Section 4.2(c), the Property Trustee will, so
long as the Series A Capital Securities are in book-entry-only form, irrevocably
deposit with the Clearing Agency for the Series A Capital Securities funds
sufficient to pay the applicable Redemption Price and will give such Clearing
Agency irrevocable instructions and authority to pay the Redemption Price to the
Holders thereof. If the Series A Capital Securities are no longer in
book-entry-only form, the Property Trustee, subject to Section 4.2(c), will
irrevocably deposit with the Paying Agent funds sufficient to pay the
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applicable Redemption Price and will give the Paying Agent irrevocable
instructions and authority to pay the Redemption Price to the Holders thereof
upon surrender of their Series A Capital Security Certificates. Notwithstanding
the foregoing, Distributions payable on or prior to the Redemption Date for any
Trust Securities called for redemption shall be payable to the Holders of such
Trust Securities as they appear on the Securities Register for the Trust
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 Securityholders holding Trust
Securities so called for redemption will cease, except the right of such
Securityholders to receive the Redemption Price and any Distribution payable on
or prior to the Redemption Date, but without interest thereon, and such Trust
Securities will cease to be Outstanding. In the event that any date on which any
Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case, with the same force and effect as if made on such date. In the event
that payment of the Redemption Price in respect of any Trust Securities called
for redemption is improperly withheld or refused and not paid either by the
Trust or by the Depositor pursuant to the Series A Guarantee, Distributions on
such Trust Securities will continue to accrue, at the then applicable rate, from
the Redemption Date originally established by the Trust for such Trust
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be
made to the recordholders thereof as they appear on the Securities Register for
the Trust Securities on the relevant record date, which shall be one Business
Day prior to the relevant Redemption Date; provided, however, that in the event
that the Series A Capital Securities do not remain in book-entry-only form, the
relevant record date shall be the date fifteen days prior to the relevant
Redemption Date.
(f) Subject to Section 4.3(a), if less than all the Outstanding
Trust Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Series A Common
Securities and the Series A Capital Securities. The particular Series A Capital
Securities to be redeemed shall be selected on a pro rata basis (based upon
Liquidation Amounts) not more than 60 days prior to the Redemption Date by the
Property Trustee from the Outstanding Series A Capital Securities not previously
called for redemption, by such method (including, without limitation, by lot) as
the Property Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $25 or an integral multiple
of $25 in excess thereof) of the Liquidation Amount of Series A Capital
Securities of a denomination larger than $25. The Property Trustee shall
promptly notify the Security Registrar in writing of the Series A Capital
Securities selected for redemption and, in the case of any Series A Capital
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of this Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Series A Capital
Securities shall relate, in the case of any
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Series A Capital Securities redeemed or to be redeemed only in part, to the
portion of the Liquidation Amount of Series A Capital Securities that has been
or is to be redeemed.
Section 4.3 Subordination of Series A Common Securities.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 4.2(f), pro rata among the Series
A Common Securities and the Series A Capital Securities based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any Distribution
Date or Redemption Date any Event of Default resulting from a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
(including Additional Amounts, if applicable) on, or Redemption Price of, any
Series A Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Series A Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions
(including Additional Amounts, if applicable) on all Outstanding Series A
Capital Securities for all Distribution periods terminating on or prior thereto,
or in the case of payment of the Redemption Price, the full amount of such
Redemption Price on all Outstanding Series A Capital Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Series A Capital Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from any Debenture Event of Default, the Holder of Series A Common Securities
will be deemed to have waived any right to act with respect to any such Event of
Default under this Trust Agreement until the effect of all such Events of
Default with respect to the Series A Capital Securities have been cured, waived
or otherwise eliminated. Until any such Event of Default under this Trust
Agreement with respect to the Series A Capital Securities has been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on behalf
of the Holders of the Series A Capital Securities and not the Holder of the
Series A Common Securities, and only the Holders of the Series A Capital
Securities will have the right to direct the Property Trustee to act on their
behalf.
Section 4.4 Payment Procedures.
Payments of Distributions (including Additional Amounts, if
applicable) in respect of the Series A Capital Securities shall be made by check
mailed to the address of the Person entitled thereto as such address shall
appear on the Securities Register or, if the Series A Capital Securities are
held by a Clearing Agency, such Distributions shall be made to the Clearing
Agency in immediately available funds, which shall credit the relevant Persons'
accounts at such Clearing Agency on the applicable Distribution Dates. Payments
in respect of the Series A Common Securities shall be made in such manner as
shall be mutually agreed in writing between the Property Trustee and the Series
A Common Securityholder.
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Section 4.5 Tax Returns and Reports.
The Administrative Trustees shall prepare (or cause to be prepared),
at the Depositor's expense, and file all United States federal, state and local
tax and information returns and reports required to be filed by or in respect of
the Trust. In this regard, the Administrative Trustees shall (a) prepare and
file (or cause to be prepared and filed) the appropriate Internal Revenue
Service Form required to be filed in respect of the Trust in each taxable year
of the Trust and (b) prepare and furnish (or cause to be prepared and furnished)
to each Securityholder the appropriate Internal Revenue Service form and the
information required to be provided on such form. The Administrative Trustees
shall provide the Depositor and the Property Trustee with a copy of all such
returns and reports promptly after such filing or furnishing. The Trustees shall
comply with United States federal withholding and backup withholding tax laws
and information reporting requirements with respect to any payments to
Securityholders under the Trust Securities.
Section 4.6 Payment of Expenses of the Trust.
Pursuant to Section 10.6 of the Indenture, the Depositor, as
borrower, has agreed to pay to the Trust, and reimburse the Trust for, the full
amount of any costs, expenses or liabilities of the Trust (other than
obligations of the Trust to pay the Holders of any Series A Capital Securities
or other similar interests in the Trust the amounts due such Holders pursuant to
the terms of the Series A Capital Securities or such other similar interests, as
the case may be), including, without limitation, any taxes, duties or other
governmental charges of whatever nature (other than withholding taxes) imposed
on the Trust by the United States or any other taxing authority. Such payment
obligation includes any such costs, expenses or liabilities of the Trust that
are required by applicable law to be satisfied in connection with a termination
of the Trust.
Section 4.7 Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Series A Capital
Securities shall be reduced by the amount of any corresponding payment such
Holder (or an Owner with respect to the Holder's Series A Capital Securities)
has directly received pursuant to Section 5.8 of the Indenture or Section 5.14
of this Trust Agreement.
ARTICLE V
TRUST SECURITY CERTIFICATES
Section 5.1 Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are Outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
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Section 5.2 The Trust Security Certificates.
The Series A Capital Security Certificates shall be issued in
minimum denominations of $25 Liquidation Amount and integral multiples of $25 in
excess thereof, and the Series A Common Security Certificates shall be issued in
denominations of $25 Liquidation Amount and integral multiples thereof. The
Trust Security Certificates shall be executed on behalf of the Trust by manual
or facsimile signature of at least one Administrative Trustee and, if executed
on behalf of the Trust by facsimile, countersigned by a transfer agent or its
agent. The Series A Capital Security Certificates shall be authenticated by the
Property Trustee by manual or facsimile signature of an authorized signatory
thereof and, if executed by such authorized signatory of the Property Trustee by
facsimile, countersigned by a transfer agent or its agent. Trust Security
Certificates bearing the manual signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust or the Property Trustee or, if executed on behalf of the Trust or the
Property Trustee by facsimile, countersigned by a transfer agent or its agent,
shall be validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the delivery of such Trust Security Certificates or did not
hold such offices at the date of delivery of such Trust Security Certificates. A
transferee of a Trust Security Certificate shall become a Securityholder, and
shall be entitled to the rights and subject to the obligations of a
Securityholder hereunder, upon due registration of such Trust Security
Certificate in such transferee's name pursuant to Sections 5.4, 5.11 and 5.13.
Section 5.3 Execution and Delivery of Trust Security Certificates.
On the Closing Date, the Administrative Trustees shall cause Trust
Security Certificates, in an aggregate Liquidation Amount as provided in
Sections 2.4 and 2.5, to be executed on behalf of the Trust and delivered to or
upon the written order of the Depositor, signed by its chairman of the board,
its president, any senior vice president, any managing director or any vice
president, treasurer, assistant treasurer or controller without further
corporate action by the Depositor, in authorized denominations.
Section 5.4 Registration of Transfer and Exchange of Series A
Capital Security Certificates.
The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.8, a register or registers for the
purpose of registering Trust Security Certificates and transfers and exchanges
of Series A Capital Security Certificates (the "Securities Register") in which
the transfer agent and registrar designated by the Depositor (the "Securities
Registrar"), subject to such reasonable regulations as it may prescribe, shall
provide for the registration of Series A Capital Security Certificates and
Series A Common Security Certificates (subject to Section 5.10 in the case of
the Series A Common Security Certificates) and registration of transfers and
exchanges of Series A Capital Security Certificates as herein provided. WTC
shall be the initial Securities Registrar.
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Upon surrender for registration of transfer of any Series A Capital
Security Certificate at the office or agency maintained pursuant to Section 5.8,
the Administrative Trustees or any one of them shall execute on behalf of the
Trust (and if executed on behalf of the Trust by a facsimile signature, such
certificate shall be countersigned by a transfer agent or its agent) and
deliver, in the name of the designated transferee or transferees, one or more
new Series A Capital Security Certificates in authorized denominations of a like
aggregate Liquidation Amount dated the date of execution by such Administrative
Trustee or Trustees. The Securities Registrar shall not be required to register
the transfer of any Series A Capital Securities that have been called for
redemption during a period beginning at the opening of business 15 days before
the day of selection for such redemption.
At the option of a Holder, Series A Capital Security Certificates
may be exchanged for other Series A Capital Security Certificates in authorized
denominations of the same class and of a like aggregate Liquidation Amount upon
surrender of the Series A Capital Security Certificates to be exchanged at the
office or agency maintained pursuant to Section 5.8.
Every Series A Capital Security Certificate presented or surrendered
for registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to an Administrative Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly authorized
in writing. Each Series A Capital Security Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by an Administrative Trustee or the Securities Registrar in
accordance with such Person's customary practice.
No service charge shall be made for any registration of transfer or
exchange of Series A Capital Security Certificates, but the Securities Registrar
may require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or exchange of Series A
Capital Security Certificates.
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Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Security
Certificates.
If (a) any mutilated Trust Security Certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Security Certificate and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Security Certificate shall have been acquired by a bona fide
purchaser, the Administrative Trustees, or any one of them, on behalf of the
Trust shall execute by manual or facsimile signature and, if executed on behalf
of the Trust by facsimile signature, such certificate shall be countersigned by
a transfer agent, and make available for delivery, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Trust Security Certificate, a new
Trust Security Certificate of like class, tenor and denomination. In connection
with the issuance of any new Trust Security Certificate under this Section, the
Administrative Trustees or the Securities Registrar may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. Any duplicate Trust Security Certificate issued
pursuant to this Section shall constitute conclusive evidence of an undivided
beneficial interest in the Trust Property, as if originally issued, whether or
not the lost, stolen or destroyed Trust Security Certificate shall be found at
any time.
Section 5.6 Persons Deemed Securityholders.
The Trustees or the Securities Registrar shall treat the Person in
whose name any Trust Security Certificate shall be registered in the Securities
Register as the owner of such Trust Security Certificate for the purpose of
receiving Distributions and for all other purposes whatsoever, and neither the
Trustees nor the Securities Registrar shall be bound by any notice to the
contrary.
Section 5.7 Access to List of Securityholders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to
hold the Depositor, the Property Trustee or the Administrative Trustees
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
Section 5.8 Maintenance of Office or Agency.
The Administrative Trustees shall maintain an office or offices or
agency or agencies where Series A Capital Security Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustees in respect of the Trust Security Certificates
may be served. The Administrative Trustees initially designate Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attn: Corporate Trust Department, as its principal corporate trust office
for such purposes. The Administrative Trustees shall give prompt written notice
to the Depositor, the Property Trustee and to the Securityholders of any change
in the location of the Securities Register or any such office or agency.
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Section 5.9 Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from
the Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Administrative Trustees may
revoke such power and remove the Paying Agent if such Trustees determine in
their sole discretion that the Paying Agent shall have failed to perform its
obligations under this Trust Agreement in any material respect. The Paying Agent
shall initially be WTC, and any co-paying agent chosen by WTC, and acceptable to
the Administrative Trustees and the Depositor. Any Person acting as Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrative Trustees, the Property Trustee and the Depositor. In the event
that WTC shall no longer be the Paying Agent or a successor Paying Agent shall
resign or its authority to act be revoked, the Administrative Trustees shall
appoint a successor that is acceptable to the Property Trustee and the Depositor
to act as Paying Agent (which shall be a bank or trust company). The
Administrative Trustees shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Administrative Trustees to execute and
deliver to the Trustees an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Trustees that as Paying Agent, such
successor Paying Agent or additional Paying Agent will hold all sums, if any,
held by it for payment to the Securityholders in trust for the benefit of the
Securityholders entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all unclaimed funds to the
Property Trustee and upon resignation or removal of a Paying Agent, such Paying
Agent shall also return all funds in its possession to the Property Trustee. The
provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to WTC also in its
role as Paying Agent, for so long as WTC shall act as Paying Agent and, to the
extent applicable, to any other paying agent appointed hereunder, and any Paying
Agent shall be bound by the requirements with respect to paying agents of
securities issued pursuant to the Trust Indenture Act. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
Section 5.10 Ownership of Series A Common Securities by Depositor
On the Closing Date, the Depositor shall acquire and retain
beneficial and record ownership of the Series A Common Securities. To the
fullest extent permitted by law, other than a transfer in connection with a
consolidation or merger of the Depositor into another Person, or any conveyance,
transfer or lease by the Depositor of its properties and assets substantially as
an entirety to any Person, pursuant to Section 8.1 of the Indenture, any
attempted transfer of the Series A Common Securities shall be void. The
Administrative Trustees shall cause each Series A Common Security Certificate
issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE TO ANY PERSON".
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Section 5.11 Book-Entry Series A Capital Security Certificates;
Series A Common Security Certificate
(a) The Series A Capital Security Certificates, upon original issuance,
will be issued in the form of a typewritten Series A Capital Security
Certificate or Certificates representing Book-Entry Series A Capital Security
Certificates, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Trust. Such Series A Capital Security
Certificate or Certificates shall initially be registered on the Securities
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Owner will receive a Definitive Series A Capital Security Certificate
representing such Owner's interest in such Series A Capital Securities, except
as provided in Section 5.13. Unless and until Definitive Series A Capital
Security Certificates have been issued to Owners pursuant to Section 5.13:
(i) the provisions of this Section 5.11(a) shall be in full
force and effect;
(ii) the Securities Registrar and the Trustees shall be
entitled to deal with the Clearing Agency for all purposes of this
Trust Agreement relating to the Book-Entry Series A Capital Security
Certificates (including the payment of the Liquidation Amount of and
Distributions on the Series A Capital Securities evidenced by
Book-Entry Series A Capital Security Certificates and the giving of
instructions or directions to Owners of Series A Capital Securities
evidenced by Book-Entry Series A Capital Security Certificates) as the
sole Holder of Series A Capital Securities evidenced by Book-Entry
Series A Capital Security Certificates and shall have no obligations to
the Owners thereof;
(iii) to the extent that the provisions of this Section 5.11
conflict with any other provisions of this Trust Agreement, the
provisions of this Section 5.11 shall control; and
(iv) the rights of the Owners of the Book-Entry Series A
Capital Security Certificates shall be exercised only through the
Clearing Agency and shall be limited to those established by law and
agreements between such Owners and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to the Certificate Depository
Agreement, unless and until Definitive Series A Capital Security
Certificates are issued pursuant to Section 5.13, the initial Clearing
Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments on the Series A Capital
Securities to such Clearing Agency Participants.
(b) A single Series A Common Security Certificate representing the
Series A Common Securities shall be issued to the Depositor in the form of a
definitive Series A Common Security Certificate.
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Section 5.12 Notices to Clearing Agency
To the extent that a notice or other communication to the Owners is
required under this Trust Agreement, unless and until Definitive Series A
Capital Security Certificates shall have been issued to Owners pursuant to
Section 5.13, the Trustees shall give all such notices and communications
specified herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
Section 5.13 Definitive Series A Capital Security Certificates
If (a) the Depositor advises the Trustees in writing that the Clearing
Agency is no longer willing or able to properly discharge its responsibilities
with respect to the Series A Capital Security Certificates, and the Depositor is
unable to locate a qualified successor, (b) the Depositor at its option advises
the Trustees in writing that it elects to terminate the book-entry system
through the Clearing Agency or (c) after the occurrence of a Debenture Event of
Default, Owners of Series A Capital Security Certificates representing
beneficial interests aggregating at least a majority of the Liquidation Amount
advise the Administrative Trustees in writing that the continuation of a
book-entry system through the Clearing Agency is no longer in the best interest
of the Owners of Series A Capital Security Certificates, then the Administrative
Trustees shall notify the other Trustees and the Clearing Agency, and the
Clearing Agency, in accordance with its customary rules and procedures, shall
notify all Clearing Agency Participants for whom it holds Series A Capital
Securities of the occurrence of any such event and of the availability of the
Definitive Series A Capital Security Certificates to Owners of such class or
classes, as applicable, requesting the same. Upon surrender to the
Administrative Trustees of the typewritten Series A Capital Security Certificate
or Certificates representing the Book-Entry Series A Capital Security
Certificates by the Clearing Agency, accompanied by registration instructions,
the Administrative Trustees, or any one of them, shall execute the Definitive
Series A Capital Security Certificates in accordance with the instructions of
the Clearing Agency or, if executed on behalf of the Trust by facsimile,
countersigned by a transfer agent or its agent. Neither the Securities Registrar
nor the Trustees shall be liable for any delay in delivery of such instructions
and may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Series A Capital Security
Certificates, the Trustees shall recognize the Holders of the Definitive Series
A Capital Security Certificates as Securityholders. The Definitive Series A
Capital Security Certificates shall be typewritten, printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees that meets the requirements of any stock exchange or
automated quotation system on which the Series A Capital Securities are then
listed or approved for trading, as evidenced by the execution thereof by the
Administrative Trustees or any one of them.
Section 5.14 Rights of Securityholders
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial ownership interest in the assets of the
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Trust conferred by their Trust Securities and they shall have no right to call
for any partition or division of property, profits or rights of the Trust except
as described below. The Trust Securities shall be personal property giving only
the rights specifically set forth therein and in this Trust Agreement. The Trust
Securities shall have no preemptive or similar rights and when issued and
delivered to Securityholders against payment of the purchase price therefor will
be fully paid and nonassessable by the Trust. The Holders of the Series A
Capital Securities, in their capacities as such, 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.
(b) For so long as any Series A Capital Securities remain Outstanding,
if, upon a Debenture Event of Default, the Debenture Trustee fails or the
holders of not less than 25% in principal amount of the outstanding Series A
Subordinated Debentures fail to declare the principal of all of the Series A
Subordinated Debentures to be immediately due and payable, the Holders of at
least 25% in Liquidation Amount of the Series A Capital Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee; and upon any such declaration such principal amount of
and the accrued interest on all of the Series A Subordinated Debentures shall
become immediately due and payable as set forth in the Indenture, provided that
the payment of principal and interest on such Series A Subordinated Debentures
shall remain subordinated to the extent provided in the Indenture.
At any time after such a declaration of acceleration with respect to
the Series A Subordinated Debentures has been made and before a judgment or
decree for payment of the money due has been obtained by the Debenture Trustee
as described in the Indenture, the Holders of a majority in Liquidation Amount
of the Series A Capital Securities, by written notice to the Property Trustee,
the Depositor and the Debenture Trustee, may rescind and annul such declaration
and its consequences if:
(i) the Depositor has paid or deposited with the Debenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest (including
any Additional Interest (as defined in the Indenture)) on all
of the Series A Subordinated Debentures,
(B) the principal of any Series A Subordinated
Debentures which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Series A Subordinated Debentures, and
(C) all sums paid or advanced by the Debenture
Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Debenture Trustee
and the Property Trustee, their agents and counsel; and
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(ii) all Events of Default with respect to the Series A
Subordinated Debentures, other than the non-payment of the principal of
the Series A Subordinated Debentures which has become due solely by
such acceleration, have been cured or waived as provided in Section
5.13 of the Indenture.
The Holders of a majority in aggregate Liquidation Amount of the Series
A Capital Securities may, on behalf of the Holders of all the Series A Capital
Securities, waive any past default under the Indenture, except a default in the
payment of principal or interest (unless all Events of Default with respect to
the Series A Subordinated Debentures, other than the non-payment of the
principal of the Series A Subordinated Debentures which has become due solely by
such acceleration, have been cured or annulled as provided in Section 5.3 of the
Indenture and the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay all overdue installments of interest (including any
Additional Interest (as defined in the Indenture)) on the Series A Subordinated
Debentures, the principal of any Series A Subordinated Debentures which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Series A Subordinated Debentures, and all sums
paid or advanced by the Debenture Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Debenture Trustee and
the Property Trustee, their agents and counsel) 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 Debenture. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Upon receipt by the Property Trustee of written notice declaring such
an acceleration, or rescission and annulment thereof, by Holders of the Series A
Capital Securities all or part of which are represented by Book-Entry Series A
Capital Security Certificates, a record date shall be established for
determining Holders of Outstanding Series A Capital Securities entitled to join
in such notice, which record date shall be at the close of business on the day
the Property Trustee receives such notice. The Holders of Outstanding Series A
Capital Securities on such record date, or their duly designated proxies, and
only such Persons, shall be entitled to join in such notice, whether or not such
Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.14(b).
(c) For so long as any Series A Capital Securities remain Outstanding,
to the fullest extent permitted by law and subject to the terms of this Trust
Agreement and the Indenture, upon a Debenture Event of Default specified in
Section 5.1(1) or 5.1(2) of the Indenture, any Holder of Series A Capital
Securities shall have the right to institute a proceeding directly against the
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Depositor, pursuant to Section 5.8 of the Indenture, for enforcement of payment
to such Holder of the principal amount of or interest on Series A Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Series A Capital Securities of such Holder (a "Direct Action"). Except as set
forth in Section 5.14(b) and this Section 5.14(c), the Holders of Series A
Capital Securities shall have no right to exercise directly any right or remedy
available to the holders of, or in respect of, the Series A Subordinated
Debentures.
Section 5.15 CUSIP Numbers
The Administrative Trustees in issuing the Series A 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; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Series A 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 Series A
Capital Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers. The Administrative Trustees will promptly notify
the Property Trustee of any change in the CUSIP numbers.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
Section 6.1 Limitations on Voting Rights
(a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.3
and in the Indenture and as otherwise required by law, no Holder of Series A
Capital Securities shall have any right to vote or in any manner otherwise
control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Security Certificates, be construed so as to
constitute the Securityholders from time to time as partners or members of an
association.
(b) So long as any Series A Subordinated 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 the Debenture Trustee with respect
to such Series A Subordinated Debentures, (ii) waive any past default which is
waiveable under Section 5.13 of the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Series A
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Series A
Subordinated Debentures, where such consent shall be required, without, in each
case, obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Series A Capital Securities, provided,
however, that where a consent under the Indenture would require the consent of
each holder of Series A Subordinated Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written consent
of each Holder of Series A Capital Securities. The Trustees shall not revoke any
action
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previously authorized or approved by a vote of the Holders of Series A Capital
Securities, except by a subsequent vote of the Holders of Series A Capital
Securities. The Property Trustee shall notify all Holders of the Series A
Capital Securities of any notice of default received from the Debenture Trustee
with respect to the Series A Subordinated Debentures. In addition to obtaining
the foregoing approvals of the Holders of the Series A Capital Securities, prior
to taking any of the foregoing actions, the Administrative Trustees shall, at
the expense of the Depositor, obtain an Opinion of Counsel experienced in such
matters to the effect that such action shall not cause the Trust to fail to be
classified as a grantor trust for United States federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Series A Capital Securities, whether by way of amendment to the Trust Agreement
or otherwise, or (ii) the dissolution, winding up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Series A Capital Securities as a class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Series A Capital Securities. Notwithstanding any other
provision of this Trust Agreement, no amendment to this Trust Agreement may be
made if, as a result of such amendment, it would cause the Trust to fail to be
classified as a grantor trust for United States federal income tax purposes.
Section 6.2 Notice of Meetings
Notice of all meetings of the Capital Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.9 to each Capital Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
Section 6.3 Meetings of Capital Securityholders
No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Capital
Securityholders to vote on any matter upon the written request of the Capital
Securityholders of record of 25% of the Outstanding Series A Capital Securities
(based upon their Liquidation Amount) and the Administrative Trustees or the
Property Trustee may, at any time in their discretion, call a meeting of Capital
Securityholders to vote on any matters as to which Capital Securityholders are
entitled to vote.
Capital Securityholders of record of 50% of the Outstanding Series A
Capital Securities (based upon their Liquidation Amount), present in person or
by proxy, shall constitute a quorum at any meeting of Capital Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding more than a
majority of the Outstanding Series A
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Capital Securities (based upon their Liquidation Amount) held by holders of
record of Outstanding Series A Capital Securities present, either in person or
by proxy, at such meeting shall constitute the action of the Capital
Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
Section 6.4 Voting Rights
Securityholders shall be entitled to one vote for each $25 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
Section 6.5 Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of the Property Trustee, proxies may be solicited in
the name of the Property Trustee or one or more officers of the Property
Trustee. Only Securityholders of record shall be entitled to vote. When Trust
Securities are held jointly by several Persons, any one of them may vote at any
meeting in person or by proxy in respect of such Trust Securities, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Trust Securities. A
proxy purporting to be executed by or on behalf of a Securityholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. No proxy shall be valid more
than three years after its date of execution.
Section 6.6 Securityholder Action by Written Consent
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding a majority of all Outstanding
Trust Securities (based upon their Liquidation Amount) entitled to vote in
respect of such action (or such larger proportion thereof as shall be required
by any express provision of this Trust Agreement) shall consent to the action in
writing.
Section 6.7 Record Date for Voting and Other Purposes
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees may from time to time fix a date, not
more than 90 days prior to the date of any meeting of Securityholders or the
payment of a Distribution or other action, as the case may be, as a record date
for the determination of the identity of the Securityholders of record for such
purposes.
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Section 6.8 Acts of Securityholders
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Securityholders or Owners may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Securityholders
or Owners in person or by an agent duly appointed in writing; and, except as
otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders or
Owners signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor
of the Trustees, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
The ownership of Series A Capital Securities shall be proved by the
Securities Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrative Trustees or among such Securityholders or Trustees with respect
to the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Securityholder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
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Section 6.9 Inspection of Records
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection by Securityholders
during normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties of the Property Trustee
and the Delaware Trustee
The Property Trustee and the Delaware Trustee, on behalf of and as to
itself, hereby represents and warrants for the benefit of the Depositor and the
Securityholders that:
(a) the Property Trustee is a Delaware banking corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware banking corporation duly
organized, validly existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and the Delaware Trustee and constitutes the
valid and legally binding agreement of each of the Property Trustee and the
Delaware Trustee enforceable against each of them in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(f) the execution, delivery and performance of this Trust Agreement has
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and does not require any approval
of stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the charter or by-laws
of the Property Trustee or the Delaware Trustee, (ii) violate any provision of,
or constitute, with or without notice or lapse of time, a default under, or
result in the creation or imposition of, any Lien on any properties included in
the Trust Property pursuant to the
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provisions of, any indenture, mortgage, credit agreement, license or other
agreement or instrument to which the Property Trustee or the Delaware Trustee is
a party or by which it is bound, or (iii) violate any law, governmental rule or
regulation of the State of Delaware, governing the banking, trust or general
powers of the Property Trustee or the Delaware Trustee (as appropriate in
context) or any order, judgment or decree applicable to the Property Trustee or
the Delaware Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing Delaware law governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee, as the case may be; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board or tribunal which,
individually or in the aggregate, would materially and adversely affect the
Trust or would question the right, power and authority of the Property Trustee
or the Delaware Trustee, as the case may be, to enter into or perform its
obligations as one of the Trustees under this Trust Agreement.
Section 7.2 Representations and Warranties of Depositor
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Security Certificates issued at the Closing Date on
behalf of the Trust have been duly authorized and will have been duly and
validly executed, issued and delivered by the Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders will be, as of such date, entitled to the benefits of
this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Property Trustee or the Delaware
Trustee, as the case may be, of this Trust Agreement.
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ARTICLE VIII
The Trustees
Section 8.1 Certain Duties and Responsibilities
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
them. Whether or not therein expressly so provided, every provision of this
Trust Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustees shall be subject to the provisions of this
Section. Nothing in this Trust Agreement shall be construed to release an
Administrative Trustee from liability for its own gross negligent action, its
own gross negligent failure to act, or its own willful misconduct. To the extent
that, at law or in equity, an Administrative Trustee has duties (including
fiduciary duties) and liabilities relating thereto to the Trust or to the
Securityholders, such Administrative Trustee shall not be liable to the Trust or
to any Securityholder for such Trustee's good faith reliance on the provisions
of this Trust Agreement. The provisions of this Trust Agreement, to the extent
that they restrict the duties and liabilities of the Administrative Trustees
otherwise existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the
Administrative Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each
Securityholder, by its acceptance of a Trust Security, agrees that it will look
solely to the revenue and proceeds from the Trust Property to the extent legally
available for distribution to it as herein provided and that the Trustees are
not personally liable to it for any amount distributable in respect of any Trust
Security or for any other liability in respect of any Trust Security. This
Section 8.1(b) does not limit the liability of the Trustees expressly set forth
elsewhere in this Trust Agreement or, in the case of the Property Trustee, in
the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
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(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was
negligent in ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
majority in Liquidation Amount of the Trust 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 Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Series A
Subordinated Debentures and the Payment 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
Trust Agreement and the Trust Indenture Act;
(iv) 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 Depositor, and money held by the Property Trustee need not be
segregated from other funds held by it except in relation to the
Payment Account maintained by the Property Trustee pursuant to Section
3.1 and except to the extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for
monitoring the compliance by the Administrative Trustees or the
Depositor with their respective duties under this Trust Agreement, nor
shall the Property Trustee be liable for the default or misconduct of
the Administrative Trustees or the Depositor.
Section 8.2 Certain Notices
Within ten Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 10.9, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the Series
A Subordinated Debentures pursuant to the Indenture, the Administrative Trustee
shall transmit, in the manner and to the extent provided in Section 10.9, notice
of such exercise to the Securityholders and the Property Trustee, unless such
exercise shall have been revoked.
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Section 8.3 Certain Rights of Property Trustee
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness 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) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with any other provisions
contained herein or (iii) the Property Trustee is unsure of the application of
any provision of this Trust Agreement, then, except as to any matter as to which
the Capital Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken and the Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by
an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, 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 rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the Depositor or
the Administrative Trustees;
(e) 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 reregistration thereof;
(f) the Property Trustee may consult with counsel of its selection
(which counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of
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any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon and in accordance with such advice; the Property Trustee shall
have the right at any time to seek instructions concerning the administration of
this Trust Agreement from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(h) 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, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible for
its own negligence or recklessness with respect to selection of any agent or
attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive written instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the Property
Trustee (i) may request written instructions from the Holders of the Trust
Securities which written instructions may only be given by the Holders of the
same proportion in Liquidation Amount of the Trust Securities as would be
entitled to direct the Property Trustee under the terms of the Trust 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 written instructions are
received, and (iii) shall be protected in acting in accordance with such written
instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement 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.
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Section 8.4 Not Responsible for Recitals or Issuance of Securities
The recitals contained herein and in the Trust Security Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Series A
Subordinated Debentures.
Section 8.5 May Hold Securities
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 8.8 and 8.13, except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
Section 8.6 Compensation; Indemnity; Fees
Pursuant to Section 10.6 of the Indenture, the Depositor, as borrower,
agrees:
(a) to pay to the Trustees from time to time such compensation as shall
be agreed in writing with the Depositor for all services rendered by them
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any
Trustee, and (iv) any employee or agent of the Trust or its Affiliates
(referred to herein as an "Indemnified Person"), from and against any and all
loss, damage, liability, tax, penalty, expense or claim of any kind or nature
whatsoever incurred by such Indemnified Person by reason of the creation,
operation or termination of the Trust or 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
authority conferred on such Indemnified Person by this Trust Agreement, except
that no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of
negligence or willful misconduct with respect to such acts or omissions. When
the Property Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 5.1(4) or Section 5.1(5) of the Indenture,
the expenses (including the reasonable charges and expenses of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
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The provisions of this Section 8.6 shall survive the termination of
this Trust Agreement.
No Trustee may claim any lien or charge on any Trust Property as a
result of any amount due pursuant to this Section 8.6.
The Depositor and any Trustee (in the case of the Property Trustee,
subject to Section 8.8 hereof) 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 of Trust Securities shall have no rights by virtue of this Trust
Agreement 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. Neither the
Depositor, nor any 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 the
Depositor or any 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 Trustee may engage or be
interested in any financial or other transaction with the Depositor or any
Affiliate of the Depositor, or may act as depository for, trustee or agent for,
or act on any committee or body of holders of, securities or other obligations
of the Depositor or its Affiliates.
Section 8.7 Corporate Property Trustee Required; Eligibility of
Trustees
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person 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 the Property Trustee with respect to the
Trust Securities shall cease to be eligible in accordance with the provisions of
this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative 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 persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
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Section 8.8 Conflicting Interests
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
Section 8.9 Co-Trustees and Separate Trustee
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 Depositor and the Administrative
Trustees, by agreed action of the majority of such Trustees, shall have power to
appoint, and upon the written request of the Administrative Trustees, the
Depositor shall for such purpose join with the Administrative Trustees in the
execution, delivery, and performance of all instruments and agreements necessary
or proper to appoint, one or more Persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to the extent required by law 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 the
capacity aforesaid, any property, title, right or power deemed necessary or
desirable, subject to the other provisions of this Section. If the Depositor
does not join in such appointment within 15 days after the receipt by it of a
request so to do, or in case a Debenture Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make such
appointment. Any co-trustee or separate trustee appointed pursuant to this
Section shall either be (i) a natural person who is at least 21 years of age and
a resident of the United States or (ii) a legal entity with its principal place
of business in the United States that shall act through one or more persons
authorized to bind such entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged and delivered
by the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(a) The Trust Securities shall be executed and delivered and all
rights, powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder shall be exercised
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by the
Property Trustee or by the Property Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
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co-trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under this
Section, and, in case a Debenture Event of Default has occurred and is
continuing, the Property Trustee shall have power to accept the resignation of,
or remove, any such co-trustee or separate trustee without the concurrence of
the Depositor. Upon the written request of the Property Trustee, the Depositor
shall join with the Property Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate trustee so
resigned or removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
Section 8.10 Resignation and Removal; Appointment of Successor
No resignation or removal of any Trustee (the "Relevant Trustee") and
no appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, the Relevant Trustee
may resign at any time by giving written notice thereof to the Securityholders.
If the instrument of acceptance by the successor Trustee required by Section
8.11 shall not have been delivered to the Relevant Trustee within 30 days after
the giving of such notice of resignation, the Relevant Trustee may petition, at
the expense of the Trust, any court of competent jurisdiction for the
appointment of a successor Relevant Trustee.
Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Series A Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Series A Capital Securities, delivered to the Relevant Trustee (in
its individual capacity and on behalf of the Trust). An Administrative Trustee
may be removed by the Series A Common Securityholder at any time. If the
instrument of acceptance by the
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successor Trustee required by Section 8.11 shall not have been delivered to the
Relevant Trustee within 30 days after such removal, the Relevant Trustee may
petition, at the expense of the Trust, any court of competent jurisdiction for
the appointment of a successor Relevant Trustee.
If any Trustee shall resign, be removed or become incapable of acting
as Trustee, or if a vacancy shall occur in the office of any Trustee for any
cause, at a time when no Debenture Event of Default shall have occurred and be
continuing, the Series A Common Securityholder, by Act of the Series A Common
Securityholder delivered to the retiring Trustee, shall promptly appoint a
successor Trustee or Trustees, and the retiring Trustee shall comply with the
applicable requirements of Section 8.11. If the Property Trustee or the Delaware
Trustee shall resign, be removed or become incapable of continuing to act as the
Property Trustee or the Delaware Trustee, as the case may be, at a time when a
Debenture Event of Default shall have occurred and be continuing, the Capital
Securityholders, by Act of the Securityholders of a majority in Liquidation
Amount of the Series A Capital Securities then Outstanding delivered to the
retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee
or Trustees, and such successor Trustee shall comply with the applicable
requirements of Section 8.11. If an Administrative Trustee shall resign, be
removed or become incapable of acting as Administrative Trustee, at a time when
a Debenture Event of Default shall have occurred and be continuing, the Series A
Common Securityholder by Act of the Series A Common Securityholder delivered to
the Administrative Trustee shall promptly appoint a successor Administrative
Trustee or Administrative Trustees and such successor Administrative Trustee or
Trustees shall comply with the applicable requirements of Section 8.11. If no
successor Relevant Trustee shall have been so appointed by the Series A Common
Securityholder or the Capital Securityholders and accepted appointment in the
manner required by Section 8.11, any Securityholder who has been a
Securityholder of Trust Securities for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 10.9 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of the remaining Administrative Trustees
if there are at least two of them or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirements
for Administrative Trustees or Delaware Trustee, as the case may be, set forth
in Section 8.7).
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Section 8.11 Acceptance of Appointment by Successor
In case of the appointment hereunder of a successor Relevant Trustee,
the retiring Relevant Trustee and each successor Relevant Trustee with respect
to the Trust Securities shall execute and deliver an amendment hereto wherein
each successor Relevant Trustee shall accept such appointment and which (a)
shall contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Trust by more than one Relevant Trustee, it
being understood that nothing herein or in such amendment shall constitute such
Relevant Trustees co-trustees, and upon the execution and delivery of such
amendment, the resignation or removal of the retiring Relevant Trustee shall
become effective to the extent provided therein and each such successor Relevant
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Relevant Trustee; but,
on written request of the Trust or any successor Relevant Trustee, such retiring
Relevant Trustee shall duly assign, transfer and deliver to such successor
Relevant Trustee all Trust Property, all proceeds thereof and money held by such
retiring Relevant Trustee hereunder with respect to the Trust Securities and the
Trust.
Upon written request of any such successor Relevant Trustee, the Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the preceding paragraph.
No successor Relevant Trustee shall accept its appointment unless at
the time of such acceptance such successor Relevant Trustee shall be qualified
and eligible under this Article.
Section 8.12 Merger, Conversion, Consolidation or Succession to
Business
Any Person into which the Property Trustee or the Delaware Trustee 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 Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided such Person shall be otherwise
qualified and eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.
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Section 8.13 Preferential Collection of Claims Against Depositor or
Trust
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Trust Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and empowered, to the fullest extent permitted by law, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or compensation affecting
the Trust Securities or the rights of any Holder thereof or to authorize the
Property Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 8.14 Reports by Property Trustee
(a) The Property Trustee shall transmit to Securityholders such reports
concerning the Property Trustee and its actions under this Trust Agreement 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 Property Trustee shall, within sixty days after each May 15
following the date of this Trust Agreement, deliver to Securityholders a brief
report, dated as of such May 15, which complies with the provisions of such
Section 313(a).
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with the Nasdaq National Market,
the Commission and the
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Depositor. The Depositor will promptly notify the Property Trustee of any such
listing or trading.
Section 8.15 Reports to the Property Trustee
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) 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 Property Trustee
is for informational purposes only and the Property Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Trust's
compliance with any of its covenants hereunder (as to which the Property Trustee
is entitled to rely exclusively on Officers' Certificates).
Section 8.16 Evidence of Compliance with Conditions Precedent
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
Section 8.17 Number of Trustees
(a) The number of Trustees shall be four, provided that the Holder of
all of the Series A Common Securities by written instrument may increase or
decrease the number of Administrative Trustees. The Property Trustee and the
Delaware Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the
number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy,
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 8.10, the
Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Trust Agreement), shall have all the
powers granted to the Administrative Trustees and shall discharge all the duties
imposed upon the Administrative Trustees by this Trust Agreement.
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Section 8.18 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
2.7(a), including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to the Depositor 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 this Trust Agreement, as set forth herein.
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ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER
Section 9.1 Termination Upon Expiration Date
Unless earlier terminated, the Trust shall automatically terminate on
_________________, 2028 (the "Expiration Date"), following the distribution of
the Trust Property in accordance with Section 9.4.
Section 9.2 Early Termination
The first to occur of any of the following events is an "Early
Termination Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Holder of the Series A Common Securities;
(b) the written direction to the Property Trustee from the Depositor at
any time to terminate the Trust and, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, distribute Series A
Subordinated Debentures to Securityholders in exchange for the Series A Capital
Securities (which direction is optional and wholly within the discretion of the
Depositor);
(c) the redemption of all of the Series A Capital Securities in
connection with the redemption of all of the Series A Subordinated Debentures;
and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
Section 9.3 Termination
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrative Trustees, including
the performance of any tax reporting obligations with respect to the Trust or
the Securityholders.
Section 9.4 Liquidation
(a) If an Early Termination Event specified in clause (a), (b) or (d)
of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated
by the Trustees as expeditiously as the
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Trustees determine to be possible by distributing, after satisfaction or the
making of reasonable provisions for the payment of liabilities to creditors of
the Trust as provided by applicable law, to each Securityholder a Like Amount of
Series A Subordinated Debentures, subject to Section 9.4(d). Notice of
liquidation shall be given by the Property Trustee by first class mail, postage
prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation
Date to each Holder of Trust Securities at such Holder's address appearing in
the Securities Register. All notices of liquidation shall:
(i) state the CUSIP Number of the Trust Securities;
(ii) state the Liquidation Date;
(iii) state that from and after the Liquidation Date, the
Trust Securities will no longer be deemed to be Outstanding and any
Trust Security Certificates not surrendered for exchange will be deemed
to represent a Like Amount of Series A Subordinated Debentures; and
(iv) provide such information with respect to the mechanics by
which Holders may exchange Trust Security Certificates for Series A
Subordinated Debentures, or if Section 9.4(d) applies, receive a
Liquidation Distribution, as the Administrative Trustees or the
Property Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect
the liquidation of the Trust and distribution of the Series A Subordinated
Debentures to Securityholders, the Property Trustee shall establish a record
date for such distribution (which shall be not more than 45 days prior to the
Liquidation Date) and, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Series A Subordinated
Debentures in exchange for the Outstanding Trust Security Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) certificates representing a Like Amount of Series A
Subordinated Debentures will be issued to Holders of Trust Security
Certificates, upon surrender of such certificates to the Administrative Trustees
or their agent for exchange, (iii) the Depositor shall use its best efforts to
have the Series A Subordinated Debentures listed on the Nasdaq National Market,
(iv) any Trust Security Certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Series A Subordinated Debentures, accruing
interest at the rate provided for in the Series A Subordinated Debentures from
the last Distribution Date on which a Distribution was made on such Trust
Security Certificates until such certificates are so surrendered (and until such
certificates are so surrendered, no payments of interest or principal will be
made to Holders of Trust Security Certificates with respect to such Series A
Subordinated Debentures) and (v) all rights of Securityholders holding Trust
Securities will cease, except the right of such Securityholders to receive
Series A Subordinated Debentures upon surrender of Trust Security Certificates.
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(d) In the event that, notwithstanding the other provisions of this
Section 9.4, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Series A Subordinated
Debentures in the manner provided herein is determined by the Property Trustee
not to be practical, the Trust Property shall be liquidated, and the Trust shall
be wound up or terminated, by the Property Trustee. In such event,
Securityholders will be entitled to receive out of the assets of the Trust
available for distribution to Securityholders, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, an amount equal to the
Liquidation Amount per Trust Security plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If, upon any such winding up or termination, the Liquidation
Distribution can be paid only in part because the Trust has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then, subject
to the next succeeding sentence, the amounts payable by the Trust on the Trust
Securities shall be paid on a pro rata basis (based upon Liquidation Amounts).
The Holder of the Series A Common Securities will be entitled to receive
Liquidation Distributions upon any such winding up or termination pro rata
(determined as aforesaid) with Holders of Series A Capital Securities, except
that, if a Debenture Event of Default has occurred and is continuing, the Series
A Capital Securities shall have a priority over the Series A Common Securities.
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of
the Trust
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except pursuant
to this Article IX. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Holders of the Series A
Capital Securities, the Property Trustee or the Delaware Trustee, the Trust may
merge with or into, consolidate, amalgamate, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Series A Capital Securities or (b) substitutes for the
Series A Capital Securities other securities having substantially the same terms
as the Series A Capital Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Series A Capital Securities rank in
priority with respect to distributions and payments upon liquidation, redemption
and otherwise, (ii) the Depositor expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Series A Subordinated Debentures, (iii) the Successor Securities
are listed or traded, or any Successor Securities will be listed upon
notification of issuance, on the Nasdaq National Market, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Series A Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
Holders of the Series A Capital Securities (including any Successor Securities)
in any material respect, (vi) such successor entity has a purpose substantially
identical to that of the Trust, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Depositor has
received an Opinion
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of Counsel 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 Series A Capital Securities
(including any Successor Securities) in any material respect, 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 1940 Act and (viii) the Depositor 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 Series A Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of Holders of 100% in Liquidation Amount of
the Series A Capital Securities, consolidate, amalgamate, merge with or into, or
be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other 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 to be classified as other than a
grantor trust for United States federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Limitation of Rights of Securityholders
The death, incapacity, liquidation, dissolution, termination or
bankruptcy of any Person having an interest, beneficial or otherwise, in Trust
Securities shall not operate to terminate this Trust Agreement, nor entitle the
legal representatives or heirs of such Person or any Securityholder for such
Person, to claim an accounting, take any action or bring any proceeding in any
court for a partition or winding up of the arrangements contemplated hereby, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
Section 10.2 Liability of the Series A Common Securityholder
The Holder of the Series A Common Securities shall be liable for all of
the debts and obligations of the Trust (other than with respect to the Trust
Securities) to the extent not satisfied out of the Trust's assets.
Section 10.3 Amendment
(a) This Trust Agreement may be amended from time to time by the
Property Trustee, the Administrative Trustees and the Depositor, without the
consent of any Securityholders, (i) to cure any ambiguity, correct or supplement
any provision herein which may be inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Trust Agreement, which shall not be inconsistent with the other
provisions of this Trust Agreement, or (ii) to modify, eliminate or add to any
provisions of this Trust Agreement to such extent as shall be necessary to
ensure that the Trust will be classified for
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United States federal income tax purposes as a grantor trust at all times that
any Trust Securities are Outstanding or to ensure that the Trust will not be
required to register as an investment company under the 1940 Act; provided,
however, that in the case of clause (i) or clause (ii), such action shall not
adversely affect in any material respect the interests of any Securityholder,
and any such amendments of this Trust Agreement shall become effective when
notice thereof is given to the Securityholders.
(b) Except as provided in Section 10.3(c) hereof, any provision of this
Trust Agreement may be amended by the Trustees and the Depositor with (i) the
consent of Trust Securityholders representing not less than a majority (based
upon Liquidation Amounts) of the Trust Securities then Outstanding 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
of an investment company under the 1940 Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 6.3 or 6.6 hereof), this 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 Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 6.3 or 6.6 hereof), this
paragraph (c) of this Section 10.3 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an investment company under the 1940 Act or fail or cease to be
classified as a grantor trust for United States federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
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Section 10.4 Separability
In case any provision in this Trust Agreement or in the Trust Security
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.5 Governing Law
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES).
Section 10.6 Payments Due on Non-Business Day
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day that is a Business Day (except as
otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and
effect as though made on the date fixed for such payment, and no interest shall
accrue thereon for the period after such date.
Section 10.7 Successors
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant Trustee,
including any successor by operation of law. Except in connection with a
consolidation, merger or sale involving the Depositor that is permitted under
Article Eight of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
Section 10.8 Headings
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 10.9 Reports, Notices and Demands
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon any Securityholder or the Depositor may be given or served in writing
by deposit thereof, first class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Capital Securityholder, to such Capital Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Series A Common Securityholder or the Depositor, to TeleBanc
Financial Corporation, 1111 North Highland Street,
54
<PAGE> 61
Arlington, Virginia 22201 , Attention: Executive Vice President and Chief
Financial Officer, facsimile no.: (703) 247-5456. Such notice, demand or other
communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee, the Delaware Trustee or the Administrative
Trustees shall be given in writing addressed (until another address is published
by the Trust) as follows: (a) with respect to the Property Trustee to Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration; (b) with respect to
the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890; and (c) with respect to the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention Administrative Trustees of TeleBanc Capital Trust
II." Such notice, demand or other communication to or upon the Trust or the
Property Trustee shall be deemed to have been sufficiently given or made only
upon actual receipt of the writing by the Trust or the Property Trustee.
Section 10.10 Agreement Not to Petition
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in
the commencement of any proceeding against the Trust under any Bankruptcy Law.
In the event the Depositor takes action in violation of this Section 10.10, the
Property Trustee agrees, for the benefit of Securityholders, that at the expense
of the Depositor, it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by the Depositor against the Trust
or the commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom and such other defenses, if any, as counsel for the Property Trustee
or the Trust may assert. The provisions of this Section 10.10 shall survive the
termination of this Trust Agreement.
Section 10.11 Trust Indenture Act; Conflict with Trust Indenture Act
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required or deemed to be part of this Trust Agreement 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 any provision hereof limits, qualifies or conflicts with another
provision hereof which is required or deemed to be included in this Trust
Agreement by any of the provisions of the Trust Indenture Act, such required or
deemed provision shall control. If any provision of this
55
<PAGE> 62
Trust Agreement modifies or excludes any provision of the Trust Indenture Act
which may be so modified or excluded, the latter provision shall be deemed to
apply to this Trust Agreement as so modified or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
Section 10.12 Acceptance of Terms of Trust Agreement, Series A
Guarantee and Indenture
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE SERIES A
GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST,
SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
Section 10.13 Holders are Parties
Notwithstanding that Holders have not executed and delivered this Trust
Agreement or any counterpart thereof, Holders shall be deemed to be parties to
this Trust Agreement and shall be bound by all of the terms and conditions
hereof and of the Trust Securities by acceptance and delivery of the Trust
Securities.
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<PAGE> 63
Section 10.14 Counterparts
This Trust Agreement may contain more than one counterpart of the
signature page and this Trust Agreement may be executed by the affixing of the
signature of each of the Trustees on one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
TELEBANC FINANCIAL CORPORATION
By: ____________________________________
Name: MITCHELL H. CAPLAN
Title: Vice Chairman of the Board of
Directors, Chief Executive
Officer and President
WILMINGTON TRUST COMPANY,
as Property Trustee
By: ____________________________________
Name:
Title:
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By: ____________________________________
Name:
Title:
________________________________________
DAVID A. SMILOW
as Administrative Trustee
________________________________________
MITCHELL H. CAPLAN
as Administrative Trustee
________________________________________
AILEEN LOPEZ PUGH
as Administrative Trustee
57
<PAGE> 1
EXHIBIT 4.7
- --------------------------------------------------------------------------------
GUARANTEE AGREEMENT
BETWEEN
TELEBANC FINANCIAL CORPORATION
(AS GUARANTOR)
AND
WILMINGTON TRUST COMPANY
(AS TRUSTEE)
DATED AS OF
__________________, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS .................................................. 1
SECTION 1.1. Definitions ......................................... 1
ARTICLE II. TRUST INDENTURE ACT ......................................... 4
SECTION 2.1. Trust Indenture Act; Application .................... 4
SECTION 2.2. List of Holders ..................................... 4
SECTION 2.3. Reports by the Guarantee Trustee .................... 4
SECTION 2.4. Periodic Reports to the Guarantee Trustee ........... 4
SECTION 2.5. Evidence of Compliance with Conditions
Precedent ........................................... 5
SECTION 2.6. Events of Default; Waiver ........................... 5
SECTION 2.7. Event of Default; Notice ............................ 5
SECTION 2.8. Conflicting Interests ............................... 5
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE ......... 6
SECTION 3.1. Powers and Duties of the Guarantee Trustee .......... 6
SECTION 3.2. Certain Rights of Guarantee Trustee ................. 7
SECTION 3.3. Indemnity ........................................... 9
ARTICLE IV. GUARANTEE TRUSTEE .......................................... 9
SECTION 4.1. Guarantee Trustee: Eligibility ...................... 9
SECTION 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee ........................................ 9
ARTICLE V. GUARANTEE .................................................... 10
SECTION 5.1. Guarantee ........................................... 10
SECTION 5.2. Waiver of Notice and Demand ......................... 10
SECTION 5.3. Obligations Not Affected ............................ 10
SECTION 5.4. Rights of Holders ................................... 11
SECTION 5.5. Guarantee of Payment ................................ 12
SECTION 5.6. Subrogation ......................................... 12
SECTION 5.7. Independent Obligations ............................. 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI. COVENANTS AND SUBORDINATION ................................ 12
SECTION 6.1. Subordination ....................................... 12
SECTION 6.2. Pari Passu Guarantees ............................... 12
ARTICLE VII. TERMINATION ................................................ 13
SECTION 7.1. Termination ......................................... 13
ARTICLE VIII. MISCELLANEOUS ............................................. 13
SECTION 8.1. Successors and Assigns .............................. 13
SECTION 8.2. Amendments .......................................... 13
SECTION 8.3. Notices ............................................. 13
SECTION 8.4. Benefit ............................................. 14
SECTION 8.5. Interpretation ...................................... 14
SECTION 8.6. Governing Law ....................................... 15
</TABLE>
ii
<PAGE> 4
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of ___________, 1998, is executed and
delivered by TELEBANC FINANCIAL CORPORATION, a Delaware corporation (the
"Guarantor") having its principal office at 1111 North Highland Street,
Arlington, Virginia 22201, and WILMINGTON TRUST COMPANY, a Delaware banking
corporation, as trustee (the "Guarantee Trustee"), for the benefit of the
Holders (as defined herein) from time to time of the Series A Capital Securities
and Series A Common Securities (each as defined herein and together, the
"Securities") of TeleBanc Capital Trust II, a Delaware statutory business trust
(the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
____________, 1998 (the "Trust Agreement"), among the Guarantor, as Depositor,
the Property Trustee, the Delaware Trustee and the Administrative Trustees named
therein and the Holders from time to time of undivided beneficial interests in
the assets of the Issuer, the Issuer is issuing $25,000,000 aggregate
Liquidation Amount (as defined in the Trust Agreement) of its __% Beneficial
Unsecured Securities, Series A, Liquidation Amount $25.00 per preferred
security, representing preferred undivided beneficial interests in the assets of
the Issuer and having the terms set forth in the Trust Agreement (the "Series A
Capital Securities");
WHEREAS, the Series A Capital Securities will be issued by the Issuer and
the proceeds thereof, together with the proceeds from the issuance of the
Issuer's Series A Common Securities, will be used to purchase the Series A
Subordinated Debentures (as defined in the Trust Agreement) of the Guarantor
which will be deposited with Wilmington Trust Company, as Property Trustee under
the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Securities the Guarantor
desires irrevocably and unconditionally to agree, to the extent set forth
herein, to pay to the Holders of the Securities the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Securities.
ARTICLE I. DEFINITIONS
SECTION 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.
<PAGE> 5
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
Guarantor shall not be deemed to be an Affiliate of the Issuer. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder or any directors
or officers of the Guarantor to whom such board of directors or such committee
shall have duly delegated its authority.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, however, that,
except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 90 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the 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 Trust Agreement) required to be paid on the Securities, to
the extent the Issuer shall have funds on hand available therefor at such time,
(ii) the redemption price, including all accrued and unpaid Distributions to the
date of redemption (the "Redemption Price"), with respect to any Securities
called for redemption by the Issuer, to the extent the Issuer shall have funds
on hand available therefor at such time, and (iii) upon a voluntary or
involuntary termination, winding up or liquidation of the Issuer, unless Series
A Subordinated Debentures are distributed to the Holders, the lesser of (a) the
aggregate of the Liquidation Amount plus accrued and unpaid Distributions to the
date of payment and (b) the amount of assets of the Issuer remaining available
for distribution to Holders in liquidation of the Issuer after satisfaction of
liabilities to creditors of the Issuer as required by applicable law (in either
case, the "Liquidation Distribution").
"Guarantee Trustee" means Wilmington Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Guarantee Agreement, and thereafter means each such
Successor Guarantee Trustee.
"Holder" means any holder, as registered on the books and records of the
Issuer, of any Securities; provided, however, that in determining whether the
holders of the requisite percentage of Securities have given any request,
notice, consent or waiver hereunder, "Holder" shall not include the Guarantor,
the Guarantee Trustee, or any Affiliate of the Guarantor or the Guarantee
Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of
_________________, 1998, as supplemented and amended between the Guarantor and
Wilmington Trust Company, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
2
<PAGE> 6
"Majority in Aggregate Liquidation Amount of the Securities" means, except
as provided by the Trust Indenture Act, a vote by the Holder(s), voting
separately as a class, of more than 50% of the aggregate Liquidation Amount of
all then outstanding Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman or Vice Chairman of the Board of Directors of such Person
or the President, a Managing Director or a Vice President of such Person, and by
the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of such Person, and delivered to the
Guarantee Trustee. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Guarantee Agreement
shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each 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 officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Responsible Officer" when used with respect to the Guarantee Trustee
means any officer of the Guarantee Trustee assigned by the Guarantee Trustee
from time to time to administer its corporate trust matters.
"Series A Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
3
<PAGE> 7
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
SECTION 2.2. List of Holders.
(a) The Guarantor will furnish or cause to be furnished to the Guarantee
Trustee:
(i) semi-annually, not more than 15 days after January 1 and July
1 in each year, a list, in such form as the Guarantee Trustee may
reasonably require, of the names and addresses of the Holders as of such
January 1 and July 1, and
(ii) at such other times as the Guarantee Trustee may request in
writing, within 30 days after the receipt by the Guarantor 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,
excluding from any such list names and addresses received by the Guarantee
Trustee in its capacity as Securities Registrar.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
The Guarantee Trustee shall transmit to Holders such reports concerning
the Guarantee Trustee and its actions under this Guarantee Agreement 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 Guarantee Trustee shall, within sixty days after each May 15 following
the date of this Guarantee Agreement deliver to Holders a brief report, dated as
of such May 15, which complies with the provisions of such Section 313(a).
SECTION 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act 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
4
<PAGE> 8
Trust Indenture Act. Delivery of such reports, information and documents to the
Guarantee Trustee is for informational purposes only and the Guarantee Trustee's
receipt of such shall not constitute constructive notice of any information
contained therein, including the Guarantor's compliance with any of its
covenants hereunder (as to which the 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 Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 2.6. Events of Default; Waiver.
The Holders of a Majority in Aggregate Liquidation Amount of the
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent therefrom.
SECTION 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all Events of Default actually known to the Guarantee Trustee, unless
such defaults have been cured before the giving of such notice, provided, that,
except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained written notice, of such Event of
Default.
SECTION 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in this
Guarantee Agreement for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
5
<PAGE> 9
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for
the benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising his or her rights
pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The 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
Guarantee Agreement, and no implied covenants shall be read into this Guarantee
Agreement against the Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any 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 Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee Agreement,
and the Guarantee Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee Agreement; but in the
case of any such certificates or opinions that by any provision hereof or
of the Trust Indenture Act are specifically required to be furnished to
the Guarantee Trustee, the Guarantee Trustee
6
<PAGE> 10
shall be under a duty to examine the same to determine whether or not they
conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Aggregate
Liquidation Amount of the Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee
shall have reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of this
Guarantee Agreement or adequate indemnity against such risk or liability
is not reasonably assured to it.
SECTION 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may 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 reasonably 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
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement,
the Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and rely upon an Officers' Certificate which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
7
<PAGE> 11
(iv) The Guarantee Trustee may consult with legal counsel of its
selection, and the advice or opinion of such legal counsel with respect to
legal matters shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice or opinion.
Such legal counsel may be legal counsel to the Guarantor or any of its
Affiliates and may be one of its employees. The Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Guarantee Agreement from any court of competent
jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Guarantee Agreement at
the request or direction of any Holder, unless such Holder shall have
provided to the Guarantee Trustee such adequate security and indemnity as
would satisfy a reasonable person in the position of the Guarantee
Trustee, against the costs, expenses (including attorneys' fees and
expenses) and liabilities that might be incurred by it in complying with
such request or direction, including such reasonable advances as may be
requested by the Guarantee Trustee; provided that, nothing contained in
this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee,
upon the occurrence of an Event of Default, of its obligation to exercise
the rights and powers vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent
or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement
the Guarantee Trustee shall deem it desirable to receive written
instructions with respect to enforcing any remedy or right or taking any
other action hereunder, the Guarantee Trustee (A) may request instructions
from the Holders, (B) may refrain from enforcing such remedy or right or
taking such other action until such written instructions are received, and
(C) shall be protected in acting in accordance with such written
instructions.
(ix) The Guarantee Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Guarantee Agreement.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the
8
<PAGE> 12
Guarantee Trustee shall be unqualified or incompetent in accordance with
applicable law, to perform any such act or acts or to exercise any such right,
power, duty or obligation. No permissive power or authority available to the
Guarantee Trustee shall be construed to be a duty to act in accordance with such
power and authority.
SECTION 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Guarantee Trustee, arising out of
or in connection with the acceptance or administration of this Guarantee
Agreement, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
ARTICLE IV. GUARANTEE TRUSTEE
SECTION 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture
Act to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of
Section 310(a) of the Trust Indenture Act. If such corporation publishes
reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority, then, for the
purposes of this Section and to the extent permitted by the Trust
Indenture Act, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such
9
<PAGE> 13
Successor Guarantee Trustee and delivered to the Guarantor. If an instrument of
acceptance by a Successor Guarantee Trustee shall not have been delivered to the
Guarantee Trustee within 30 days after such removal, the Guarantee Trustee being
removed may petition any court of competent jurisdiction for the appointment of
a Successor Guarantee Trustee.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.
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 or on behalf of the Issuer), as and when due, regardless of any defense,
right of set-off or counterclaim which the Issuer may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.
SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, 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 Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
10
<PAGE> 14
(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 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 (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Series A Subordinated Debentures as provided in the Indenture), Redemption
Price, Liquidation Distribution or any other sums payable under the terms of the
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Securities;
(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 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 Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a Majority in Aggregate
Liquidation Amount of the Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of this Guarantee Agreement or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv)
any Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against the Guarantee Trustee, the Issuer or any other Person.
11
<PAGE> 15
SECTION 5.5. Guarantee of Payment
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Series A Subordinated Debentures to
Holders as provided in the Trust Agreement.
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. 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 Securities and that the
Guarantor shall be liable as principal and as debtor hereunder to make Guarantee
Payments pursuant to the terms of this Guarantee Agreement notwithstanding the
occurrence of any event referred to in subsections (a) through (g), inclusive,
of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
SECTION 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Debt (as defined in the Indenture) of
the Guarantor, except those made pari passu or subordinate to such obligations
expressly by their terms in the same manner as set forth in Article XIII of the
Indenture.
SECTION 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall rank
pari passu with the obligations of the Guarantor under any similar guarantee
agreements issued by the
12
<PAGE> 16
Guarantor on behalf of the holders of preferred securities issued by any Trust
(as defined in the Indenture).
ARTICLE VII. TERMINATION
SECTION 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Securities, (ii) the
distribution of the Series A Subordinated Debentures to the Holders in exchange
for all of the Securities or (iii) full payment of the amounts payable in
accordance with the Trust Agreement upon liquidation of the Issuer.
Notwithstanding the foregoing, this Guarantee Agreement will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid with respect to the Securities or this
Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Securities then
outstanding. Except in connection with a consolidation, merger or sale involving
the Guarantor that is permitted under Article VIII of the Indenture and pursuant
to which the successor or assignee agrees in writing to perform the Guarantor's
obligations hereunder, the Guarantor shall not assign its obligations hereunder.
SECTION 8.2. Amendments.
Except with respect to any changes which do not adversely affect the
rights of the Holders or the Guarantee Trustee in any material respect (in which
case no consent of the Holders or the Guarantee Trustee, as the case may be,
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Aggregate Liquidation
Amount of the Securities and of the Guarantee Trustee. The provisions of Article
VI of the Trust Agreement concerning meetings of the Holders shall apply to the
giving of such approval.
SECTION 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
13
<PAGE> 17
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Facsimile No.: (703) 524-0556
Attention: Chief Financial Officer
(b) if given to the Issuer, in care of the Guarantor, at the Issuer's (and
the Guarantor's) address set forth below or such other address as the Guarantee
Trustee on behalf of the Issuer may give notice to the Holders:
TeleBanc Capital Trust II
c/o TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Facsimile No.: (703) 524-0556
Attention: Chief Financial Officer
with a copy to:
Wilmington Trust Company
1100 North Market Street
Wilmington, DE 19890
Facsimile No.: (302) 651-8882
Attention: Corporate Trust Administration
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder 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 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Securities.
SECTION 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
14
<PAGE> 18
(a) capitalized terms used in this Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in Section
1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections
are to Articles and Sections of this Guarantee Agreement unless otherwise
specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include
the masculine, feminine and neuter genders.
SECTION 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
15
<PAGE> 19
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
TELEBANC FINANCIAL CORPORATION
By:_____________________________________
Name: Mitchell H. Caplan
Title: Vice Chairman of the Board,
Chief Executive Officer and President
WILMINGTON TRUST COMPANY
By:_____________________________________
Name:
Title:
16
<PAGE> 20
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Guarantee Agreement
- ------------------- -------------------
<S> <C>
310(a)............................................................ 4.1(a)
310(b)............................................................ 4.1(c), 2.8
310(c)............................................................ Inapplicable
311(a)............................................................ 2.2(b)
311(b)............................................................ 2.2(b)
311(c)............................................................ Inapplicable
312(a)............................................................ 2.2(a)
312(b)............................................................ 2.2(b)
313............................................................... 2.3
314(a)............................................................ 2.4
314(b)............................................................ Inapplicable
314(c)............................................................ 2.5
314(d)............................................................ Inapplicable
314(e)............................................................ 1.1, 2.5, 3.2
314(f)............................................................ 2.1, 3.2
315(a)............................................................ 3.1(d)
315(b)............................................................ 2.7
315(c)............................................................ 3.1
315(d)............................................................ 3.1(d)
316(a)............................................................ 1.1, 2.6, 5.4
316(b)............................................................ 5.3
316(c)............................................................ 8.2
317(a)............................................................ Inapplicable
317(b)............................................................ Inapplicable
318(a)............................................................ 2.1(b)
318(b)............................................................ 2.1
318(c)............................................................ 2.1(a)
</TABLE>
* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.
<PAGE> 1
EXHIBIT 10.3
MET HOLDINGS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
---------------------------
FIRST AMENDMENT
---------------------------
WHEREAS, Met Holdings Corporation (the "Company") maintains the Met
Holdings Corporation Employee Stock Ownership Plan (the "Plan"); and
WHEREAS, the Board deems it to be in the best interest of the Company,
its subsidiaries, and their employees to amend the Plan.
NOW, THEREFORE, pursuant to Section 16 of the Plan, the Plan is hereby
amended as follows, effective January 1, 1992, except that Paragraph 3 below
shall be effective January 1, 1994.
1. Section 1.41(b) of the Plan is amended in its entirety by
adding the following sentence immediately at the end thereof to provide as
follows:
For eligibility purposes, an Employee's eligibility
computation period will begin on the date the Employee
performs his first Hour of Service for the Company.
2. Section 2.1 of the Plan is amended by adding the following
sentence at the beginning of the second paragraph to provide as follows:
If an Employee terminates employment prior to meeting the
above-stated service requirement and is subsequently rehired,
the Employee shall be treated as a new Employee upon his date
of rehire, and his prior Service shall be disregarded for
eligibility purposes.
3. Effective January 1, 1994, Section 2.2 of the Plan is amended
in its entirety to provide as follows:
A Participant shall be entitled to share in any allocation of
the Company's contribution for a particular Plan Year if and
only if the Participant completes 500 Hours of Service and is
employed on the last day of the Plan Year.
4. Section 7.3 of the Plan is amended by adding the following
sentence immediately at the end of the second paragraph to provide as follows:
To the extent required under Treasury Regulation Section
1.401(a)-14(b) (3), a participant who elects to defer receipt
of benefits may not do so hereunder if the exercise of such
election will cause benefits payable under the Plan with
respect to the Participant in the event of his death to be
more than "incidental" within the meaning of paragraph
(b)(1)(i) of Section 1.401-1.
1
<PAGE> 2
5. Section 10.6 of the Plan is amended by revising its first and
second sentences to provide as follows:
As soon as practicable after a Participant terminates Service
for a reason other than retirement, Total Disability or death,
the Committee shall direct the Trustee to place the value of
the Participant's Account as of its most recent valuation in
one (1) or more segregated investment accounts Permitted under
the Plan in trust for the named Employee. If the vested
portion of the Participant's Account has not exceeded $3,500
in value as of any Valuation Date preceding the Participant's
termination of employment with the Company, the Participant
shall be paid the vested portion as soon as practicable
following his termination of employment, in cash (unless the
Participant elects to receive such payment in shares of
Qualifying Employer Securities) without regard to the
Participant's election related to the timing of such payments.
If the Participant, upon termination of Service for any reason
other than retirement, death, or Total Disability, does not
consent to the payment of the vested portion of the
Participant's Account, and if the value of such Account
exceeds $3,500 on the Valuation Date immediately following the
Employee's termination of Service (or as of any prior
Valuation Date), the vested portion of the Participant's
Account will be distributed in the calendar year in which the
Participant attains age 65, unless the Participant makes a
written election to receive such payment as soon as
practicable after his termination of employment.
6. The Plan is amended by adding Section 10. 11 to provide as
follows:
Eligible Rollover Distributions. This Section applies to
distributions made from the Plan to Distributee's on or after
January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's
election under this Section, a Distributee may elect at the
time and in the manner prescribed by the Plan Administrator,
to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover. For purposes of this
Section -- "Distributee" means the Employee or former
Employee, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former
spouse who is the alternate payee under a Qualified Domestic
Relations order, as defined in Section 414 (p) of the Code,
are Distributees with regard to the interest of the spouse or
former spouse.
"Eligible Retirement Plan" means an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408 (b) of the Code,
an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code that
accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to
the surviving spouse of a Participant, an Eligible Retirement
Plan is an individual retirement account or individual
retirement annuity.
"Direct Rollover" means a payment by the Plan to, the Eligible
Retirement Plan specified by the Distributee.
2
<PAGE> 3
"Eligible Rollover Distribution" means any distribution of all
or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of
the Distributee and the Distributee's designated Beneficiary,
or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
7. Section 11.2(d) of the Plan is amended by revising the
top-heavy vesting schedule to provide as follows:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than 1 year 0%
1 20%
2 40%
3 60%
4 80%
5 or more years 100%
</TABLE>
8. Section 7.4 of the Trust is amended by inserting the words
"not less often than annually" after the word "obtain" in the first sentence.
9. Nothing contained herein shall be held to alter, vary or
affect any of the terms, provisions, or conditions of the Plan or any agreement
entered into thereunder, other than as stated above.
MET HOLDINGS CORPORATION
By
-----------------------------------
Its
----------------------------------
Date Attest:
-----------------
(Seal)
- ----------
3
<PAGE> 4
MET HOLDINGS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
UNDER SECTIONS 401(a) AND 4975(e)(7) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED
EFFECTIVE DATE: JANUARY 1, 1992
<PAGE> 5
ADOPTION
OF
MET HOLDINGS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
The Board of Directors of Met Holdings Corporation (the "Company")
has, on December 23, 1992, adopted this Employee Stock Ownership Plan ("Plan")
as hereinafter stated in Part I and Part II of said Plan, attached hereto and
made a part hereof. The Plan, effective January 1, 1992, is designed to
qualify as a money purchase pension under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") with respect to fixed
contributions made under Section 3. 1 (a) of the Plan, and as a stock bonus
plan under Section 401(a) of the Code with respect to any contributions made
under Section 3.1(b) of the Plan. The Plan is also designed to qualify as an
employee stock ownership plan under Section 4975(e)(7) of the Code.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted and
has accepted the duties and responsibilities of Plan Administrator pursuant to
the Employee Retirement Income Security Act ("ERISA") as of this 23rd day of
December, 1992.
MET HOLDINGS CORPORATION
By:
-----------------------------------
Its President
ATTEST:
By:
-----------------------------------
Its Secretary
<PAGE> 6
PART I
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION NUMBER PAGE
- -------------- ----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Company Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Participants Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. Allocation of Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Allocation To Participant's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. Retirement and Distribution of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. In Event Of Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9. In The Event Of Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10. In The Event Of Termination Of Employment Or Change In Status . . . . . . . . . . . . . . . . . . . . . . . 22
11. Top Heavy Rules and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12. Administration Of The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13. Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14. Obligations Of The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
17. Suspension, Discontinuance and Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
18. Inclusion Of Other Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
-i-
<PAGE> 7
SECTION 1
Definitions
The following words and phrases used herein have the following meanings, unless
a different meaning is plainly required by the context:
The masculine pronoun wherever used shall include the feminine pronoun
and the singular shall include the plural.
1.1 "Account" means the record of the Participant's interest in the Trust
Fund, maintained by the Committee pursuant to Section 5.
1.2 "Acquisition Loan" means an Exempt Loan (or other extension of credit)
used by the Trust to finance the acquisition of Qualifying Employer
Securities which loan may constitute an extension of credit to the
Trust from a party in interest.
1.3 "Adjustment Factor" means the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of
the Code for years beginning after December 31, 1988, as applied to
such items and in such manner as the Secretary shall provide.
1.4 "Affiliate" means any employer aggregated with the Company under
Section 414(b), (c), (m), or (o) of the Code.
1.5 "Anniversary Date" means the last day of the Plan Year.
1.6 [RESERVED FOR FUTURE USE]
1.7 "Beneficiary" means the person or person designated under Section 9 to
receive a Participant's interest in the Plan in the event of the
Participant's death before the Participant has received a distribution
of his entire interest in the Plan.
1.8 "Board of Directors" means the Board of Directors of the Company.
1.9 "Code" means the Internal Revenue Code of 1986, as amended, together
with regulations promulgated pursuant thereto.
1.10 "Committee" or "Administrative Committee" means the committee
appointed to manage and administer the Plan as provided in Section 12.
1.11 "Company" means Met Holdings, Inc., its successors and assigns.
1.12 "Compensation" means the amount of W-2 earnings paid to an Employee by
the Employer (plus any amounts withheld from the Employee under a
401(k) Plan or cafeteria plan sponsored by the Employer) within a Plan
Year. Only the first $200,000 (or such larger amount as determined by
regulations under Section 415(d) and 416 of the Code) of a
1
<PAGE> 8
Participant's annual compensation shall be treated as compensation for
purposes of the Plan. Company contributions for pensions, profit
sharing or insurance benefits are also excluded.
Notwithstanding the foregoing, for purposes of determining the
$200,000 Compensation limit for purposes of Section 1.10 in defining a
Key Employee, and for the purposes of determining minimum
contributions or benefits, should the Plan be Top-Heavy as provided in
Section 11, Compensation shall be defined as an Employee's W-2
earnings from the Company for the Plan Year.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only
the spouse of the Participant and any lineal descendants of the
Participant who have not attained age 19 before the close of the Plan
Year. If, as a result of the application of such rules the adjusted
$200,000 limitation is exceeded, then the limitation shall be prorated
among the affected individual in proportion to each such individual's
compensation as determined under this Section prior to the application
of this limitation.
1.13 "Effective Date" of the Plan means January 1, 1992 subject to the
condition subsequent that it be approved and qualified under the
Internal Revenue Code.
1.14 "Employee" means any person who (a) is in the employment of the
Employer, and (b) whose wages from the Employer are subject to
withholding for the purposes of Federal Income Taxes and the Federal
Insurance Contribution Act. "Employee" shall not include any person
who is paid by an Employer as an independent contractor.
1.15 "Employer" means the Company, Metropolitan Bank for Savings, F.S.B.,
and any other company which, with the Company's consent, adopts the
Plan and joins in the Trust Agreement.
1.16 "Entry Date" means the last day of the Plan Year. Additionally, the
Committee may, on a uniform and nondiscriminatory basis, at any time
and from time to time authorize a special entry date for eligible
participants, but prior to the next regularly scheduled Entry Date.
1.17 "ESOP" means an Employee Stock Ownership Plan as defined in Section
4975(e)(7) of the Code.
1.18 "Exempt Loan" means a loan made to the Plan which satisfies the
requirements of Section 2550.408b-3 of the Department of Labor
Regulations, Section 54.4975-7(b) of the Treasury Regulations, and the
Trust Agreement.
1.19 "Family Member" means an Employee who is the Employee's spouse, lineal
ascendant or descendant, or spouse of such lineal ascendant or
descendant, of an Employee who is a five percent owner of the Company,
or if not a five-percent owner is a Highly Compensated Employee as
defined in 1.43 of the Plan and is also in the group consisting
2
<PAGE> 9
of the ten (10) Highly Compensated Employees paid the greatest
Compensation during the Year.
1.20 "Financed Shares" means shares of Qualifying Employer Securities
acquired by the Trust with the proceeds of an Acquisition Loan,
whether or not pledged as collateral to secure the repayment of such
Acquisition Loan.
1.21 "Forfeiture" means that portion of a Participant's Account that is not
vested, and occurs on the earlier of (1) the Participant's termination
of employment with the Company and. the distribution of the entire
vested portion of a Participant's Account, or (2) the last day of the
Plan Year in which the Participant incurs five (5) consecutive
one-year Breaks in Service (as defined in Section 1.24(b) hereof).
1.22 "Highly Compensated Employee" means highly compensated active
employees and highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Company or an Affiliate during the
determination year and who, during the look-back year: (i) received
Compensation in excess of $75,000 (as adjusted pursuant to Section 415
(d) of the Code); (ii) received Compensation in excess of $50,000 (as
adjusted pursuant to Section 415 (d) of the Code) and was a member of
the top-paid group for such year; or (iii) was an officer of the
Company or an Affiliate and received Compensation during such year
that is greater than 50 percent of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code.
The term highly compensated employee also includes: (i) an Employee
who is both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back year" and
who is one of the 100 Employees who received the most Compensation
from the Company or an Affiliate during the determination year; and
(ii) employees who are 5 percent owners at any time during the
look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a Highly
Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding
the determination year.
A highly compensated former employee includes any employee who
separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Company during the
determination year, and was a highly compensated active employee for
either the separation year or any determination year ending on or
after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former
Employee or a Highly Compensated
3
<PAGE> 10
Employee who is one of the 10 most highly compensated employees ranked
on the basis of Compensation paid by the Company or an Affiliate
during such year, then the family member and the 5 percent owner or
top-ten highly compensated employee shall be aggregated. In such
case, the family member and 5 percent owner or top-ten highly
compensated employee shall be treated as a single employee receiving
compensation and contributions equal to the sum of such compensation
and plan contributions of the family member and 5 percent owner or
top- ten highly compensated employee. For purposes of this section,
family member includes the spouse, lineal ascendants and descendants
of the Employee or former Employee and the spouses of such lineal
ascendants and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the
top-paid group, the top 100 Employees, the number of Employees treated
as officers and the compensation that is considered, will be made in
accordance with section 414(q) of the Code and the regulations
thereunder.
1.23 "Late Retirement Date" means the Anniversary Date coinciding with or
next following a Participant's actual Retirement Date, after having
reached his Normal Retirement Date.
1.24 "Limitation Year" means the Plan Year.
1.25 "Loan Suspense Account" means an account in which Qualifying Employer
Securities are held and which has not been allocated to Participant's
Accounts because they were purchased with borrowed funds pursuant to
the provisions of Section 13.4 hereof or transferred to such account
pursuant to the terms hereof.
1.26 "Non Highly Compensated Employee" means an Employee who is neither a
Highly Compensated Employee nor a Family Member.
1.27 "Non-Key Employee" is an Employee who is not a Key Employee. Non-Key
Employees shall include Employees who are former Key Employees.
1.28 "Normal Retirement Age" means the date a Plan Participant, if still an
Employee, attains age 65.
1.29 "Normal Retirement Date" means the first day of the month coincident
with, or next following, the date upon which a Participant attains his
Normal Retirement Age.
1.30 "Other Investments Account" means the Account of a Participant which
reflects his interest in the Plan attributable to Trust assets other
than Qualifying Employer Securities.
1.31 "Participant" means an Employee who is included in the Plan as
provided in Section 2.1.
1.32 "Participant's Account" means a separate account, maintained in the
aggregate by the Committee, for each Participant with respect to his
total interest in the Plan and Trust.
4
<PAGE> 11
1.33 "Participant's Company Stock Account" means the Participant's Account,
credited with Qualifying Employer Securities.
1.34 "Plan" means the Met Holdings Corporation Employee Stock ownership
Plan as set forth herein.
1.35 "Plan Year" means the 12 month period ending on December 31 of each
year.
1.36 "Pregnancy or Child Care Leave of Absence" shall mean, with respect to
a Plan Year commencing on or after July 1, 1984, a compensated or
uncompensated leave of absence of fixed or indefinite duration granted
to an Employee by the Company or an Affiliate pursuant to a written
request which is submitted to the Company or Affiliate by the Employee
no later than thirty (30) days prior to the first day of the proposed
leave of absence that is sought (i) because of the pregnancy of the
Employee, (ii) because of the birth of a child of the Employee, (iii)
because of the placement of a child with the Employee in connection
with the adoption of such child by such Employee or for the purpose of
enabling the Employee to care for a child for a period beginning
immediately after the birth of such child to the Employee, or (iv)
because of A the placement of such child with the Employee, or (v)
because of an absence of not more than two (2) consecutive calendar
years in duration which, upon his return to the employ of an Company
or an Affiliate, the Employee demonstrates to the satisfaction of the
one Company to have been for one of the four aforementioned purposes.
1.37 "Qualified Domestic Relations Order" means a judgment, decree or order
(including an approval of a property settlement agreement) that
relates to the provision of child support and/or alimony payments or
marital property rights to a Spouse, former Spouse, child or other
dependent of a Participant, that is made pursuant to a domestic
relations law (including a community property law) of a State, that
creates or recognizes the right of an alternative payee, or assigns to
an alternative payee the right, to receive all or a portion of the
benefit payable to the Participant under the Plan, that sets forth the
specific information required by Section 414(p)(2) of the Code to be
included therein and that does not alter the amount or form of the
benefit otherwise payable to the Participant.
1.38 "Qualified Election Period" means the six Plan Year period beginning
with the Plan Year after the Plan Year in which the Participant first
becomes a Qualified Participant.
1.39 "Qualified Participant" means a Participant who has attained age 55
and who has completed at least 10 years of participation in the Plan.
1.40 "Qualifying Employer Securities" or "Company Stock" means the shares
of common stock of the Company as described in Section 4975 (e) (8) of
the Code (or of a corporation which is a member of a controlled group
with the Company) which is readily tradable on an established
securities market; or if not readily tradable, meets the following
criteria:
(a) is a common stock issued by the Company (or by a corporation
which is a member of the same controlled group) having a
combination of voting power and dividend
5
<PAGE> 12
rights equal to or in excess of that class of common stock
having the greatest voting power, and
(b) that class of common stock having the greatest dividend
rights.
Noncallable preferred stock shall be deemed to be "Qualifying Employer
Securities" if such stock is convertible at any time into stock which
constitutes "Qualifying Employer Securities" hereunder and if such
conversion is at a conversion price which (as of the date of the
acquisition by the Trust) is reasonable.
1.41 "Service" means any computation period during which an Employee was in
the employment of the Employer or an Affiliate including service
before the Effective Date of this Plan. It shall include any period
during which an Employee is on leave of absence authorized by his
Company. All leaves of absence shall be granted in a uniform and
nondiscriminatory manner to all Employees in similar circumstances.
(a) Any Participant who leaves the active Service of the Company
or an affiliated Company to enter the Armed Forces of the
United States of America during a period of national emergency
or compulsory military Service law of the United States of
America shall be deemed to be on leave of absence during the
period of his Service in such Armed Forces and during any
period after his discharge from such Armed Forces in which his
re-employment rights are guaranteed by law.
(b) For vesting purposes, a "Year of Service" shall be any Plan
Year in which the Employee completes 1,000 Hours of Service;
provided that no Employee shall be credited with Years of
Service for Service prior to 1992, for vesting purposes. For
eligibility purposes, an Employee's eligibility computation
period will begin on the date the Employee performs his first
Hour of Service for the Company.
(c) "Hour of Service" means each hour for which an Employee is
directly or indirectly paid or entitled to payment by the
Company for the performance of duties. These hours shall be
credited to the Employee for the computation period or periods
in which the duties are performed.
Each hour for which an Employee is paid, or entitled to
payment, by the Company on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence. No more than
501 Hours of Service shall be credited under this paragraph
for any single continuous period (whether or not such period
occurs in a single computation period). Hours under this
paragraph shall be calculated and credited pursuant to Section
2530.-200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference.
Each hour for which back pay, irrespective of mitigation of
damage, has been either awarded or agreed to by the Company.
These hours shall be credited to the
6
<PAGE> 13
Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period
in which the award, agreement, or payment was made.
For purposes of hours of Service credited for periods during
which no duties were performed, the method of determining the
number of hours to be credited and the method of crediting
such hours to commutation periods shall conform to the
requirements set forth in Sections 2530.200(b)-2(b) and (c) of
the Department of Labor Regulations.
The Company and its Affiliates. Hours of Service will also be
credited for any individual considered an Employee under
Section 414(n).
Solely for purposes of determining whether a Break in Service
for participation and vesting purposes has occurred in a
computation period, an individual who is absent from work for
maternity or paternity reasons shall receive credit for the
hours of Service which would otherwise have been credited to
such individual, but for such absence, or in any case in which
such hours cannot be determined, 8 hours of Service per day of
such absence. For purposes of this paragraph, an absence from
work for maternity or paternity reasons means an absence (1)
by reason of the Pregnancy of the individual, (2) by reason of
a birth of a child of the individual, (3) by reason of the
placement of a child with the individual in connection with
the adoption of such child by such individual, or (4) for
purposes of caring for such child for a period beginning
immediately following such birth or placement. The hours of
Service credited under this paragraph shall be credited (1) in
the computation period in which the absence begins if the
crediting is necessary to prevent a break in Service in that
period, or (2) in all other cases, in the following
computation period.
(d) "Benefit Accrual Computation Period" shall be defined as the
Plan Year.
(e) "Vesting Computation Period" shall be the Plan Year.
(f) "Break in Service" means any commutation period in which an
Employee works five hundred (500) Hours of Service or less.
Except as other-wise provided above, any year in which an
Employee works more than five hundred (500) Hours of Service,
but less than one thousand (1,000) Hours of Service shall not
be recognized as Service, but this shall not be a Break in
Service.
(g) In the event that an Employee who incurred a Break in Service
is subsequently re-employed, his Years of Service shall be
cumulative for vesting purposes, except that if the Employee,
at the time of his Break in Service, had no vested interest
and the number of consecutive one-year Breaks in Service
equals or exceeds the greater of five or the number of
pre-break Years of Service, Years of Service prior to such
Breaks in Service shall be disregarded. The same provision
shall apply in the case of an Employee whose Service has been
broken because he worked less
7
<PAGE> 14
than five-hundred (500) Hours of Service in a given Plan Year
when he resumes working at least one thousand (1,000) Hours of
Service per Plan Year.
1.42 "Spouse" means the lawful husband or wife of a Participant on the date
specified.
1.43 "Suspense Account" means the total forfeitable portion of all Former
Participants' Accounts which has not yet become a Forfeiture during
any Plan Year.
1.44 "Taxable Year" means, with respect to each Employer, the fiscal year
adopted by such company from time to time for Federal income tax
purposes.
1.45 "Total Disability" or "Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or
mental disorder which renders him incapable of continuing any gainful
occupation and which condition constitutes total disability under the
Federal Social Security Acts.
1.46 "Trust Agreement", means the trust agreement set forth in Part II of
this Plan.
1.47 "Trust Fund" means the fund described in Section 13, and maintained in
accordance with the terms of the Trust Agreement.
1.48 "Trustee(s)" means the person(s), or corporation(s), accepting the
appointment of Trustee(s) and acting as such, including any successor
Trustee(s), pursuant to the Trust Agreement.
1.49 "Valuation Date" means the last day of the Plan Year of the Trust
Fund. The fair market value of the assets in the Trust Fund as of any
valuation date shall be determined as the close of business an such
date, or, if such date is not a business day, as of the close of
business on the next preceding business day. On the Valuation Date
the Account balances are valued to determine if the plan is top-heavy.
The Valuation Date shall also be the Determination Date for Top-Heavy
Plan calculations.
SECTION 2
Eligibility
Eligibility Rules
2.1 Subject to Section 2.6 hereof, each Employee shall become a
Participant on the latter of the Effective Date. and the Entry Date
next following his completion of six-months of Service; provided that
anyone who is an Employee on December 31, 1992 shall become a
Participant as of the Effective Date.
If an Employee terminates employment prior to meeting the above-stated
service requirement and is subsequently rehired, the Employee shall be
treated as a new employee upon his date of rehire, and his prior
Service shall be disregarded for eligibility purposes. An Employee
meeting the above-stated service requirement, but who terminates
8
<PAGE> 15
employment prior to becoming a Participant, shall become a Participant
as of the date of rehire, if a Break in Service has not occurred prior
to such rehire. A rehired Employee who was a former Participant,
shall become a Participant upon his date of rehire.
2.2 Annual Allocations. A Participant shall be entitled to share in any
allocation of the Company's contribution for a particular Plan Year if
and only if the Participant completes 500 Hours of Service and is
employed on the last day of the Plan Year.
2.3 Annual Company Report to Committee. Within sixty (60) days. after the
last day of the Fiscal Year, the Company shall certify to the
Committee in writing such information from its records with respect to
Employees as the Committee may require in order to determine the
identity and interests of the Participants and otherwise to perform
its duties hereunder.
Any certification by the Company of information to the Committee
pursuant to this Plan shall, for all purposes of this Plan, be binding
on all parties in interest, provided that whenever any Employee proves
to the satisfaction of the Company that his period of Service or his
Compensation as so certified is incorrect, the Company shall correct
such certification. The Service of any Employee shall be determined
solely by reference to the data certified to the committee by the
Company.
The determination of the Committee as to the identity of the
respective Participants and as to their respective interests shall be
binding upon the Company, the Trustees, the Employees, the
Participants and all beneficiaries.
2.4 Transfers. Whenever any Participant is transferred from one Employer
who is a party to the Plan to another Employer who is a party to the
Plan, the Participant may continue on as a Participant in the Plan
without any interruption as if the Participant had at all times been
an Employee of the new Company; and in the event an affiliated company
ceases to be an Affiliate for any reason whatsoever, this event shall
not affect the continued participation in this Plan of any Participant
who becomes an Employee of the Company or any other Affiliate under
this Plan, and the Committee shall transfer the Participant's Account
from the account of the withdrawing Affiliate to the Company or new
Affiliate.
2.5 Breaks-in-Service. A Participant who terminates employment with an
Employer or suffers a Break-in-Service shall cease to be an active
Participant in this Plan and his Company contribution account shall be
placed on inactive status. Except as provided in Section 2.2, the
inactive Participant shall not share in the Company's contribution for
that Plan year, but his accounts shall continue to receive income
allocations. Thus, he shall remain a Participant until his account
balances have been distributed to him. Termination of employment may
have resulted from, voluntary or involuntary termination of
employment, unauthorized absence, or by failure to return to active
employment with the Company by the date on which an Authorized Leave
of Absence expired.
2.6 Excluded Employees. An Employee shall not participate in the Plan if
he is either (i) deemed under Section 414 (n) of the Code to be an
Employee of any Employer, or (ii) is included in a unit of Employees
covered by an agreement which the Secretary of Labor
9
<PAGE> 16
finds to be a collective bargaining agreement between Employee
representatives and the Company or one or more Affiliates, including
the Company, if there is evidence that retirement benefits were the
subject of good faith bargaining between such Employee representatives
and the company or such Affiliates. For this purpose, "Employee
Representatives" will not include any organization more than half of
whose members are Employees who are owners, officers, or executives of
the Company or an Affiliate.
SECTION 3
Employer Contributions
3.1 (a) Money Purchase Pension Base Contribution. The Employer shall
contribute to the Plan for each Plan Year an amount equal to
ten percent (10%) of the aggregate Compensation of all
Participants eligible, under Section 2.2 hereof, to share in
allocations for the Plan Year.
(b) Stock Bonus Contributions. The Employer shall contribute to
the Plan for each Plan Year an amount sufficient to repay any
Acquisition Loan (to the extent such repayment is not effected
through contributions made under Section 3.1(a) hereof, and
the Board of Directors may determine annually by resolution to
make discretionary contributions to the Plan. In no event
shall the aggregate Employer Contributions for any Plan Year
exceed the maximum amount deductible under the applicable
provisions of Section 404 of the Code.
(c) The Committee shall maintain a separate Account for each
Participant, to which it shall credit the Participant's share
of all contributions in accordance with Section 5, and which
shall be revalued in accordance with Section 6.
(d) The fact that the Company or another Employer may make no
contribution hereunder for any Taxable Year shall not be
deemed to terminate the Plan or the Trust created hereunder.
3.2 Payment of Employer Contributions.
(a) The Employer's contributions for each Taxable Year shall be
paid directly to the Trustees. At the time of each such
payment, the Employer shall notify the Committee of the amount
of such contribution. The amount of each such contribution
shall be certified to be true and correct and in accordance
with the terms of the Plan by the Employer or by the
independent accounting firm regularly employed by the
employer, and such certification shall be final and conclusive
upon all persons interested in the Plan. No adjustment
affecting the Employer's net profit for any taxable year, made
subsequent to the payment of the Employer's contribution to
the Trustees and resulting from audit of the Employer's
Federal income tax return or otherwise, shall change the
amount of such contributions. The Company's contribution for
any Plan Year shall be paid in full as soon as practicable
after the close of such year, but not later than the time
prescribed by
10
<PAGE> 17
law for filing the Employer's Federal income tax return for
such year (including extensions thereof).
(b) Employer contributions will be paid in cash or Qualifying
Employer Securities as the Employer's Board of Directors may
from time to time determine. Shares of Qualifying Employer
Securities will be valued at their then fair market value.
However, to the extent that the Trust has current obligations,
including amounts necessary to provide sufficient cash to Pay
any currently maturing obligations under an Acquisition Loan,
the Employer contributions will be paid to the Trust in cash
subject to the discretion of the Employer's Board of
Directors. The Employer contribution will be paid to the
Trust on or before the date required to make such contribution
qualify as a deduction on the Employer's Federal income tax
return for the year.
(c) The Employer may make contributions to the Plan in whole or in
part in the form of Qualifying Employer Securities, provided
the Employer uses the fair market value of the securities as
of the date such contribution is made, as determined by an
independent appraiser, if required under Section 401 (a) (28)
(C) of the Code, engaged by the Committee. Such stock may be
obtained from its own reserve or treasury stock, or it may be
obtained from open market purchases.
3.3 Payment of Administrative Expenses. The Company intends to provide
all funds required for the administrative expenses of the Plan. Funds
not so provided by the Company may be paid first from any other
Employer, next from the Trust's earnings, and then from its principal.
3.4 Mistake in Fact. If, due to a mistake in fact, the Employer
contributions to the Trust for any Plan Year exceeds the amount to be
contributed by it, notwithstanding any provision to the contrary, the
Committee shall direct the Trustee, as soon as such a mistake in fact
is discovered, to either segregate such amount and return such amount
to the Employer within one year after the payment of the contribution
or apply it towards the contribution of the Company for the next Plan
Year(s).
3.5 Failure of Initial Plan Qualification. In the event that the
Commissioner of Internal Revenue determines that the Plan is not
initially qualified under the Code, any contribution made incident to
that initial qualification by the Employer shall be returned to the
Employer within one year after the date the initial qualification is
denied, but only if the application for the qualification is made by
the time prescribed by law for filing the Employer's return for the
taxable year in which the Plan is adopted, or such later date as the
Secretary of the Treasury may prescribe.
11
<PAGE> 18
SECTION 4
Participants Contributions
4.1 No Employee Contributions. No Employee Contributions shall be
permitted under this Plan.
4.2 No Rollovers. The Trustee shall not accept "Rollover Contributions"
from any Participant.
SECTION 5
Allocation of Contributions
5.1 Allocations Generally. The Employer contribution, as determined under
Section 3.1, and Forfeitures for each Plan Year shall be allocated by
the Committee, as of the close of such Plan Year, between the Accounts
of all Participants entitled under Section 2.2 to share in the
allocation, as follows:
The Employer contribution and Forfeitures shall be allocated to each
such Participant's Account in proportion to the ratio which his
Compensation for the Plan Year bears to the total Compensation of all
such Participants eligible to share in Employer contributions for the
Plan Year.
5.2 Maximum Limitations on Allocations of Contributions. Compensation for
purposes of Sections 5. 2 and 5. 3 shall mean the Participant's wages,
salaries, fees for professional services and other amounts received
for personal service actually rendered for the Company maintaining the
Plan, earned income in the case of an Employee described in Section
401(c)(1) of the Code, earned income from sources outside the United
States (whether or not excludable or deductible) certain fringe
benefits described in Sections 104(a)(3), 105(a) and 105(h) of the
Code to the extent includible in gross income, amounts described in
Section 1065(d) of the Code, certain moving expense reimbursements to
the extent not deductible by the Participant, and the value of a
non-qualified stock option or the amount described in Section 83(b) of
the Code to the extent includible in gross income.
Compensation shall not include contributions to a qualified plan, or
to a SEP to the extent excludable by the Employee, nor amounts
distributed from a qualified plan of deferred compensation, nor
amounts realized from the exercise of a non-qualified stock option.
In addition, certain other amounts which receive special tax benefits
(such as premiums for group term life insurance not includible in the
gross income of the Employee) shall not be considered compensation.
Compensation for the purposes of this Section 5.2 and 5.3 for any Plan
Year which shall consist of less than 12 months shall be reduced
proportionately by that percentage that the Plan Year is reduced.
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<PAGE> 19
(a) Contributions and other additions to a Participant's Account
cannot exceed the lesser of $30,000 or 25% of Compensation.
Annual additions to a Participant's Account for purposes of
this limitation include in addition to the Company
contribution, any forfeitures allocated to Participant
Accounts, and the amount of a Participant's total voluntary
elective Contributions, plus any contributions to a similar
Company defined contribution plan, or any amounts described in
Sections 415 (1) (1) and 419 (a) (d) (2) of the Code. The
maximum amount of $30,000 shall be increased where allowed
under ERISA and Treasury regulations issued pursuant thereto,
to reflect 25% of the defined benefit dollar limitation set
forth in Section 415 (b) (1) of the Code as in effect for the
limitation year. In determining the above limitations, all
defined contribution plans of the Company shall be considered
as one plan.
(b) Should not more than one-third of the Company contributions
for a year which are deductible be allocated to Highly
Compensated Employees, the above annual addition limits shall
not include forfeitures of Qualifying Employer Securities if
such securities were acquired with the proceeds of an
Acquisition Loan or acquired with deductible Company
Contributions used to pay interest on such Acquisition Loan
and charged to such Participant's Account.
(c) If as a result of the allocation of forfeitures, a reasonable
error in estimating a Participant's annual compensation, or
under other limited facts and circumstances which the
Commissioner of the Internal Revenue Service finds justifiable
there should be an excessive annual addition for any
Participant's account, the excess shall be held in a suspense
account and allocated in the subsequent Plan Year pursuant to
the following:
(i) Any nondeductible voluntary Employee contributions,
to the extent they would reduce the excessive annual
addition, will be returned to the Participant;
(ii) If after the application of paragraph (a) an
excessive annual addition still exists, and the
Participant is covered by the Plan at the end of the
Limitation Year, the excessive annual addition in the
Participant's Account will be used to reduce Company
Contributions (including any allocation of
forfeitures) for such Participant in the next
Limitation Year, and each succeeding Limitation Year
if necessary.
(iii) If after the application of paragraph (a) an
excessive annual addition still exists, and the
Participant is not covered by the Plan at the end of
the Limitation Year, the excessive annual addition
will be held unallocated in a suspense account. The
suspense account will be applied to reduce future
Company Contributions (including allocation of any
forfeitures) for all remaining Participants in the
next Limitation Year, and each succeeding Limitation
Year if necessary;
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<PAGE> 20
(iv) If a suspense account is in existence at any time
during the Limitation year pursuant to this section,
it will not participate in the allocation of the
trust's investment gains and losses.
5.3 (a) Multiple Plan Reduction: If an Employee is a Participant is
one or more defined benefit plans and one or more defined
contribution plans maintained by the Company, the sum of the
defined benefit plan fraction and the defined contribution
plan fraction for any year may not exceed 1.0. The defined
benefit plan fraction for any year is a fraction (1) the
numerator of which is the projected "annual benefit" of the
Participant under the Plan (determined as of the close of the
Plan Year), and (b) the denominator of which is the lesser of:
(1) the product of 1.25 multiplied by the maximum dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such year, or (2) the product of 1.4 multiplied by the
amount which may be taken into account under Section
415(b)(1)(B) of the Code for such year.
The defined contribution plan fraction for any year is a fraction (a)
the numerator of which is the sum of the "annual additions" to the
Participant's Account as of the close of the Plan Year and (b) the
denominator of which is the sum of the lesser of the following amounts
determined for such year and each prior year of service with the
Company: (1) the product of 1.25 multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Code for such year
(determined without regard to Section 415(c)-(6) of the Code), or (2)
the product of 1.4 multiplied by the amount which may be taken into
account under Section 415(c)(1)(B) of the Code for such year.
(b) Top-Heavy Plans. Notwithstanding the foregoing, for any
Top-Heavy Plan Year, 1.0 shall be substituted for 1.25 unless
the extra minimum allocation pursuant to Section 11.5 is being
made. However, for any Plan Year in which this Plan is a
Super Top-Heavy Plan, 1.0 shall be substituted for 1.25 in any
event.
(i) Special Rule for Defined Contribution Fraction: At
the election of the Administrator, in applying the
provisions of Section 5.4 with respect to the defined
contribution plan fraction for any Plan Year ending
after December 31, 1982, the amount taken into
account for the denominator for each Participant for
all Plan Years ending before January 1, 1983 shall be
an amount equal to the product of (a) the amount of
the denominator determined under Section 5.2 for Plan
Years ending before January 1, 1982, multiplied by
(b) the "transition fraction".
For purposes of the preceding paragraph, the term
"transition fraction" shall mean a fraction (a) the
numerator of which is the lesser of (1) $51,875 or
(2) 1.4 multiplied by twenty-five percent (25%) of
the Participant's compensation for the Plan Year
ending in 1981, and (b) the denominator of which is
the lesser of (1) $41,500 or (2) twenty-five percent
(25%) of the Participant's compensation for the Plan
Year ending in 1981.
(ii) Excessive Benefit: If the sum of the defined benefit
plan fraction and the defined contribution plan
fraction shall exceed 1.0 in any year for any
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<PAGE> 21
Participant in this Plan, the Company shall adjust
the numerator of the defined contribution plan
fraction so that the sum of both fractions shall not
exceed 1.0 in any year for such Participant.
(iii) Limitation Year: For purposes of determining "annual
additions", the limitation year shall be the Plan
Year.
(iv) In the case of a group of Company's which constitutes
either a controlled group of corporations, trades or
businesses under a common control (as defined in
Section 1563(a) or section 414 (b) or (c) as modified
by Section 415 (h) of the Code), or an affiliated
service group (as defined by Section 414(m) of the
Code) , all such Company's shall be considered as a
single Company for purposes of, applying the
limitation of Section 415 of the Code.
(v) Notwithstanding the foregoing or Section 5.2, the
annual addition for any Limitation Year beginning
before January 1, 1988 shall not be recomputed to
treat all Employee Contributions as an Annual
Addition.
SECTION 6
Allocation To Participant's Accounts
6.
6.1 General Rules.
(a) The Company Stock Account maintained for each Participant will
be credited annually with his allocable share of Qualifying
Employer Securities (including fractional shares) purchased
and paid for by the Trust or contributed in kind to the Trust.
Financed Shares shall initially be credited to a "Loan
Suspense Account" and shall be allocated to the Company Stock
Accounts of Participants only as payments on the Acquisition
Loan are made by the Trustee. The number of Financed Shares
to be released from the Loan Suspense Account for allocation
to Participant's Company Stock Accounts for each Plan Year
shall be determined by the Plan Committee in the Exempt Loan
documents under either method (1) or (2) below, as follows:
(i) General Method - The number of Financed Shares held
in the Loan Suspense Account immediately before the
release for the current Plan Year shall be multiplied
by a fraction. The numerator of the fraction shall
be the amount of principal and interest paid on the
Acquisition Loan for that Plan Year. The denominator
of the fraction shall be the sum of the numerator
plus the total payments of principal and interest on
that Acquisition Loan projected to be paid for all
future Plan Years. For this purpose, the interest
15
<PAGE> 22
to be paid in future years is to be computed by using
the interest rate in effect as of the current
allocation date.
(ii) Alternative Method - The Plan Committee may elect at
the time an Acquisition Loan is incurred (or the
provisions of the Acquisition Loan may provide) for
the release of Financed Shares from the Loan Suspense
Account based solely on the ratio that the payments
of principal for each Plan Year bear to the total
principal amount of the Acquisition Loan. This
method may be used only to the extent that: (a) the
Acquisition Loan provides for annual payments of
principal and interest at a cumulative rate that is
not less rapid at any time than level annual payments
of such amounts for ten years; (b) interest included
in any payment an the Acquisition Loan is disregarded
only to the extent that it would be determined to be
interest under standard loan amortization tables; and
(c) the entire duration of the Acquisition Loan
repayment period does not exceed ten years, even in
the event of a renewal, extension or refinancing of
the Acquisition Loan.
The Other Investments Account maintained for each
Participant will be credited (or debited) annually
with his share of any net income (or loss) of the
Trust, and with his share of Company Contributions in
cash. It will be debited for its proportionate share
of any cash payments made by the Trust for the
purchase of Qualifying Employer Securities or the
repayment of principal and interest on any
Acquisition Loan.
(b) The Trustee shall, as of each Valuation Date, adjust each
Participant's Company Stock Account and Other investments
Account for transactions since the date of the preceding
adjustment. Separate adjustments shall be made for each
Participant's Account as follows:
(i) The number of shares of Qualifying Employer
Securities in each Participant's Company Stock
Account shall be the number of shares as of the date
of the preceding adjustment, but increased by (A)
Qualifying Employer Securities allocated to it
pursuant to Section 5.1, (B) stock dividends on
Qualifying Employer Securities previously allocated
to said Account, and (C) Qualifying Employer
Securities acquired with funds from the corresponding
Other Investments Account, and shall be decreased by
distributions from said Account.
(ii) The fair market value of each Other Investments
Account shall be the fair market value of assets in
such Account as of the date of the preceding
adjustment, but increased by (A) money allocated to
it pursuant to Section 5.1, (B) dividends (other than
Qualifying Employer Securities' dividends) on
Qualifying Employer Securities previously allocated
to the corresponding Participant's Company Stock
Account, and (C) investment gains; and shall be
decreased by (i) distributions from said Account, (2)
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<PAGE> 23
amounts used to acquire Qualifying Employer
Securities for the corresponding Participant's
Company Stock Account, and (3) investment losses.
For the purposes of the foregoing paragraph, the
investment gain or loss in each Other Investments
Account since the last adjustment shall be its pro
rata share of the investment gain or loss of all
assets in the Other Investments Account based on the
change in fair market value of assets therein since
the last adjustment and computed in accordance with
uniform valuation procedures established by the
Trustee.
Shares of Qualifying Employer Securities held in the
Loan Suspense Account and dividends paid thereon,
funds borrowed for the purchase of Qualifying
Employer Securities, and interest and all other costs
attributable to the Loan Suspense Account shall be
excluded for all purposes under this Section, except
to the limited extent provided in Section 13.7(b).
6.2 Reports to Participants. As soon as practicable after each annual
Valuation Date, the Committee shall advise each Participant of the
amount then credited to his Account.
6.3 Diversification -- Elections. Each Qualified Participant shall be
permitted to direct the Plan as to the investment of twenty-five
percent (25%) of the value of the Participant's Account Balance
attributable to Qualifying Employer Securities. Such direction shall
be made within the Qualified Election Period and shall be made no
later than 90 days after the close of each Plan Year which occurs
within the Qualified Election Period. In the case of the last Plan
Year in which such direction may be made, the amount of permitted
investment shall be increased to fifty percent (50%) of the
Participant's Account.
6.4 Diversification -- Distributions. The portion of a Qualified
Participant's Account Balance with respect to which a diversification
election is made under Section 6.3 shall be distributed (without
regard to the distribution limitations of Section 409(d) of the Code)
to the Qualified Participant within 90 days after the last day of the
period during which the election may be made.
6.5 Diversification -- Required Consents. Notwithstanding the foregoing,
any election under this Section by a Qualified Participant which
results in a distribution to such Participant shall be subject to the
consent provisions of Section 9.4 and 10.5 of the Plan. If the
consent is not obtained, then amounts otherwise distributable under
this Section will remain in the Plan.
SECTION 7
Retirement and Distribution of Benefits
7.1 Vesting. At Normal Retirement Age, the Participant shall have a 100%
nonforfeitable interest in his account. If a Participant defers his
retirement beyond his Normal Retirement Date, he shall' continue as a
Participant until his actual retirement, but no
17
<PAGE> 24
distributions shall be made from his Accounts until his actual
retirement (other than distributions required under Section 7.6),
unless the Participant elects to withdraw all or cart of his. Company
Contribution Account pursuant to this Section.
7.2 Distribution -- Timing. If a Participant's employment terminates by
reason of his retirement pursuant to Section 7.1, the total balance of
his Account, as of the Valuation Date which coincides with or next
follows the date of his retirement, shall be distributed to him as
soon as practicable thereafter, in accordance with this Section 7.
7.3 Distribution -- Method. At such time that distributions are payable
under the Plan, the Participant's Company Stock Account and Other
Investment Account shall be distributed in such form as the
Administrator shall determine in its sole discretion; provided that
such discretion shall be exercised in a uniform and nondiscriminatory
manner.
Unless otherwise elected by a Participant, the distribution of his
account attributable to Qualifying Employer Securities as well as
other (diversified) investment shall commence not later than sixty
(60) days after the Anniversary Date coinciding with or next following
his Normal Retirement Age (or his termination of Service, if later).
However, if the amount of a Participant's account attributable to both
Qualifying Employer Securities as well as other (diversified)
investments cannot be ascertained by the Committee by the date on
which such distribution should commence, or if the Participant cannot
be located, distribution of his account shall commence within sixty
(60) days after the date on which his Company Stock Account Value can
be determined or after the date on which the Committee locates the
Participant. To the extent required under Treasury Regulation Section
1.401(a)-14(b)(3), a participant who elects to defer receipt of
benefits may not do so hereunder if the exercise of such election will
cause benefits payable under the Plan with respect to the Participant
in the event of his death to be more than "incidental" within the
meaning of paragraph (b)(1)(i) of Section 1.401-1.
In the event that Qualifying Employer Securities held in a
Participant's Account are subject to a "Put option" as provided under
Section 7.5(b) herein, distributions of the Qualifying Employer
Securities otherwise required under this Section shall not include any
Qualifying Employer Securities acquired with the proceeds of any
Acquisition Loan until the close of the Plan Year in which such loan
is repaid in full.
7.4 Distribution -- Form. Distribution of a Participant's Company Stock
Account will be made in the form of whole shares of Qualifying
Employer Securities (with cash paid in lieu of fractional shares),
cash, or a combination of both, as determined by the Administrator;
provided that the Participant shall have the right to elect to have
his distribution paid entirely in whole shares of Qualifying Employer
Securities (with cash paid in lieu of fractional shares). Any balance
in a Participant's Other Investments Account and any fractional shares
of Qualifying Employer Securities will be paid in cash. If Qualifying
Employer Securities are not available for purchase by the Trustee,
then the Trustee shall hold such balance until Qualifying Employer
Securities are acquired and then make such distribution. If the
Trustee is unable to purchase Qualifying Employer Securities required
for distribution, he shall make distribution in cash within one year
after the date the
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<PAGE> 25
distribution was to be made; except in the case of a retirement,
distribution shall be made within sixty (60) days after the close of
the Plan Year in which a Participant's retirement occurs.
Notwithstanding the foregoing, in the case of a Plan established and
maintained by a company, as described in Section 409 (h) (2) of the
Code, which is prohibited by law or the company's charter or bylaws
from redeeming or purchasing its own securities, Qualifying Employer
Securities will not be required to be distributed if the Participant
is permitted to receive a distribution in cash.
7.5 (a) Right of First Refusal. At the time of distributing shares of
Qualifying Employer Securities, the Committee may reserve to
the Company, the Plan, or both, a "right of first refusal " as
to such shares. The right of first refusal shall provide
that, prior to any subsequent transfer, such Qualifying
Employer Securities must first be offered in writing to the
Company, and then, if refused by the Company, to the Trust, at
the then fair market value. The Company and the Committee (on
behalf of the Trust) shall have a total of fourteen (14) days
(from the date the Participant or Beneficiary gives written
notice to the Company) to exercise the right of first refusal
on the same terms offered by a prospective buyer. A
Participant (or Beneficiary) entitled to a distribution of
Qualifying Employer Securities may be required to execute an
appropriate stock transfer agreement (evidencing the right of
first refusal) prior to receiving a certificate for such
Securities.
Notwithstanding the foregoing, a "right of first refusal"
shall not be permitted in the case of Qualifying Employer
Securities which are publicly traded on an established
securities market.
(b) Put Option. In the case of a distribution of Qualifying
Employer Securities which are not readily tradable on an
established securities market, the Plan shall provide the
Participant with a put option that complies with the
requirements of Section 409(h) of the Code.
The Company shall issue such a "put option" to each
Participant receiving a distribution of Qualifying Employer
Securities from the Trust subject to the availability of
retained earnings in such amount that complying with the "put
option" shall not be ultra-vires. The put option shall permit
the Participant to sell such Qualifying Employer Securities to
the Company, at any time during two option periods, at the
then fair market value as determined as of the most recent
valuation date (prior to the exercise of such right) by an
independent appraiser meeting requirements similar to the
requirements of the regulations prescribed under Sections
170(a)(1) and 401(a)(28)(C) of the Code engaged by the
Committee. The first out option period shall be a period of
sixty (60) days beginning on the date of distribution of
Qualifying Employer Securities to the Participant. The second
put option period shall be a period of sixty (60) days
beginning after the new determination of the fair market value
of such Qualifying Employer Securities by the Committee in the
next following Plan Year provided that if such determination
is made before the 13-month anniversary date of
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<PAGE> 26
distribution of Qualifying Employer Securities to the
Participant, then the second put option period shall be a
period of sixty (60) days beginning after the new
determination of the fair market value of such Qualifying
Employer Securities by the Committee in the next following
Plan Year.
The Trust shall have the option to assume the rights and
obligations of the Company at the time the Participant
requires the purchase by the Company. The Committee may be
permitted by the Company to direct the Trustee to purchase
Qualifying Employer Securities tendered to the Company under a
put option.
Such put option shall provide that if an Employee exercises
the put option, the Company (or the Plan if the Trustee so
elects), shall repurchase the Qualifying Employer Securities
by paying the fair market value of a Participant's Account
balance in cash, in five substantially equal annual payments.
The first installment shall be paid no later than 30 days
after the Participant exercises the put option. The payor
under the put option will pay a reasonable rate of interest
and provide adequate security on amounts not paid after 30
days.
(c) Placement of Restrictions on Stock Certificates. Shares of
Qualifying Employer Securities held or distributed by the
Trustee may include such legend restrictions on
transferability as a Company may reasonably require in order
to assure compliance with applicable Federal and State
securities law and with the provisions of this paragraph.
Except as otherwise provided in the Section, no shares of
Qualifying Employer Securities held or distributed by the
Trustee may be subject to a put, call or other option or
buy-sell similar arrangement. The provisions of this Section
shall continue to be applicable to shares of such Securities,
even if the Plan ceases to be an Employee stock ownership plan
under Section 4975(e)(7) of the Code.
7.6 Distribution -- Age 70 1/2 Rule. Notwithstanding anything to the
contrary, payment of a Participant's benefit will commence not later
than April 1 of the calendar year following the calendar year in which
the Participant attains age 70-1/2. Each Participant shall thereupon
receive his or her benefits in a lump sum in accordance with Section
7.3.
SECTION 8
In Event Of Disability
8.1 Vesting; Timing. In the event a Participant suffers a Total
Disability, the total balance of his Participant Account, as of the
Valuation Date which coincides with or next follows the determination
of disability, shall become 100% vested and distributed to him in a
lump sum as soon as administratively practicable after such Valuation
Date.
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<PAGE> 27
SECTION 9
In The Event Of Death
9.1 Vesting; Timing. In the event of the death of a Participant prior to
the distribution of the total balance of his Participant Account, the
total balance of his Accounts, as of the Valuation Date which
coincides with or next follows the date of his death, shall be
immediately 100% vested and distributed in one lump sum to his primary
beneficiary or, if the primary beneficiary does not survive the
Participant, then to his secondary beneficiary, or if no beneficiary
has been designated or survives, then to the Participant's estate as
permitted under the provisions of Sections 7.3 and 7.4.
9.2 Beneficiary. At any time during his life, a Participant shall be
entitled to designate a beneficiary (including a secondary
beneficiary, if the Participant so desires), to whom in the event of
death the distribution provided herein shall be paid, by signing and
filing with the Committee a written designation of beneficiary in such
form as shall be required by the Committee. Any beneficiary so
designated may be changed by the Participant at any time or from time
to time during his life, by signing and filing with the Committee a
written notification of change of beneficiary in such form as shall be
required by the Committee. If the Participant is married, the
designated beneficiary shall be the Participant's spouse unless an
election was made under Section 9.4.
9.3 Beneficiary of Married Participants. In the event a married
Participant dies while still employed by the Company or before the
Participant's Account is paid to the Participant, the Participant's
Account must be paid to the Participant's surviving spouse in a lump
sum within five years. If a Participant dies and is not survived by a
spouse before distributions have commenced, the entire remaining
interest must be distributed to the Participant's beneficiary or
beneficiaries within five years.
9.4 Designation of Beneficiary. The designated beneficiary of all
benefits payable under this Plan shall be the Spouse of such
Participant on the date of death, unless a waiver to such designation
has been completed and received by the Committee in the form
acceptable to the Committee. The waiver must be in writing and must
be consented to by the Participant's spouse with such waiver
specifically acknowledging the non-spouse beneficiary or any
subsequent change in a non-spouse beneficiary. The spouse's consent
to a waiver must be witnessed by a plan representative or notary
public. Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of a plan representative that such
written consent may not be obtained because there is no spouse or the
spouse cannot be located, a waiver will be deemed a qualified
election. Any consent necessary under this provision will be valid
only with respect to the spouse who signs the consent. Additionally,
a revocation of a prior waiver may be made by a Participant without
the consent of the spouse at any time before the commencement of
benefits. The number of revocations shall not be limited.
9.5 Absence of Beneficiary Designation. If a Participant files no
designation of beneficiary or revokes a designation previously filed
without filing a new designation of beneficiary, or if
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<PAGE> 28
all persons so designated as beneficiary shall predecease the
Participant or die prior to complete distribution, to them, the
Trustee, pursuant to Company instructions, shall distribute such death
benefit or balance thereof to the following who shall be deemed
beneficiaries: to such Participant's surviving spouse, or if none, to
such Participant's surviving issue per stirpes and not per capita, or
if none, to the Participant's estate.
SECTION 10
In The Event Of Termination Of Employment
Or Change In Status
10.1 General Rule. Subject to the provisions of Section 7.6 "Late
Retirement", there shall be no distributions made to a Participant
except on account of termination of employment, death, disability as
provided for in section 8, or termination of the Plan. All such
distributions shall be made in accordance with Sections 7.3 and 7.4,
except as specifically noted to the contrary herein.
10.2 Distribution -- Timing. If a Participant's employment terminates
otherwise than by his death, retirement or disability and the
Participant is not re-employed by the Company or an Affiliate at the
end of a period of five (5) consecutive one-year Breaks in Service,
distribution of such portion of the Participant's vested Account
Balance attributable to Qualifying Employer Securities will be made
not later than one year after the close of a period of five (5)
consecutive one-year Breaks in Service unless the Participant
otherwise elects under the provisions of this Plan. If the fair
market value of a Participant's Account attributable to Company
Securities is in excess of $500,000 (multiplied by the Adjustment
Factor as prescribed by the Secretary of the Treasury) as of the date
distribution is required to begin under this Section, distributions
shall be made in substantially equal annual payments over a period not
longer than five years plus an additional one year (up to an
additional five years) for each $100,000 increment, or fraction of
such increment, by which the value or the Participant's Account
exceeds $500,000, unless the Participant otherwise elects under the
provisions of the plan. In no event shall such distribution period
exceed the period permitted under Section 401(a) (9) of the Code. If
the fair market value of a Participant's Account attributable to
Qualifying Employer Securities is not in excess of $500,000
(multiplied by the Adjustment Factor as prescribed by the Secretary of
the Treasury) as of the date distribution is required to begin under
this Section, distributions shall be made in substantially equal
annual installments over a period not longer than five years, unless
the Participant otherwise elects under the provisions of the Plan.
If the Participant separates from service for a reason other than
those described above and is re-employed by the Company prior to the
end of a period of five (5) consecutive One Year Breaks in Service,
distribution to the Participant, prior to any subsequent termination
of service, shall be in accordance with terms of the Plan other than
this Section.
For purposes of this Section, in the event that Qualifying Employer
Securities held in a Participant's Account are subject to a "put
option" as provided under Section 7.5(b)
22
<PAGE> 29
herein, such Qualifying Employer Securities shall not include any
Qualifying Employer Securities acquired with the proceeds of an
Acquisition Loan until the close of the Plan Year in which such loan
is repaid in full.
10.3 Vesting. The non-forfeitable portion of the account balance of a
Participant's Account shall be a Percentage of such Account based upon
the number of Years of Service that such Participant has credited from
his date of employment after attainment of age 18 according to the
following schedule:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than 1 year 0%
1 20%
2 40%
3 60%
4 80%
5 or more years 100%
</TABLE>
10.4 Forfeitures. As of each Anniversary Date, any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 10.5. The remaining
Forfeitures, if any, shall be added to the Company's contribution made
pursuant to Section 5.1 and allocated among the Participant's Accounts
in the same manner as the Company's contribution for the current year.
In the event the allocation of Forfeitures provided herein shall cause
the "annual addition" (as defined in Section 5.2) to any Participant's
Account to exceed the amount allowable by the Code, the excess shall
be reallocated in accordance with Section 5.2(b). However, a
Participant who performs less than a Year of Service during any Plan
Year shall not share in Forfeitures for that year, unless required
pursuant to Section II.-3. If a portion of a Participant's Account is
forfeited, Company Stock allocated to the Participant's Company Stock
Account must be forfeited only after the Participant's Other
Investments Account has depleted. If interest in more than one class
of Company Stock has been allocated to a Participant's Account, the
Participant must be treated as forfeiting the same proportion of each
such class.
10.5 Restoration of a Participant's Account Upon Reemployment. If a former
Participant is reemployed by the Company before incurring five (5)
consecutive one-year Breaks-in-Service, and such Participant had
received a distribution of his entire vested interest in his Account
pursuant to Section 10.1 prior to being reemployed, the full amount in
such Participant's Company contribution account on the date of the
prior distribution (including vested and nonvested portions) will be
restored if:
(a) The Participant repays to the Plan the full amount of the
prior distribution, other than his voluntary contribution,
before the Participant incurs five (5) consecutive one-year
Breaks-in-Service commencing after such withdrawal; and
23
<PAGE> 30
(b) The Participant was not fully vested in his Company
contribution account at the time of the distribution.
10.6 Voluntary and Involuntary Cash-outs. As soon as practicable after a
Participant terminates Service for a reason other than retirement,
Total Disability or death, the Committee shall direct the Trustee to
place the value of the Participant's Account as of its most recent
valuation in one (1) or more segregated investment accounts permitted
under the Plan in trust for the named Employee. If the vested portion
of the Participant's Account has not exceeded $3,500 in value as of
any Valuation Date preceding the Participant's termination of
employment with the Company, the Participant shall be paid the vested
portion as soon as practicable following his termination of
employment, in cash (unless the Participant elects to receive such
payment in shares of Qualifying Employer Securities) without regard to
the Participant's election related to the timing of such payments. If
the Participant, upon termination of Service for any reason other than
retirement, death, or Total Disability, does not consent to the
payment of the vested portion of the Participant's Account, and if the
value of such Account exceeds $3,500 on the Valuation Date immediately
following the Employee's termination of Service (or as of any prior
Valuation Date), the vested portion of the Participant's Account will
be distributed in the calendar year in which the Participant attains
age 65, unless the Participant makes a written election to receive
such payment as son as practicable after his termination of
employment. The Account and all accumulated interest shall be paid to
the Employee at the time he attains his Normal Retirement Age. In the
event the Employee dies before reaching retirement age, the Account
balance shall be paid to any beneficiary the Employee has named in a
written designation filed with the Committee or, in the absence of
such designation, to the Employee's estate subject to the terms of
Section 9 of the Plan. The Trustee shall have no other
responsibilities with respect to such accounts except that, if the
balance of any such account shall approach the amount of federal
insurance, the Trustee shall split the account into two (2) or more
accounts.
10.7 Changes in Address. It shall be the responsibility of the terminating
Participant to keep the Committee informed as to his address, and the
Trustee and the committee shall not be required to do anything further
than sending all papers, notices, payments or the like to last address
given them by such Participant unless they can be shown to have acted
in bad faith, having had knowledge of the participant's actual
whereabouts.
10.8 Latest Time for Distribution. Except as limited by Sections 7, 8, 9
and 10, whenever the Trustee is to make a distribution or to commence
a series of payments on or before an Anniversary Date, the
distribution or series of payments may be made or begun on such date
or as soon thereafter as is practicable, but in no event later than
180 days after the Anniversary Date. Except, however, unless a Former
Participant elects in writing to defer the receipt of benefits (such
election may or may not result in a death benefit that is more than
incidental), the payment of benefits shall begin no later than the
60th day after the close of the Plan Year in which the latest of the
following events occurs:
(a) the date on which the Participant attains the earlier of age
65 or the Normal Retirement Date specified herein,
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<PAGE> 31
(b) the 5th anniversary of the year in which the Participant
commenced participation in the Plan, or
(c) the date the Participant terminates his service with the
Company.
10.9 Age 70 1/2 Rule. Notwithstanding any provisions of the Plan, in no
event shall a distribution schedule or form of distribution exceed the
period permitted under Section 401(a)(9) of the Code or Treasury
Regulations Section 1.401(a)(9)-1 or Section 1.401(a)(9)-2.
10.10 Deemed Cash-outs if 0% Vesting. Notwithstanding anything to the
contrary, if the value of a Participant's vested portion of the
Participants Account is zero an the date of termination of employment,
then the Participant shall be deemed to have received a total
distribution of the vested portion of such Participant's Account on
such date.
10.11 Eligible Rollover Distributions. This Section applies to
distributions made from the Plan to Distributee's on or after January
1, 1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a Distributee's election under this
Section, a Distributee may elect at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
Eligible Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the Distributee in a Direct Rollover. For purposes
of this Section --
"Distributee" means the Employee or former Employee, the Employee's or
former Employee's surviving spouse and the Employee's or former
Employee's spouses or former spouse who is the alternate payee under a
Qualified Domestic Relations Order, as defined in Section 414(p) of
the Code, are Distributees with regard to the interest of the spouse
or former spouse.
"Eligible Retirement Plan" means an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an Eligible
Rollover Distribution to the surviving spouse of a Participant, an
Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
"Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
"Eligible Rollover Distribution" means any distribution of all or any
portion of the balance of the credit of the Distributee, except that
an Eligible Rollover Distribution does not include: any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the Distributee or the joint lives (or joint life expectancies) of
the Distributee's designated Beneficiary, or for a specified period of
ten years or more; any distribution to the extent such distribution
25
<PAGE> 32
is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to Employer securities).
SECTION 11
TOP-HEAVY DEFINITIONS AND RULES
11.1 Effective Date of Top-Heavy Provisions. If the Plan is or becomes
Top-Heavy in any Plan Year beginning after December 31, 1983, the
provisions of Section 11 will supersede any conflicting provision in
the Plan.
11.2 Top-Heavy Vesting Schedule. If the Plan is determined to be Top-Heavy
for any Plan Year, a Participant is vested percentage interest in his
Company contribution account shall be determined in accordance with the
Top-Heavy Vesting Schedule set forth in 11.2(d) of this Plan, subject
to the following additional requirements:
(a) Years of Service for purposes of vesting under a Top-Heavy
Vesting Schedule shall include Years of Service when the Plan
was not Top-Heavy;
(b) If any Participant in the Plan is not credited with an Hour of
Service after the Plan becomes Top- Heavy, that Participant
shall not be subject to the Top-Heavy Vesting Schedule, but
shall remain subject to the vesting schedule set forth in
Section 10.2 and the rules in effect prior to the date the
Plan becomes Top-Heavy;
(c) If the Plan ceases to be Top-Heavy, an Employee's vested
percentage interest in the contributions allocated to his
Company contribution account for Plan Years after the Plan
Year in which the Plan ceases to be Top-Heavy shall be
determined in accordance with the vesting schedule set forth
in Section 10.2 of the Plan, unless otherwise set forth in
Section 11.2 of this Plan;
(d) If the Plan is a Top-Heavy Plan in a Plan Year, a Participant
who is credited with an Hour of Service in such Plan Year
shall have the non-forfeitable interest in his Accrued Benefit
for such Plan Year determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
Years of Service Percent Vested
---------------- --------------
<S> <C>
Less than 1 year 0%
1 20%
2 40%
3 60%
4 80%
5 or more years 100%
</TABLE>
26
<PAGE> 33
(e) Notwithstanding any provision to the contrary, the vested
benefit derived from Company contributions of a Participant
may not be reduced below what it was before the Plan ceased to
be Top-Heavy and the vesting schedule was changed. In
addition, each Participant with three (3) or more Years of
Service shall be given the option of remaining under the
Top-Heavy Vesting Schedule within the same period as set forth
in Section 16.3.
11.3 Minimum Contributions. If this Plan is Top-Heavy during any Plan
Year, the Company must make a minimum Contribution consisting of
Company contributions and forfeitures on behalf of each Plan
Participant who is a Non-Key Employee equal to an amount which is not
less than three (3%) percent of such Participant's Compensation. A
Minimum Contribution shall be made on behalf of such Participant even
though, under other Plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or would have received
a lesser allocation for the Plan Year due to (i) the Participant's
failure to complete one thousand (1000) Hours of Service, or (ii) the
Participant's failure to make mandatory contributions to the Plan, if
required; or (iii) the Participant's Compensation is less than a stated
amount.
Notwithstanding the preceding paragraph, if the Company's Minimum
Contribution on behalf of each Plan Participant who is a Key Employee
equals an amount which is less than three (3%) percent of such
Participant's Compensation, then the Minimum Contribution required to
be made for each Non-Key Employee is limited to not more than the
highest contribution rate under the Plan for each Key Employee.
Therefore, if no Company Contribution is made an behalf of a Key
Employee, then no Minimum Contribution is required to be made on
behalf of each Non-Key Employee. However, if the Plan is included in
a Required Aggregation Group and it enables a defined benefit plan of
the Company to meet the requirements of Sections 401(a)(4) or 410 of
the Internal Revenue Code, then the minimum Contribution for Non-Key
Employees cannot be less than three (3) percent, regardless of the
contribution rate for Key Employees. For purposes of this
subparagraph, all defined contribution plans included in a Required
Aggregation Group shall be treated as one Plan.
A Minimum Contribution shall not be made on behalf of any Participant
who is not employed by the Company on the last day of the Plan Year.
For purposes of computing the Minimum Contribution for any Plan
Participant, amounts paid by the Company to Social Security shall be
disregarded. Also, for all Plan years, except those beginning before
January 1, 1985, any Company contribution attributable on behalf of
any Key Employee to a salary reduction or similar plan shall be taken
into account.
11.4 Minimum Contributions or Minimum Benefits in Two or More Plans. If
the Company maintains more than one qualified plan and more than one
such plan is determined to be Top-Heavy, a Minimum Contribution or a
Minimum Benefit, as described in the following paragraph, shall be
provided in one of such Plans. If the Company has both a Top-Heavy
defined benefit pension plan and a Top-Heavy defined contribution plan
and a Minimum Contribution is to be provided only in the defined
contribution plan, then this Contribution shall not be less than five
(5%) percent of a Participant's Compensation. Notwithstanding
27
<PAGE> 34
that set forth in Section 3.1, if the Minimum Contribution is to be
provided in this Plan, then the Company must provide such Minimum
Contribution even if the Company has no current or accumulated profits
for the Plan Year.
If a defined benefit plan of the Company is Top-Heavy during any Plan
Year, each Plan Participant who is a Non-Key Employee and who has
completed 1000 Hours of Service in the Plan Year must accrue a Minimum
Benefit derived from Company contributions which, at any time, when
expressed as an Annual Retirement Benefit equals or exceeds the
product of such Non-Key Employee's average annual Compensation for his
Testing Period under such defined benefit plan and the applicable
percentage which is the lesser of two (2%) percent multiplied by the
number of Years of Service with the Company or twenty (20%) percent.
In addition, the following rules shall also apply:
(a) Such Non-Key Employee must accrue a Minimum Benefit even if
such Employee is not employed by the Company on the last day
of the Plan Year, or if, under other Plan provisions, the
Participant would not otherwise be entitled to receive an
accrual or would have received a lesser accrual for the Plan
Year due to (i) the Participant's failure to make mandatory
contributions to the Plan, if required, or (ii) the
Participant's Compensation is less than a stated amount; or
(iii) the Plan is integrated with Social Security.
(b) A Year of Service shall not be taken into account in
determining the Minimum Benefit if such Year of Service either
ends in a Plan Year beginning before January 1, 1984 or if the
Plan was not Top-Heavy for any Plan Year ending during such
Year of Service.
(c) Compensation of the Employee in years ending in a Plan Year
beginning before January 1, 1984 or beginning after the close
of the last Plan Year in which the Plan is Top-Heavy shall be
disregarded.
(d) For purposes of computing the Minimum Benefit for any Non-Key
Employee, Company contributions to Social Security or
attributable to a salary reduction or similar plan shall not
be taken into account. Notwithstanding the preceding
sentence, any Company contribution attributable to a salary
reduction or similar plan shall be taken into account for
computing the Minimum Benefit for any Non-Key Employee for
Plan Years beginning before January 1, 1985.
(e) If the Non-Key Employee receives a benefit in a form other
than a single life annuity or a benefit other than at Normal
Retirement Age, the Minimum Benefit must be an amount that is
the actuarial equivalent of the minimum single life annuity
benefit commencing at Normal Retirement Age under such defined
benefit plan.
(f) All accruals derived from Company contributions, whether or
not attributable to years during which the Plan was Top-Heavy,
may be used in determining whether
28
<PAGE> 35
the Minimum Benefit accrual requirements described in this
paragraph are satisfied.
11.5 Aggregate Limit on Contributions and Benefits for Key Employees. If
any Participant is a Key Employee and is, or was, covered under both a
defined benefit plan and a defined contribution plan which are both
included in a Top-Heavy Group of the Company, then for any Plan Year
in which the Plans are Top-Heavy, the number "1.0" shall be for
substituted for "1.25" in each place where it appears in Section 5.4,
unless the Additional Minimum Contribution is being made pursuant to
this Section 11.5.
Notwithstanding the above paragraph, if the Plan is Top-Heavy, but is
not Super Top-Heavy, Section 5.3 without modification, shall continue
to govern the overall limitations on contributions and benefits for
Key Employees if an Additional Minimum Benefit or an Additional
Minimum Contribution equal to seven and one-half (7-1/2%) percent
shall be received by each Participant who is a Non-Key Employee in any
one qualified plan maintained by the Company. However, for any Plan
Year in which this Plan is a Super Top-Heavy Plan, 1.0 shall be
substituted for 1.25 in any event, where it appears in Section 5.3.
11.6 Miscellaneous Compensation Provisions. For any Plan Year in which a
Plan is Top-Heavy, the annual Compensation of each Participant which
may be taken into account for the purpose of determining Company
contributions or benefits under the Plan, including the computation of
the contribution rate for Key Employees in Section 11.3, shall not
exceed $200,000, or such larger amount as may be determined by the
Secretary of the Treasury in accordance with Section 416(d) of the
Internal Revenue Code and the regulations promulgated thereunder, for
Plan Years ending on or after January 1, 1988. Notwithstanding this
limitation, benefits attributable to annual Compensation while the
Plan was not Top-Heavy shall not be reduced.
11.7 Top-Heavy Definitions
11.7.1 "Additional Minimum Benefit" means the Minimum Benefit
described in Section 11.4; however, in determining the
applicable percentage in Section 11.4, "three (3%) percent"
shall be substituted for "two (2%) percent" and "twenty (20%)
percent" shall be increased by 1 percentage point for each
year for which the Plan is Top-Heavy, up to a maximum of
thirty (30%) percent.
11.7.2 "Additional Minimum Contribution" means the Minimum
Contribution described in Section 11.3; however, in
determining the Minimum Contribution "four (4%) percent" shall
be substituted for "three (3%) percent" wherever it appears
throughout Section 11.3.
11.7.3 "Aggregation Group" shall mean one of the following:
(a) Required Aggregation Group:
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<PAGE> 36
"Required Aggregation Group" means each Plan of the Company or
an Affiliate, including terminated plans, in which a Key
Employee is a Participant and each other Plan of the Company
which enables any Plan in which a Key Employee is a
Participant to meet the requirements of Sections 410 or
401(a)(4) of the Code. Collectively-bargained plans that
include a Key Employee of an Company shall be included in the
Required Aggregation Group of the Company; or
(b) Permissive Aggregation Group:
"Permissive Aggregation Group" means each Plan in the Required
Aggregation Group and any Plan the Company elects to place
into the Aggregation Group, if this expanded group continues
to satisfy the requirements of Sections 401(a)(4) and 410 of
the Internal Revenue Code.
11.7.4 "Annual Retirement Benefit" means a benefit payable annually
in the form of a single life annuity with no ancillary
benefits and beginning at the Normal Retirement Age under the
Plan.
11.7.5 "Compensation" under Section 11 shall mean all W-2 earnings of
the Employee, from the Company for the Plan Year.
11.7.6 "Determination Date" for any Plan Year shall mean either (i)
the last day of the preceding Plan Year, or (ii) in the case
of the first Plan Year of any Plan, the last day of such Plan
Year.
11.7.7 "Key Employee" shall mean any Employee, former Employee, or
the Beneficiary of such Employee, who at any time during the
current Plan Year or during any of the four preceding Plan
Years, is described in one or more of the following three
categories:
(a) An Officer of the Company who receives from such Company an
annual Compensation which exceeds one hundred and fifty (150%)
percent of Thirty Thousand ($30,000.00) Dollars, or the
maximum dollar limitation under Section 415(c)(1)(A) of the
Code, as in effect for the calendar year in which the
Determination Date falls. The maximum number of Employees
required to be treated as Key Employees for the Plan Year by
reason of being Officers is the greater of 3 Employees or ten
(10%) percent of the number of Employees of the Company, but
such number shall not exceed 50 Employees. If the number of
Employees who are Officers of the Company exceed the maximum
number required to be counted as Key Employees, the Officers
to be considered as Key Employees are those with the highest
annual Compensation from the Company.
(b) One of the Employees owning or considered as owning within the
meaning of Section 318 of the Internal Revenue Code, as
modified by Section 416(i)(1)(B)(iii) of the Code, the largest
interests in the Company, unless such Employee receives
Compensation from the Company which is less than $30,000 per
year, or the
30
<PAGE> 37
maximum dollar limitation under Section 415(c)(1)(A) of the
Code, as in effect for the calendar year in which the
Determination Date falls. An Employee who has some ownership
interest in the Company is considered to be one of the top ten
owners unless at least ten (10) other Employees own a greater
interest than such Employee. If more than one Employee has
the same interest in the Company, the Employee having the
greater annual Compensation from the Company shall be treated
as having a larger interest in the Company.
(c) A Percentage Owner of the Company. A "percentage owner" means
any person who owns, or is considered as owning within the
meaning of Section 318, as modified by Section
416(i)(1)(B)(iii) of the Internal Revenue Code, either
(1) more than five (5%) percent of the outstanding stock
of the Company or stock possessing more than five
(5%) percent of the total combined voting power of
all stock of the Company; or
(2) more than one (1%) percent of the outstanding stock
of the Company or stock possessing more than one (1%)
percent of the total combined voting power of all
stock of the Company, if such person has an annual
compensation from the Company of more than $150,000.
If a person is considered during a Plan Year to be a Key
Employee under two or more categories, due to his status other
than as a Beneficiary, the present value of his accrued
benefit or the sum of his account balance is counted only once
during the Plan Year in testing whether the Plan is Top-Heavy.
If a person is considered during the Plan Year to be a Key
Employee because the person is both a Beneficiary and owner of
the Company, then the present value of the person's inherited
account balance and the present value of the person's accrued
benefit or the sum of his account balance as an Employee or
owner will be counted as the total accrued benefit or account
balance of the individual as a Key Employee in determining
whether the Plan is Top-Heavy. The determination of an
individual's status as a Key Employee is based on the Plan
Year containing the Determination Date.
11.7.8 "Minimum Benefit" means the benefit described in Section 11.4.
11.7.9 "Minimum Contribution" means the contribution described in
Section 11.3.
11.7.10 "Non-Key Employee" shall mean an Employee who is not a Key
Employee or is the Beneficiary of such Employee.
11.7.11 "Rollover Contributions and Similar Transfers" shall mean the
following:
(a) Related rollover contributions or similar transfers are those
(i) not initiated by the Employee;
31
<PAGE> 38
(ii) made on or before December 31, 1983; or
(iii) made to a plan maintained by the same Company, such
as in a merger or consolidation of two or more plans
or the division of a single plan into two or more
plans.
(b) Unrelated rollover contributions or similar transfers are
those which are both
(i) initiated by the Employee; and
(ii) made after December 31, 1983; and
(iii) made from a plan maintained by one Company to a plan
maintained by another Company.
11.7.12 "Super Top-Heavy" shall mean a Plan which would be Top-Heavy
if "ninety (90%) percent" were substituted for "sixty (60%)
percent" in each place it appears in Section 11.7-16.
11.7.13 "Top-Heavy" means a qualified Plan which is a Top-Heavy Plan
pursuant to the provisions of Section 11.7.16.
11.7.14 "Top-Heavy Group" means an Aggregation Group in which, as of
the Determination Date, the sum of the present value of the
accumulated accrued benefits for Participants who are Key
Employees under all defined benefit plans included in such
Aggregation Group and the sum of the account balances for
Participants, who are Key Employees under all defined
contribution plans included in such Aggregation Group exceeds
sixty (60%) percent of a similar sum determined for all
Employees, including their Beneficiaries, who are
participating under all Plans included in the Aggregation
Group.
11.7.15 "Top-Heavy Vesting Schedule" shall mean the vesting schedule
set forth in Section 11.2(d).
11.7.16 "Top-Heavy Plan" means a Plan for a Plan Year in which, as of
the Determination Date:
(a) The sum of the account balances of Participants in the Plan
who are Key Employees for the Plan Year exceeds sixty (60%)
percent of the sum of the account balances under the Plan for
all Employees, including their Beneficiaries participating
under the Plan, and this Plan is not part of any Aggregation
Group; or
(b) The Plan is part of a Top-Heavy Group and is included in the
Required Aggregation Group. Notwithstanding the preceding
sentence, collectively-bargained plans are not subject to the
rules of Section 11. December 31, 1983 shall not be taken
into account under the Plan for purposes of computing the Top-
32
<PAGE> 39
Heavy status of the Plan or group of Plans, except to the
extent provided in regulations.
11.7.17 Determination of Top-Heavy Status. In making the
determination of the Top-Heavy status of a Plan or group of
Plans, the accrued benefits or account balances derived from
Company and Employee contributions are taken into account, but
accumulated deductible Employee contributions are disregarded.
Also, the determination of the present value of the
accumulated accrued benefits and the account balances of a Key
Employee or Non-Key Employee participating in the plans
includes such amounts distributed to the Employee or to the
Beneficiary of such Employee during the Plan Year that
includes the Determination Date and the preceding four Plan
Years, even if such distribution occurred before the effective
date of Section 416 of the Code. The preceding amount also
includes distributions under a plan which has been terminated
which, if it had not been terminated, would have been included
in a Required Aggregation Group. An Unrelated rollover
contribution or similar transfer accepted by the Plan after
December 31, 1983 shall not be taken into account under the
Plan for purposes of computing the Top-Heavy status of the
Plan or group of Plans, except to the extent provided in
regulations.
If any individual ceases to be a Key Employee with respect to any Plan
for any Plan Year, but such individual was a Key Employee with respect
to such Plan for any prior Plan Year, any accrued benefit or account
balance of such Employee shall not be taken into account in
determining whether the Plan or group of Plans is Top-Heavy for any
Plan Year following the last Plan Year in which such Employee was
treated as a Key Employee. For Plan Years beginning after December
31, 1984, if any individual has not performed any service during the
Plan Year that includes the Determination Date and the preceding four
Plan Years for the Company, other than benefits under this Plan, then
any accrued benefit or account balance of such individual shall not be
taken into account in determining whether the Plan or group of Plans
is Top-Heavy for the Plan Year.
When aggregating two or more Plans in accordance with Section
416(g)(2) of the Code, or as it may be amended, the present value of
the accrued benefits or account balances will be determined separately
for each plan as of such Plan's Determination Date. These Plans will
then be aggregated by adding together the results for each Plan as of
the Determination Dates that fall within three same calendar year.
The present value of the account balance of any Plan Participant as of
the Determination Date is the sum of (a) the Participant's account
balance as of the most recent valuation date occurring within a
12-month period ending on the Determination Date, and (b) an
adjustment for the amount of any Company contribution actually made on
behalf of the Participant after the valuation date, but on or before
the Determination Date. Notwithstanding the above, in the first Plan
Year, the adjustment set forth in paragraph (b) shall include the
amount of any Company contribution made after the Determination Date
if such contributions are allocated to a Participant's Company
contribution account during the first Plan Year.
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<PAGE> 40
SECTION 12
Administration Of The Plan
12.1 Administrative Committee. The Plan shall be administered by the
Committee which shall be responsible for carrying out the provisions
of the Plan, and which shall be the Plan Administrator and Named
Fiduciary as these terms are defined under ERISA. The Committee shall
consist of at least two (2) members who shall be appointed from time
to time by the Board of Directors. Vacancies on the Committee shall
be filled in the same manner as appointment. The Company shall act as
the Committee at any time during which no committee is appointed or
duly constituted hereunder.
Each person appointed a member of the Committee shall signify his
acceptance by filing a written acceptance with the Board of Directors.
Any member of the Committee may be removed by his own accord by
delivering his written resignation to the Board of Directors and to
the Secretary of the Committee.
12.2 Chairman; Subcommittees. The members of the Committee shall elect
from their number a Chairman and shall appoint a Secretary, who need
not be a member of the Committee. They may appoint from their number
such subcommittees with such power as they shall determine, may
authorize one or more of their number or any agent to execute or
deliver any instrument or make any payment in their behalf, and may
employ such clerks, counsel, accounts and actuaries as may be required
in carrying out the provisions of the Plan.
12.3 Meetings. The Committee shall hold. meetings upon such notice, at
such time, and at such place as it may determine.
12.4 Action. A majority of the members of the Committee at the time in
office shall constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee shall be by vote
of a majority of those present at a meeting, but not less than two, or
in writing by all the members at the time in office, if they act
without a meeting.
12.5 Compensation. No member of the Committee, who is also an Employee,
shall receive any compensation for his service as such, but the
Company may reimburse any member for reasonable and necessary expenses
incurred.
12.6 Administrative Rulemaking. The Committee shall from time to time
establish rules for the administration of the Plan and the transaction
of its business. Except as herein otherwise expressly provided, the
Committee shall have the exclusive right to interpret the Plan and to
decide any matters arising thereunder in connection with the
administration of the Plan. It shall endeavor to act by general rules
so as not to discriminate in favor of any person. Its decision and
the records of the Committee shall be conclusive and binding upon the
Company, Participants, and all other persons having any interest under
the Plan.
12.7 Plan Records. The Committee shall maintain accounts showing the
fiscal transactions of the Plan, and in connection therewith shall
require the Trustees to submit any necessary reports, and shall keep
in convenient form such data as may be necessary for the
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determination of the assets and liabilities of the Plan. The
Committee shall prepare, annually, a report showing in reasonable
detail the assets and liabilities of the Plan and giving a brief
account of the operation of the Plan for the past year. Such report
shall be submitted to the Board of Directors and shall be filed in the
Office of the Secretary of the Committee where it shall be open to
inspection by any Participant of the Plan.
12.8 Reliance on Advice From Professionals. The members of the Committee
and the officers and directors of the Company shall be entitled to
rely upon all certificates and reports made by any duly appointed
legal counsel. The members of the Committee and the officers and
directors of the Company shall be fully protected against any action
taken in good faith in reliance upon any such certificates, reports or
opinions. All actions so taken shall be conclusive upon each of them
and upon all persons having any interest under the Plan. Each member
of the Committee shall be indemnified by the Company against any and
all claims, loss, damages, expense and liability to which he may be a
party by reason of his membership in the Committee, except in relation
to matters as to which he shall be adjudged in such action to be
liable for negligence or misconduct in the performance of his duty as
such member. The foregoing right of indemnification shall be in
addition to any other rights to which any such member may be entitled
as a matter of law.
12.9 Claims. Claims for benefits under the Plan shall be filed, on the
forms supplied by the Committee. Written notice of the disposition of
a claim shall be furnished the claimant within thirty (30) days after
the application therefore is filed. In the event the claim is denied,
the reasons for the denial shall be cited and, where appropriate, an
explanation as to how the claimant can perfect the claim will be
provided.
12.10 Appeals. Any Employee, former Employee, or beneficiary of either, who
has been denied a benefit, or feels aggrieved by any other action of
the Company, Committee or the Trustee, shall be entitled, upon request
to the Committee and if he has not already done so, to receive a
written notice of such action, together with a full and clear
statement of the reasons for the action. If the claimant wishes
further consideration of his position, he may obtain a form from the
Committee on which to request a hearing. Such form, together with a
written statement of the claimant's position, shall be filed with the
Committee no later than ninety (90) days after receipt of the written
notification provided for above or in Section 12.10. The Committee
shall schedule an opportunity for a full and fair hearing of the issue
within the next thirty (30) days. The decision following such hearing
shall be made within thirty (30) days and shall be communicated in
writing to the claimant.
SECTION 13
Management and Investment Of Trust Assets
13.1 Exclusive Benefit Rule. All assets for providing the benefits of the
Plan shall be held as a trust for the exclusive benefit of
Participants and beneficiaries under the Plan, and no part of the
corpus or income shall be used for, or diverted to, purposes other
than for the exclusive benefit of Participants and beneficiaries under
the Plan. No Participant or
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beneficiary under the Plan, nor any other person, shall have any
interest in or right to any part of the earnings of the Trust, or any
rights in, to or under the Trust or any part of its assets, except to
the extent expressly provided in the Plan.
13.2 Investment Control. All contributions to the Plan by either the
Participants or the Company shall be committed in trust to the
Trustees. The Trustees shall be appointed from time to time by the
Board of Directors by appropriate instrument, with such powers in the
Trustees as to investment, reinvestment control and disbursement of
the funds as the Board of Directors shall approve and as shall be in
accordance with the Plan. The Board of Directors may remove any
Trustee at any time, upon reasonable notice, and upon such removal or
upon the resignation of any Trustee, the Board of Directors shall
designate a successor Trustee.
13.3 Investment in Qualifying Employer Securities. The Trust is part of a
money purchase pension and stock bonus plan designed to invest
primarily in Qualifying Employer Securities, as provided in the Trust
Agreement. Trust Assets may be used to purchase shares of Qualifying
Employer Securities from company shareholders or from the Company.
The Trustee may also invest Trust Assets in savings accounts,
certificates of deposit, high-grade short-term securities, equity
stocks, bonds, or other investments, or Trust Assets may be held in
cash. All investments of Trust Assets shall be made by the Trustee
only upon the direction of the Committee, and all purchases of
Qualified Employer Securities by the Trustee shall be made at prices
which do not exceed the fair market value of such shares, as
determined in good faith by the Committee. The committee may direct
the Trustee to invest and hold up to 100% of the Trust Assets in
Qualified Employer Securities.
13.4 Acquisition Loans. The Committee may direct the Trustee to incur
Acquisition Loans from time to time to finance the acquisition of
Qualified Employer Securities (Financed Shares) for the Trust or to
repay a prior Acquisition Loan. An installment obligation incurred in
connection with the purchase of Qualified Employer Securities shall
constitute an Acquisition Loan. An Acquisition Loan shall be for a
specific term, shall bear a reasonable rate of interest and shall not
be payable on demand except in the event of default. An Acquisition
Loan may be secured by a collateral pledge of the Financed Shares so
acquired. No other Trust Assets may be pledged as collateral for an
Acquisition Loan, and no lender shall have recourse against Trust
Assets other than any Financed Shares remaining subject to pledge.
Any pledge of Financed Shares must provide for the release of shares
so pledged on pro-rata basis as Principal and interest on the
Acquisition Loan are repaid by the Trustee and such Financed Shares
are allocated to Participants, Company Stock Accounts (as provided in
Section 6). Repayments of principal and interest on any Acquisition
Loan shall be made by the Trustee (as directed by the Committee) only
from Company contributions paid in cash to enable the Trustee to repay
such Loan, forfeitures from Participant accounts, from earnings
attributable to such Company Contributions and from cash dividends
received by the trust. The payments made with respect to an
Acquisition Loan by the Trust during a Plan Year shall not exceed an
amount equal to the sum of such contributions and earnings received
during or prior to the Plan Year less such payments in prior years.
Such contributions and earnings must be
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accounted for separately in the books of accounts of the Trust until
the Acquisition Loan is repaid. The proceeds of an Acquisition Loan
shall be used within a reasonable time offer receipt by the Trust.
Further, all income earned with respect to Unallocated Company Stock
shall be used at the discretion of the Committee to repay the
Acquisition Loan used to purchase such Company Stock. Any income not
so used shall be allocated as income of the Plan.
Should the Company Contributions, earnings attributable to such
Company Contributions and cash dividends received by the Trust on
Financed Shares be insufficient to meet the obligations created by the
Acquisition Loan, then the Trustee shall so advise the Committee. The
Committee may recommend certain actions including but not limited to,
refinancing the original Loan, amendment of the original Loan
Agreement, or the entering into of an additional Acquisition Loan to
repay a prior Acquisition Loan.
13.5 Disbursements. The Committee shall determine the manner in which the
funds of the Plan shall be disbursed in accordance with the Plan and
provisions of the trust instrument, including the form of voucher or
warrant to be used in making disbursements and the qualifications of
persons authorized to approve and sign the same and any other matters
incident to the disbursements of such funds.
13.6 Voting of Company Stock. Pursuant to Section 409(e) of the Code, all
"Registration-Type" Company Stock allocated to a Participant Account
shall be voted by the Trustee in accordance with the instructions of
the Participant.
If the Company Stock is not a registration-type class of securities
pursuant to Section 409(e) of the Code, then Participants are entitled
to direct the Trustee concerning voting allocated stock with respect
to any corporate matter which involves the approval or disapproval of
any corporate merger, consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all
assets or similar transaction. The Committee shall direct the voting
of such stock in all other matters.
Company Stock which has not yet been allocated and allocated stock for
which no voting direction has been received by Participants in a
timely manner shall be voted by the Trustee in its sole and absolute
discretion.
13.7 Dividends. Dividends paid with respect to Qualifying Employer
Securities held by the Trust shall be applied as follows:
(a) The dividends paid with respect to shares allocated to the
accounts of Participants at the direction of the Committee
shall be either (a) paid in cash directly to such Participants
or their Beneficiaries, or (b) if paid into the plan,
distributed in cash to Participants or their Beneficiaries not
later than 90 days after the close of Plan Year in which paid,
or (c) credited to the Accounts of such Participants, or (d)
if permitted by Section 404(k) of the Code, paid into the plan
and used to repay the Acquisition Loan, with shares released
thereby allocated to such Participants in an
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amount proportional to such dividends for the year for which
such dividends would have been allocated to such Participants.
(b) The dividends paid with respect to unallocated shares shall be
used to repay the Acquisition Loan.
To the extent so applied in either (a) or (b) above, the
dividends so paid shall be deductible to the Company (as
permitted under Section 404(k) of the Code) in the taxable
year of the Company in which the dividend is paid or
distributed to Participants, or applied to repay the
Acquisition Loan.
SECTION 14
Obligations Of The Company
14.1 Limited Liability. The Company shall have no liability in respect to
payments or benefits or otherwise under the Plan, and the Company
shall have no liability in respect to the administration of the Trust
or of the funds, securities or other assets paid over to the Trustees,
and each Participant, each contingent Participant, and each
beneficiary shall look solely to such Trust Fund for any payments or
benefits under the Plan.
SECTION 15
Miscellaneous
15.1 No Assignment, Etc. No benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge and any action by way of
anticipating, alienating, selling, transferring, assigning, pledging,
encumbering, or charging the same shall be void and of no effect; nor
shall any benefit be in any manner liable for or subject to the debts,
contracts, liabilities, engagements, or torts of the person entitled
to such benefit, except as specifically provided in the Plan.
15.2 Non-alienation. No benefits under this Plan shall be in any manner
anticipated, alienated, sold, transferred, assigned, pledged,
encumbered or charged, and any attempt to so anticipate, alienate,
sell, transfer, assign, pledge, encumber or charge the same shall be
void; nor shall any such benefits in any manner be liable for or
subject to the debts, contracts, liabilities or engagements of the
person entitled to such benefits as herein provided for him. The
preceding sentence shall also apply to the creation, assignment or
recognition of right to any benefit payable with respect to a
Participant pursuant to a Domestic Relations Order, unless such order
is determined, by the Committee in its sole and absolute discretion,
to be a Qualified Domestic Relations Order.
15.3 No Employment Rights. The establishment of the Plan shall not be
construed as conferring any rights upon any Employee or any person for
a continuation of employment, and shall not be construed as limiting
in any way the right of the Company to discharge any Employee or to
treat him without regard to the effect which such treatment might have
upon him as a Participant in the Plan.
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15.4 Incompetence of Beneficiary. If any person entitled to receive any
benefits from the Trust Fund is, in the judgment of the Committee,
legally, physically, or mentally incapable of personally receiving and
receipting for any distribution, the Committee may instruct the
Trustees to make distribution to such other person, persons or
institutions as, in the judgment of the Committee are then maintaining
or have custody of such distributes.
15.5 Conclusiveness of Committee Decisions. The determination of the
Committee as to the identity of the proper payee of any benefit under
the Plan and the amount of such benefit properly payable shall be
conclusive, and payment in accordance with such determination shall
constitute a complete discharge of all obligations on account of such
benefit.
15.6 Inability to Locate Beneficiary. In the event an amount is payable
from the Trust Fund to a beneficiary or the executor or administrator
of any deceased Participant and if, after written notice from the
Trustees mailed to such person's last known address as certified to the
Trustees by the Committee, such person or such executor or
administrator shall not have presented himself to the Trustees within
six (6) years after the mailing of such notice, the Trustees shall
notify the Committee and the Committee shall instruct the Trustees to
distribute such amount due to such beneficiary or such executor or
administrator among one or more of the spouse and blood relatives of
such deceased person, designated by the Committee.
15.7 Mergers, Etc. In the case of any merger, consolidation with or
transfer of assets or liabilities to any other plan, each Participant
in the Plan shall, (if the plan is terminated), receive a benefit
under this Plan immediately after the merger, consolidation or
transfer, which is equal to or greater than the benefit under this
Plan he would have been entitled to receive immediately before the
merger, consolidation or transfer if the plan had been terminated.
SECTION 16
Amendments
16.1 Amendments. The Company reserves the right at any time, and from time
to time, by action of the Board of Directors, to modify or amend in
whole or in part any or all of the provisions of the Plan. This right
of the Company is subject to the conditions:
(a) that no modification or amendment may be made which will
adversely affect the existing account balances or optional
forms of benefits of any Participant or beneficiary; and
(b) that no part of the assets of the Plan shall, by reason of any
modification or amendment, be used for or diverted to,
purposes other than for the exclusive benefit of Participants
and beneficiaries under the Plan.
16.2 ESOP Status. If the Company amends this Plan to no longer primarily
invest in Qualifying Employer Securities, thus ceasing to be an ESOP,
Section 17.2 will apply.
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16.3 Vesting Rule. In the event that the vesting schedule of this Plan is
amended, any Participant who has completed at least three (3) Years of
Service may elect to have his vested interest determined without
regard to such amendment by notifying the Plan Administrator in
writing during the election period as hereinafter defined. The
election period shall begin on the date such amendment is adopted and
shall end no earlier than the latest of following dates:
(a) The date which is sixty (60) days after the day the amendment
is adopted;
(b) The date which is sixty (60) days after the day the amendment
becomes effective; or
(c) The date which is sixty (60) days after the day the
Participant is issued written notice of the amendment by the
Company or Plan Administrator.
Such election shall be available only to an individual who is
a Participant at the time such election is made and such
election shall be irrevocable.
SECTION 17
Suspension, Discontinuance and Plan Termination
17.1 Permanence. The Company intends this Plan to be permanent and to
qualify under Section 401 of the Internal Revenue Code of 1986, as
that statute may from time to time be amended or supplemented.
However, the Plan may be discontinued by the Board of Directors, but
only upon condition that such action is taken under the Trust
Agreement established under the Plan and as such shall render it
impossible for any part of the corpus of the Trust or income thereon
to be at any time used for, or diverted to, purposes other than for
the exclusive benefit of Participants and beneficiaries. Upon
termination, partial termination, or upon complete discontinuance of
contributions all affected Participants' Accounts shall be considered
as fully vested and nonforfeitable and all unallocated assets of the
Trust, including but not limited to Company contributions and
unallocated Trust assets and earnings thereon, shall be allocated to
the accounts of all Participants as of the next Valuation Date (or if
the Plan is being terminated immediately, than on the date of such
Plant Termination as if it were the next Valuation Date) in accordance
with the provisions of the Plan hereof; and shall be applied for the
benefit of each such Participant either by a lump-sum distribution, or
by the continuance of the Trust and the payments of benefits
thereunder in the manner provided in the Plan. After initial
qualification by the Internal Revenue Service, there will be no
reversion of assets to the Company under any circumstances. All
Participants shall be treated in a uniform and nondiscriminatory
manner.
17.2 Cessation of ESOP Status. If this Plan ceases to be an ESOP, the
proceeds of an Acquisition Loan will be used within a reasonable time
after receipt by the Plan either to acquire Qualifying Employer
Securities or to repay the loan or a prior Acquisition Loan. Even if
the Plan ceases as an ESOP, any Qualifying Employer Security acquired
with the
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<PAGE> 47
proceeds of an Acquisition Loan will be subject to a put option if the
Company Stock is not publicly traded when distributed, or if the
Company Stock is subject to a trading limitation when distributed.
The put option must be exercisable at least during a 15-month period
which begins on the date the Company Stock is subject to the put
option is distributed by the Plan. The price at which the put option
will be exercisable will be the value of the Company Stock as of the
date of exercise or as of the most recent Valuation Date. If the
transaction takes place between the Plan and a disqualified person,
value will be determined as of the date of the transaction.
17.3 Cash Merger or Sale of the Company. Notwithstanding anything herein
to the contrary, in the event that the Company or all of the Company's
outstanding Company Stock shall be acquired for cash through merger or
sale by an unrelated third party, then the Plan shall automatically be
terminated without further action or notice effective on the date of
such sale or merger; all Participant Accounts shall be considered
fully vested and non-forfeitable as of such date of termination; all
Company contributions, dividends on Company Stock and earnings on
Participant Account assets paid to the Trust or earned by the Trust
since the most recent Valuation Date shall be allocated to the
accounts of all Participants as of the date of termination of the Plan
as if it were the next valuation Date in accordance with the
provisions of the Plan; and all funds realized by the Trust with
respect to any Financed Shares remaining as collateral on any
Acquisition Loans which shall be exchanged for cash in such merger or
sale after repayment of all Acquisition Loans shall have been made
shall be allocated to the accounts of all Participants pro rata based
on the total value of assets allocated to each Participant's Account
as a percentage of the total value of assets allocated to all
Participant Accounts and held in the Trust as of the date of
termination of the Plan. Upon such termination of the Plan and
completion of the final accounting and allocation of the Trust assets,
all such Participant Accounts which shall account for all Trust assets
shall be distributed in a lump sum to each Participant as soon as
administratively feasible.
SECTION 18
Inclusion Of Other Companies
18.1 Joinder Generally. Any company which is or becomes a subsidiary,
Affiliate or associated company of the Company, may, with the
approval of the Board of Directors of the Company, adopt this Plan
with respect to its Employees.
18.2 Joinder -- Terms and Condition. With respect to the Employees of any
such subsidiary, Affiliate or associated companies which may become
included in the Plan, the Board of Directors of the Company shall
determine the extent, if any, to which the period of prior employment
therewith or with any predecessors thereof shall be recognized as
service for the purposes of this Plan.
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<PAGE> 48
PART II
OF THE MET HOLDINGS CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
--------------------
TRUST AGREEMENT
--------------------
EFFECTIVE DATE: JANUARY 1, 1992
<PAGE> 49
AGREEMENT made as of the 27th day of December, 1992 by and between Met
Holdings Corporation, a corporation duly organized and existing under the laws
of Delaware (hereinafter referred to as the "Company") and David A. Smilow,
William K. Beauchesne and Thomas Leaton, as trustees of the Met Holdings
Corporation Employee Stock Ownership Plan (the "Plan"). The term "Trustee"
shall refer herein to the trustees when acting singularly or collectively in
their capacity as trustee of the Plan.
W I T N E S S E T H
WHEREAS, the Company did adopt the Met Holdings Corporation Employee
Stock Ownership Plan, effective January 1, 1992; and,
WHEREAS, the contributions of the Company to the Plan are to be placed
in trust for the exclusive benefit of Participants and Beneficiaries under the
Plan,
NOW, THEREFORE, the undersigned hereby establish this trust, to be
called the Met Holdings Corporation Employee Stock Ownership Plan Trust and
mutually covenant and agree as follows:
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION NUMBER PAGE
- -------------- ----
<S> <C> <C>
1. Creation of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Payments From Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Investments, Life Insurance and Annuity Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Powers and Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Records and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Trustee's Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Compensation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. Removal, Resignation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<PAGE> 51
Part II
SECTION 1
Creation of Trust
1.1 Any term used in this Trust Agreement which is defined in the Plan
shall have the meaning set forth in such Plan, as in effect from time
to time.
1.2 The Company hereby establishes with the Trustee, pursuant to the Plan,
a Trust comprising such funds as shall from time to time be deposited
with the Trustee by or on behalf of the company and the Participants
and any increments thereto and any income therefrom. All such
property, hereinafter collectively referred to as the "Trust Fund"
shall be held by the Trustee in trust, as herein provided. The Trust
Fund shall be held for the exclusive benefit of Participants and
Beneficiaries and no part of the corpus or income shall be used for or
diverted to, purposes other than for the exclusive benefit of
Participants and Beneficiaries under the Plan.
SECTION 2
Payments From Trust Fund
2.1 The Trustee shall, from time to time, on the written authority of the
Committee established under the Plan, make payments out of the Trust
Fund to such persons, in such manner, in such amounts, and for such
purposes as may be specified in such authority. Each such written
authority shall be accompanied by a certification that such amounts
are for the payment of benefits under the Plan or for the payment of
expenses of administering the Plan. The Trustee shall not be
responsible in any way with respect to the application of such
payments or for the adequacy of the Trust fund to meet and discharge
any and all liabilities under the Plan.
2.2 It shall be the duty of the Company, subject to the provisions of the
Plan, to certify to the Trustee the names and specimen signature of
the members of the Committee acting from time to time; to pay over to
the Trustee from time to time its contributions to the trust fund as
provided in the Plan; and to keep accurate books and records with
respect to the Participants and their compensation.
2.3 All payments of benefits under the Plan shall be made exclusively from
the assets of the trust fund as they may be constituted at the time or
times of payment, and no person shall be entitled to look to any other
source for such payments.
2.4 The Trustee shall be entitled to pay any and all expenses of
administering the Trust Fund held hereunder out of the income or
principal of the Trust Fund to the extent that such expenses are not
paid by the Company.
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<PAGE> 52
2.5 In case of doubt concerning the course of administration of the Trust
Fund, the Trustee may request advice from the Committee and shall be
fully protected in relying upon such advice when given.
2.6 No distribution or payment to any Participant or his Beneficiary under
this Trust or the Plan shall be subject in any manner to anticipation,
sale, transfer, assignment or encumbrance, whether voluntary or
involuntary, and no attempt to so anticipate, sell, transfer, assign
or encumber the same shall be valid or recognized by the Trustee, no
shall any such distribution or payment be in any way liable for or
subject to the debts, contract, liabilities or torts of any person
entitled to such distribution or payment, except to the extent as may
be required by law or exclusively provided for in the Plan. If the
Trustee is notified by the Committee that any such Participant or
Beneficiary has been adjudicated bankrupt or has purported to
anticipate, sell, transfer, assign or encumber any such distribution
or payment, voluntarily or involuntarily, the Trustee shall, as so
directed by the Committee, hold or apply such distribution or payment
or any part thereof to or for the benefit of such Participant or
Beneficiary as the Committee shall direct.
2.7 In the event that any distribution or payment directed by the
Committee shall be mailed by the Trustee to the person specified in
such direction at the latest address of such person on file with the
Committee and shall be returned to the Trustee because such person
cannot be located at such address, the Trustee shall properly notify
the Committee of such return. Upon the expiration of sixty (60) days
after such notification, such direction shall become void and unless
and until further direction by the Committee is received by the
Trustee with respect to such distribution or payment, the Trustee
shall thereafter continue to administer the Trust as if such direction
had not been made by the Committee. The Trustee shall not be
obligated to search for or ascertain the whereabouts of any such
person.
2.8 Where distribution is directed to be made in Company Stock, the
Committee or the Trustee shall cause the Company to issue an
appropriate stock certificate to the person entitled thereto, to be
delivered to such person by the Committee; provided that the Committee
and the Trustee (as directed by the Committee) shall comply with the
provisions of the Plan relating to the repurchase of Company Stock by
the Company or by the Trust. Any portion of a Participant's Account
balance to be distributed in cash shall be paid by the Trustee
furnishing its check to the Committee for delivery to the Participant
(or Beneficiary).
SECTION 3
Investments, Life Insurance and Annuity Contracts
3.1 Investments
The Trustee is expressly authorized and empowered to receive and
retain any property and investments transferred to the Trustee
pursuant to the provisions of this agreement and to invest and
reinvest any and all of the funds and property at any time in the
Trustee's
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<PAGE> 53
possession or held in trust by them under the provisions of this
agreement in any property, real or personal, or part interest therein,
wherever situated, without regard to the proportion such property or
property of a similar character so held may bear to the entire amount
held and whether or not the same be authorized by law for the
investment of Trust Funds, including but not limited to those
investments made by the Trustee of its commingled funds, common and
preferred stocks (including Common Stock of the Company), shares of
open-end management type investment companies, as defined in the
Investment Company Act of 1940, personal, corporate and governmental
obligations, trusts and participation certificates, oil, mineral or
gas properties, royalties, interest rights, including equipment
pertaining thereto, leases, mortgages and other interests in realty,
notes and other evidences of indebtedness or ownership, secured or
unsecured, contracts and chooses in action, or on deposit with any
savings banks, trust companies or other financial institutions.
3.2 Insurance Contracts
The Trustee may invest in life insurance contracts, or may purchase
non-transferable annuity contracts, if deemed appropriate by the
Company to properly carry out or safeguard the obligations under the
Plan subject to the limitations under the Code.
3.3 The Trustee in its discretion may, or at the discretion of the
Committee established under the Plan shall, retain in cash and keep
unproductive of income such amounts of the Trust Fund as they may deem
advisable or the Committee may direct. The Trustee shall not be
required to pay interest on such cash balances, or on cash held
pending investment.
SECTION 4
Powers of Trustee
4.1 The Trustee is authorized and empowered in their discretion, but not
by way of limitation:
(a) to purchase, or subscribe for, any securities or other
property, and to retain the same in trust;
(b) to sell, exchange, convey, transport or otherwise dispose of
and to grant options with respect to, any securities or
property held by them, by private contract or public auction.
Any sale may be made for cash or upon credit, or partly for
cash or partly upon credit as the Trustee may deem advisable.
No person dealing with the Trustee shall be bound to see to
the application of the purchase money or to inquire into the
validity, expediency or propriety of any such sale or
disposition;
(c) to retain, manage, operate, repair, improve, develop,
preserve, mortgage or lease for any period any real property
or any oil, mineral or gas properties, interests or rights
held by the Trustee or by any corporation organized by them
pursuant to this trust agreement upon such terms and
conditions as the Trustee deems proper, either alone or by
joining with others using other trust assets for any of such
purposes if by them deemed advisable; to modify, extend, renew
or otherwise
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<PAGE> 54
adjust any or all of the provisions of any such mortgage or
lease, including the waiver of rentals, if by them deemed
advisable; and to make provision for the amortization of the
investment in or depreciation of the value of such property as
they may deem advisable;
(d) except as provided otherwise in the Plan with respect to
Qualifying Employer Securities, to vote personally, or by
general or limited proxy, any shares of stock which may be
held by them at any time; to exercise personally, or by
general or limited power of attorney, any right with respect
to any securities or any other property held by them at any
time; to exercise any conversion privilege, option and
subscription right available in connection with any security
or other property held by them at any time; to oppose or
consent to the reorganization, consolidation, liquidation,
sale, merger, or readjustment of the finances of any
corporation, company or association; or to the sale, mortgage,
pledge or lease of the property of any corporation, company or
association any of the securities of which are held by them at
any time; to hold and retain any securities or other property
which they may so acquire; and generally, to exercise any of
the powers of an owner with respect to stock, bonds,
securities, or other property held as part of the Trust Fund;
(e) to cause any securities or property held as part of the Trust
Fund to be registered in their own names or in the name of one
or more of their nominees, with or without designating the
same as trust property and to hold any investments in bear
form, but any such registration or holding by the Trustee
shall not relieve it from responsibility for the safe custody
and disposition of the Trust Fund, in accordance with the term
and provisions of this agreement;
(f) to borrow or raise money for the purpose of the trust in such
amounts and upon such terms and conditions as the Trustee
shall deem advisable, and for any sum or sums so borrowed, to
issue its promissory notes as Trustee, and to secure the
repayment thereof by pledging all or any part of the Trust
Fund. No person lending money to the Trustee shall be bound
to see to the application of the money lent or to inquire into
the validity, expediency or propriety of any such borrowing;
(g) to make, execute, acknowledge and deliver as the Trustee, with
or without a provision disclaiming individual liability on the
part of any or all of them, any and all deeds, leases,
mortgages, conveyances, contracts, waivers and releases;
(h) to settle, compromise, or submit to arbitration any claims,
debts or damages due to or owing from the Trust Fund; to
commence or defend suits and legal and administrative
proceedings; to renew or extend any mortgage, upon such terms
and conditions as they deem advisable; to agree to a reduction
in the rate of interest on any mortgage or to any other
modification or change in the terms of any mortgage or the
guaranty pertaining thereto, in any manner, and to any extent
they may deem advisable for the protection of the Trust Fund
or the preservation of the value of the investment; to waive
default, whether in the performance of any
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<PAGE> 55
covenant or condition of any mortgage, or in the performance
of any guaranty, or to enforce any such default in such manner
and to such extent as they may deem advisable; to exercise and
enforce any and all rights of foreclosure; to bid on property
in foreclosure; to take a deed in lieu of foreclosure with or
without paying a consideration therefore, and in connection
therewith, to release the obligation on the bond secured by
such mortgage; and to exercise and enforce in any action, suit
or proceeding, at law or in equity, any rights or remedies in
respect to any such mortgage or guaranty.
The Trustee shall not be obligated to take any action or to
appear or participate in any action or proceeding which the
Trustee would subject itself to expenses or liabilities unless
they shall first be indemnified by the Company in the amounts
and in the manner satisfactory to them, or they shall be
furnished with funds sufficient in the Trustee's sole judgment
to cover the same;
(i) to consult with legal counsel (who may be of counsel to the
Company) concerning any question which may arise with
reference to the Trustee's duties under this Agreement, and
the opinion of such counsel shall be full and complete
protection in respect to any action taken or suffered by the
Trustee hereunder in good faith and in accordance with the
opinion of such counsel.
The Trustee may employ such counsel, accountants, actuaries,
investment advisors and other agents as it shall deem
advisable. The Trustee may charge the compensation of such
counsel, accountants, actuaries, investment advisors, and
other agents, against the Trust Fund, to the extent that they
are not paid by the Company. The Trustee may charge the
compensation of the Trustee against the Trust Fund to the
extent that they are not paid by the Company;
(j) to pool all or any of the assets of the Trust Fund, from time
to time, with assets belonging to other trusts created by the
Company or any company which is or becomes a subsidiary,
affiliated or associated Company and to commingle such assets
and make joint or common investments and carry joint accounts
on behalf of this Trust Fund and such other trust, allocating
undivided shares of such investments, accounts and pooled
assets to the two or more trusts in accordance with their
respective interest;
In addition, the Trustee may, from time to time, transfer to a
pooled investment trust fund or commingled trust fund all or
such part of the Trust Fund as it deem advisable, to be
commingled with the assets of trust funds created by other
employers, for investment purposes. Such part of the Trust
fund so transferred shall be subject to the terms and
provisions of such pooled or commingled investment trust fund.
Any commingling of the Trust Fund shall be made only with
funds held under a plan which qualified under Section 401 and
501 of the Code of 1986, as such statute may be from time to
time amended or supplemented;
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<PAGE> 56
(k) to do any and all such acts, take all such proceedings, and
exercise all such rights and privileges, although not
specifically designated herein, as the Trustee may deem
necessary to administer the Trust Fund and to carry out the
purposes of this trust;
(l) to continue to have and exercise after the termination of the
Plan and until final distribution, all the title, powers,
discretions, rights and duties conferred or imposed upon the
Trustee hereunder or by law;
(m) to act in any jurisdictions without being required to furnish
any bond or other security to insure the faithful performance
of their duties;
(n) to grant options and to write call options against any
securities or other properties or other forms of options
directly related, any such call options outstanding upon such
terms and for such length of time as then shall seem proper;
(o) In the event that the Committee directs the Trustee to dispose
of any Company Stock held as Trust Assets, under circumstances
which require registration and/or qualification of the
securities under applicable Federal or state securities laws,
then the Company, at its own expense, will take, or cause to
be taken, any and all such actions as may be necessary or
appropriate to effect such registration and/or qualification.
4.2 Notwithstanding anything to the contrary in this Section 4 or any
other section of this Trust Agreement, the Trustee shall not:
(a) Divert any part of the Trust Fund to any purpose other than
for the exclusive benefit of Participants, former
Participants, and Beneficiaries under the Plan.
(b) Make an investment which would be in conflict with the
"prohibited transactions" provisions of the Code as currently
defined and as hereafter amended or with the provisions of the
Employee Retirement Income Security Act of 1974 as currently
defined and as hereafter amended, for which there is no
exemption.
(c) Participate knowingly in or knowingly undertake to conceal an
act or omission of any Fiduciary to the Plan (as Fiduciary is
defined in Section 3(21) of the Employee Retirement Income
Security Act of 1974, as amended, the "Act") knowing such act
or omission is a breach.
(d) Conduct itself in the administration of its specific
responsibilities hereunder which give rise to its status as a
Fiduciary so as to enable another Fiduciary to commit a
breach.
4.3 If the Trustee has knowledge of a breach by any other Fiduciary to the
Plan, the Trustee shall make reasonable efforts under the
circumstances to remedy the breach.
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4.4 Notwithstanding anything to the contrary in this Section 4 or any
other section of this Trust Agreement, the Committee duly acting under
the Company's Plan shall at all times have the power, but shall not be
obligated to direct the Trustee in the exercise of any of the powers
granted in Section 4.1 above. The Trustee shall make regular reports
not less frequently than quarter-annually concerning the exercise of
its investment powers under this Section 4 to such Committee, which
Committee may issue such directions to the Trustee as it deems
advisable. In the absence of any such directions, the Trustee shall
be free to exercise its powers hereunder in its own discretion. When
acting under such directions, the Trustee shall be free of all
liability whatsoever arising as a result of, or attributable to, its
actions or failure to act pursuant to such directions. Investments
directed by the Committee shall not be in conflict of the "prohibited
transactions" provisions of the Internal Revenue Code that is
currently defined and as hereafter amended or with the provisions of
the Employee Retirement Income Security Act of 1974 as currently
defined and hereafter amended, for which there is no exemption.
4.5 The Trustee shall discharge its duties under this Agreement solely in
the interests of the Participants of the Plan and their Beneficiaries
and for the exclusive purpose of providing benefits to such
Participants and their Beneficiaries and defraying reasonable expenses
of administering the Plan, with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like aims,
and by diversifying the investments of the Plan so as to minimize the
risk of large losses, unless under the circumstances it is clearly
prudent not to do so, all in accordance with the provisions of this
Trust Agreement so far as they are consistent with the provisions of
the Employee Retirement Income Security Act of 1974, as this agreement
and the said act may be from time to time amended; but the duties and
obligations of the Trustee as such shall be limited to those expressly
imposed upon by this Trust Agreement notwithstanding any reference
herein to the Plan, or to the provision thereof, it being hereby
expressly agreed that the Trustee is not a party to the Plan.
4.6 Notwithstanding anything to the contrary in this Section 4 or any
other section of this Trust Agreement and pursuant to Section 409(e)
of the Code, all "Registration-Type" Company stock allocated to a
Participant's Account shall be voted by the Trustee in accordance with
the instructions of the Participant.
If the Company Stock is not a registration-type class of securities pursuant to
Section 409(e) of the Code, the Participants are entitled to direct the Trustee
concerning voting allocated stock with respect to any corporate matter which
involves the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets or similar transaction. The Committee shall direct
the voting of such stock in all other matters.
Company Stock which has not yet been allocated and allocated stock for which no
voting direction has been received by Participants in a timely manner shall be
voted by the Trustee in the same manner as such allocated shares are voted by
Participants; provided that if Participants make no directions as to the voting
of allocated shares or if no shares are allocated to Participants, the
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<PAGE> 58
unallocated shares shall be voted as directed by the Committee, or otherwise by
the Trustee in its discretion.
SECTION 5
Amendment
5.1 The Company reserves the right, at any time and from time to time, by
action of its Board of Directors and by notice to the Trustee to
modify or amend, in whole or in part any or all of the provisions of
this Agreement; provided that no such modification or amendment shall
make it possible for any part of the Trust Fund to be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants and their Beneficiaries under the Plan or the
administrative expenses of the Plan and provided that no modification
or amendment shall be effective until filed with the Trustee and until
the Company certifies to the Trustee that such modification or
amendment does not make it possible for any portion of the Trust Fund
to be returned to the Company; and provided further, that no
modification or amendment which affects the rights, duties or
responsibilities of the Trustee may be made without their consent.
Any modification or amendment may be made retroactively effective if
in the opinion of the Board of Directors of the Company such
modification or amendment is necessary or advisable.
SECTION 6
Records and Reports
6.1 The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements, valuations of the Trust Fund,
and other transactions. All accounts, books and records relating to
such transactions shall be open at all reasonable times to inspection
by any person or persons designated in writing by the Company.
6.2 Within ninety (90) days following the close of each fiscal year of the
Company, the Trustee shall file a written report with the Company and
the Committee established under the Plan setting forth their
determination of the fair market value of all assets in the Trust Fund
as of the close of business on the last of each such fiscal year, or
if such day is not a business day, as of the close of business on the
next preceding business day. Each such report shall also contain a
written accounting setting forth all investments, receipts,
disbursements, and other transactions effected by the Trustee during
the preceding fiscal year, the net earnings or losses of the Trust
Fund for such fiscal year, and the securities and other property held
at the end of such period. Each such annual report shall not include
any contributions made by the Company or the Participants as of or
subsequent to such Valuation Date. In addition to the annual
valuations and reports required under this Section, the Trustee shall
prepare valuations and reports on such other occasions as may be
required under the Plan.
6.3 Within ninety (90) days from the date of filing an account referred to
in this Section, the Committee may file with the Trustee either its
written approval, or its written disapproval, with the reasons
therefore, of the account so rendered. Upon the filing of such
approval
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of the Trustee's account, or at the expiration of ninety (90) days
after the filing of such account if neither written approval nor
disapproval thereof shall have been filed with the Trustee, the
account of the Trustee shall be deemed to have been approved and the
Trustee shall be forever relieved from all liability, responsibility
and accountability for its acts as set forth in said account.
SECTION 7
Trustee's Responsibilities
7.1 The Trustee and the members of the Committee shall discharge their
duties with respect to the Trust solely in the interest of the
Participants in the Participating Plans and their Beneficiaries and
with the care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise
of a like character and with like aims.
7.2 No Fiduciary under this Agreement shall be liable for an act or
omission of another person in carrying out any fiduciary
responsibility where such fiduciary responsibilities are allocated to
such other persons by this Agreement or pursuant to a procedure
established in this Agreement except to the extent that:
(a) such Fiduciary participated knowingly in, or knowingly
undertook to conceal, an act or omission of such other person,
knowing such act or omission to be a breach of fiduciary
responsibilities;
(b) such Fiduciary, by his failure to comply with Section
404(a)(1) of the Act (or any successor statutory provision) in
the administration of his specific responsibilities which give
rise to his state as a fiduciary, has enabled such other
person to commit a breach of fiduciary responsibility;
(c) such Fiduciary has knowledge of a breach of fiduciary
responsibility by such other person, unless he makes
reasonable efforts under the circumstances to remedy the
breach; or
(d) such Fiduciary is a "named fiduciary" (as such term is defined
in Section 402(a)(2) of the Act, or any successor statutory
provision) and has violated his duties under Section 404(a)(1)
of the Act (or any successor statutory provision);
1. with respect to the allocation of fiduciary
responsibilities among named fiduciaries or the
designation of persons other than named fiduciaries
to carry out fiduciary responsibilities under this
Agreement;
2. with respect to the establishment or implementation
of procedures for allocating fiduciary
responsibilities among named fiduciaries or for
designating persons other than named fiduciaries to
carry out fiduciary responsibilities under this
Agreement; or
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3. in continuing the allocation of fiduciary
responsibilities among named fiduciaries or the
designation of persons other than named fiduciaries
to carry out fiduciary responsibilities under this
Agreement.
7.3 Anything in this Agreement, or any amendment thereof, to the contrary
notwithstanding, no provision of this Agreement shall be so construed
as to violate the requirements of Section 404, 405, 406 and 407 of the
Act (or any successor statutory provision).
7.4 The Trustee shall obtain not less often than annually Independent
Appraisals of the valuations of Employer Securities which are not
readily tradable on an established securities market with respect to
activities carried on by the Plan. The Independent Appraiser shall
meet the requirements similar to those contained in Treasury
regulations under Section 170(a)(1) and 401(a)(28)(C) of the Code.
SECTION 8
Compensation of Trustee
8.1 The Trustee shall be reimbursed for any reasonable expenses including
counsel, accounting, actuarial and investment advisory fees, incurred
by it in the administration of the Trust Fund. Such expenses and all
taxes of any and all kinds whatsoever that may be levied upon, or in
respect of the Trust Fund or the income thereof, shall be paid by the
Company.
8.2 The Trustee shall not be liable for making, holding, or disposing of
any investment permitted by this agreement or for failing to make,
hold, or dispose of any such investment, so long as the Trustee has
acted with such prudence, diligence, care, and skill under the
then-current circumstances as a prudent person acting in a similar
fiduciary capacity and familiar with such matters would employ in
administering a trust of this type. The Trustee shall be completely
protected in acting, or failing to act, in reliance upon any properly
communicated instruction or direction of the Administrator, and also
in reliance upon any instrument, document, certificate, or other paper
reasonably believed by the Trustee to be genuine and to be signed or
presented by the proper person.
SECTION 9
Appointment, Removal, Resignation of Trustee
9.1 The Board of Directors of the Company may appoint or remove the
Trustee, or any individual serving as one of the trustees, at any
time, by giving written notice to such Trustee, the remaining Trustee
or individual trustee(s) and the Committee established under the Plan.
Any Trustee or individual trustee(s) may resign, at any time, by
giving sixty (60) days written notice to the remaining Trustee or
individual trustee(s), the Company and the Committee. The removal or
resignation of a Trustee or individual trustee(s) shall be effective
as of the date specified in the notice.
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9.2 In the event of a vacancy in the office of Trustee arising by death,
removal, resignation, refusal to act, or inability to act of any
trustee or individual trustee(s), the Board of Directors of the
Company shall appoint a Successor Trustee who, upon acceptance of such
appointment, shall have the same powers and duties as those conferred
upon the original Trustee hereunder, and the title to all of the funds
and properties constituting the Trust Fund shall vest jointly in those
who shall from time to time be the Trustee hereunder. Upon request of
such Successor Trustee, the Company and the Trustee ceasing to act
shall execute and deliver such instruments of conveyance and further
assurance and do such other things as may reasonably be required to
more fully and certainly invest and confirm in such Successor Trustee
all the right, title and interest of the retiring Trustee in and to
the Trust Fund.
9.3 A Successor Trustee, in the administration of the Trust Fund shall be
governed by this Agreement, and have all the powers herein given to
the Trustee, subject to such further restrictions as the Board of
Directors of the Company may then determine. At any time advisable in
their judgment, the Board of Directors of the Company may terminate
the administration of the Trust Fund by individual Trustee, and may
appoint as Trustee, an incorporated Trust Company. Pending the
appointment of any Successor Trustee and the acceptance of such
appointment, the remaining Trustee shall have full power to take any
action authorized under this agreement.
9.4 No Successor Trustee shall be liable or responsible for anything done
or omitted in the administration of the Trust prior to the date it
became such Successor Trustee, nor, except upon the Employer's written
direction, shall it be required to audit or otherwise inquire into or
take any action concerning the acts of any predecessor Trustee.
SECTION 10
Taxes
10.1 This Agreement and Trust hereby created are part of the Plan for the
exclusive benefit of the Participants and Beneficiaries under the
Plan, which Plan the Company intends shall qualify under Section
401(a) of the Code, until advised to the contrary, that the trust is
exempt from tax under Section 501(a) of the Code. However, any taxes
that may be assessed on or in respect of the Trust Fund shall be a
charge against the Trust Fund. The Trustee may assume that any taxes
assessed on or in respect of the Trust Fund are lawfully assessed
unless the Company shall in writing advise the Trustee that, in the
opinion of its counsel, such taxes are not lawfully assessed. In the
event that the Company shall so advise the Trustee, the Trustee shall
contest the validity of such taxes in any manner deemed appropriate by
the Company or its counsel, but at the expense of the Company; or the
Company may itself contest the validity of any such taxes in any
manner deemed appropriate by it or its counsel. The word "taxes" in
this Section 10 shall be deemed to include any interest or penalties
that may be levied or imposed in respect to any taxes.
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SECTION 11
Miscellaneous
11.1 In any action or proceeding involving this Agreement, or its
administration, the Company and the Trustee shall be the only
necessary parties, and no Participant or his Beneficiary or any other
person having or claiming to have an interest in the Trust Fund shall
be entitled to any notice of process.
11.2 Headings of Sections of this Agreement are inserted for convenience of
reference. They constitute no part of this agreement and are not to
be considered in the construction hereof.
11.3 Wherever any words are used herein in the masculine gender they shall
be construed as though they were also in the feminine gender, in all
cases where they would so apply. Wherever any words are used herein
in the singular form they shall be construed as though they were used
in the plural form, and vice versa, in all cases where they would so
apply.
11.4 This Agreement and all of its provisions shall be construed according
to the laws of the Commonwealth of Virginia and all provisions shall
be administered according to, and their validity shall be determined
under, such laws.
11.5 Any subsidiary, affiliated or associated company of the Company which
has been authorized by the Company to participate in the Plan with
respect to its employees may hereafter become a party to this
agreement by executing and delivering to the Trustee an instrument in
writing executed in the same manner as this agreement, accepting and
adopting the provisions of this agreement on behalf of such Company,
to which shall be appended the consent of the Company and the
acceptance of the Trustee. No consent of any subsidiary, affiliated
or associated company shall be requisite or necessary to the inclusion
of any other subsidiary, affiliated or associated company as a party
of this agreement.
11.6 (a) The Company shall indemnify the Trustee against any liability
to any Participant or Beneficiary under the Plan for any
action taken by the Trustee under directions from the
Committee.
(b) The Company or the Trustee may purchase insurance to secure
themselves, the Trust Fund, or other fiduciaries against
liability or losses occurring by reason of an act or omission
of any fiduciary, provided that such insurance shall permit
recourse by the insurer against the fiduciary in case of a
breach of fiduciary duty.
11.7 The Trustee shall use ordinary care and reasonable diligence in the
exercise of its powers and the performance of its duties as Trustee
hereunder, but shall not be liable for any mistake in judgment or
other action taken in good faith, or for any loss, unless resulting
from its own negligence, willful misconduct, or lack of good faith.
11.8 The Company may engage any person or corporation as its agent in the
performance of any duties required of the Company or the Committee
under the Plan, but such agency
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<PAGE> 63
employment shall not be deemed to increase the responsibility or
liability of the Trustee as Trustee under this Trust Agreement.
11.9 The Trustee shall not be bound by any notice, direction or other
communication provided by the Committee unless and until it shall
have been received in writing, signed by a majority of the members of
such Committee, at its principal office. Notices and communications
from the Trustee to the Committee shall be addressed to the members as
then certified to the Trustee by the Company at the office of the
Company. In all matters wherein the Trustee is entitled to rely upon
directions or communications from the Committee, the Trustee shall be
entitled to so rely whether or not there are at least three (3)
members of such Committee, as long as such directions or
communications are signed by a majority of the then members of the
Committee as certified to the Trustee by the Company. If at any time
there shall be no member as such Committee acting, the Trustee shall
be entitled to look to the Company itself for all directions and
communications which would otherwise come from the Committee.
11.10 This Trust shall be deemed a Commonwealth of Virginia Trust, and its
validity, construction and effect shall be governed by the law of such
state. It is the intent of the parties that this Trust be a Trust
exempt from income taxation under the Federal income tax laws, and any
ambiguities in construction shall be resolved in favor of
interpretations which will effectuate such intention.
11.11 This Agreement shall be effective as of January 1, 1992.
11.12 Mistaken Contributions
Except as otherwise provided herein, the assets of the Plan shall not
inure to the benefit of the Company, and shall be held for the exclusive
purposes of providing benefits to Participants and Beneficiaries and defraying
reasonable expenses of administering the Plan. Notwithstanding the foregoing
sentence:
(a) If a contribution is made by the Company under a mistake of
fact, such contribution may be returned, at the discretion of
the Company, within one (1) year after payment of such
contribution.
(b) All contributions to the Plan are conditioned on the initial
qualification of the Plan under Section 401 of the Code. If
the Plan does not so qualify initially for any Plan Year for
which a contribution is made, such contribution may be
returned, at the discretion of the Company, within one (1)
year after the date of denial of the initial qualification of
the Plan.
(c) All contributions to the Plan are conditioned upon the
deductibility thereof, for federal income tax purposes, under
Section 404 of the Code. If and to the extent that such
deduction is disallowed, the Company's contribution (to the
extent disallowed) may be returned, at the discretion of the
Company, within one (1) year after the disallowance of the
deduction.
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<PAGE> 64
11.13 In the event any controversy or disagreement shall arise as to the
person or persons to whom payment or delivery of any funds or property
shall be made by the Trustee, the Trustee may, without liability,
retain the funds or property involved pending settlement of the
controversy or disagreement or pending an adjudication by a court of
competent jurisdiction. The Trustee shall not be liable for the
payment of any interest or income on the cash or other property held
by the Trustee under such circumstances.
11.14 The Trustee may consult with legal counsel (who may be counsel for the
Employer) with respect to the construction of this Trust Agreement or
the Trustee's duties hereunder, or with respect to any legal
proceedings or in any question of law, and shall have no liability
with respect to any action taken or omitted by the Trustee in good
faith pursuant to the advice of such counsel to the extent permitted
by law.
IN WITNESS WHEREOF, the Company by its duly authorized officers, has
caused this Agreement to be executed, and its corporate seal affixed, and the
Trustee has executed this Agreement, this 27th day of December, 1992.
MET HOLDINGS CORPORATION
By:
----------------------------------------
Its President
TRUSTEE
- -------------------------------------------
Trustee
- -------------------------------------------
Trustee
- -------------------------------------------
Trustee
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<PAGE> 1
EXHIBIT 10.12
CONVERSION AGREEMENT
This Conversion Agreement (the "Agreement") is made and entered into
as of this 15th day of May, 1998, by and among TeleBanc Financial Corporation,
a Delaware corporation ("Corporation") and each of the Investors set forth on
Schedule A hereto (each, an "Investor" and, collectively, the "Investors").
R E C I T A L S
WHEREAS, each of the Investors is the beneficial holder and owner of
record of the number of shares of Series A Voting Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"), Series B Nonvoting
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock") and Series C Nonvoting Convertible Preferred Stock (the "Series C
Preferred Stock" and together with the Series A Preferred Stock and the Series
B Preferred Stock, the "Preferred Stock") of the Corporation set forth on
Schedule A hereto and issued to each such Investor pursuant to the terms of
that certain Unit Purchase Agreement dated as of February 19, 1997 among the
Corporation and the Investors (the "Unit Purchase Agreement");
WHEREAS, the Corporation is contemplating an underwritten public
offering (the "Public Offering") of shares of common stock, par value $.01 per
share (the "Common Stock") of the Corporation, for which BancAmerica Robertson
Stephens, CIBC Oppenheimer and Legg Mason Wood Walker (the "Underwriters") will
act as the Underwriters;
WHEREAS, the Corporation intends to file a registration statement on
Form S-2 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") to register the shares of Common Stock being sold
in the Public Offering for sale to the public; and
WHEREAS, the parties hereto wish to enter into this Agreement to set
forth their agreement with respect to the conversion of the outstanding shares
of Preferred Stock held by the Investor, without further action on the part of
the holder, at the date and time of consummation of the Public Offering, all
upon and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the parties
hereto, the parties hereto agree as follows:
<PAGE> 2
1. CONVERSION OF PREFERRED STOCK.
(a) CONVERSION OF THE SERIES C PREFERRED STOCK. Subject to
satisfaction of each of the conditions precedent set forth in Section 1(c) of
this Agreement, each of the Investors holding shares of Series C hereby agrees
to convert each of the outstanding shares of Series C Preferred Stock into the
number of fully paid and nonassessable shares of Series A Preferred Stock or
Series B Preferred pursuant to and in accordance with the Applicable Conversion
Rate (as defined in the TeleBanc Financial Corporation Certificate of
Designation of the Series A Preferred Stock and Series B Preferred Stock and
Series C Preferred Stock (the "Certificate of Designation") adopted on February
25, 1997) prior to the Effective Time (as hereinafter defined).
(b) CONVERSION OF THE SERIES A PREFERRED STOCK AND SERIES B
PREFERRED STOCK. Each of the Investors holding shares of Series A Preferred
Stock and Series B Preferred Stock at the date and time of the consummation of
the Public Offering (the "Effective Time"), hereby agrees that, at the
Effective Time, each of the outstanding shares of such series of Preferred
Stock will automatically and without any further action on the part of the
holder thereof, convert into the number of fully paid and nonassessable shares
of voting Common Stock of the Corporation pursuant to and in accordance with
the Applicable Conversion Rate (as defined in the Certificate of Designation).
(c) CONDITIONS PRECEDENT TO CONVERSION OF PREFERRED STOCK.
The conversion of the shares of Preferred Stock set forth in subsections (a)
and (b) of this Section 1 is expressly conditioned upon the satisfaction of the
following conditions:
(i) the Corporation shall declare and pay, prior to
or at the Effective Time, a dividend (payable in the form of shares of Common
Stock) on the Preferred Stock equal to five percent (5%) of the number of
shares issuable upon conversion of the Preferred Stock (the "Special
Dividend");
(ii) the Corporation shall consummate a public
offering on or before September 30, 1998, of not fewer than 1,000,000 shares of
Common Stock at a price per share to the public equal to or greater than $25.00
(the "Minimum Price") per share (a "Qualified Public Offering"); and
(iii) all of the Investors shall have executed and
delivered this Agreement.
(d) STOCK DIVIDEND. The parties hereto acknowledge and agree
that the Corporation intends to declare and to pay a 100% stock dividend on the
outstanding shares of Common Stock prior to the Effective Time. In the event
that such stock dividend on the Common Stock is declared and paid by the
Corporation prior to the Effective Time, the numbers of shares and per share
amounts of Common Stock as set forth in this Agreement shall be subject to
appropriate adjustment.
2
<PAGE> 3
2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. As a material
inducement to each of the Investors to enter into this Agreement, the
Corporation represents and warrants to each Investor that each of the following
representations and warranties is true and correct as of the date hereof and as
of the Effective Time (to the same extent as if then made).
(a) AUTHORITY. The Corporation is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery
and performance of this Agreement by the Corporation has been duly authorized
by all necessary corporate action on the part of the Corporation. This
Agreement is a valid and legally binding obligation of the Corporation,
enforceable against it in accordance with its terms, except as limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights and remedies of creditors generally or by general
principles of equity (whether applied in a proceeding at law or in equity).
(b) DUE ISSUANCE OF COMMON STOCK. When issued pursuant to
the terms of this Agreement, the shares of Common Stock to be issued upon
conversion of the Preferred Stock and, if the Special Dividend is declared and
paid, the shares of Common Stock issued pursuant to such Special Dividend, will
be validly issued, fully paid and nonassessable, free and clear of any
restrictions on transfer (other than restrictions imposed by federal or state
securities laws and the lock-up agreement hereinafter set forth), claims,
taxes, security interests, options, warrants, rights, contracts, calls, or
commitments. The Corporation has taken all necessary corporate action to
reserve for issuance the number of shares of Common Stock issuable upon
conversion of the Preferred Stock and, prior to the Effective Time, will take
all necessary corporate action to authorize the payment of the Special
Dividend.
(c) NO VIOLATION OF LAWS OR AGREEMENTS. Neither the
execution and delivery of this Agreement by the Corporation, nor the
performance by it of its obligations hereunder, will (i) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction, charge or
other restriction of any government, governmental agency or court to which the
Corporation is subject, (ii) violate any provision of the Amended and Restated
Certificate of Incorporation or Bylaws of the Corporation, (iii) conflict with
or result in a breach of, constitute a default under, result in the
acceleration of, or create in any person the right to accelerate, terminate,
modify or cancel, or require notice under any agreement or instrument to which
the Corporation is a party or by which the Corporation is bound, or (iv) result
in the creation or imposition of any lien, charge or encumbrance, security
interest or restriction with respect to the Corporation's assets.
3. REPRESENTATIONS AND WARRANTIES OF INVESTORS. As a material
inducement to each other Investor and to the Corporation to enter into this
Agreement, each of the Investors, severally but not jointly, represents and
warrants to each other Investor and to the Corporation that each of the
following representations and warranties is true and
3
<PAGE> 4
correct as of the date hereof and as of the Effective Time (to the same extent
as if then made).
(a) AUTHORITY. Each of the Investors represents and warrants
that it has full capacity and authority necessary to execute, deliver and
perform this Agreement and to perform its obligations hereunder. Each of the
Investors represents and warrants that it is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it was formed
and has the power and authority to execute and deliver this Agreement, and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement by each of the Investors has been duly authorized by all
necessary corporate or partnership action on the part of such entity. This
Agreement is a valid and legally binding obligation of each of the Investors,
enforceable against each of them in accordance with its terms, except as
limited by the effect of bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the rights and remedies of creditors generally or
by general principles of equity (whether applied in a proceeding at law or in
equity).
(b) NO VIOLATION OF LAWS OR AGREEMENTS. Each Investor
represents and warrants that neither the execution and delivery of this
Agreement, nor the performance by such Investor of its obligations hereunder,
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge or other restriction of any government,
governmental agency or court to which such Investor is subject, or (ii)
conflict with or result in a breach of, constitute a default under, result in
the acceleration of, or create in any person the right to accelerate,
terminate, modify or cancel, or require notice under any agreement or
instrument to which such Investor is a party or by which such Investor or any
of its assets are bound.
(c) ACCREDITED INVESTOR. Each of the Investors hereby
certifies that it is an "accredited investor" within the meaning of Rule 501(a)
of Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each of the Investors represents and warrants that it is a
bona fide resident of the state or jurisdiction indicated in the address set
forth on Schedule A to this Agreement.
(d) INVESTMENT INTENT. Each of the Investors is acquiring
the shares of Common Stock issuable upon conversion of the Preferred Stock for
the purpose of investment and not with a view to, or for resale in connection
with, any distribution thereof in violation of the Securities Act. Each of the
Investors acknowledges that the shares of Common Stock to be received upon
conversion are not registered under the Securities Act or any applicable state
securities law, and that such Common Stock may not be transferred or sold
except pursuant to the registration provisions of such Securities Act or
pursuant to an applicable exemption therefrom and pursuant to state securities
laws and regulations as applicable, and that the certificate representing the
shares of Common Stock will bear appropriate legends to that effect.
4
<PAGE> 5
4. LOCK-UP AGREEMENT; WAIVER OF REGISTRATION RIGHTS, RIGHT OF FIRST
OFFER AND CERTAIN ADJUSTMENTS TO APPLICABLE CONVERSION VALUE. In order to
induce the Underwriters to enter into the Underwriting Agreement to be entered
into in connection with a Qualified Public Offering, each of the Investors
agrees that from the date hereof, and continuing for a period (the "Lock-Up
Period") of one-hundred and eighty (180) days from the date of closing of the
Qualified Public Offering, it will not, without the prior written consent of
the lead underwriter of the Qualified Public Offering, offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of the Corporation's Common Stock, or any
other securities of the Corporation convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the Corporation.
In addition, each of the Investors hereby waives (a) any registration rights to
which would be entitled during the Lock- Up Period under Section 13.01 of the
Unit Purchase Agreement, and (b) any rights of first offer (including but not
limited to any right to notice with respect thereto) under Article 14 of the
Unit Purchase Agreement in connection with the conversion of the Preferred
Stock contemplated in this Agreement or a Qualified Public Offering provided
that the price per share to the public in the Qualified Public Offering is
equal to or greater than the Minimum Price. The undersigned further agrees to
waive any right the undersigned might otherwise have to an adjustment to the
Applicable Conversion Value pursuant to Section 5(d)(i)(A) of the Certificate
of Designation as a result of the dividend to be declared and paid to the
undersigned pursuant to Section 1(c)(i) of this Agreement.
5. CONSENT TO PUBLIC OFFERING. Each of the Investors hereby consents
to the transactions contemplated in this Agreement and, to the extent required,
to the offer and sale of Common Stock of the Corporation in a Qualified Public
Offering under the Securities Act and the securities laws of various states.
6. FURTHER ASSURANCES; COOPERATION IN PUBLIC OFFERING. Each of the
parties agrees to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws, rules and regulations to consummate and make
effective the transactions contemplated by this Agreement.
7. MISCELLANEOUS.
(a) AMENDMENT. This Agreement may be amended or modified
only by a written instrument executed by the parties hereto.
(b) CONFIDENTIALITY. Each of the Investors acknowledges and
agrees that the information contained in this Agreement is confidential and
constitutes material inside information regarding the Corporation under the
Securities Act and applicable federal securities laws
5
<PAGE> 6
(c) GOVERNING LAW. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Delaware,
without regard to its conflicts of laws principles.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
(e) EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
TELEBANC FINANCIAL CORPORATION
________________________________________
By: Mitchell Caplan
Its: President and Chief Executive
Officer
INVESTORS:
CONNING INSURANCE CAPITAL LIMITED
PARTNERSHIP III
By: Conning Investment Partners Limited
Partnership III, its General Partner
By: Conning & Company, its General Partner
________________________________________
By:
Its:
CONNING INSURANCE CAPITAL
INTERNATIONAL PARTNERS III, L.P.
By: Conning Investment Partners Limited
Partnership III, its General Partner
By: Conning & Company, its General Partner
________________________________________
By:
Its:
7
<PAGE> 8
GENERAL AMERICAN LIFE INSURANCE COMPANY
________________________________________
By:
Its:
CIBC WG ARGOSY MERCHANT FUND 2, LLC
________________________________________
By:
Its:
PC INVESTMENT COMPANY, INC
________________________________________
By:
Its:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
________________________________________
By:
Its:
8
<PAGE> 9
' SCHEDULE A
PREFERRED STOCK HELD BY INVESTORS PRIOR TO CONVERSION
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
------------------- ------------------- -------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
------------------- ------------------- -------------------
NAME AND ADDRESS OF INVESTOR STOCK STOCK STOCK
---------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Conning Insurance Capital Limited 4,719 1,414
Partnership III
c/o Conning & Company
City Place II
185 Asylum Street
Hartford, CT 06103
Attn: Steven F. Piaker
Conning Insurance Capital 667 200
International Partners III, L.P
c/o Conning & Company
City Place II
185 Asylum Street
Hartford, CT 06103
Attn: Steven F. Piaker
General American Life Insurance 1,539 461
Company
700 Market Street
St. Louis, MO 63101
Attn: David Kaslow
PC Investment Company 6,925 1,975
401 Theodore Fremd Avenue
Rye, NY 10580
Attn: David W. Young
CIBC WG Merchant Funds 2 7,000
LLC
425 Lexington Avenue
3rd Floor
New York, NY 10017
Attn: Dean Kehler
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF NUMBER OF SHARES OF
------------------- ------------------- -------------------
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
------------------- ------------------- -------------------
NAME AND ADDRESS OF INVESTOR STOCK STOCK STOCK
---------------------------- ------------------- ------------------- -------------------
<S> <C>
Northwestern Mutual Life 5,000
Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Linda A. Gorens
</TABLE>
10
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Washington, DC
July 2, 1998
<PAGE> 1
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 II
(Exact name of obligor as specified in its charter)
Delaware 13-3759196
Delaware Applied For
(State of incorporation) (I.R.S. employer identification no.)
1111 North Highland Street
Arlington, Virginia 22201
(Address of principal executive offices) (Zip Code)
Series A Capital Securities of TeleBanc Capital
(Title of the indenture securities)
<PAGE> 2
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 18th day
of June, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Emmett R. Harmon By: /s/ James P. Lawler
------------------------ -----------------------------------
Assistant Secretary Name: James P. Lawler
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE> 5
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
2
<PAGE> 6
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual
3
<PAGE> 7
owners thereof, including the right to vote thereon; to
invest and deal in and with any of the moneys of the
Corporation upon such securities and in such manner as it
may think fit and proper, and from time to time to vary or
realize such investments; to issue bonds and secure the same
by pledges or deeds of trust or mortgages of or upon the
whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
4
<PAGE> 8
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of
5
<PAGE> 9
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article FOURTH), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
FOURTH), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to
6
<PAGE> 10
receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article FOURTH and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article FOURTH that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
7
<PAGE> 11
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the
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<PAGE> 12
Corporation may be removed at any time without cause, but only by
the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called
for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
9
<PAGE> 13
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
10
<PAGE> 14
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on
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<PAGE> 15
such business combination, or immediately prior to the consummation
of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
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<PAGE> 16
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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<PAGE> 17
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 18
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its
<PAGE> 19
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who
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shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
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<PAGE> 21
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than
4
<PAGE> 22
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of
5
<PAGE> 23
Directors shall preside at all meetings of the Board of Directors at which the
Chairman of the Board shall not be present and shall have such further authority
and powers and shall perform such duties as the Board of Directors or the
Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE> 24
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
7
<PAGE> 25
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
8
<PAGE> 26
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses
9
<PAGE> 27
under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 28
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: June 18, 1998 By: /s/ James P. Lawler
--------------------
Name: James P. Lawler
Title: Vice President
<PAGE> 29
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
Name of Bank City
in the State of DELAWARE , at the close of business on December 31, 1997.
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.............................................236,646
Interest-bearing balances........................................................................... 0
Held-to-maturity securities............................................................................... 331,880
Available-for-sale securities.............................................................................1,258,661
Federal funds sold and securities purchased under agreements to resell...................................... 91,500
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,822,320
LESS: Allowance for loan and lease losses. . . . . . 59,373
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve..............................3,762,947
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................129,740
Other real estate owned...................................................................................... 2,106
Investments in unconsolidated subsidiaries and associated companies............................................ 22
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets.............................................................................................4,905
Other assets................................................................................................100,799
Total assets..............................................................................................5,919,206
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 30
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices.......................................................................................4,034,633
Noninterest-bearing . . . . . . . . 839,928
Interest-bearing. . . . . . . . . . 3,194,705
Federal funds purchased and Securities sold under agreements to repurchase................................. 575,827
Demand notes issued to the U.S. Treasury.....................................................................61,290
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less......................................................673,000
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).................................................................... 76,458
Total liabilities.........................................................................................5,464,208
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......................................................................385,018
Net unrealized holding gains (losses) on available-for-sale securities........................................7,362
Total equity capital........................................................................................454,998
Total liabilities, limited-life preferred stock, and equity capital.......................................5,919,206
</TABLE>
2
<PAGE> 1
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 13-3759196
(State of incorporation) (I.R.S. employer identification no.)
1111 North Highland Street
Arlington, Virginia 22201
(Address of principal executive offices) (Zip Code)
Junior Subordinated Deferrable Interest Debentures,
Series A of TeleBanc Financial Corporation
(Title of the indenture securities)
<PAGE> 2
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 18th day
of June, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Emmett R. Harmon By: /s/ James P. Lawler
-------------------- -------------------
Assistant Secretary Name: James P. Lawler
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE> 5
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
2
<PAGE> 6
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual
3
<PAGE> 7
owners thereof, including the right to vote thereon; to
invest and deal in and with any of the moneys of the
Corporation upon such securities and in such manner as it
may think fit and proper, and from time to time to vary or
realize such investments; to issue bonds and secure the same
by pledges or deeds of trust or mortgages of or upon the
whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
4
<PAGE> 8
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of
5
<PAGE> 9
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article FOURTH), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
FOURTH), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to
6
<PAGE> 10
receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article FOURTH and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article FOURTH that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
7
<PAGE> 11
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the
8
<PAGE> 12
Corporation may be removed at any time without cause, but only by
the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called
for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
9
<PAGE> 13
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
10
<PAGE> 14
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on
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<PAGE> 15
such business combination, or immediately prior to the consummation
of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
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<PAGE> 16
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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<PAGE> 17
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 18
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its
<PAGE> 19
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not more
than nine members who shall be selected by the Board of Directors from its own
members and who
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shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of the
Board of Directors when it is not in session to transact all business for and in
behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee shall
be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend all
investments that may be made of the funds of the Company, and shall direct the
disposal of the same, in accordance with such rules and regulations as the Board
of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
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<PAGE> 21
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than
thirteen members who shall be selected by the Board of Directors, a majority of
whom shall be members of the Board of Directors and who shall hold office during
the pleasure of the Board.
(B) The Trust Committee shall have general supervision over
the Trust Department and the investment of trust funds, in all matters, however,
being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall be
kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members
who shall be selected by the Board of Directors from its own members, none of
whom shall be an officer of the Company, and shall hold office at the pleasure
of the Board.
(B) The Audit Committee shall have general supervision over
the Audit Division in all matters however subject to the approval of the Board
of Directors; it shall consider all matters brought to its attention by the
officer in charge of the Audit Division, review all reports of examination of
the Company made by any governmental agency or such independent auditor employed
for that purpose, and make such recommendations to the Board of Directors with
respect thereto or with respect to any other matters pertaining to auditing the
Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever the
majority of its members shall deem it to be proper for the transaction of its
business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not more
than
4
<PAGE> 22
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise upon
all matters of policy concerning the Company brought to its attention by the
management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called at
any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected
by the Board of Directors as an associate director, to serve during the pleasure
of the Board.
(B) An associate director shall be entitled to attend all
directors meetings and participate in the discussion of all matters brought to
the Board, with the exception that he would have no right to vote. An associate
director will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of any
Committee created under Article III of the By-Laws of this Company, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of
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<PAGE> 23
Directors shall preside at all meetings of the Board of Directors at which the
Chairman of the Board shall not be present and shall have such further authority
and powers and shall perform such duties as the Board of Directors or the
Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE> 24
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
7
<PAGE> 25
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
8
<PAGE> 26
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of expenses,
under this Article X is not paid in full within ninety days after a written
claim therefor has been received by the Corporation the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In any
such action the Corporation shall have the burden of proving that the claimant
was not entitled to the requested indemnification of payment of expenses
9
<PAGE> 27
under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions
of this Article X shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 28
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: June 18, 1998 By: /s/ James P. Lawler
-------------------
Name: James P. Lawler
Title: Vice President
<PAGE> 29
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
Name of Bank City
in the State of DELAWARE , at the close of business on December 31, 1997.
ASSETS
<TABLE>
<CAPTION>
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins....................... 236,646
Interest-bearing balances................................................. 0
Held-to-maturity securities........................................................... 331,880
Available-for-sale securities......................................................... 1,258,661
Federal funds sold and securities purchased under agreements to resell................ 91,500
Loans and lease financing receivables:
Loans and leases, net of unearned income........... 3,822,320
LESS: Allowance for loan and lease losses......... 59,373
LESS: Allocated transfer risk reserve............. 0
Loans and leases, net of unearned income, allowance, and reserve.......... 3,762,947
Assets held in trading accounts....................................................... 0
Premises and fixed assets (including capitalized leases).............................. 129,740
Other real estate owned............................................................... 2,106
Investments in unconsolidated subsidiaries and associated companies................... 22
Customers' liability to this bank on acceptances outstanding.......................... 0
Intangible assets..................................................................... 4,905
Other assets.......................................................................... 100,799
Total assets.......................................................................... 5,919,206
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 30
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices......................................................... 4,034,633
</TABLE>
Noninterest-bearing . . . . . . . . 839,928
Interest-bearing. . . . . . . . . . 3,194,705
<TABLE>
<S> <C>
Federal funds purchased and Securities sold under agreements to repurchase.. 575,827
Demand notes issued to the U.S. Treasury.................................... 61,290
Trading liabilities (from Schedule RC-D).................................... 0
Other borrowed money:....................................................... ///////
With original maturity of one year or less...................... 673,000
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)...................................... 76,458
Total liabilities........................................................... 5,464,208
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...................................... 385,018
Net unrealized holding gains (losses) on available-for-sale securities...... 7,362
Total equity capital........................................................ 454,998
Total liabilities, limited-life preferred stock, and equity capital......... 5,919,206
</TABLE>
2
<PAGE> 1
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 13-3759196
(State of incorporation) (I.R.S. employer identification no.)
1111 North Highland Street
Arlington, Virginia 22201
(Address of principal executive offices) (Zip Code)
The TeleBanc Financial Corporation Guarantee with
respect to Series A Capital Securities
(Title of the indenture securities)
<PAGE> 2
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 18th day
of June, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Emmett R. Harmon By: /s/ James P. Lawler
------------------------- -----------------------------------
Assistant Secretary Name: James P. Lawler
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE> 5
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
2
<PAGE> 6
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual
3
<PAGE> 7
owners thereof, including the right to vote thereon; to
invest and deal in and with any of the moneys of the
Corporation upon such securities and in such manner as it
may think fit and proper, and from time to time to vary or
realize such investments; to issue bonds and secure the same
by pledges or deeds of trust or mortgages of or upon the
whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and when
the Board of Directors shall determine, and in the promotion
of its said corporate business of investment and to the
extent authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate or
interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
4
<PAGE> 8
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of
5
<PAGE> 9
stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article FOURTH), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
FOURTH), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to
6
<PAGE> 10
receive all of the remaining assets of the Corporation,
tangible and intangible, of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article FOURTH and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article FOURTH that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
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<PAGE> 11
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the
8
<PAGE> 12
Corporation may be removed at any time without cause, but only by
the affirmative vote of the holders of two-thirds or more of the
outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called
for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
9
<PAGE> 13
NINTH: - This Corporation is to have perpetual existence.
TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
10
<PAGE> 14
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on
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<PAGE> 15
such business combination, or immediately prior to the consummation
of any such transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
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<PAGE> 16
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 18
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its
<PAGE> 19
members, or at the call of the Chairman of the Board of Directors or the
President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who
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shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
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<PAGE> 21
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than
4
<PAGE> 22
five (5) members who shall be selected by the Board of Directors from its own
members who are not officers of the Company and who shall hold office during the
pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of
5
<PAGE> 23
Directors shall preside at all meetings of the Board of Directors at which the
Chairman of the Board shall not be present and shall have such further authority
and powers and shall perform such duties as the Board of Directors or the
Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
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<PAGE> 24
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of
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<PAGE> 25
any dividend, or to any allotment or rights, or to exercise any rights in
respect of any change, conversion or exchange of capital stock, or in connection
with obtaining the consent of stockholders for any purpose, which record date
shall not be more than 60 nor less than 10 days proceeding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
8
<PAGE> 26
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses
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<PAGE> 27
under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
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EXHIBIT C
SECTION 321(b) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: June 18, 1998 By: /s/ James P. Lawler
-------------------
Name: James P. Lawler
Title: Vice President
<PAGE> 29
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
Name of Bank City
in the State of DELAWARE , at the close of business on December 31, 1997.
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.............................................236,646
Interest-bearing balances........................................................................... 0
Held-to-maturity securities............................................................................... 331,880
Available-for-sale securities.............................................................................1,258,661
Federal funds sold and securities purchased under agreements to resell...................................... 91,500
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,822,320
LESS: Allowance for loan and lease losses. . . . . . 59,373
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve..............................3,762,947
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................129,740
Other real estate owned...................................................................................... 2,106
Investments in unconsolidated subsidiaries and associated companies............................................ 22
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets.............................................................................................4,905
Other assets................................................................................................100,799
Total assets..............................................................................................5,919,206
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices.......................................................................................4,034,633
Noninterest-bearing . . . . . . . . 839,928
Interest-bearing. . . . . . . . . . 3,194,705
Federal funds purchased and Securities sold under agreements to repurchase................................. 575,827
Demand notes issued to the U.S. Treasury.....................................................................61,290
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less......................................................673,000
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).................................................................... 76,458
Total liabilities.........................................................................................5,464,208
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......................................................................385,018
Net unrealized holding gains (losses) on available-for-sale securities........................................7,362
Total equity capital........................................................................................454,998
Total liabilities, limited-life preferred stock, and equity capital.......................................5,919,206
</TABLE>
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