<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 000-24549
TELEBANC FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3759196
-------- ----------
(State or other jurisdiction of I.R.S. Employer Identification Number)
incorporation or organization)
1111 N. HIGHLAND STREET, ARLINGTON, VIRGINIA 22201
---------------------------------------------------
(Address of principal executive office) (Zip code)
(703) 247-3700
--------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Number of shares outstanding for the issuer's classes of common stock, as of
November 12, 1998.
common stock, $0.01 par value 12,366,242
----------------------------- ----------
(class) (outstanding)
<PAGE> 2
TELEBANC FINANCIAL CORPORATION
FORM 10-Q
INDEX
<TABLE>
<S> <C>
Part I - Financial Information Page
------------------------------ ----
Item 1.
Consolidated Statements of Financial Condition -September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations - Three and nine months ended September
30, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders' Equity - Nine months ended
September 30, 1998 and 1997 6
Consolidated Statements of Cash Flows - Nine months ended September 30, 1998
and 1997 7
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations 14
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 21
Part II -- Other Information
----------------------------
Item 6.
Exhibits and Reports on Form 8-K 22
Signatures 25
</TABLE>
2
<PAGE> 3
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
Assets: 1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 26,734 $ 92,156
Loans receivable, net 645,173 391,618
Loans receivable held for sale 148,016 149,086
Mortgage-backed securities available for sale 798,636 319,203
Investment securities available for sale 220,367 91,237
Trading securities 54,919 21,110
Other assets 73,847 35,942
------ ------
Total assets $ 1,967,692 $ 1,100,352
========= =========
Liabilities and Stockholders' Equity:
Liabilities:
Retail deposits $ 1,007,246 $ 522,221
Brokered callable certificates of deposit 67,014 -
Advances from the Federal Home Loan Bank of Atlanta 208,000 200,000
Securities sold under agreements to repurchase 479,742 279,909
Subordinated debt 29,792 29,614
Other liabilities 19,431 13,212
------ ------
Total liabilities 1,811,225 1,044,956
--------- ----------
Corporation-Obligated Mandatory Redeemable Capital Securities of
Subsidiary Trust Holding Solely Junior Subordinated Debentures of the
Corporation 35,280 9,572
Stockholders' equity:
4% Cumulative Preferred Stock, $0.01 par value,
500,000 shares authorized
Series A, 0 and 18,850 issued and outstanding at September 30, 1998 - 9,634
and December 31, 1997
Series B, 0 and 4,050 issued and outstanding at September 30, 1998 - 2,070
and December 31, 1997
Series C, 0 and 7,000 issued and outstanding at September 30, 1998 - 3,577
and December 31, 1997
Common stock, $0.01 par value, 29,500,000 shares authorized; 12,363,842
and 4,458,322 issued and outstanding at September 30, 1998 and December
31, 1997 122 44
Unearned compensation (2,638) -
Additional paid-in capital 103,069 16,205
Retained earnings 10,164 11,556
Accumulated other comprehensive income, net of tax 10,470 2,738
------ ------
Total stockholders' equity 121,187 45,824
------- -------
Total liabilities & stockholders' equity $ 1,967,692 $ 1,100,352
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 13,599 $ 8,855 $ 34,431 $ 24,727
Mortgage-backed and related securities 9,966 4,248 20,249 13,179
Investment securities 3,046 1,348 6,818 4,330
Trading securities 812 359 2,157 630
Other 209 10 630 67
--- -- --- --
Total interest income 27,632 14,820 64,285 42,933
------ ------ ------ ------
Interest expense:
Retail deposits 12,285 6,649 29,096 18,686
Brokered callable certificates of deposit 1,122 - 2,516 -
Advances from the Federal Home Loan Bank of Atlanta 3,044 2,528 8,575 6,784
Repurchase agreements 4,647 1,493 8,902 5,422
Subordinated debt 881 878 2,642 2,399
Other - - 2 -
-------- --------- ---------- ----------
Total interest expense 21,979 11,548 51,733 33,291
------ ------ ------ ------
Net interest income 5,653 3,272 12,552 9,642
Provision for loan losses 300 120 625 671
--- ---- ---- ---
Net interest income after provision for loan losses 5,353 3,152 11,927 8,971
----- ----- ------ -----
Non-interest income:
Gain on sale of securities 1,424 195 3,065 885
Fees, service charges and other 322 571 1,034 1,312
Gain on sale of loans 227 226 421 636
(Loss) gain on trading securities (106) 213 (51) 942
(Loss) gain on equity investment (35) (121) 414 (840)
---- ----- --- -----
Total non-interest income 1,832 1,084 4,883 2,935
----- ----- ----- -----
</TABLE>
(continued)
4
<PAGE> 5
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-interest expenses:
Selling, general and administrative expenses:
Compensation and employee benefits 1,926 1,049 5,546 3,427
Advertising and marketing 1,699 148 2,905 267
Other 2,041 881 4,545 2,531
----- ---- ----- ------
Total selling, general and administrative expenses 5,666 2,078 12,996 6,225
----- ------ ------- ------
Other non-interest expenses:
Net operating costs of real estate acquired through
foreclosure 43 55 225 185
Amortization of goodwill and other intangibles 543 204 1,163 486
--- --- ------ ---
Total other non-interest expenses 586 259 1,388 671
--- --- ------ ---
Total non-interest expenses 6,252 2,337 14,384 6,896
----- ------ ------- ------
Income before income tax expense 933 1,899 2,426 5,010
Income tax expense 389 709 915 1,682
Minority interest in subsidiary 439 286 791 353
--- --- ---- ---
Net income 105 904 720 2,975
Preferred stock dividends 1,788 162 2,112 384
----- ---- ----- ----
Net income available to common stockholders $ (1,683) $ 742 $ (1,392) $ 2,591
======= === ======= =====
Other comprehensive income, before tax:
Unrealized holding gain on securities arising during the
period $ 9,462 $ 97 $ 9,632 $ 1,617
Less: reclassification adjustment for gains included in net
income (1,424) (194) (3,065) (585)
------- ----- ------- -----
Other comprehensive income, before tax 8,038 (97) 6,567 1,032
Income tax expense related to reclassification adjustment for
gains on sale of securities 541 74 1,165 222
--- -- ----- ---
Other comprehensive income 8,579 (23) 7,732 1,254
----- ---- ----- -----
Comprehensive income $ 6,896 $ 719 $ 6,340 $ 3,845
===== === ===== =====
Earnings per share:
Basic $ (0.17) $ 0.16 $ (0.22) $ 0.59
Diluted $ (0.17) $ 0.11 $ (0.22) $ 0.41
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on Available
Preferred Common Unearned Paid-in Retained for Sale
Stock Stock Compensation Capital Earnings Securities Total
----- ----- ------------ ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ -- $ 40 $ -- $ 14,637 $ 7,885 $ 2,096 $ 24,658
Net income for the nine months ended
September 30, 1997 -- -- -- -- 2,975 -- 2,975
Stock issued -- 4 -- 1,472 -- -- 1,476
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 -- -- -- -- (384) -- (384)
Unrealized gain on available for sale
securities, net of tax effect -- -- -- -- -- 1,254 1,254
-- -- -- -- -- ----- -----
Balances at September 30, 1997 $ 15,281 $ 44 $ -- $ 16,109 $ 10,476 $ 3,350 $ 45,260
====== == == ====== ====== ===== ======
Balances at December 31, 1997 $ 15,281 $ 44 $ -- $ 16,205 $ 11,556 $ 2,738 $ 45,824
Net income for the nine months ended
September 30, 1998 -- -- -- -- 720 -- 720
Stock issued -- 53 -- 69,869 -- -- 69,922
Dividends on 4% Cumulative Preferred
Stock -- 1 -- 1,738 (2,112) -- (373)
Conversion of 4% Cumulative Preferred
Stock to common stock (15,281) 24 -- 15,257 -- -- --
Loan to Employee Stock Ownership Plan -- -- (2,638) -- -- -- (2,638)
Unrealized gain on available for sale
securities, net of tax effect -- -- -- -- -- 7,732 7,732
-- -- -- -- -- ----- -----
Balances at September 30, 1998 $ -- $ 122 $ (2,638) $103,069 $ 10,164 $ 10,470 $121,187
== === ======= ======= ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30,
-------------
1998 1997
---- -----
<S> <C> <C>
Net cash used in operating activities $ (2,215) $ (16,375)
------- --------
Cash flows from investing activities:
Net cash received from business acquisition 7,722 --
Net increase in loans held to maturity, net of loans received in (139,145) (184,634)
business acquisition
Loans extended to Employee Stock Ownership Plan (2,638) --
Purchases of available-for-sale securities, net of securities received (939,077) (250,956)
in business acquisition
Proceeds from sales of available-for-sale securities 326,424 125,520
Proceeds from maturities of and principal payments on available-for-sale
securities 137,770 162,030
Proceeds from sale of foreclosed real estate 713 1,239
Equity investment in subsidiary (1,392) (1,608)
Net purchases of premises and equipment, net of premises and equipment (1,010) 420
received in business acquisition ------- ---
Net cash used in investing activities (610,633) (147,989)
--------- ----------
Cash flows from financing activities:
Net increase in deposits, net of deposits received in business 244,949 37,256
acquisition
Advances from Federal Home Loan Bank of Atlanta 672,077 244,000
Payments on advances from Federal Home Loan Bank of Atlanta (664,077) (218,800)
Net increase in borrowed funds, net of borrowings received in business
acquisition 178 12,970
Net increase in securities sold under agreements to repurchase 199,833 64,827
Proceeds from the issuance of trust preferred securities 25,708 9,602
Proceeds from the issuance of common stock and preferred stock 71,661 16,757
Interest paid to minority interest in subsidiary (791) --
Dividends paid on preferred stock (2,112) (384)
------- ------
Net cash provided by financing activities 547,426 166,228
------- --------
Net (decrease) increase in cash and cash equivalents (65,422) 1,864
Cash and cash equivalents at beginning of period 92,156 3,259
------ ------
Cash and cash equivalents at end of period $ 26,734 $ 5,123
====== =====
Supplemental information:
Interest paid on deposits and borrowed funds $ 46,246 $ 26,526
Income taxes paid 999 853
Gross unrealized gain on securities available for sale 12,414 1,888
Tax effect of gain on available for sale securities $ (4,682) $ (634)
Supplemental schedule of non-cash financing activities:
Additional common stock, totaling 119,975 shares, was issued upon conversion of
29,900 shares of 4% Cumulative Preferred Stock.
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
TELEBANC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NOTE 1. BASIS OF PRESENTATION
TeleBanc Financial Corporation (the "Company") 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 the Company and TeleBank. The Company also owns all of the
beneficial interests represented by common securities in two Delaware trusts,
TeleBanc Capital Trust I ("TCT I") and TeleBanc Capital Trust II ("TCT II"),
which were formed solely for the purpose of issuing capital securities. In
1997, TCT I issued $10.0 million of 11.0% Capital Securities, Series A and
invested the net proceeds in the Company's 11.0% Junior Subordinated Deferrable
Interest Debentures, Series A (the "TCT I Junior Subordinated Debentures"). In
July 1998, TCT II issued $27.5 million of 9.0% Beneficial Unsecured Securities,
Series A and invested the net proceeds in the Company's 9.0% Junior
Subordinated Deferrable Interest Debentures, Series A (the "TCT II Junior
Subordinated Debentures"). TeleBank, through its wholly-owned subsidiary
TeleBanc Servicing Corporation ("TSC"), owns 100% of TeleBanc Insurance
Services, Inc. ("TBIS"), which was formed in May 1998 to offer co-branded
insurance products. TSC also owns 50% of AGT PRA, LLC ("AGT PRA"), the primary
business of which is its 66.67% 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 I, TCT II and TSC. All significant
intercompany transactions and balances are eliminated in consolidation. The
investment in AGT PRA is accounted for under the equity method.
The financial statements as of September 30, 1998 and for the three
and nine months ended September 30, 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 September 30, 1998 and the results of consolidated operations
for the three and nine months ended September 30, 1998 and 1997. The results
of consolidated operations for the three and nine months ended September 30,
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 Company's Annual Report on Form 10-K for
1997, should be read in conjunction with these statements.
Effective June 22, 1998, the Board of Directors of the Company
approved the distribution of a 100% stock dividend on its outstanding common
stock, par value $0.01 (the "Common Stock"). The effect of the stock dividend
has been retroactively applied in the consolidated financial statements for all
periods presented.
8
<PAGE> 9
TELEBANC FINANCIAL CORPORATION
Certain prior-year amounts have been reclassified to conform to the
current year's presentation.
NOTE 2. NET INCOME PER COMMON 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 and
nine months ended September 30, 1998 and 1997 was determined on the assumption
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. In January 1997, the Company issued
29,900 shares of 4% Cumulative Preferred Stock (the "Preferred Stock"), par
value $0.01, which was convertible to 2,399,479 shares of the Company's Common
Stock. For purposes of the diluted earnings per share calculation, the Company
assumed that all outstanding shares of Preferred Stock had converted to Common
Stock as of the beginning of the respective periods. In July 1998, the
Preferred Stock converted to Common Stock and, therefore, was no longer
outstanding as of September 30, 1998. The Company's year to date weighted
average number of common shares outstanding was 6,313,750 at September 30, 1998
and 4,359,020 at September 30, 1997. For diluted earnings per share
computation, weighted average shares outstanding also include potentially
dilutive securities.
EPS CALCULATION
<TABLE>
<CAPTION>
Income Shares Per Share Amount
--------------------------------------------------------------
For the Quarter Ended September 30, 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 105,000
Less: preferred stock dividends (1,788,000)
------------------
Basic earnings per share
Income available to common shareholders $ (1,683,000) 9,921,713 $ (0.17)
==================
Options issued to management -- --
Warrants -- --
Convertible preferred stock -- --
----------------------------------------
Diluted earnings per share $ (1,683,000) 9,921,713 $ (0.17)(a)
==============================================================
</TABLE>
9
<PAGE> 10
TELEBANC FINANCIAL CORPORATION
<TABLE>
<CAPTION>
For the Quarter Ended September 30, 1997
----------------------------------------------------
<S> <C> <C> <C>
Net income $ 904,000
Less: preferred stock dividends (162,000)
-------------------
Basic earnings per share
Income available to common shareholders $ 742,000 4,437,026 $ 0.16
==============
Options issued to management -- 642,508
Warrants -- 577,654
Convertible preferred stock 162,000 2,399,479
-------------------------------------
Diluted earnings per share $ 904,000 8,056,667 $ 0.11
====================================================
<CAPTION>
For the Nine Months Ended September 30, 1998
----------------------------------------------------
<S> <C> <C> <C>
Net income $ 720,000
Less: preferred stock dividends (2,112,000)
-------------------
Basic earnings per share
Income available to common shareholders $ (1,392,000) 6,313,750 $ (0.22)
==============
Options issued to management -- --
Warrants -- --
Convertible preferred stock -- --
-------------------------------------
Diluted earnings per share $ (1,392,000) 6,313,750 $ (0.22)(a)
=====================================================
<CAPTION>
For the Nine Months Ended September 30, 1997
----------------------------------------------------
<S> <C> <C> <C>
Net income $ 2,975,000
Less: preferred stock dividends (384,000)
-------------------
Basic earnings per share
Income available to common shareholders $ 2,591,000 4,359,020 $ 0.59
=============
Options issued to management -- 495,080
Warrants -- 470,938
Convertible preferred stock 384,000 1,887,830
-------------------------------------
Diluted earnings per share $ 2,975,000 7,212,868 $ 0.41
===================================================
</TABLE>
(a) The impact of the Company's outstanding options, warrants, and Preferred
Stock is antidilutive for the three and nine months ended September 30, 1998.
NOTE 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 Company
adopted SFAS
10
<PAGE> 11
TELEBANC FINANCIAL CORPORATION
130 effective January 1, 1998. As a result, comprehensive income for the
periods ending September 30, 1998 and 1997 is reported in the Consolidated
Statement of Operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). The statement establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at fair
value. SFAS 133 requires that changes in the derivative instrument's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative
instrument's gains and losses to offset related results on the hedged item in
the income statement and requires that a company formally document, designate
and assess the effectiveness of transactions that receive hedge accounting
treatment.
SFAS 133 is effective for fiscal years beginning after June 15, 1999,
although a company may implement the statement as of the beginning of any
fiscal quarter after issuance, that is, fiscal quarters beginning June 16,
1998 and after. SFAS 133 cannot be applied retroactively. SFAS 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantively
modified after December 31, 1997 and, at the Company's election, before January
1, 1998.
The Company plans to adopt SFAS 133 as of January 1, 2000 but has not
yet quantified the impact of adopting SFAS 133 on its financial statements.
However, the statement could increase volatility in earnings and other
comprehensive income.
In April 1998, the Company acquired and dissolved MET Holdings
Corporation ("MET") in accordance with the Amended and Restated Acquisition
Agreement between MET and the Company (the "Amended and Restated Acquisition
Agreement"), dated as of March 17, 1998. Pursuant to the Amended and Restated
Acquisition Agreement, MET sold substantially all of its assets, including
2,866,162 shares of Common Stock owned by MET and assigned substantially all of
its liabilities to the Company in exchange for 2,876,162 shares of Common Stock,
which shares were distributed to the shareholders of MET upon MET's dissolution.
In July and August 1998, the Company sold 5,175,000 shares of its
Common Stock to the public at an offering price of $14.50 (the "Equity
Offering"), and TCT II sold 1,100,000 of 9.0% Beneficial Unsecured Securities,
Series A, having a liquidation amount of $25.00, for a total of $27.5 million
(the "Trust Preferred Offering"). The Trust Preferred Offering securities
mature in 2028 and have an annual dividend rate of 9.0%, payable quarterly,
beginning in September 1998. The net proceeds of both offerings are being used
for general corporate purposes, which include funding the Company's continued
growth and augmenting working capital.
Pursuant to a conversion agreement dated May 15, 1998 (the "Conversion
Agreement"), the Company's 29,900 outstanding shares of Preferred Stock
converted to 2,399,479 shares of Common Stock, upon consummation of the Equity
Offering on July 28, 1998. The Conversion Agreement also provided that the
11
<PAGE> 12
TELEBANC FINANCIAL CORPORATION
automatic conversion of the Preferred Stock was contingent upon the Company
paying, prior to or upon such conversion, a dividend on the Preferred Stock in
the form of shares of Common Stock equal to five percent of the number of
shares of Common Stock issuable upon conversion of the Preferred Stock.
Accordingly, upon the conversion, the Company issued a one-time dividend in the
amount of 119,975 shares of Common Stock to the holders of the Preferred
Stock.
Effective August 10, 1998, the Company consummated an Agreement and
Plan of Merger with Direct Financial Corporation ("DFC"), a thrift holding
company, pursuant to which DFC merged with and into a wholly-owned subsidiary
of the Company. The Company then merged DFC's federally-chartered savings bank
subsidiary, Premium Bank, F.S.B. ("Premium Bank") into TeleBank. The Company
paid approximately $22.3 million in the transaction and assumed approximately
$6.0 million in liabilities that the Company repaid at the time the transaction
was consummated. This acquisition has been accounted for under the purchase
method of accounting. The purchase price has been allocated to the estimated
fair value of net tangible assets acquired, with the excess recorded as
goodwill. As of September 30, 1998, goodwill associated with the acquisition
of Premium Bank totaled approximately $20 million, net of accumulated
amortization of $236,000. The Company has chosen to amortize this goodwill on
a straight-line basis over a period of 15 years. The operating results of
Premium Bank are included with those of the Company from the closing date.
During the third quarter of 1998, the Company made loans totaling $2.4
million to the Employee Stock Ownership Plan (the "ESOP"), which used the
proceeds to purchase shares of the Company's outstanding Common Stock. As
these loans will be repaid using contributions the ESOP receives from the
Company in future periods, the Company has classified these loans, along with
two earlier loans totaling $195,000, as unearned compensation and recorded them
in a contra equity account. Principal on the loans made in the third quarter
of 1998 is due in equal, annual installments over the next five years, and
interest is charged at a weighted-average annual rate of 6.90%.
NOTE 4. COMMITMENTS AND CONTINGENT LIABILITIES
In managing the Company's interest rate risk, the Company utilizes
financial derivatives in the normal course of business. These products consist
primarily of interest rate cap and swap agreements. Financial derivatives are
employed to assist in the management and/or reduction of interest rate risk for
the Company and can effectively alter the interest rate sensitivity of segments
of the balance sheet for specified periods of time.
The Company accounts for interest rate swap agreements and cap
agreements as hedges of debt issuances, deposit balances and investments in
loan portfolios 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 reductions in interest income on a straight-line basis over the
term of these agreements. Any
12
<PAGE> 13
TELEBANC FINANCIAL CORPORATION
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.
13
<PAGE> 14
TELEBANC FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking" statements (within the meaning of the Private Securities
Litigation Reform Act of 1995). Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: interest rate
fluctuations, the ability of the Company to create brand awareness, the ability
of the Company to grow through the introductions of new products and services
and the ability of the Company to attain Year 2000 compliance and to ensure
Year 2000 compliance from the third parties with which it does business.
This discussion and analysis includes descriptions of material changes
that have affected the Company's consolidated financial condition and
consolidated results of operations during the periods included in the Company's
financial statements.
FINANCIAL CONDITION (SEPTEMBER 30, 1998 COMPARED TO DECEMBER 31, 1997)
The Company's total assets increased $867.3 million or 78.8% from
$1.10 billion at December 31, 1997 to $1.97 billion at September 30, 1998. The
increase in total assets primarily reflects increases in held-for-sale and
held-to-maturity loans receivable, net, (consisting primarily of one- to
four-family residential mortgages) of $252.5 million or 46.7%, mortgage-backed
securities available for sale of $479.4 million or 150.2%, and investment
securities available for sale of $129.1 million or 141.5%. The Company funded
this asset growth through its Equity Offering and Trust Preferred Offering,
both of which were completed during the third quarter, as well as an increase
in retail deposits of $485.0 million or 92.9%. Short-term borrowings, such as
repurchase agreements and Federal Home Loan Bank ("FHLB") advances, increased
$207.8 million, or 43.3%. Additionally, the Company sold $67.0 million of
callable certificates of deposit during the first nine months of 1998 as
relatively cost-efficient borrowings with hedging properties that improve the
Company's overall interest rate risk position. In addition to growth generated
internally, the Company consummated its acquisition of DFC in August 1998,
adding approximately $149.9 million of loans, $122.9 million of mortgage-backed
and investment securities, and $307.1 million of deposits.
Stockholders' equity increased $75.4 million from $45.8 million at
December 31, 1997 to $121.2 million at September 30, 1998. Common Stock and
additional paid-in capital increased $78,000 and $86.9 million, respectively,
due primarily to the Company's Equity Offering, as well as the issuance of
2,399,479 shares of Common Stock related to the conversion of the outstanding
shares of Preferred Stock to Common Stock upon consummation of the Equity
14
<PAGE> 15
TELEBANC FINANCIAL CORPORATION
Offering on July 28, 1998. In connection with the conversion of its Preferred
Stock to Common Stock, the Company issued 119,975 shares of Common Stock, at
$14.50 per share, as a one-time dividend worth $1.7 million to the holders of
the Preferred Stock. Additionally, the Company experienced unrealized gains on
securities of $7.7 million and earned net income of $720,000.
15
<PAGE> 16
TELEBANC FINANCIAL CORPORATION
The consolidated average balance sheets, along with income and expense
and related interest yields and rates for the quarters ended September 30, 1998
and 1997 are shown below. The table also presents information for the periods
indicated with respect to the difference between the weighted average yield
earned on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, or "net interest income" and "net interest
spread," which savings institutions have traditionally used as an indicator of
profitability. Another indicator of an institution's profitability is its "net
interest margin" or "net yield on interest-earning assets" which is its
annualized net interest income divided by the average balance of
interest-earning assets.
<TABLE>
<CAPTION>
Quarter ended September 30, 1998 Quarter ended September 30, 1997
------------------------------------ -----------------------------------
Interest Average Interest Average
(Dollars in thousands) Average Income/ Annualized Average Income/ Annualized
unaudited Balance Expense Yield/Cost Balance Expense Yield/Cost
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 694,955 $ 13,590 7.82% $ 456,059 $ 8,864 7.77%
Interest-bearing deposits 6,774 104 5.99 8,244 116 5.59
Mortgage-backed and related securities
available for sale 560,301 9,966 7.11 212,961 4,397 8.26
Investment securities available
for sale (a) 179,218 2,902 6.48 66,609 1,111 6.67
Federal funds sold 154 2 5.18 1,566 22 5.58
Investment in FHLB stock 10,714 202 7.50 8,346 152 7.25
Trading account 14,297 271 7.59 19,663 360 7.25
---------- ------- ------ ------- ---- ----
Total interest-earning assets 1,466,413 27,037 7.38% 773,448 15,022 7.74%
Non-interest-earning assets 63,326 70,621
---------- ------
Total assets $ 1,529,739 $ 844,069
========= =======
Interest-bearing liabilities:
Retail deposits 819,548 12,366 5.99% 462,636 6,948 5.96%
Brokered callable CDs 66,969 1,122 6.65 - - -
FHLB advances 199,411 3,044 5.97 161,871 2,528 6.11
Other borrowings 286,336 4,228 5.78 98,924 1,493 5.91
Subordinated debt, net 29,753 881 11.85 39,519 1,153 11.67
---------- --------- --------- ------- ------ ------
Total interest-bearing liabilities 1,402,017 21,641 6.10% 762,950 12,122 6.28%
Non-interest-bearing liabilities 50,275 37,256
---------- ------
Total liabilities 1,452,292 800,206
Stockholders' equity 77,447 43,863
---------- ------
Total liabilities and stockholders'
equity $ 1,529,739 $ 844,069
========= =======
Excess of interest-earning assets over
interest-bearing liabilities/net interest
income $ 64,396 $ 5,396 $ 10,498 $ 2,900
====== ===== ====== =====
Net interest spread 1.28% 1.46%
===== ======
Net interest margin (net yield on
interest-earning assets) 1.47% 1.50%
===== =====
Ratio of interest-earning assets to
interest-bearing liabilities 104.59% 101.38%
======= ========
</TABLE>
(a) Interest income and average yields on municipal bonds are presented on a
tax equivalent basis.
16
<PAGE> 17
TELEBANC FINANCIAL CORPORATION
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
Net Income. Net income for the three- and nine-month periods ended
September 30, 1998 totaled $105,000 and $720,000, respectively, compared to
$904,000 and $3.0 million for the three- and nine-month periods ended September
30, 1997, respectively. The decline in net income reflects the Company's
strategy of increasing marketing expenses associated with brand building that
seeks to establish the "TeleBank" name as synonymous with the premier national
provider of high-value banking products. Net income for the three months ended
September 30, 1998 consisted primarily of $5.7 million of net interest income
and $1.8 million of non-interest income, offset by a $300,000 loan loss
provision, $6.3 million of non-interest expenses and income tax expense of
$389,000. Net income for the three months ended September 30, 1997 consisted
primarily of $3.3 million in net interest income and $1.1 million of
non-interest income, reduced by a $120,000 loan loss provision, $2.3 million in
non-interest expenses, and $709,000 of income tax expense. Net income for the
nine months ended September 30, 1998 consisted of $12.6 million of net interest
income and $4.9 million of non-interest income, offset by $625,000 of provision
for loan losses, as well as $14.4 million of non-interest expenses and $915,000
of income tax expense. Net income for the nine months ended September 30, 1997
consisted of $9.6 million of net interest income and $2.9 million of
non-interest income offset by $671,000 of provision for loan losses, $6.9
million of non-interest expenses and $1.7 million in income tax expense.
Net Interest Income. Net interest income was $5.7 million and $3.3
million for the quarters ended September 30, 1998 and 1997, respectively,
reflecting an annualized interest rate margin of 1.47% and 1.50%, respectively.
The increase in net interest income is primarily volume-related, as the Company
increased its interest-earning assets significantly as a result of the Equity
Offering and Trust Preferred Offering and its acquisition of DFC. Ending assets
increased 134.9% from $838.5 million at September 30, 1997 to $1.97 billion at
September 30, 1998, and average assets increased 81.3% from $844.1 million for
the third quarter of 1997 to $1.53 billion for the third quarter of 1998. During
the third quarter of 1998, average interest-earning assets, consisting primarily
of loans receivable, net, and mortgage-backed and related securities, totaled
$1.47 billion and yielded 7.38%, as compared to $773.4 million, reflecting a
yield of 7.74%, for the same period in 1997. Average interest-bearing
liabilities were $1.40 billion and $763.0 million for the quarters ended
September 30, 1998 and 1997, respectively, and cost 6.10% in the third quarter
of 1998 as compared with 6.28% in the same period in 1997.
Net interest income was $12.6 million and $9.6 million for the nine
months ended September 30, 1998 and 1997, respectively, reflecting an
annualized interest rate margin of 1.42% and 1.61%, respectively. This
increase is primarily volume-related, as average interest-earning assets,
consisting primarily of loans receivable, net, and mortgage-backed and related
securities, totaled $1.15 billion and $745.2 million for the nine months ended
September 30, 1998 and 1997, respectively, yielding 7.37% and 7.73%,
respectively. Average interest-bearing liabilities were $1.10 billion and
$733.8 million for the nine months ended September 30, 1998 and 1997,
respectively, costing 6.18% in the first nine months of 1998, as compared to
6.20% in the same period in 1997.
Provision for Loan Losses. The provision for loan losses reflects
management's intent to provide prudent reserves for potential losses on loans
held or acquired during the quarter. The Company recorded a loan loss
provision of $300,000 for the third quarter of 1998, in accordance
17
<PAGE> 18
TELEBANC FINANCIAL CORPORATION
with the Company's policy of providing adequate reserves for new loan
acquisitions during the quarter. Loans acquired during the acquisition of
Premium Bank were not included in this calculation, as the Company also
acquired related loan loss reserves. Net charge-offs during the quarter
totaled $115,000, or two basis points of average loan balances for the quarter,
while net charge-offs for the first nine months of 1998 were $431,000, or seven
basis points of average loan balances for the period. As of September 30,
1998, the Company's total loan loss allowance was $4.7 million, or 0.59% of
total loans outstanding. The total loan loss allowance at September 30, 1997
was $3.2 million, which was 0.7% of total loans outstanding. Total general
loan loss allowance as a percentage of total non-performing assets was 34.8%
and 24.2% as of September 30, 1998 and 1997, respectively.
Non-Interest Income. The Company reported an increase of $700,000 in
non-interest income from $1.1 million for the three months ended September 30,
1997 to $1.8 million for the three months ended September 30, 1998, largely as
a result of increased income from the sale of mortgage-backed and investment
securities. For the three months ended September 30, 1998, the Company
reported gains of $1.4 million from the sale of mortgage-backed and investment
securities, $227,000 from the recognition of discount on loans held for sale
due to prepayments and $322,000 in loan servicing charges and other fees,
offset by losses of $106,000 from trading activity and $35,000 from
equity-method investments. Non-interest income for the third quarter of 1997
consisted of gains of $195,000 from the sale of securities, $226,000 on loan
prepayments, $213,000 from trading activity and $571,000 in fees and service
charges, offset by $121,000 in losses from equity investments. During the
nine-month period ending September 30, 1998, the Company experienced an
increase in non-interest income of $1.9 million, or 66.4%, over the same period
in 1997. This increase is largely due to greater gains on the sale of
mortgage-backed and investment securities, which increased $2.2 million over
the first nine months of 1997. Gains from equity investments were also higher
during the first nine months of 1998, increasing $1.3 million over 1997.
Non-Interest Expenses. Non-interest expenses increased substantially
for the three- and nine-month periods ended September 30, 1998 to $6.3 million
and $14.4 million, respectively, compared to $2.3 million and $6.9 million for
the same periods in 1997. Overall increases are attributed to the Company's
strategy of increasing marketing expenses associated with brand building that
seeks to establish the TeleBank name as synonymous with the premier national
provider of high-value banking products, as well as increased asset and deposit
growth. During the first nine months of 1998, the Company launched its first
regional marketing campaign, focusing on California and the western United
States. Total non-interest expenses increased by $3.9 million for the three
months ended September 30, 1998 as compared to the same quarter in 1997. This
increase is largely due to an $877,000 increase in compensation costs related
to increased personnel, as well as higher advertising and marketing costs,
which increased $1.6 million from $148,000 for the quarter ended September 30,
1997, to $1.7 million for the quarter ended September 30, 1998. Total
non-interest expenses increased $7.5 million from $6.9 million for the nine
months ended September 30, 1997 to $14.4 million for the same period in 1998.
The increase is primarily due to a $6.8 million increase in general and
administrative expenses, which is almost entirely the result of increases in
compensation costs related to increased personnel, and a more
18
<PAGE> 19
TELEBANC FINANCIAL CORPORATION
comprehensive program of advertising and marketing activity as a result of the
Company's growth strategy. Annualized selling, general and administrative
expenses as a percentage of total ending assets were 1.16% and 0.88%,
respectively, for the quarter and nine months ended September 30, 1998.
Income Tax Expense. Income tax expense for the quarters ended
September 30, 1998 and 1997 totaled $389,000 and $709,000, respectively,
producing an effective tax rate of 41.7% for the third quarter of 1998 compared
to 37.3% for the quarter ended September 30, 1997. The higher effective tax
rate during the third quarter of 1998 resulted from the goodwill acquired in
the merger with DFC, since goodwill amortization expense is not deductible for
tax purposes. For the same reason, the effective tax rate for the nine months
ended September 30, 1998 was 37.7% compared to 33.6% for the nine months ended
September 30, 1997.
LIQUIDITY
Liquidity represents the Company'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 meet its ongoing obligations. The Company has
historically 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.
In July and August 1998, the Company raised capital through its Equity
Offering, in which it sold 5,175,000 shares of Common Stock to the public at an
offering price of $14.50, as well as its Trust Preferred Offering, in which TCT
II sold 1,100,000 of 9.0% Beneficial Unsecured Securities, Series A, having a
liquidation amount of $25.00. The Company is using the net proceeds of both
offerings to augment working capital and to fund continued growth.
The Company continued to experience growth in overall retail deposit
balances. Retail deposits increased $485.0 million to $1.0 billion at
September 30, 1998 from $522.2 million at December 31, 1997, an increase of
92.9%. In the first nine months of 1998, the Company also began to sell
brokered callable certificates of deposit, which totaled $67.0 million at
September 30, 1998. FHLB advances and other borrowings increased by $207.8
million to $687.7 million at September 30, 1998 from $479.9 at December 31,
1997.
TeleBank is required to maintain minimum levels of liquid assets as
defined by the regulations of the Office of Thrift Supervision (the "OTS").
This requirement, which may vary at the discretion of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The minimum required ratio is 4.0%. At September
30, 1998, TeleBank's liquidity ratio was 4.65%.
As of September 30, 1998, the Company had commitments to purchase
$188.7 million in loans. Also, certificates of deposit that are scheduled to
mature in less than one year as of September 30, 1998 totaled $415.2 million.
In the normal course of business, the Company
19
<PAGE> 20
TELEBANC FINANCIAL CORPORATION
makes various commitments to extend credit and incurs contingent liabilities
that are not reflected in the balance sheets.
CAPITAL RESOURCES
At September 30, 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.
The following table sets forth TeleBank's regulatory capital levels at
September 30, 1998 in relation to the regulatory requirements in effect at that
date. The information below is based upon the Company's understanding of the
regulations and interpretations currently in effect and may be subject to
change.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Core Capital (to adjusted
tangible assets) $118,546 6.37% >$74,423 >4.0% >$93,029 >5.0%
Tangible Capital (to adjusted
tangible assets) $118,546 6.37% >$27,909 >1.5% N/A N/A
Tier I Capital (to
risk weighted assets) $118,546 13.7% N/A N/A >$51,797 >6.0%
Total Capital (to risk
weighted assets) $122,768 14.2% >$69,062 >8.0% >$86,328 >10.0%
</TABLE>
YEAR 2000 ISSUES
In 1997, both the Company and DFC began their Year 2000 planning,
following the five steps recommended by the Federal Financial Institutions
Examination Council. Both completed phases focused on awareness and assessment
and continue to update the results of these phases for new information
received. Currently, the renovation phase, which consists of implementing
changes and monitoring vendor renovation, and the validation phase, which
consists of testing renovated systems, are well underway. The Company is
monitoring vendors for final compliance certification statements and software
updates and, to date, has begun to receive such certifications. Following the
receipt of certification statements relating to those systems identified as
mission critical in the assessment phase, the Company internally validates such
certifications through testing. The Company plans to be substantially complete
with renovation, validation and implementation of all mission critical systems
by the first quarter of 1999, and with all other systems to be tested by June
30, 1999.
20
<PAGE> 21
TELEBANC FINANCIAL CORPORATION
The Company's steady growth over the past several years has required
that its systems remain current; as such, the Company does not anticipate
that it will incur material costs related to its Year 2000 remediation efforts.
To date, no outside consultants have been hired to address the Year
2000 plan, and few upgrades have been accelerated due to the Year 2000 issue.
The Company estimates that it has spent approximately $25,000 on its Year 2000
remediation efforts, with an additional $75,000 to be spent before the year
2000.
The majority of the Company's loans are serviced by a large company
that uses the same system as several of the largest servicers in the United
States and that is expected to be Year 2000 compliant. Certain other of the
Company's loans, however, are serviced by smaller servicers whose systems may
not yet be Year 2000 compliant. The Company is currently quantifying the dollar
risk associated with these subserviced loans and is developing a contingency
plan to ensure that the Company does not experience any material interruption in
cash flows from these loans. The contingency plan will also address the
possibility and cost of transferring servicing to larger subservicers, which are
Year 2000 compliant. The Company expects to complete its contingency plan for
such subservicers in the fourth quarter of 1998.
Based upon current information, the Company does not anticipate costs
associated with the Year 2000 issue to have a material financial impact. There
can be no assurances, however, that there will not be interruptions or other
limitations of financial and operating systems' functionality or that the
Company will not incur additional costs to avoid such interruptions or
limitations. The Company's expectations about future costs associated with the
Year 2000 issue are subject to uncertainties that could cause actual results to
have a greater financial impact than currently anticipated. Factors that could
influence the amount and timing of future costs include the success of the
Company in identifying systems and programs that contain two-digit year codes,
the nature and amount of programming required to upgrade or replace each of the
affected programs, the rate and magnitude of related labor and consulting
costs, and the success of the Company in addressing the Year 2000 issues with
third-parties with which it does business.
MARKET RISK
The Company manages interest rate risk through the use of financial derivatives
such as interest rate cap, swap and futures agreements. These instruments are
used to ensure that the market value of equity and net interest income are
protected from the impact of changes in interest rates. The Company's
investment policy prohibits the use of such financial instruments for
speculative purposes. The Company has experienced no material changes in
market risk during the first nine months of 1998.
21
<PAGE> 22
TELEBANC FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by
reference herein to Exhibit 3.1(a) of the Company's Registration Statement on Form
S-2, File No. 333-52871)
3.2 Bylaws of the Company (incorporated by reference herein to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, dated
March 31, 1997)
4.1 Specimen certificate evidencing shares of Common Stock of the Company (incorporated
by reference herein to Exhibit 4.1 to the Company's Registration Statement on Form
S-1, dated March 25, 1994, File No. 33-76930)
4.2 Form of warrant for the purchase of shares of Common Stock, issued in connection
with the Unit Purchase Agreement, dated February 19, 1997, among the Company and the
Purchasers identified herein (incorporated by reference herein to Exhibit 10.1 to
the Company's Current Report on Form 8-K, dated March 17, 1997)
4.3 Form of warrant for the purchase of shares of Common Stock, issued in connection
with the units of warrants and subordinated debt sold in the Company's initial
public offering (incorporated by reference herein to Exhibit 4.5 to the Company's
Registration Statement on Form S-1, dated March 25, 1994, File No. 33-76930)
4.4 Declaration of Trust of TeleBanc Capital Trust II, dated May 22, 1998 (incorporated
by reference herein to the Company's Registration Statement on Form S-2, File No.
333-52871)
4.5 Form of Certificate of Exchange Junior Subordinated Debentures (incorporated by
reference herein to Exhibit 4.3 to the Company's Form 10-K/A for the year ended
December 31, 1997, dated April 2, 1998)
4.6 Amended and Restated Declaration of Trust of TeleBanc Capital Trust I, dated June 9,
1997 (incorporated by reference herein to Exhibit 3.4 to the Company's Registration
Statement on Form S-4, dated December 8, 1997, File No. 333-40399)
4.7 Amended and Restated Trust Agreement of TeleBanc Capital Trust II, dated July 31,
1998
</TABLE>
22
<PAGE> 23
TELEBANC FINANCIAL CORPORATION
<TABLE>
<S> <C>
4.8 Form of Exchange Capital Security Certificate (incorporated by reference herein to
Exhibit 4.6 to the Company's Registration Statement on Form S-4, dated December 8,
1997, File No. 333-40399)
4.9 Exchange Guarantee Agreement by the Company for the benefit of the holders of
Exchange Capital Securities (incorporated herein by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-4, dated December 8, 1997, File No.
333-40399)
10.1 1994 Stock Option Plan (incorporated by reference herein to Exhibit 10.1 to the
Company'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
Company's definitive proxy materials which were filed as Exhibit 99.3 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, dated
March 31, 1997)
10.3 1998 Stock Incentive Plan (incorporated by reference herein to the Company's
Registration Statement on Form S-2, File No. 333-52871)
10.4 Employee Stock Ownership Plan of the Company (incorporated by reference herein to
the Company's Registration Statement on Form S-2, File No. 333-52871)
10.5 Agreement and Plan of Merger by and between the Company and Direct Financial
Corporation, dated January 14, 1998 (amended pursuant to the First Amendment to
Agreement and Plan of Merger dated May 29, 1998 and filed as Exhibit 10.14
incorporated by reference hereto)
10.6 Registration Rights Agreement, dated June 5, 1997, among the Company, TeleBanc
Capital Trust I and the Initial Purchaser (incorporated by reference herein to
Exhibit 4.8 to the Company's Registration Statement on Form S-4, dated December 8,
1997, File No. 333-40399)
10.7 Unit Purchase Agreement, dated February 19, 1997, among the Company and the
Purchasers identified therein (incorporated by reference herein to Exhibit 10.1 to
the Company's Current Report on 8-K, dated March 17, 1997)
10.8 Liquidated Damages Agreement, dated June 9, 1997, by and among the Company, TeleBanc
Capital Trust I, and the Initial Purchaser (incorporated by reference herein to
Exhibit 4.9 to the Company's Registration Statement on Form S-4, dated December 8,
1997, File No. 333-40399)
</TABLE>
23
<PAGE> 24
TELEBANC FINANCIAL CORPORATION
<TABLE>
<S> <C>
10.9 Tax Allocation Agreement, dated April 7, 1994, between TeleBank and the Company
(incorporated by reference herein to Exhibit 10.3 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, dated May 3, 1994, File No. 33-76930)
10.10 Indenture dated June 9, 1997, between the Company and Wilmington Trust Company, as
debenture trustee (incorporated by reference herein to the Company's Registration
Statement on Form S-4, dated December 8, 1997, File No. 333-40399)
10.11 Form of Indenture between the Company and Wilmington Trust Company as Trustee
(incorporated by reference herein to Exhibit 4.3 to the Company'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 Company and certain
investors named therein (incorporated by reference herein to the Company's
Registration Statement on Form S-2, File No. 333-52871)
10.13 First Amendment to Agreement and Plan of Merger (filed as Exhibit 10.5 hereto) by
and among the Company, Direct Financial Corporation and TBK Acquisition Corp., dated
May 29, 1998 (incorporated by reference herein to the Company's Registration
Statement on Form S-2, File No. 333-52871)
27. Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On August 25, 1998, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 2, Acquisition or
Disposition of Assets, that on August 10, 1998, the Company had
acquired the assets of DFC and its wholly-owned subsidiary, Premium
Bank. Included in the filing was the Agreement and Plan of Merger
dated January 14, 1998, as amended by the First Amendment to the
Agreement and Plan of Merger, dated May 29, 1998. The Company amended
the Form 8-K and filed the financial statements required under Item 7,
Required Financial Statements, on October 26, 1998.
24
<PAGE> 25
TELEBANC FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TeleBanc Financial Corporation
------------------------------
(Registrant)
Date: November 16, 1998 By: /s/ Mitchell H. Caplan
--------------------- -----------------------------------------
Mitchell H. Caplan
Chief Executive Officer and President
Date: November 16, 1998 By: /s/ Aileen Lopez Pugh
--------------------- -----------------------------------------
Aileen Lopez Pugh
Executive Vice President and Chief
Financial Officer
25
<PAGE> 1
EXHIBIT 4.7
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 July 31, 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:
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
- -------------- ------------
<S> <C> <C>
(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
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
- -------------- ------------
<S> <C> <C>
(b)................................................................................ 5.9
(Section) 318 (a)................................................................................ 10.11
</TABLE>
- --------------
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> <C> <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.......................................12
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..................................13
Section 2.8 Assets of Trust...................................................................17
Section 2.9 Title to Trust Property...........................................................17
ARTICLE III PAYMENT ACCOUNT ..................................................................................16
Section 3.1 Payment Account...................................................................18
ARTICLE IV DISTRIBUTION; REDEMPTION ..................................................................................16
Section 4.1 Distributions.....................................................................18
Section 4.2 Redemption........................................................................19
Section 4.3 Subordination of Series A Common Securities.......................................22
Section 4.4 Payment Procedures................................................................22
Section 4.5 Tax Returns and Reports...........................................................23
Section 4.6 Payment of Expenses of the Trust..................................................23
Section 4.7 Payments under Indenture or Pursuant to Direct Actions............................23
ARTICLE V TRUST SECURITIES CERTIFICATES..................................................................................21
Section 5.1 Initial Ownership.................................................................24
Section 5.2 The Trust Security Certificates...................................................24
Section 5.3 Execution and Delivery of Trust Security Certificates.............................24
Section 5.4 Registration of Transfer and Exchange of Capital
Securities Certificates...........................................................25
Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates......................................................................26
Section 5.6 Persons Deemed Securityholders....................................................26
Section 5.7 Access to List of Securityholders' Names and Addresses............................27
Section 5.8 Maintenance of Office or Agency...................................................27
Section 5.9 Appointment of Paying Agent.......................................................27
Section 5.10 Ownership of Series A Common Securities by Depositor..............................28
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 5.11 Book-Entry Series A Capital Security Certificates; Common
Securities Certificate............................................................28
Section 5.12 Notices to Clearing Agency........................................................29
Section 5.13 Definitive Series A Capital Security Certificates.................................30
Section 5.14 Rights of Securityholders.........................................................30
Section 5.15 CUSIP Numbers.....................................................................33
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING......................................................................29
Section 6.1 Limitations on Voting Rights......................................................33
Section 6.2 Notice of Meetings................................................................34
Section 6.3 Meetings of Capital Securityholders...............................................35
Section 6.4 Voting Rights.....................................................................35
Section 6.5 Proxies, etc......................................................................35
Section 6.6 Securityholder Action by Written Consent..........................................36
Section 6.7 Record Date for Voting and Other Purposes.........................................36
Section 6.8 Acts of Securityholders...........................................................36
Section 6.9 Inspection of Records.............................................................37
ARTICLE VII REPRESENTATIONS AND WARRANTIES.................................................................................33
Section 7.1 Representations and Warranties of the Property Trustee and
the Delaware Trustee.............................................................37
Section 7.2 Representations and Warranties of Depositor.......................................39
ARTICLE VIII THE TRUSTEES ..................................................................................34
Section 8.1 Certain Duties and Responsibilities...............................................40
Section 8.2 Certain Notices...................................................................42
Section 8.3 Certain Rights of Property Trustee................................................42
Section 8.4 Not Responsible for Recitals or Issuance of Securities............................45
Section 8.5 May Hold Securities...............................................................45
Section 8.6 Compensation; Indemnity; Fees.....................................................45
Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees......................46
Section 8.8 Conflicting Interests.............................................................47
Section 8.9 Co-Trustees and Separate Trustee..................................................47
Section 8.10 Resignation and Removal; Appointment of Successor.................................49
Section 8.11 Acceptance of Appointment by Successor............................................50
Section 8.12 Merger, Conversion, Consolidation or Succession to Business.......................51
Section 8.13 Preferential Collection of Claims Against Depositor or Trust......................51
Section 8.14 Reports by Property Trustee.......................................................52
Section 8.15 Reports to the Property Trustee...................................................52
Section 8.16 Evidence of Compliance with Conditions Precedent..................................52
Section 8.17 Number of Trustees................................................................53
Section 8.18 Delegation of Power...............................................................53
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE IX TERMINATION, LIQUIDATION AND MERGER............................................................................47
Section 9.1 Termination Upon Expiration Date..................................................54
Section 9.2 Early Termination.................................................................54
Section 9.3 Termination.......................................................................54
Section 9.4 Liquidation.......................................................................55
Section 9.5 Mergers, Consolidations, Amalgamations or Replacements
of the Trust......................................................................56
ARTICLE X MISCELLANEOUS PROVISIONS
Section 10.1 Limitation of Rights of Securityholders...........................................57
Section 10.2 Liability of the Series A Common Securityholder...................................58
Section 10.3 Amendment.........................................................................58
Section 10.4 Separability......................................................................59
Section 10.5 Governing Law.....................................................................59
Section 10.6 Payments Due on Non-Business Day..................................................59
Section 10.7 Successors........................................................................60
Section 10.8 Headings..........................................................................60
Section 10.9 Reports, Notices and Demands......................................................60
Section 10.10 Agreement Not to Petition.........................................................61
Section 10.11 Trust Indenture Act; Conflict with Trust Indenture Act............................61
Section 10.12 Acceptance of Terms of Trust Agreement, Series A Guarantee
and Indenture.....................................................................61
Section 10.13 Holders are Parties...............................................................62
Section 10.14 Counterparts......................................................................63
</TABLE>
iii
<PAGE> 7
AMENDED AND RESTATED TRUST AGREEMENT, dated as of July 31, 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 (in such capacity, the "Property Trustee"), and as Delaware
trustee (in such capacity, 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 and sale of the Series A Common Securities
by the Trust to the Depositor, (ii) the issuance and sale of the Series A
Capital Securities 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:
1
<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.
(e) 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;
(f) "or" is not exclusive;
(g) provisions apply to successive events and transactions; and
(h) each reference herein to a rule or form of the Commission shall mean
such rule or form and any rule or form successor thereto, in each case as
amended from time to time.
"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 and identified as such to the Property Trustee or
other holders of Series A Subordinated Debentures by the Depositor on a Like
Amount of Series A Subordinated Debentures for such period.
2
<PAGE> 9
"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.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
"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.
3
<PAGE> 10
"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 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 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.
4
<PAGE> 11
"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 corporate trust 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.
"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.
"Direct Action" has the meaning specified in Section 5.14.
"Distribution Date" has the meaning specified in Section 4.1(a).
5
<PAGE> 12
"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 the occurrence of a Debenture Event of Default
(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).:
"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 July 31,
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 or cash 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.
6
<PAGE> 13
"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 may be an
employee of any thereof, 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;
7
<PAGE> 14
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 the Property Trustee.
"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, as 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.
"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
8
<PAGE> 15
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.
"Responsible Officer" means any officer within the Corporate Trust Office
of the Property Trustee with direct response responsibility for the
administration of this Trust Agreement and also means, with respect to a
particular corporate trust matter, any other officer of the Property Trustee to
whom such matter is referred because of that officer's knowledge and familiarity
with the particular subject.
"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 and to the extent that 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
unsecured interest in the assets of the Trust, Series A, 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
9
<PAGE> 16
and delivery of this Trust Agreement, for the benefit of the Holders of the
Trust Securities, as amended from time to time.
"Series A Subordinated Debentures" means the $28,350,525.00 aggregate
principal amount of the Depositor's 9.0% 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 (other than Exhibit B
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.
10
<PAGE> 17
"Trust Security Certificate" means any one of the Series A Common
Security Certificates or the Series A Capital Security Certificates.
"Trustees" has the meaning specified in the preamble to this Trust
Agreement.
"Underwriters" means, collectively, CIBC Oppenheimer Corp., Legg Mason
Wood Walker, Incorporated and BancAmerica Robertson Stephens.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
July 27, 1998, among the Trust, the Depositor and CIBC Oppenheimer Corp., as
representative of the underwriters named therein.
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 may 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.
11
<PAGE> 18
Section 2.4 Issuance of the Series A Capital Securities.
As of July 27, 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 Underwriters named in the
Underwriting Agreement Series A Capital Security Certificates, authenticated by
the Property Trustee and 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, and thereupon, without any
further action by the Trust or any other Person, the Series A Capital Securities
evidenced thereby shall be duly and validly issued, fully paid and nonassessable
and entitled to the benefits of this Trust Agreement. The issuance of the Series
A Capital Securities is not subject to preemptive rights.
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 34,021 Series A Common Securities having an aggregate Liquidation
Amount of $850,525 against receipt from the Depositor of an aggregate purchase
price of $850,525, which amount such Administrative Trustee shall promptly
deliver to the Property Trustee, and thereupon, without further action by the
Trust or any other Person, the Series A Common Securities evidenced thereby
shall be duly and validly issued and entitled to the benefit of this Trust
Agreement.. 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 Property Trustee (in its
capacity as such) and having an aggregate principal amount equal to $28,350,525,
and, in satisfaction of the purchase price, the Property Trustee, on behalf of
the Trust, shall deliver to the Depositor the sum of $28,350,525 (being the sum
of the amounts received by 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, (c) to distribute the Trust's income and
assets as provided in this Trust Agreement and (d) to engage in those activities
necessary or incidental thereto, including, without limitation, those activities
specified in Sections 2.7(a), 2.7(c), 8.1 and 8.3. The Depositor hereby appoints
the Trustees as trustees of the Trust, to have all the rights, powers, duties,
authority and authorization 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
12
<PAGE> 19
the conditions set forth herein for the benefit of the Trust and the
Securityholders. The Administrative Trustees shall have all rights, powers,
duties, authority and authorization 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 a Trustee of the Trust for the sole and limited purpose of fulfilling
the requirements of Section 3807 of the Delaware Business Trust Act. In the
event the Delaware Trustee shall at any time be required to take any action or
perform any duty under this Trust Agreement, the Delaware Trustee shall be
entitled to the benefits of Sections 8.1 and 8.3. No implied covenants or
obligations shall be read into this Trust Agreement against the Delaware
Trustee.
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 Administrative Trustees and the Property
Trustee shall have the power and authority, and are hereby authorized and
directed, to enter into all transactions and agreements determined by any such
Trustee to be appropriate in exercising the authority, express or implied,
otherwise granted to it 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 and is hereby
authorized to act on behalf of the Trust with respect to the following
matters:
(A) to execute, deliver, issue and sell the Trust
Securities and to acquire the Series A Subordinated Debentures
with the proceeds of the sale of the Trust Securities; provided,
however, that the Administrative Trustees shall cause legal title
to the Series A Subordinated Debentures to be held of record in
the name of the Property Trustee for the benefit of the
Securityholders;
(B) to cause the Trust to enter into, and to execute,
deliver and perform on behalf of the Trust, as the case may be,
the Certificate Depository Agreement, the Underwriting Agreement
and each other agreement, instrument and certificate (including,
without limitation, such certificates and gross receipts as may be
requested in connection with the issuance and sale of the Trust
Securities and the purchase of the Series A Subordinated
Debentures) as such Administrative Trustee deems necessary,
desirable or incidental in connection with the purposes and
function of the Trust;
(C) to assist in the registration of the Series A Capital
Securities and the Series A Guarantee 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
13
<PAGE> 20
indenture under the Trust Indenture Act and to cause the Trust to
take any action deemed in such Administrative Trustee's discretion
to be necessary, advisable or convenient to comply with the
Trust's obligations under the Trust Indenture Act;
(D) to assist 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) to send 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) to appoint a Paying Agent and Securities Registrar in
accordance with this Trust Agreement;
(G) to cause the registration of the transfer of the Trust
Securities in accordance with this Trust Agreement;
(H) to the extent provided in this Trust Agreement, to wind
up the affairs of and liquidate the Trust and prepare, execute and
file the certificate of cancellation with the Secretary of State
of the State of Delaware;
(I) to execute on behalf of the Trust (either acting alone
or together with any or all of the Administrative Trustees) any
documents that the Administrative Trustees have the power to
execute pursuant to this Trust Agreement; and
(J) to take any action incidental to the foregoing as the
Administrative Trustees may from time to time determine in their
discretion is necessary, advisable or convenient 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), including, but not
limited to:
(i) causing the Trust not to be deemed to be "investment
company" required to be registered under the 1940
Act;
(ii) ensuring the Trust will be classified for United
States federal income tax purposes as a grantor
trust at all times that any Trust Securities are
outstanding;
(iii) causing the Trust not to be classified for United
States federal income tax purposes as a corporation;
and
14
<PAGE> 21
(iv) cooperating with the Depositor to ensure that the
Series A Subordinated Debentures will be treated as
indebtedness of the Depositor for United States
federal income tax purposes.
(ii) As among the Trustees, the Property Trustee shall have the
power and authority and is hereby authorized to act on behalf of the
Trust with respect to the following matters:
(A) the authentication of Series A Capital Securities
Certificates delivered to it for authentication by or on behalf of
an Administrative Trustee and the establishment of the Payment
Account;
(B) the receipt of and taking title to the Series A
Subordinated Debentures;
(C) the collection in the Payment Account of interest,
principal and any other payments received by the Property Trustee
in respect of the Series A Subordinated Debentures;
(D) the distribution from the Trust Property actually
received and held by it of amounts owed to the Securityholders in
respect of the Trust Securities pursuant to this Trust Agreement;
(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 actually
received and held by it 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;
(I) the taking of any action incidental to the foregoing
(including executing any certificate or acknowledgment of the
Property Trustee's receipt of the Series A Subordinated
Debentures) as the Property Trustee may from time to time
determine is necessary or advisable to give effect to the terms of
this Trust Agreement and protect and conserve the Trust Property
for the benefit of the Securityholders (without consideration of
the effect of any such action on any particular Securityholders);
15
<PAGE> 22
(J) subject to 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); and
(K) to act as Paying Agent and/or Securities Register to
the extent appointed as such hereunder and executing and
delivering from time to time, letters, documents or instruments
with the Clearing Agency relating to Series A Capital Securities,
including, without limitation, the Certificate Depository
Agreement.
(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 Trust shall not, the Trustees shall not and the
Administrative Trustees shall cause the Trust not to (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, (iii) take any action that, to such
Trustee's actual knowledge, 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, to such Trustee's actual knowledge, 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 all
such proceeds shall be distributed 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, power, authority and
responsibility, and is hereby authorized, to assist the Trust with respect to,
or to 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 taking of any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and
16
<PAGE> 23
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, delivery
and performance of, the Underwriting Agreement providing for the sale of
the Series A Capital Securities and such other agreements as the
Depositor determines are necessary or incidental to the purposes and
functions of the Trust; and
(v) the taking of any other actions necessary or incidental to
carry out any of the foregoing activities.
(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.
17
<PAGE> 24
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.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
Section 4.1 Distributions.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Additional Amounts) will be payable
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 July 31,
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
18
<PAGE> 25
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 9.0% per annum of the Liquidation Amount of the
Trust Securities, which is 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 actually
received by the Property Trustee and 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 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 prepared by or on behalf of the
Administrative Trustees and delivered to the Property Trustee and shall then 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 aggregate Liquidation Amount of
the particular Trust Securities to be redeemed;
19
<PAGE> 26
(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 of Series A Subordinated Debentures 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 actually received by the Property Trustee and 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 and to the extent 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 and to the extent 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 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
20
<PAGE> 27
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 record 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 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 that are to be redeemed. 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 (unless
the Property Trustee is then serving as 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 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; it being understood that, in the case of Preferred Securities
registered in the name of and held of record by the Clearing Agency or its
nominee, the distribution of the proceeds of such redemption will be made in
accordance with the procedures of the Clearing Agency or its nominee. For all
purposes of this Declaration, unless the context otherwise required, all
provisions relating to the redemption of Trust Securities shall relate, in the
case of any Trust Securities redeemed or to be redeemed only in part, to the
portion of the Liquidation Amount of Trust Securities which has been or is to be
redeemed. In the event of any redemption in part, the Trust shall not be
required to (i) issue, or register the transfer of or exchange of, any Preferred
Security during a period beginning at the opening of business 15 days before any
selection of the Preferred Securities to be redeemed and ending at the close of
business on the earliest date in which the relevant notice of redemption is
deemed to have been given to all holders of preferred Securities to be so
redeemed pursuant to Section 10.8 or (ii) register the transfer of or exchange
of any Preferred Securities so selected for redemption, in whole or in part,
except for the unredeemed portion of any Preferred Securities being redeemed in
part.
21
<PAGE> 28
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 a Responsible Officer of the Property Trustee has actual
knowledge that 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.
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
22
<PAGE> 29
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 Property Trustee and Administrative
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.
23
<PAGE> 30
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/or
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 executive vice president, any managing director or any vice
president, treasurer, assistant treasurer or controller without further
corporate action by the Depositor, in authorized denominations.
A Series A Capital Security Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the Property
Trustee. The signature shall be conclusive evidence that the Series A Capital
Security Certificate has been authenticated under this Trust Agreement. Upon a
written order of the Trust signed by one Administrative Trustee, the Property
Trustee shall authenticate the Series A Capital Security Certificate for
original issue.
The Property Trustee may appoint an authenticating agent acceptable to
the Administrative Trustees to authenticate Series A Capital Security
Certificates. An authenticating agent may authenticate Series A Capital Security
Certificates whenever the Property Trustee may do so. Each reference in this
Trust Agreement to authentication by the Property Trustee includes
authentication by such agent. An authenticating agent has the same rights as the
Property Trustee to deal with the Depositor or an Affiliate with respect to the
authentication of Series A Capital Security Certificates.
24
<PAGE> 31
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. The Property Trustee
shall be the initial Securities Registrar. The rights and protections of the
Property Trustee under this Trust Agreement, including, without limitation,
Sections 8.1, 8.3 and 8.6, shall also apply to the Property Trustee when serving
as Securities Registrar.
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, authenticated by the Property
Trustee, in authorized denominations of a like aggregate Liquidation Amount
dated the date of execution by such Administrative Trustee or Trustees.
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.
Upon a written order of the Trust signed by one Administrative Trustee
and delivered to the Property Trustee, the Property Trustee shall authenticate
all Series A Capital Security Certificates presented to it for authentication
under this Section 5.4, Section 5.5. or Section 5.13.
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.
25
<PAGE> 32
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 protected purchaser (as
defined in Article 8 of the Delaware Uniform Commercial Code), 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 (authenticated by the Property Trustee in the case of any
new Series A Capital 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.
26
<PAGE> 33
Section 5.7 Access to List of Securityholders' Names and Addresses.
The Administrative Trustees or the Depositor shall furnish or cause to be
furnished (unless the Property Trustee is acting as Securities Registrar with
respect to the Trust Securities under the Declaration) a list, in such form as
the Property Trustee may reasonably require, of the name and addresses of the
Securityholders as of the most recent date (a) to the Property Trustee,
quarterly at least five Business Days before each Distribution Date, and (b) to
the Property Trustee, promptly after receipt by the Depositor of a request
therefor from the Property Trustee in order to enable the Property Trustee to
discharge its obligations under this Declaration, in each case to the extent
such information is in the possession or control of the Administrative Trustees
or the Depositor and is not identical to a previously supplied list or has not
otherwise been received by the Property Trustee in its capacity as Securities
Registrar. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Declaration or under the
Trust Securities, and the corresponding rights of the Property Trustee shall be
as provided in the Trust Indenture Act, except to the extent Section 3819 of the
Delaware Business Trust Act would require greater access to such information, in
which case the latter shall apply. Each Holder, by receiving and holding a Trust
Securities Certificate, 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. 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 the Corporate Trust Office of the
Property Trustee located at 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.
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 the Property
27
<PAGE> 34
Trustee, and any co-paying agent chosen by the Property Trustee, 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 the Property Trustee 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 the Trust Agreement, including, without limitation, Sections 8.1,
8.3 and 8.6, shall apply to the Property Trustee also in its role as Paying
Agent, for so long as the Property Trustee 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
Trust 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".
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, or a custodian therefor, 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
28
<PAGE> 35
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.
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,
29
<PAGE> 36
Owners of Series A Capital Security Certificates representing beneficial
interests aggregating not less than a majority of the Liquidation Amount of
Series A Capital Securities then outstanding 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 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
and the Property Trustee shall authenticate each such Definitive Series A
Capital Security Certificate presented to it for authentication under this
Section 5.13. 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 interest in the assets of the 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 to subscribe for additional Trust
Securities and, when issued and delivered to Securityholders against payment of
the purchase price therefor, will be duly and validly issued, 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
30
<PAGE> 37
principal of all of the Series A Subordinated Debentures to be immediately due
and payable, the Holders of not less than 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 not less than a majority in
Liquidation Amount of the Series A Capital Securities then outstanding, 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
(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 not less than a majority in aggregate Liquidation Amount
of the Series A Capital Securities then outstanding 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
31
<PAGE> 38
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 is 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
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.
If the Guarantee Trustee (as defined in the Guarantee) fails to enforce
the Guarantee, any Holder of the Preferred Securities may institute a legal
proceeding directly against the Depositor under the Guarantee to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the Guarantee Trustee, the Trust or any other Person. In addition, any Holder of
Preferred Securities shall have the right, which is absolute and unconditional,
to proceed directly against the Depositor to obtain payments under the
Guarantee, without first waiting to
32
<PAGE> 39
determine if the Guarantee Trustee has enforced the Guarantee or instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other Person.
Similarly, a Holder of Common Securities shall have the right, which is absolute
and unconditional, to proceed against the Depositor to obtain payment under that
certain Guarantee Agreement dated July 31, 1998, of the Guarantor relating to
the Common Securities.
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 expressly provides that a
consent thereunder 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 previously
authorized or approved by a vote of the
33
<PAGE> 40
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 not less than 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 Administrative Trustees
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 not less than 25% in Liquidation Amount of the
Outstanding Series A Capital Securities 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 not less than 50% in Liquidation
Amount of the Outstanding Series A Capital Securities, present in person or by
proxy, shall constitute a quorum at any meeting of Capital Securityholders.
34
<PAGE> 41
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding not less than
a majority in Liquidation Amount of the Outstanding Series A Capital Securities
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. 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 at such time by the Depositor, the Trustees or any affiliate of any
Trustee shall, for purposes of such vote or consent, be treated as if such
Series A Capital Securities were not Outstanding.
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 not less than a majority in
Liquidation Amount of all Outstanding Trust Securities 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.
35
<PAGE> 42
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.
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
36
<PAGE> 43
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.
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, each severally on behalf
of and as to only 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 corporate 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 corporate 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
37
<PAGE> 44
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 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 or trust 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 Delaware governmental authority or agency under
any existing Delaware law governing the banking or trust 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
38
<PAGE> 45
(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.
39
<PAGE> 46
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, a Trustee has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to the Securityholders, such
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 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 Trustees, subject, in the case of the Property Trustee, to
Section 10.11.
(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:
40
<PAGE> 47
(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 upon which such judgment
was made;
(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 Series A Capital 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 a Responsible Officer of the Property
Trustee has actual knowledge of the occurrence of any Event of Default, 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 a Responsible Officer of the
Property Trustee has actual knowledge that such Event of Default shall have been
cured or waived.
Within five Business Days after the receipt of written 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.
41
<PAGE> 48
Section 8.3 Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may conclusively, rely and shall be protected in
acting or refraining from acting in good faith upon any resolution, Opinion of
Counsel, certificate, written representation or instruction 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, sent 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 specifically 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 and shall have no liability
whatsoever for such action or inaction by it in accordance with such
instructions; 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 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 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) if a Responsible Officer of the Property Trustee has obtained actual
knowledge that an Event of Default has occurred and is continuing and (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 in this Declaration 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 Holders of Series A
Capital Securities are specifically entitled to vote under the terms of this
Trust Agreement, the Property Trustee may deliver a notice to the Holders
requesting written instructions of the Holders 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 not less than a majority in Liquidation Amount of the
Outstanding Series A Capital Securities and shall have no liability whatsoever
for such action or inaction; provided, however, that if the Property Trustee
does not receive such instructions of the Holders within ten Business Days after
it has delivered such notice, or such 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
42
<PAGE> 49
from taking such action as it shall deem advisable and in the best interests of
the Holders, in which event the Property Trustee shall have no liability except
for its own bad faith, negligence or willful misconduct;
(d) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(e) 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 and/or an Opinion of
Counsel, which, upon receipt of such request, shall be promptly delivered by the
Depositor or the Administrative Trustees;
(f) the Property Trustee shall have no duty to cause or carry out 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;
(g) 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 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 and in accordance with such advice or opinion; 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;
(h) 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 security or
indemnity reasonably satisfactory to the Property Trustee against the costs,
expenses (including reasonable attorneys' fees and expenses and the expenses of
the Property Trustees agents, nominees or custodians) and liabilities which
might be incurred by it in compliance with such request or direction, including
such reasonable advances as may be requested by the Property Trustee;
(i) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, bond, debenture, note or other evidence of indebtedness or other paper
or document, unless specifically requested and directed in writing to do so by
one or more Securityholders, but the Property Trustee may in its discretion make
such further inquiry or investigation into such facts or matters as it may see
fit;
(j) 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, custodians, nominees or attorneys or an Affiliate, provided that the
Property Trustee shall be responsible for its own negligence
43
<PAGE> 50
with respect to selection of any agent or attorney appointed by it hereunder but
shall not be responsible for any misconduct or negligence on the part of such
Person;
(k) 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 conclusively relying on or acting in
accordance with such written instructions;
(l) 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; and
(m) the Property Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith, without negligence or
willful misconduct, and reasonably believed by it to be authorized or within the
discretion or rights or powers conferred upon it by 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.
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 not of the Trustees, 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. The Trustees make no
representations as to the value or condition of the Trust Property or any part
thereof. The Trustees make no representations as to the validity or sufficiency
of this Trust Agreement or the Trust Securities.
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.
44
<PAGE> 51
Section 8.6 Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to each of the Trustees from time to time such compensation
for all services rendered by such Trustee hereunder as the Depositor and such
Trustee may agree upon in writing from time to time (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse each
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by such Trustee 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;
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) WTC and each Trustee, (ii) any Affiliate of WTC or any
Trustee, (iii) any officer, director, shareholder, employee, representative or
agent of WTC or any Trustee, and (iv) any employee or agent of the Trust or its
Affiliates (each 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, dissolution 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 its own 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 fees 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; and
(d) to the fullest extent permitted by applicable law, from time to time,
prior to the final disposition of any claim, demand, action, suit or proceeding
for which indemnification is authorized pursuant to subsection (c) above, to
advance any expenses (including reasonable legal fees) incurred by an
Indemnified Person in defending such claim, demand, action, suit or proceeding
upon receipt by the Depositor of an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified as authorized in subsection
(c) above.
The provisions of this Section 8.6 shall survive the resignation or
removal of the Property Trustee and the Delaware Trustee and shall survive the
satisfaction, discharge and termination of this Trust Agreement.
45
<PAGE> 52
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.
46
<PAGE> 53
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
47
<PAGE> 54
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 or
omission 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 not less than 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
48
<PAGE> 55
the 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.
No Property Trustee or Delaware Trustee shall be liable for the acts or
omissions of any successor Property Trustee or successor Delaware Trustee, as
the case may be.
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).
49
<PAGE> 56
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, and upon
payment in full of all amounts due to it under this Trust Agreement, 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.
50
<PAGE> 57
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
51
<PAGE> 58
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.
52
<PAGE> 59
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.
53
<PAGE> 60
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
Section 9.1 Dissolution Upon Expiration Date.
Unless earlier dissolved, the Trust shall automatically dissolve on July
31, 2053 (the "Expiration Date").
Section 9.2 Early Dissolution.
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 dissolve 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 last 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 Dissolution 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 Administrative Trustees as expeditiously as the Administrative Trustees
determine to be possible by distributing, after the
54
<PAGE> 61
payment or the making of reasonable provisions for the payment of liabilities to
creditors of the Trust as provided by applicable law, including Section 3803(e)
of the Business Trust Act, to each Securityholder a Like Amount of Series A
Subordinated Debentures, subject to Section 9.4(d). Notice of liquidation shall
be prepared by the Administrative Trustees and 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.
55
<PAGE> 62
(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 the payment or the making
of reasonable provisions for the payment of liabilities to creditors of the
Trust as provided by applicable law, including Section 3808(e) of the Business
Trust Act, 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.
(e) After the dissolution and upon completion of the winding up of the
Trust, the Trustees (each of whom is authorized to take such action) shall
terminate the Trust by filing a certificate of cancellation with the Secretary
of State of the State of Delaware.
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,
56
<PAGE> 63
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 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) Subject to Section 6.1(c), this Trust Agreement may be amended from
time to time by the Property Trustee, the Administrative Trustees and the
Depositor, without the consent of
57
<PAGE> 64
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 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 in
Liquidation Amount 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 WTC, the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement, including this
Section 10.3(g), which affects
58
<PAGE> 65
its own rights, powers, duties or immunities under this Trust Agreement. Without
its prior written consent, and any such amendment or purported amendment,
including to this Section 10.3(g), shall be void an ineffective without such
prior written consent, which consent may be withheld in its sole discretion. 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.
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 NEW YORK (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.
59
<PAGE> 66
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, Arlington, Virginia 22201,
Attention: Treasurer, 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; Attention: Corporate Trust
Administration; 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.
60
<PAGE> 67
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 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.
61
<PAGE> 68
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 and the Depositor to one of such
counterpart signature pages. All of such counterpart signature pages shall be
read as though one, and they shall have the same force and effect as though all
of the signers had signed a single signature page.
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
62
<PAGE> 69
---------------------------------------
AILEEN LOPEZ PUGH
as Administrative Trustee
63
<PAGE> 70
EXHIBIT A
CERTIFICATE OF TRUST
OF
TELEBANC CAPITAL TRUST II
This Certificate of Trust of TeleBanc Capital Trust II is being executed and
filed by the undersigned, as trustees, for the purposes of forming a business
trust pursuant to the Delaware Business Trust Act (12 Del. C. Sections 3801 et
seq.).
1. Name. The name of the business trust formed hereby is "TeleBanc Capital
Trust II" (the "Trust").
2. Delaware Trustee. The name and business address of the trustee of the
Trust that has its principal place of business in the State of Delaware are as
follows:
Wilmington Trust Company Rodney Square North 1100 North Market
Street Wilmington, Delaware 19890-0001
IN WITNESS WHEREOF, the undersigned, being all of the initial
trustees of the Trust, have duly executed this Certificate of
Trust.
WILMINGTON TRUST COMPANY
as Delaware Trustee
By: /s/ Wilmington Trust Company /s/ Aileen Lopez Pugh
---------------------
Name: As Administrative Trustee
/s/ David Smilow /s/ Mitchell Caplan
-------------------
As Administrative Trustee As Administrative Trustee
<PAGE> 71
EXHIBIT B
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Agent]
TeleBanc Capital Trust II
- --------------------------------------------------------------------------------
[Name of Issuer]
Wilmington Trust Company
- --------------------------------------------------------------------------------
[Name of Agent]
July 30, 1998
-------------
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street, 49th Floor
New York, NY 10041-0099
Re: Aggregate Liquidation Amount $27,500,000 of TeleBanc Capital Trust II
-----------------------------------------------------------------------
9.0% Beneficial Unsecured Securities, Series A, CUSIP No. 87925Y 2 03
-----------------------------------------------------------------------
[Issue Description]
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating to
the issuance and deposit with The Depository Trust Company ("DTC") of the 9.0%
Beneficial Unsecured Securities, Series A (the "Securities") of TeleBanc Capital
Trust II, a Delaware business trust (the "Issuer"), created pursuant to a Trust
Agreement, as amended and restated, among TeleBanc Financial Corporation, as
Depositor (the "Company"), Wilmington Trust Company, the Administrative Trustees
named therein and the several Holders named therein. The payment of
distributions on the Securities and payments due upon liquidation of the Issuer
or redemption of the Securities, to the extent the Issuer has funds available
for the payment therefor, are guaranteed by the Company to the extent set forth
in a Guarantee Agreement to be entered into by the Company
1
<PAGE> 72
and Wilmington Trust Company, as guarantee trustee with respect to the
Securities. The Company and the Issuer propose to sell the Securities to CIBC
Oppenheimer Corp., Legg Mason Wood Walker, Incorporated and BancAmerica
Robertson Stephens (the "Underwriters") pursuant to an underwriting agreement to
be entered into by and among CIBC Oppenheimer Corp. as representative of the
Underwriters, the Issuer and the Company, and the Underwriters wish to take
delivery of the Securities through DTC.
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Agent make the following representations to DTC:
1. Prior to closing on the Securities on July 31, 1998, there shall be
deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., representing an aggregate of 1,100,000 Securities. If,
however, the aggregate liquidation amount of any maturity exceeds $200 million,
one certificate will be issued with respect to each $200 million of liquidation
amount and an additional certificate will be issued with respect to any
remaining liquidation amount. Each Security certificate shall bear the following
legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation
("DTC"), to Issuer or its agent for registration of transfer, exchange,
or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein.
2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer or Agent shall establish a record date for
such purposes (with no provision for revocation of consents or votes by
subsequent holders) and shall send notice of such record date to DTC not less
than 15 calendar days in advance of such record date. Notices to DTC pursuant to
this Paragraph by telecopy shall be sent to DTC's Reorganization Department at
(212) 709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed
by telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail
or by any other means shall be sent to DTC's Reorganization Department as
indicated in Paragraph 5.
4. In the event of a full or partial redemption, Issuer or Agent shall
send a notice to DTC specifying: (a) the amount of the redemption or refunding;
(b) in the case of a refunding, the maturity date(s) established under the
refunding; and (c) the date such notice is to be mailed to Security holders or
published (the "Publication Date"). Such notice shall be sent to DTC by a
2
<PAGE> 73
secure means (e.g., legible telecopy, registered or certified mail, overnight
delivery) in a timely manner designed to assure that such notice is in DTC's
possession no later than the close of business on the business day before or, if
possible, two business days before the Publication Date. Issuer or Agent shall
forward such notice either in a separate secure transmission for each CUSIP
number or in a secure transmission for multiple CUSIP numbers (if applicable)
which includes a manifest or list of each CUSIP number submitted in that
transmission. (The party sending such notice shall have a method to verify
subsequently the use of such means and the timeliness of such notice.) The
Publication Date shall be not less than 30 days nor more than 60 days prior to
the redemption date or, in the case of an advance refunding the date that the
proceeds are deposited in escrow. Notices to DTC pursuant to this Paragraph by
telecopy shall be sent to DTC's Call Notification Department at (516) 227-4039
or (515) 227-4190. If the party sending the notice does not receive a telecopy
receipt from DTC confirming that the notice has been received, such party shall
telephone (516) 227-4070. Notices to DTC pursuant to this Paragraph by mail or
by any other means shall be sent to:
Manager: Call Notification Department
The Depository Trust Company
711 Stewart Avenue
New York, NY 11530-4719
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Agent to
Security holders specifying the terms of the tender and the Publication Date of
such notice shall be sent to DTC by a secure means in the manner set forth in
the preceding Paragraph. Notices to DTC pursuant to this Paragraph and notices
of other corporate actions by telecopy shall be sent to DTC's Reorganization
Department at (212) 709-1093 or (212) 709-1094, and receipt of such notices
shall be confirmed by telephoning (212) 709-6884. Notices to DTC pursuant to the
above by mail or by any other means shall be sent to:
Manager: Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004-2695
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities.
7. In the event of a change in the interest rate, Agent shall send
notice of such change to Standard & Poor's Corporation. Such notice, which shall
also include Agent contract's name and telephone number, shall also be sent to
DTC's Dividend Department either by telecopy of (212) 709-1723, or if by mail or
by any other means to:
3
<PAGE> 74
Manager: Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
8. Issuer or Agent shall provide a written notice of interest payment
information to a standard interest announcement service subscribed to by DTC as
soon as the information is available. In the unlikely event that no such service
exists, Issuer or Agent shall provide such notice directly to DTC
electronically, as previously arranged by Issuer or Agent and DTC, as soon as
the information is available. If electronic transmission has not been arranged,
absent any other arrangements between Issuer or Agent and DTC, such information
should be sent by telecopy to DTC's Dividend Department at (212) 709-1723 or
(212) 709-1686, and receipt of such notices shall be confirmed by telephoning
(212) 709-1270. Notices to DTC pursuant to the above by mail or by any other
means shall be sent to:
Manager: Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
9. Issuer or Agent shall provide CUSIP numbers for each issue for which
payment is being sent, as well as the dollar and cent amount of the payment for
each issue to DTC, no later than noon (Eastern Time) on the payment date.
10. Interest payments and principal payments that are part of periodic
principal and interest payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns, in same-day funds no later than 2:30 p.m.
(Eastern Time) on each payment date. Absent any other agreements between Issuer
or Agent and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-026776
11. Maturity and redemption payments allocated with respect to each
CUSIP number shall be received by Cede & Co., as nominee of DTC, or its
registered assigns, in same-day funds no later than 2:30 p.m. (Eastern Time) on
the payment date. Absent any other arrangements between Issuer or Agent and DTC,
such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account # 066-027306
4
<PAGE> 75
12. Principal payments (plus accrued interest, if any) as a result of
optional tenders for purchase effected by means of DTC's Repayment Option
Procedures shall be received by Cede & Co., as nominee of DTC, or its registered
assigns, in same-day funds no later than 2:30 p.m. (Eastern Time) on the first
payment date. Absent any other arrangements between Issuer or Agent and DTC,
such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account # 066-027608
13. DTC may direct Issuer or Agent to use any other number or address
as the number or address to which notices or payments of interest or principal
may be sent.
14. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Agent's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Agent to issue
and authenticate a new Security certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in principal except in the case of final maturity, in which case the
certificate will be presented to Issuer or Agent prior to payment, if required.
15. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Agent
shall notify DTC of the availability of certificates. In such event, Issuer or
Agent shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
16. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent (at which time DTC will confirm with Issuer or Agent the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request Issuer and Agent shall cooperate fully with DTC by taking appropriate
action to make available one or more separate certificates evidencing Securities
to any DTC Participant having Securities credited to its DTC accounts.
17. Nothing herein shall be deemed to require Agent to advance funds on
behalf of Issuer.
18. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together shall constitute but one and the same
instrument.
19. This Letter of Representations is governed by, and shall be
construed in accordance with, the laws of the State of New York without giving
effect to principles of conflicts of law.
5
<PAGE> 76
20. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:
Rider 1
- --------------------------------------------------------------------------------
Representations for Pro Rata Reduction of Principal
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NOTES:
A. If there is an Agent (as defined Very truly yours,
in this Letter of Representations),
Agent, as well as Issuer, must sign TeleBanc Capital Trust II
this Letter. If there is no Agent, --------------------------------------------------
in signing this Letter Issuer (Issuer)
itself undertakes to perform all of
the obligations set forth herein.
By: /s/ Aileen Lopez Pugh
B. Schedule B contains statements --------------------------------------------------
that DTC believes accurately (Authorized Officer's Signature)
describe DTC, the method of
effecting book-entry transfers of
securities distributed through DTC,
and certain related matters. Wilmington Trust Company
--------------------------------------------------
(Agent)
By:
--------------------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
--------------------------------
CC: Underwriter
Underwriter's Counsel
</TABLE>
6
<PAGE> 77
SCHEDULE A
----------
Aggregate Liquidation Amount $27,500,000 of TeleBanc Capital
- --------------------------------------------------------------------------------
Trust II 9.0% Beneficial Unsecured Securities, Series A
- --------------------------------------------------------------------------------
(DESCRIBE ISSUE)
<TABLE>
<CAPTION>
CUSIP NUMBER LIQUIDATION AMOUNT INTEREST RATE
------------ ------------------ -------------
<S> <C> <C>
87925Y 2 03 $27,500,000 9.0%
</TABLE>
1
<PAGE> 78
SCHEDULE B
----------
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. 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 Securities Exchange
Act of 1934. DTC holds securities that its participants ("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 a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the 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 Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
1
<PAGE> 79
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such 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.
5. 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 will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's presence is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Principal and interest payments on the Securities will be made to
Cede & Co., as nominee of DTC. DTC's practice is to credit Direct Participants'
accounts, upon DTC's receipt of funds and corresponding detail information from
Issuer or Agent, on payable date in accordance with their respective holdings
shown on DTC's records. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of Issuer or Agent, disbursement
of such payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement for
physical delivery of Securities in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records and followed
by a book-entry credit of tendered Securities to [Tender/DTC Remarketing]
Agent's account.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
2
<PAGE> 80
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
3
<PAGE> 81
[DTC LOGO]
REPRESENTATIONS FOR PRO RATA REDUCTION OF PRINCIPAL
to be included in DTC Letter of Representations
---------------------------------------------------
In the event of a pro rata reduction of principal, Trustee/Agent shall
send DTC written notice with respect to the dollar amount per $1,000 original
face value (or other minimum authorized denomination if less than $1,000 face
value) payable on each payment date allocated as to the interest and principal
portions thereof preferably 5, but not less than 2, business days prior to such
payment date. Such notices, which shall clearly indicate that they relate to a
pro rata reduction of principal and which shall also contain the current pool
factor or ratio and Trustee/Agent contact's name and telephone number, shall be
sent by telecopy to DTC's Dividend Department at (212) 855-4555, or if by mail
or by any other means to:
Manager; Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
1
<PAGE> 82
EXHIBIT C
This Capital Security is a Global Certificate within the meaning of the Trust
Agreement hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depositary") or a nominee of the Depositary. This
Capital Security is exchangeable for Capital Securities registered in the name
of a person other than the Depositary or its nominee only in the limited
circumstances described in the Trust Agreement and no transfer of this Capital
Security (other than a transfer of this Capital Security as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary) may be registered except in
such limited circumstances.
Unless this Capital Security is presented by an authorized representative of the
Depositary to TeleBanc Capital Trust II or its agent for registration of
transfer, exchange or payment, and any Capital Security issued is registered in
the name of Cede & Co. or such other name as requested by an authorized
representative of the Depositary and any payment hereon is made to Cede & Co. or
to such other entity as is requested by an authorized representative of the
Depositary, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
<TABLE>
<S> <C>
Certificate No.: Number of Capital Securities: 1,100,000
P-__ Aggregate Liquidation Amount of Capital Securities: $27,500,000
CUSIP No. 87925Y 2 03
</TABLE>
Certificate Evidencing Capital Securities
of
TELEBANC CAPITAL TRUST II
9.0% Beneficial Unsecured Securities, Series A
(Liquidation Amount $25 per Capital Security)
TELEBANC CAPITAL TRUST II, a statutory business trust created under the
laws of the State of Delaware (the"Trust"), hereby certifies that Cede & Co.
(the "Holder") is the registered owner of capital securities of the Trust in the
aggregate liquidation amount of $27,500,000, representing an undivided
beneficial ownership interest in the assets of the Trust and designated the
TeleBanc Capital Trust II 9.0% Beneficial Unsecured Securities, Series A
(liquidation amount $25 per Capital Security) (the "Capital Securities"). The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.4 of the Trust
Agreement (as defined below). The designations, rights, privileges, restrictions
preferences and other terms and provisions of the Capital Securities are set
forth in, and this Certificate and the Capital Securities represented hereby are
issued and shall in all respects be subject to, the terms and provisions of, the
Amended and Restated Trust Agreement of the Trust dated as of July 31, 1998, as
the same may be amended from time to time (the "Trust Agreement"), including the
designation of the terms of Capital Securities as set forth therein. The Holder
is entitled to the benefits of the Guarantee Agreement entered into by TeleBanc
Financial Corporation, a Delaware corporation (the "Company"), and Wilmington
Trust Company, a Delaware banking corporation ("WTC"), as guarantee trustee,
dated as of July 31, 1998 (the "Guarantee"), to the extent provided therein. The
Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder and by acceptance hereof
agrees to the provisions of (i) the Guarantee and (ii) the Junior Subordinated
Indenture entered into by the Company and WTC, as trustee, dated as of July 31,
1998.
1
<PAGE> 83
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed
this certificate.
TELEBANC CAPITAL TRUST II
By:
----------------------------
Administrative Trustee
This is one of the Securities referred to in the within mentioned Trust
Agreement.
Date of Authentication: July 31, 1998
Wilmington Trust Company, as Property Trustee
By:
----------------------------------------
Name:
Title:
2
<PAGE> 84
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
to:
-----------------------------------------------------
------------------------------------
[Insert assignee's social security or tax identification number]
- --------------------------------------------------------------------------------
[Insert address and zip code of assignee]
and irrevocably appoints:
------------------------------------------------------
agent to transfer this Capital Securities Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date:
------------------
Signature:
----------------------------
[Sign exactly as your name appears on the other side of this Capital Security
Certificate]
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.1
3
<PAGE> 85
EXHIBIT D
COMMON SECURITY CERTIFICATE
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") , OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS COMMON SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS COMMON SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER THIS COMMON SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH TELEBANC FINANCIAL
CORPORATION (THE "CORPORATION") OR ANY "AFFILIATE" OF THE CORPORATION WAS THE
OWNER OF THIS CAPITAL SECURITY (OR ANY PREDECESSOR OF THIS CAPITAL SECURITY)
ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS COMMON
SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT 0R FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS COMMON SECURITY FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE
IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF TELEBANC CAPITAL TRUST II (THE
"TRUST") AND THE CORPORATION PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii)
PURSUANT TO CLAUSE (D) TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE REVERSE OF THIS COMMON SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEREE TO THE TRUST. SUCH HOLDER FURTHER AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS COMMON SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND.
<PAGE> 86
Certificate Evidencing Series A Common Securities
of
TeleBanc Capital Trust II
9.0% Series A Common Securities, Series A
(liquidation amount $25 per Series A Common Security)
TeleBanc Capital Trust II, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that TeleBanc
Financial Corporation (the "Holder") is the registered owner of thirty-four
thousand and twenty-one (34,021) common securities of the Trust, representing
undivided beneficial interests in the assets of the Trust, designated the 9.0%
Series A Common Securities, Series A (liquidation amount $25 per Series A Common
Security) (the "Series A Series A Common Securities"). The Series A Series A
Common Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this Certificate duly
endorsed and in proper form for transfer. The designation, rights, privileges,
restrictions, preferences and other terms and provisions of the Series A Series
A Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Trust Agreement of the
Trust dated as of July 31, 1998, as the same may be amended from time to time
(the "Series A Trust Agreement"), including the designation of the terms of the
Series A Series A Common Securities. Capitalized terms used but not defined
herein shall have the meaning given them in the Series A Trust Agreement.
TeleBanc Financial Corporation, in its capacity as Sponsor of the Trust (the
"Sponsor"), will provide a copy of the Series A Trust Agreement, the Series A
Guarantee and the Indenture (including any supplemental indenture) to the Holder
without charge upon written request to the Sponsor at its principal place of
business.
Upon receipt of this Certificate, the Holder is bound by the Series A
Trust Agreement and is entitled to the benefits thereunder and to the benefits
of the Series A Guarantee to the extent provided therein.
By acceptance hereof, the Holder agrees to treat, for United States
federal income tax purposes, the Series A Subordinated Series A Subordinated
Debentures as indebtedness and the Series A Series A Common Securities as
evidence of indirect beneficial ownership in the Series A Subordinated Series A
Subordinated Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this 31st
day of July, 1998.
TELEBANC CAPITAL TRUST II
By:
----------------------------------
Name: Aileen Lopez Pugh
Administrative Trustee
-2-
<PAGE> 87
REVERSE OF SECURITY
Distributions payable on each Series A Common Security will be fixed at
a rate per annum of 9.0% (the "Coupon Rate") of the liquidation amount of $25
per Series A Common Security, such rate being the rate of interest payable on
the Series A Subordinated Debentures to be held by the Property Trustee.
Distributions in arrears for more than one quarterly period will bear interest
thereon compounded semiannually at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions," as used herein, includes such cash
distributions and any such interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Series A Subordinated Debentures held by the Property Trustee and to the
extent the Property Trustee has funds legally available therefor.
Distributions on the Series A Common Securities will be cumulative,
will accrue from the date of original issuance 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, except as otherwise described below.
Distributions will be computed on the basis of a 360-day year consisting-of
twelve 30-day months. As long as no Event of Default has occurred and is
continuing under the Indenture, TeleBanc Financial Corporation has the right
under the Indenture to defer payments of interest by extending the interest
payment period at any time and from time to time on the Series A Subordinated
Debentures for a period not exceeding 20 consecutive quarterly periods, (each an
"Extension Period"), provided that no Extension Period shall extend beyond the
Stated Maturity of the Series A Subordinated Debentures. As a consequence of
such deferral, Distributions will also be deferred. Notwithstanding such
deferral, Distributions will continue to accumulate with interest thereon (to
the extent permitted by applicable law, but not at a rate exceeding the rate of
interest then accruing on the Series A Subordinated Debentures) at the Coupon
Rate compounded quarterly during any such Extension Period. Prior to the
termination of any Extension Period, the Series A Subordinated TeleBanc
Financial Corporation may further defer payments of interest by further
extending such Extension Period; provided that such Extension Period, together
with all such previous and further extensions within such Extension Period, may
not (i) exceed 20 consecutive quarterly periods or (ii) extend beyond the Stated
Maturity of the Series A Subordinated Debentures. Payments of accrued
Distributions will be payable to Holders as they appear on the books and records
of the Trust on the record date immediately preceding the end of the Extension
Period. Upon the termination of any Extension Period and the payment of all
amounts then due, TeleBanc Financial Corporation may commence a new Extension
Period, subject to the above requirements.
Subject to the receipt by the Sponsor of any required regulatory
approvals and to certain other conditions set forth in the Series A Trust
Agreement and the Indenture, the Property Trustee may, at the direction of the
Sponsor, at any time terminate the Trust and cause the Series A Subordinated
Debentures to be distributed to the holders of the Series A Capital Securities
and Series A Common Securities in liquidation of the Trust or, simultaneously
with any redemption of the Series A Subordinated Debentures, cause a Like Amount
of the Series A Capital Securities and Series A Common Securities to be redeemed
by the Trust.
The Series A Common Securities shall be redeemable as provided in the
Series A Trust Agreement.
Under certain circumstances, the right of the holders of the Series A
Common Securities shall be subordinate to the rights of the holders of the
Series A Capital Securities, as provided in the Series A Trust Agreement.
-3-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,369
<INT-BEARING-DEPOSITS> 15,935
<FED-FUNDS-SOLD> 429
<TRADING-ASSETS> 54,919
<INVESTMENTS-HELD-FOR-SALE> 1,019,003
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 797,869
<ALLOWANCE> 4,680
<TOTAL-ASSETS> 1,967,692
<DEPOSITS> 1,074,260
<SHORT-TERM> 687,742
<LIABILITIES-OTHER> 19,431
<LONG-TERM> 29,792
35,280
0
<COMMON> 122
<OTHER-SE> 121,065
<TOTAL-LIABILITIES-AND-EQUITY> 1,967,692
<INTEREST-LOAN> 34,431
<INTEREST-INVEST> 6,818
<INTEREST-OTHER> 23,036
<INTEREST-TOTAL> 64,285
<INTEREST-DEPOSIT> 31,612
<INTEREST-EXPENSE> 51,733
<INTEREST-INCOME-NET> 12,552
<LOAN-LOSSES> 625
<SECURITIES-GAINS> 3,065
<EXPENSE-OTHER> 14,384
<INCOME-PRETAX> 2,426
<INCOME-PRE-EXTRAORDINARY> 2,426
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,392)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
<YIELD-ACTUAL> 1.42
<LOANS-NON> 10,825
<LOANS-PAST> 14,195
<LOANS-TROUBLED> 420
<LOANS-PROBLEM> 14,284
<ALLOWANCE-OPEN> 3,594
<CHARGE-OFFS> 446
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 4,680
<ALLOWANCE-DOMESTIC> 4,680
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,222
</TABLE>
