================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
For the quarterly period ended SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission File Number 1-13578
DOWNEY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0633413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3501 JAMBOREE ROAD, NEWPORT BEACH, CA 92660
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (949) 854-0300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- --------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At September 30, 1999, 28,148,409 shares of the Registrant's Common Stock,
$0.01 par value were outstanding.
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<PAGE>
DOWNEY FINANCIAL CORP.
SEPTEMBER 30, 1999 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION....................................................... 1
Consolidated Balance Sheets............................................. 1
Consolidated Statements of Income....................................... 2
Consolidated Statements of Comprehensive Income......................... 3
Consolidated Statements of Cash Flows................................... 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 8
PART II
OTHER INFORMATION....................................................... 34
Item 6 Exhibits and Reports on Form 8-K.............................. 34
i
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
September 30, December 31, September 30,
(Dollars in Thousands, Except Per Share Data) 1999 1998 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash .......................................................................... $ 86,391 $ 58,510 $ 43,315
Federal funds ................................................................. 26,501 33,751 54,801
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents ................................................. 112,892 92,261 98,116
U.S. Treasury securities and agency obligations available for sale,
at fair value ............................................................. 143,020 116,061 116,629
Municipal securities being held to maturity, at amortized cost (estimated
market value of $6,845 at September 30, 1999, $6,745 at December 31,
1998, and $6,865 at September 30, 1998) ................................... 6,863 6,764 6,885
Mortgage loans purchased under resale agreements .............................. -- -- 40,000
Loans held for sale, at lower of cost or market ............................... 211,067 447,382 272,913
Mortgage-backed securities available for sale, at fair value .................. 23,583 32,146 38,131
Loans receivable held for investment .......................................... 7,665,951 5,308,837 5,076,799
Investments in real estate and joint ventures ................................. 54,036 49,447 47,918
Real estate acquired in settlement of loans ................................... 5,213 4,475 5,423
Premises and equipment ........................................................ 105,492 103,979 102,030
Federal Home Loan Bank stock, at cost ......................................... 69,380 49,430 48,712
Other assets .................................................................. 103,192 59,637 57,023
- -------------------------------------------------------------------------------------------------------------------------
$8,500,689 $6,270,419 $5,910,579
=========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ...................................................................... $6,311,312 $5,039,733 $5,179,380
Federal Home Loan Bank advances ............................................... 1,477,207 695,012 197,935
Other borrowings .............................................................. 8,501 8,708 12,166
Accounts payable and accrued liabilities ...................................... 54,366 40,989 45,062
Deferred income taxes ......................................................... 13,358 5,411 5,221
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities ......................................................... 7,864,744 5,789,853 5,439,764
- -------------------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior subordinated debentures of the Company
("Capital Securities") .................................................... 120,000 -- --
STOCKHOLDERS' EQUITY:
Preferred stock, par value of $0.01 per share; authorized 5,000,000 shares;
outstanding none .......................................................... -- -- --
Common stock, par value of $0.01 per share; authorized 50,000,000
shares; outstanding 28,148,409 shares at September 30, 1999 and
28,131,776 shares at December 31, 1998 and September 30, 1998 ............ 281 281 281
Additional paid-in capital .................................................... 92,385 92,166 92,166
Accumulated other comprehensive income (loss) - unrealized gains (losses)
on securities available for sale .......................................... (738) 753 1,403
Retained earnings ............................................................. 424,017 387,366 376,965
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity ................................................ 515,945 480,566 470,815
- -------------------------------------------------------------------------------------------------------------------------
$8,500,689 $6,270,419 $5,910,579
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------
(Dollars in Thousands, Except Per Share Data) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................................ $ 132,686 $ 103,949 $ 362,235 $ 314,877
U.S. Treasury securities and agency obligations ............. 2,063 1,813 5,478 5,488
Mortgage-backed securities .................................. 387 654 1,274 2,200
Other investments ........................................... 1,268 2,566 3,520 5,937
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income .................................... 136,404 108,982 372,507 328,502
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits .................................................... 67,478 64,243 181,051 188,780
Borrowings .................................................. 15,576 1,952 37,953 11,119
Capital securities .......................................... 2,307 -- 2,307 --
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense ................................... 85,361 66,195 221,311 199,899
- -----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME ......................................... 51,043 42,787 151,196 128,603
PROVISION FOR LOAN LOSSES ....................................... 2,838 985 8,017 2,719
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses ......... 48,205 41,802 143,179 125,884
- -----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME, NET:
Loan and deposit related fees ............................... 5,323 4,163 14,675 11,059
Real estate and joint ventures held for investment, net:
Net gains on sales of wholly owned real estate ........... 1,037 -- 1,237 70
Reduction of losses on real estate and joint ventures .... 3,162 139 3,374 5,082
Operations, net .......................................... 1,532 3,879 5,054 13,384
Secondary marketing activities:
Loan servicing fees ...................................... 383 (420) 1,249 (131)
Net gains on sales of loans and mortgage-backed securities 4,395 1,726 12,440 5,012
Net gains on sales of investment securities ................. -- -- 288 68
Other ....................................................... 439 185 2,555 2,003
- -----------------------------------------------------------------------------------------------------------------------------
Total other income, net .................................. 16,271 9,672 40,872 36,547
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Salaries and related costs .................................. 21,759 16,171 63,821 46,416
Premises and equipment costs ................................ 5,222 4,343 15,025 12,133
Advertising expense ......................................... 2,150 1,367 6,920 4,502
Professional fees ........................................... 553 701 1,564 2,058
SAIF insurance premiums and regulatory assessments .......... 975 977 2,906 2,882
Other general and administrative expense .................... 5,252 5,158 17,206 14,179
- -----------------------------------------------------------------------------------------------------------------------------
Total general and administrative expense ................. 35,911 28,717 107,442 82,170
- -----------------------------------------------------------------------------------------------------------------------------
Net operation of real estate acquired in settlement of loans (224) 107 (13) 265
Amortization of excess of cost over fair value of net assets
acquired ................................................. 118 125 354 391
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expense .................................. 35,805 28,949 107,783 82,826
- -----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES ...................................... 28,671 22,525 76,268 79,605
Income taxes .................................................... 12,109 9,757 32,300 34,284
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME .................................................. $ 16,562 $ 12,768 $ 43,968 $ 45,321
=============================================================================================================================
PER SHARE INFORMATION:
BASIC ....................................................... $ 0.59 $ 0.45 $ 1.56 $ 1.61
=============================================================================================================================
DILUTED ..................................................... $ 0.59 $ 0.45 $ 1.56 $ 1.60
=============================================================================================================================
CASH DIVIDENDS DECLARED AND PAID ............................ $ 0.090 $ 0.080 $ 0.260 $ 0.236
=============================================================================================================================
Weighted average diluted shares outstanding ................. 28,179,561 28,181,313 28,175,104 28,176,326
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------
(In Thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME ........................................................... $16,562 $12,768 $43,968 $45,321
- -------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAXES:
Unrealized gains (losses) on securities available for sale:
U.S. Treasury securities and agency obligations available for
sale, at fair value ......................................... (274) 309 (1,234) 833
Less reclassification of realized gains, net of losses included
in income ................................................... -- -- (166) (39)
Mortgage-backed securities available for sale, at fair value .. 57 674 (91) 499
- -------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss), net of income taxes ..... (217) 983 (1,491) 1,293
- -------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME ................................................. $16,345 $13,751 $42,477 $46,614
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Nine Months Ended
September 30,
---------------------------
(In Thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 43,968 $ 45,321
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization ................................................... 5,870 5,666
Provision for (recovery of) losses on loans, real estate acquired in settlement
of loans, investments in real estate and joint ventures and other assets ...... 4,611 (2,023)
Net gains on sales of loans and mortgage-backed securities, investment
securities, real estate and other assets ...................................... (16,372) (15,885)
Interest capitalized on loans (negative amortization) ........................... (18,149) (13,817)
Federal Home Loan Bank stock dividends .......................................... (2,021) (2,010)
Loans originated for sale .......................................................... (1,698,671) (1,421,746)
Proceeds from sales of loans originated for sale ................................... 758,227 867,409
Other, net ......................................................................... (4,511) 5,896
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities ................................................. (927,048) (531,189)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Maturities of U.S. Treasury securities and agency obligations ................... -- 10,001
Sales of U.S. Treasury securities and agency obligations available for sale ..... 65,195 60,068
Sales of mortgage-backed securities available for sale .......................... 1,209,178 314,265
Sales of wholly owned real estate and real estate acquired in settlement of loans 3,877 5,461
Purchase of:
U.S. Treasury securities and agency obligations available for sale .............. (94,417) (25,000)
Securities under resale agreements .............................................. -- (40,000)
Federal Home Loan Bank stock .................................................... (17,929) (2,617)
Loans receivable held for investment ............................................ (28,596) (6,956)
Loans receivable originated held for investment (net of refinances of $123,932
at September 30, 1999 and $80,844 at September 30, 1998) ........................ (3,644,203) (1,132,868)
Principal payments on loans receivable held for investment and mortgage-backed
securities available for sale ................................................... 1,268,819 1,342,354
Net change in undisbursed loan funds ............................................... 43,616 24,155
Proceeds from (investments in) real estate held for investment ..................... (10,161) 1,391
Other, net ......................................................................... (9,232) (5,507)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities ................................... (1,213,853) 544,747
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(In Thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits .................................................. $ 1,271,579 $ 309,402
Net decrease in securities sold under agreements to repurchase ............ -- (34,803)
Proceeds from Federal Home Loan Bank advances ............................. 4,910,237 179,700
Repayments of Federal Home Loan Bank advances ............................. (4,128,042) (334,223)
Net decrease in other borrowings .......................................... (207) (84,308)
Proceeds from issuance of capital securities, net ......................... 115,063 --
Proceeds from exercise of stock options ................................... 219 510
Cash dividends ............................................................ (7,317) (6,638)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities ..................................... 2,161,532 29,640
- -----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents ..................................... 20,631 43,198
Cash and cash equivalents at beginning of year ................................ 92,261 54,918
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 112,892 $ 98,116
===========================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................................... $ 220,678 $ 199,529
Income taxes ........................................................... 18,910 38,684
Supplemental disclosure of non-cash investing:
Loans transferred to held for investment from held for sale ............... 48,281 --
Loans exchanged for mortgage-backed securities ............................ 1,208,333 316,891
Real estate acquired in settlement of loans ............................... 8,497 12,160
Loans to facilitate the sale of real estate acquired in settlement of loans 5,608 12,280
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (1) - BASIS OF FINANCIAL STATEMENT PRESENTATION
In the opinion of Downey Financial Corp. and subsidiaries ("Downey"), the
accompanying consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of Downey's financial condition as of September 30, 1999, December 31, 1998, and
September 30, 1998, the results of operations and comprehensive income for the
three months and nine months ended September 30, 1999 and 1998, and changes in
cash flows for the nine months ended September 30, 1999 and 1998. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
operations and are in compliance with the instructions for Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial condition, results of operations, comprehensive income
and cash flows. The following information under the heading Management's
Discussion and Analysis of Financial Condition and Results of Operations is
written with the presumption that the interim consolidated financial statements
will be read in conjunction with Downey's Annual Report on Form 10-K for the
year ended December 31, 1998, which contains among other things, a description
of the business, the latest audited consolidated financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations as of December 31, 1998, and for the year
then ended. Therefore, only material changes in financial condition and results
of operations are discussed in the remainder of Part I.
NOTE (2) - NET INCOME PER SHARE
Net income per share is calculated on both a basic and diluted basis. Basic
net income per share excludes dilution and is computed by dividing net income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net income per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted from the issuance of
common stock that then shared in earnings.
NOTE (3) - DERIVATIVES
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").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available for sale security, or a
foreign-currency-denominated forecasted transaction.
Under SFAS 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
This statement is effective for all fiscal years beginning after June 15,
2000. It is not anticipated that the financial impact of this statement will
have a material impact on Downey.
As part of its secondary marketing activities, Downey utilizes forward sale
and purchase contracts to hedge the value of loans originated for sale against
adverse changes in interest rates. At September 30, 1999, these sales contracts
amounted to approximately $312 million while no purchase contracts were
outstanding. These contracts have a high correlation to the price movement of
the loans being hedged. There is no recognition of unrealized gains and losses
on
6
<PAGE>
these contracts in the balance sheet or statement of income. When the related
loans are sold, the deferred gains or losses from these contracts are recognized
in the statement of income as a component of net gains or losses on sales of
loans and mortgage-backed securities.
NOTE (4) - INCOME TAXES
During the first quarter of 1998, the Internal Revenue Service ("IRS")
completed its review of Downey's federal income tax returns for years 1990
through 1995. As a result of that review, the IRS proposed additional tax of
approximately $20 million. Of that amount, Downey has paid approximately $5
million for items not disputed. The balance of the remaining additional tax
primarily relates to the sale and leaseback of computer equipment in 1990.
Management believes that applicable federal tax authorities related to the
transaction clearly support Downey's positions and intends to vigorously defend
those positions. Management also believes that adequate tax reserves have been
established regarding the transaction.
NOTE (5) - CAPITAL SECURITIES
On July 23, 1999, Downey through Downey Financial Capital Trust I (the
"Trust") issued $120 million in 10.00% capital securities. The capital
securities, which were sold in a public underwritten offering, pay quarterly
cumulative cash distributions at an annual rate of 10.00% of the liquidation
value of $25 per share and are recorded as interest expense by Downey. The
capital securities represent undivided beneficial interests in the Trust, which
was established by Downey for the purpose of issuing the capital securities.
Downey owns all of the issued and outstanding common securities of the Trust.
Proceeds from the offering and from the issuance of common securities were
invested by the Trust in 10.00% Junior Subordinated Deferrable Interest
Debentures due September 15, 2029 issued by Downey (the "Junior Subordinated
Debentures"), with an aggregate principal amount of $124 million. The sole asset
of the Trust is the Junior Subordinated Debentures. The obligations of the Trust
with respect to the securities are fully and unconditionally guaranteed by
Downey. The payment of distributions on the capital securities may be deferred
if Downey defers payments of interest on the junior subordinated debentures.
Downey will have the right, on one or more occasions, to defer payments of
interest on the junior subordinated debentures for up to 20 consecutive
quarterly periods. During the time Downey defers interest payments, interest on
the junior subordinated debentures will continue to accrue and distributions on
the capital securities will continue to accumulate and the deferred interest and
deferred distributions will themselves accrue interest at an annual rate of
10.00%, compounded quarterly, to the extent permitted by applicable law. Downey
will use the net proceeds of $115 million from the sale of the Junior
Subordinated Debentures (net of underwriting discounts and commissions and other
offering expenses) to make investments in its primary subsidiary, Downey Savings
and Loan Association, F.A. (the "Bank"), and for other general corporate
purposes. During the third quarter, Downey invested $50 million of the net
proceeds as additional common stock of the Bank thereby increasing the Bank's
regulatory core / tangible capital by that amount.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements under this caption constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 which
involve risks and uncertainties. Downey's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
economic conditions, competition in the geographic and business areas in which
Downey conducts its operations, fluctuations in interest rates, credit quality
and government regulation.
OVERVIEW FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Our net income for the third quarter of 1999 totaled $16.6 million or $0.59
per share on a diluted basis, up 29.7% from $12.8 million or $0.45 per share in
the third quarter of 1998.
The increase in our net income between third quarters was due to increases
in both of our business segments as follows:
o Net income from our banking operations increased $2.7 million or
24.6%. This increase primarily reflected two factors. Net interest
income increased $8.3 million or 19.4% due to an increase in average
earning assets as our effective interest rate spread declined. In
addition, the quarter-to-quarter improvement reflected an increase of
$4.9 million in other income, primarily reflecting increases in net
gains on sales of loans and in loan and deposit related fees. A $7.2
million increase in general and administrative expense and a $1.9
million increase in provision for loan losses partially offset those
favorable factors. The increase in general and administrative expense
was due to significantly higher lending volumes, branch expansion and
increased expense related to our Year 2000 compliance efforts.
o Net income from our real estate investment activities increased $1.1
million or 59.0% due primarily to higher net gains from sales of real
estate investments.
For the first nine months of 1999, our net income totaled $44.0 million or
$1.56 per share on a diluted basis, down from $45.3 million or $1.60 per share
in the year-ago period. The decline primarily reflects two factors:
o First, year-ago net income benefited by $4.7 million from the
settlement of a number of loan and real estate investment obligations
of a former joint venture partner. The pre-tax amount of the
settlement was $8.3 million of which:
o $1.4 million represented the recovery of a prior loan charge-off
thereby reducing provision for loan losses;
o $4.3 million was recorded as a reduction of losses on real estate
and joint ventures;
o $1.0 million was recorded in miscellaneous other income; and
o $1.6 million was recorded as a reduction to professional fees
within general and administrative expense.
o Second, our remaining net income attributable to real estate
investment activities declined $1.8 million due to the 1999 period
having a lower level of gains from sales of real estate investments.
Excluding those two factors, our net income would have increased by $5.2 million
or 15.4% for the first nine months of 1999. This adjusted increase was generated
by our banking operations.
For the third quarter of 1999, our return on average assets was 0.85% and
our return on average equity was 13.04%, bringing, for the first nine months of
1999, our return on average assets to 0.84% and return on average equity to
11.83%.
At September 30, 1999 our assets totaled $8.5 billion, up $2.6 billion or
43.8% from a year ago and up $2.2 billion or 35.6% from year-end 1998. Our
single family loan originations totaled a record $1.996 billion in the third
quarter of 1999, more than double the $962 million we originated in the third
quarter of 1998. Of the current quarter total, $1.576 billion represented
originations of loans for portfolio of which $390 million represented
originations for portfolio of subprime credits as part of our continuing
strategy to enhance the portfolio's net yield. In addition to single family
loans,
8
<PAGE>
we originated $136 million of other loans in the quarter, including $67 million
of automobile loans and $46 million of construction loans.
Between third quarters, we funded our asset growth with a $1.3 billion
increase in borrowings and a $1.1 billion or 21.9% increase in deposits that
totaled $6.3 billion at quarter end. In addition, we issued during the third
quarter $120 million of 10.00% capital securities, of which $50 million was
invested as additional common stock in our primary subsidiary, Downey Savings
and Loan Association, F.A. (the "Bank"). During the quarter, we opened one new
traditional branch and three new in-store branches bringing total branches at
quarter end to 103, of which 40 are in-store. A year ago, branches totaled 91.
Our non-performing assets increased $5 million during the quarter to $35
million or 0.41% of total assets. The increase was primarily in the subprime
residential category.
At September 30, 1999, the Bank had core and tangible capital ratios of
5.98% and a risk-based capital ratio of 11.46%. These capital levels are
substantially above the "well capitalized" standards of 5.00% for core and
tangible capital and 10.00% for risk-based capital, as defined by regulation.
9
<PAGE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1999
NET INTEREST INCOME
Our net interest income totaled $51.0 million in the third quarter of 1999,
up $8.3 million or 19.3% from the same period last year. The improvement between
third quarters reflected an increase in our average earning assets. Our average
earning assets increased by $1.8 billion or 32.8% between third quarters to $7.5
billion. Our effective interest rate spread of 2.74% in the current quarter was
down from the year-ago quarter level of 3.05%. The decline in the effective
interest rate spread was due to our yield on earning assets declining more than
our cost of funds. The greater decline in the yield on earning assets from a
year ago was due, in part, to the significant growth in single family adjustable
rate loans in the recent two quarters which caused a higher proportion of our
portfolio to be at low, introductory incentive rates. As these new loans reprice
to fully-indexed rates in future periods and become a lower proportion of
earning assets, the downward pressure on our earning asset yield should lessen.
For the first nine months of 1999, our net interest income totaled $151.2
million, up $22.6 million or 17.6% from a year ago.
The following table presents for the periods indicated the total dollar
amount of:
o interest income from average interest-earning assets and the resultant
yields; and
o interest expense on average interest-bearing liabilities and the
resultant costs, expressed as rates.
The table also sets forth the net interest income, the interest rate spread
and the effective interest rate spread. The effective interest rate spread
reflects the relative level of interest-earning assets to interest-bearing
liabilities and equals:
o the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities, divided by
o average interest-earning assets for the period.
The table also sets forth the net interest-earning balance--the difference
between the average balance of interest-earning assets and the average balance
of interest-bearing liabilities--for the periods indicated. We included
non-accrual loans in the average interest-earning assets balance. We included
interest from non-accrual loans in interest income only to the extent that we
received payments and to the extent that we believe we will recover the
remaining principal balance of the loan. We computed average balances for the
quarter using the average of each month's daily average balance during the
period indicated.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------
September 30, 1999 September 30, 1998
---------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans .................................... $7,194,888 $132,686 7.38% $5,270,387 $103,949 7.89%
Mortgage-backed securities ............... 24,557 387 6.30 40,390 654 6.48
Investment securities .................... 233,609 3,331 5.66 300,918 4,379 5.77
- ----------------------------------------------------------------------------------------------------------------
Total interest-earning assets ......... 7,453,054 136,404 7.32 5,611,695 108,982 7.77
Non-interest-earning assets .................. 327,121 252,334
- ----------------------------------------------------------------------------------------------------------------
Total assets ............................ $7,780,175 $5,864,029
================================================================================================================
Interest-bearing liabilities:
Deposits ................................. $5,947,679 $ 67,478 4.50% $5,202,075 $ 64,243 4.90%
Borrowings ............................... 1,154,230 15,576 5.35 131,097 1,952 5.91
Capital securities ....................... 91,613 2,307 10.13 -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities .... 7,193,522 85,361 4.71 5,333,172 66,195 4.92
Non-interest-bearing liabilities ............. 78,660 67,124
Stockholders' equity ......................... 507,993 463,733
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $7,780,175 $5,864,029
================================================================================================================
Net interest income/interest rate spread ..... $ 51,043 2.61% $ 42,787 2.85%
Excess of interest-earning assets over
interest-bearing liabilities ............. $ 259,532 $ 278,523
Effective interest rate spread ............... 2.74% 3.05%
================================================================================================================
Nine Months Ended
---------------------------------------------------------------
September 30, 1999 September 30, 1998
---------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans .................................... $6,452,253 $362,235 7.49% $5,300,229 $314,877 7.92%
Mortgage-backed securities ............... 27,593 1,274 6.16 44,169 2,200 6.64
Investment securities .................... 217,843 8,998 5.52 265,638 11,425 5.75
- ----------------------------------------------------------------------------------------------------------------
Total interest-earning assets ......... 6,697,689 372,507 7.42 5,610,036 328,502 7.81
Non-interest-earning assets .................. 298,211 252,414
- ----------------------------------------------------------------------------------------------------------------
Total assets ............................ $6,995,900 $5,862,450
================================================================================================================
Interest-bearing liabilities:
Deposits ................................. $5,446,032 $181,051 4.44% $5,110,184 $188,780 4.94%
Borrowings ............................... 955,314 37,953 5.31 233,850 11,119 6.36
Capital securities ....................... 30,538 2,307 10.13 -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities .... 6,431,884 221,311 4.60 5,344,034 199,899 5.00
Non-interest-bearing liabilities ............. 68,286 68,242
Stockholders' equity ......................... 495,730 450,174
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $6,995,900 $5,862,450
================================================================================================================
Net interest income/interest rate spread ..... $151,196 2.82% $128,603 2.81%
Excess of interest-earning assets over
interest-bearing liabilities ............. $ 265,805 $ 266,002
Effective interest rate spread ............... 3.01% 3.06%
================================================================================================================
</TABLE>
11
<PAGE>
Changes in our net interest income are a function of both changes in rates
and changes in volumes of interest-earning assets and interest-bearing
liabilities. The following table sets forth information regarding changes in our
interest income and expense for the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, we have provided
information on changes attributable to:
o changes in volume--changes in volume multiplied by comparative period
rate;
o changes in rate--changes in rate multiplied by comparative period
volume; and
o changes in rate/volume--changes in rate multiplied by changes in
volume.
Interest-earning asset and interest-bearing liability balances used in the
calculations represent quarterly average balances computed using the average of
each month's daily average balance during the period indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------------------------------------------------------
September 30, 1999 versus September 30, 1998 September 30, 1999 versus September 30, 1998
Changes Due To Changes Due To
------------------------------------------------------------------------------------------
Rate/ Rate/
(In Thousands) Volume Rate Volume Net Volume Rate Volume Net
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans ....................... $37,957 $(6,754) $(2,466) $28,737 $68,440 $(17,318) $(3,764) $47,358
Mortgage-backed securities .. (257) (17) 7 (267) (825) (161) 60 (926)
Investment securities ....... (980) (88) 20 (1,048) (2,055) (453) 81 (2,427)
- -----------------------------------------------------------------------------------------------------------------------------
Change in interest income 36,720 (6,859) (2,439) 27,422 65,560 (17,932) (3,623) 44,005
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits .................... 9,208 (5,224) (749) 3,235 12,407 (18,894) (1,242) (7,729)
Borrowings .................. 15,815 (185) (2,006) 13,624 32,887 (2,130) (3,923) 26,834
Capital securities .......... -- -- 2,307 2,307 -- -- 2,307 2,307
- -----------------------------------------------------------------------------------------------------------------------------
Change in interest expense 25,023 (5,409) (448) 19,166 45,294 (21,024) (2,858) 21,412
- -----------------------------------------------------------------------------------------------------------------------------
Change in net interest income $11,697 $(1,450) $(1,991) $ 8,256 $20,266 $ 3,092 $ (765) $22,593
=============================================================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES
Provision for loan losses was $2.8 million in the current quarter, up from
$1.0 million in the year-ago quarter. This increase reflects growth in our loan
portfolio during the current quarter. In contrast, our loan portfolio was
virtually unchanged during the year-ago quarter. For information regarding our
allowance for loan losses, see "Financial Condition for the Quarter Ended
September 30, 1999 - Problem Loans and Real Estate - Allowance for Losses on
Loans and Real Estate."
OTHER INCOME
Our total other income was $16.3 million in the third quarter of 1999, up
$6.6 million or 68.2% from a year-ago. All categories of our other income were
above year-ago levels. Net gains on sales of loans increased $2.7 million
between third quarters due to a higher volume of loans being sold, while our
income from real estate held for investment increased by $1.7 million, of which
$1.4 million was attributable to net gains from sales and declines in valuation
allowances. In addition, our loan and deposit related fees increased $1.2
million, and loan servicing fees improved by $0.8 million. For the first nine
months of 1999, total other income was $40.9 million, up $4.3 million from a
year ago even though the year-ago period included $5.3 million from the
settlement.
12
<PAGE>
The following table presents a breakdown of the key components comprising
income from real estate and joint ventures held for investment for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations, net:
Rental operations, net of expenses ........ $ 975 $1,094 $ 981 $ 688 $ 894
Equity in net income from joint ventures .. (36) 1,008 47 256 2,605
Interest from joint venture advances ...... 593 202 190 182 380
- ------------------------------------------------------------------------------------------------------------------
Total operations, net ................... 1,532 2,304 1,218 1,126 3,879
Net gains on sales of wholly owned real estate 1,037 200 -- 2,487 --
Reduction of (provision for) losses on real
estate and joint ventures ................. 3,162 265 (53) 214 139
- ------------------------------------------------------------------------------------------------------------------
Income from real estate and joint ventures
held for investment ..................... $5,731 $2,769 $1,165 $3,827 $4,018
==================================================================================================================
</TABLE>
OPERATING EXPENSE
Operating expense totaled $35.8 million in the current quarter, compared to
$28.9 million in the third quarter of 1998. The increase was due to an increase
in our general and administrative costs. General and administrative costs
increased $7.2 million or 25.1% due to significantly higher lending volumes,
branch expansion and expense related to our year 2000 compliance efforts. For
the first nine months of 1999, operating expenses totaled $107.8 million, up
$25.0 million from the same period of 1998, of which $1.6 million was
attributable to the settlement.
PROVISION FOR INCOME TAXES
Income taxes for the current quarter totaled $12.1 million, resulting in an
effective tax rate of 42.2%, compared to $9.8 million and 43.3% for the like
quarter of a year ago. For the first nine months of 1999, the effective tax rate
was 42.4%, compared to 43.1% from the same period of 1998. For further
information regarding income taxes, see "Notes To Consolidated Financial
Statements - Note (4) - Income Taxes."
13
<PAGE>
BUSINESS SEGMENT REPORTING
The previous sections of the Results of Operations for the Quarter Ended
September 30, 1999 discussed our consolidated results. The purpose of this
section is to present data on the results of operations of our two business
segments--banking and real estate investment.
The following table presents net income by business segment for the periods
indicated, followed by a discussion of the results of operations of each
segment.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Banking .............. $13,545 $13,702 $12,029 $10,791 $10,870
Real estate investment 3,017 1,356 319 1,861 1,898
- -------------------------------------------------------------------------------------------
Total net income . $16,562 $15,058 $12,348 $12,652 $12,768
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998 (1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Banking .............. $39,276 $35,945
Real estate investment 4,692 9,376
- -------------------------------------------------------------------------------------------
Total net income . $43,968 $45,321
===========================================================================================
<FN>
(1) The net income impact of a settlement with a former joint venture partner
totaled $4.7 million, of which $1.9 million was in banking and $2.8 million
was in real estate investment.
</FN>
</TABLE>
Banking
Net income from our banking operations for the third quarter of 1999
totaled $13.5 million, up $2.7 million or 24.6% from the third quarter of 1998.
The increase between third quarters primarily reflected two factors. Net
interest income increased $8.3 million or 19.4% due to an increase in our
average earning assets as our effective interest rate spread declined. Other
income increased $4.9 million. The increase from year-ago levels in other income
reflected increases in all categories, the largest being a $2.7 million increase
in net gains on sales of loans and a $1.2 million increase in loan and deposit
related fees. Increases of $7.2 million in operating expense and $1.9 million in
provision for loan losses partially offset the favorable impact of those items.
The increase in operating expense reflected significantly higher lending
volumes, branch expansion and increased expense related to our year 2000
compliance efforts.
14
<PAGE>
The table below sets forth our banking operational results and selected
financial data for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income ............. $ 51,220 $ 51,242 $ 48,948 $ 45,953 $ 42,889
Provision for loan losses ....... 2,838 2,798 2,381 1,180 985
Other income .................... 10,503 10,408 10,110 6,881 5,561
Operating expense ............... 35,491 35,112 35,839 33,057 28,270
Net intercompany income (expense) 102 102 82 (18) (48)
- --------------------------------------------------------------------------------------------------------
Income before income taxes ...... 23,496 23,842 20,920 18,579 19,147
Income taxes .................... 9,951 10,140 8,891 7,788 8,277
- --------------------------------------------------------------------------------------------------------
Net income .................. $ 13,545 $ 13,702 $ 12,029 $ 10,791 $ 10,870
========================================================================================================
AT PERIOD END:
Assets:
Loans ....................... $7,900,601 $6,818,129 $6,102,547 $5,788,365 $5,387,843
Other ....................... 578,871 490,523 473,476 464,097 500,498
- --------------------------------------------------------------------------------------------------------
Total assets ............. 8,479,472 7,308,652 6,576,023 6,252,462 5,888,341
- --------------------------------------------------------------------------------------------------------
Equity .......................... $ 515,945 $ 502,133 $ 490,406 $ 480,566 $ 470,815
========================================================================================================
</TABLE>
For the first nine months of 1999, our net income from banking totaled
$39.3 million, up from $35.9 million from the same period of 1998. Our net
income in the prior-year period benefited by $1.9 million from the settlement.
The pre-tax amount of the settlement was $3.4 million of which:
o $1.4 million represented the recovery of a prior loan charge-off
thereby reducing provision for loan losses;
o $1.0 million was recorded in other income; and
o $1.0 million was recorded as a reduction to professional fees within
operating expense.
Excluding the settlement benefit from year-ago results, net income from banking
would have increased by $5.2 million or 15.4%.
The table below sets forth our banking operational results for the periods
indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
(In Thousands) 1999 1998 (1)
- --------------------------------------------------------
<S> <C> <C>
Net interest income ............. $151,410 $129,014
Provision for loan losses ....... 8,017 2,738
Other income .................... 31,021 17,736
Operating expense ............... 106,442 80,897
Net intercompany income (expense) 286 (89)
- --------------------------------------------------------
Income before income taxes ...... 68,258 63,026
Income taxes .................... 28,982 27,081
- --------------------------------------------------------
Net income .................. $ 39,276 $ 35,945
========================================================
<FN>
(1) The net income impact of a settlement with a former joint venture partner
totaled $1.9 million.
</FN>
</TABLE>
15
<PAGE>
Real Estate Investment
Net income from our real estate investment operations totaled $3.0 million
in the third quarter of 1999, up $1.1 million or 59.0% from the year-ago quarter
due primarily to higher net gains from sales of real estate investments.
The table below sets forth real estate investment operational results and
selected financial data for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income (expense) .... $ (177) $ (45) $ 8 $ (209) $ (102)
Provision of loan losses ......... -- -- -- -- --
Other income ..................... 5,768 2,851 1,232 3,925 4,111
Operating expense ................ 314 409 618 777 679
Net intercompany income (expense) (102) (102) (82) 18 48
- --------------------------------------------------------------------------------------------------------
Income before income taxes ....... 5,175 2,295 540 2,957 3,378
Income taxes ..................... 2,158 939 221 1,096 1,480
- --------------------------------------------------------------------------------------------------------
Net income ................... $ 3,017 $ 1,356 $ 319 $ 1,861 $ 1,898
========================================================================================================
AT PERIOD END:
Assets:
Investments in real estate and
joint ventures ............. $54,036 $57,460 $52,155 $49,447 $47,918
Other ........................ 13,204 8,294 7,564 9,841 13,790
- --------------------------------------------------------------------------------------------------------
Total assets ............... 67,240 65,754 59,719 59,288 61,708
- --------------------------------------------------------------------------------------------------------
Equity ........................... $46,023 $43,006 $41,650 $41,331 $39,470
========================================================================================================
</TABLE>
For the first nine months of 1999, our net income from real estate
investment operations totaled $4.7 million, down from $9.4 million in the same
period a year ago. The settlement benefited our year-ago net income by $2.8
million. The pre-tax amount of the settlement was $4.9 million of which:
o $4.3 million was recorded as a reduction of loss on real estate and
joint ventures in other income; and
o $0.6 million was recorded as a reduction to professional fees in other
expense.
Excluding the settlement benefit from year-ago results, our remaining net income
attributable to real estate investment activities declined by $1.8 million due
to the 1999 period having a lower level of net gains from sales of real estate
investments.
16
<PAGE>
The table below sets forth our real estate investment operational results
for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
(In Thousands) 1999 1998 (1)
- -------------------------------------------------------
<S> <C> <C>
Net interest expense ............ $ (214) $ (411)
Reduction of loan losses ........ -- (19)
Other income .................... 9,851 18,811
Operating expense ............... 1,341 1,929
Net intercompany income (expense) (286) 89
- -------------------------------------------------------
Income before income taxes ...... 8,010 16,579
Income taxes .................... 3,318 7,203
- -------------------------------------------------------
Net income .................. $4,692 $ 9,376
=======================================================
<FN>
(1) The net income impact of a settlement with a former joint venture partner
totaled $2.8 million.
</FN>
</TABLE>
Our investment in real estate and joint ventures amounted to $54 million at
September 30, 1999, compared to $49 million at December 31, 1998, and $48
million at September 30, 1998.
For information on valuation allowances associated with real estate and
joint venture loans, see "Financial Condition for the Quarter Ended September
30, 1999 - Problem Loans and Real Estate - Allowances for Losses on Loans and
Real Estate."
17
<PAGE>
FINANCIAL CONDITION FOR THE QUARTER ENDED SEPTEMBER 30, 1999
LOANS AND MORTGAGE-BACKED SECURITIES
Total loans and mortgage-backed securities, including those held for sale,
increased $1.1 billion during the third quarter to a total of $7.9 billion or
92.9% of assets at September 30, 1999. The increase primarily occurred in the
single family loan portfolio. Of that increase, $340 million represented
subprime loans, with the remaining increase occurring in our adjustable rate
portfolio.
The following table sets forth loans originated, including purchases, for
investment and for sale during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans originated for investment:
Residential, one-to-four units:
Adjustable ........................... $1,571,163 $ 964,408 $ 568,891 $ 436,960 $ 383,483
Fixed ................................ 4,920 81,080 208,504 181,717 6,921
Other .................................. 136,173 136,155 131,045 111,484 102,319
- ---------------------------------------------------------------------------------------------------------------
Total loans originated for investment 1,712,256 1,181,643 908,440 730,161 492,723
Loans originated for sale (1) .............. 420,389 631,496 646,786 740,837 571,146
- ---------------------------------------------------------------------------------------------------------------
Total loans originated ................. $2,132,645 $1,813,139 $1,555,226 $1,470,998 $1,063,869
===============================================================================================================
<FN>
(1) One-to-four unit residential loans, primarily fixed.
</FN>
</TABLE>
Originations of one-to-four unit residential loans totaled a record $1.996
billion in the third quarter of 1999, of which $1.576 billion were for portfolio
and $420 million were for sale. This was 19% higher than the $1.677 billion we
originated in the second quarter of 1999, and more than double the $962 million
we originated in the year-ago quarter. Of the current quarter total, $390
million represented originations of subprime credits as part of our continuing
strategy to enhance the portfolio's net yield. During the current quarter, 59%
of our residential one-to-four unit originations represented refinancings of
existing loans. This is down from 65% during the previous quarter and 68% in the
year-ago third quarter. In addition to single family loans, we originated $136
million of other loans in the current quarter, including $67 million of
automobile loans and $46 million of construction loans.
During the current quarter, loan originations for investment consisted
primarily of adjustable rate mortgages tied to the Eleventh District Cost of
Funds Index ("COFI"), an index which lags the movement in market interest rates.
This experience is similar to that of recent quarters. The majority of
adjustable rate mortgage originations reprice monthly; however, we also
originate adjustable rate mortgage loans which reprice semi-annually and
annually. With respect to adjustable rate mortgages that primarily adjust
monthly, there is a lifetime interest rate cap, but no other specified limit on
periodic interest rate adjustments. Instead, monthly adjustment adjustable rate
mortgages have a periodic cap on changes in the required monthly payments, which
payments adjust annually. Monthly adjustment adjustable rate mortgages allow for
negative amortization. Negative amortization is the addition to loan principal
of accrued interest that exceeds the required loan payment. There is a limit on
the amount of negative amortization allowed, expressed as a percentage of
principal plus the amount added relative to the original loan amount. That limit
has been 110%, but was increased to 125% in 1998 on loans having a loan to value
ratio of 80% or less. At September 30, 1999, $4.6 billion of the adjustable rate
mortgages in our loan portfolio were subject to negative amortization, of which
$65 million represented the amount of negative amortization included in the loan
balance.
We also continue to originate residential fixed interest rate mortgage
loans to meet consumer demand, but we intend to sell the majority of these
loans. We sold $624 million of loans in the third quarter of 1999, compared to
$579 million in the previous quarter and $508 million in the third quarter of
1998. All were secured by residential one-to-four unit property and at September
30, 1999, loans held for sale totaled $211 million.
18
<PAGE>
At September 30, 1999, we had commitments to fund loans amounting to $1.205
billion, of which $226 million were fixed rate one-to-four unit residential
loans being originated for sale in the secondary market, as well as loans in
process of $126 million, undrawn lines of credit of $89 million and commitments
to purchase loans of $43 million. We believe our current sources of funds will
enable us to meet these obligations while exceeding all regulatory liquidity
requirements.
19
<PAGE>
The following table sets forth the origination, purchase and sale activity
relating to our loans and mortgage-backed securities during the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT PORTFOLIO:
Loans originated:
Loans secured by real estate:
Residential:
One-to-four units:
Adjustable .................................. $1,180,474 $ 656,718 $ 382,562 $ 303,291 $ 283,468
Adjustable - subprime ....................... 384,856 307,690 186,329 133,409 100,015
- --------------------------------------------------------------------------------------------------------------------------
Total adjustable ......................... 1,565,330 964,408 568,891 436,700 383,483
Fixed ....................................... 907 54,671 205,758 179,786 5,351
Fixed - subprime ............................ 3,840 4,301 2,444 1,684 1,535
Five or more units:
Adjustable .................................. -- -- -- -- --
Fixed ....................................... -- -- -- -- 13,229
- --------------------------------------------------------------------------------------------------------------------------
Total residential ........................ 1,570,077 1,023,380 777,093 618,170 403,598
Commercial real estate ......................... 750 2,915 6,398 6,149 --
Construction ................................... 46,128 45,082 30,587 45,339 17,266
Land ........................................... -- 8,950 29,081 9,983 23,640
Non-mortgage:
Commercial ..................................... 7,850 6,278 2,925 700 645
Automobile ..................................... 66,550 60,620 50,294 43,330 40,158
Other consumer ................................. 14,895 12,130 11,760 5,983 7,016
- --------------------------------------------------------------------------------------------------------------------------
Total loans originated ........................ 1,706,250 1,159,355 908,138 729,654 492,323
Real estate loans purchased (1) ..................... 6,006 22,288 302 507 400
- --------------------------------------------------------------------------------------------------------------------------
Total loans originated and purchased ............. 1,712,256 1,181,643 908,440 730,161 492,723
Loan repayments ..................................... (443,503) (506,048) (434,796) (489,912) (490,358)
Other net changes (2) (3) ........................... (35,096) (6,958) (18,824) (8,211) 553
- --------------------------------------------------------------------------------------------------------------------------
Net increase in loans held for investment ...... 1,233,657 668,637 454,820 232,038 2,918
- --------------------------------------------------------------------------------------------------------------------------
SALE PORTFOLIO:
Residential, one-to-four units:
Originated whole loans ........................... 420,389 631,496 646,786 740,837 571,146
Loans transferred from (to) the investment
portfolio (3)................................... 55,138 238 (7,095) (3,822) --
Originated whole loans sold ...................... (313,589) (281,120) (176,139) (266,812) (354,371)
Loans exchanged for mortgage-backed securities ... (310,096) (297,858) (600,379) (291,940) (153,175)
Other net changes ................................ (827) (2,637) (622) (3,794) (2,851)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loans held for sale . (148,985) 50,119 (137,449) 174,469 60,749
- --------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities, net:
Received in exchange for loans ................... 310,096 297,858 600,379 291,940 153,175
Sold ............................................. (310,096) (297,858) (600,379) (293,222) (153,175)
Repayments ....................................... (2,300) (2,869) (3,235) (4,143) (4,242)
Other net changes ................................ 100 (305) 46 (560) 127
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in mortgage-backed securities
available for sale ............................ (2,200) (3,174) (3,189) (5,985) (4,115)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in loans and
mortgage-backed securities held for sale and
available for sale ............................ (151,185) 46,945 (140,638) 168,484 56,634
- --------------------------------------------------------------------------------------------------------------------------
Total net increase in loans and mortgage-
backed securities ............................. $1,082,472 $ 715,582 $ 314,182 $ 400,522 $ 59,552
==========================================================================================================================
<FN>
(1) Primarily one-to-four unit residential loans. Includes five or more unit
residential loans of $0.2 million in the three months ended June 30, 1999,
$0.4 million in the three months ended September 30, 1998.
(2) Primarily includes borrowings against and repayments of lines of credit and
construction loans, changes in loss allowances, loans transferred to real
estate acquired in settlement of loans or from (to) the held for sale
portfolio and interest capitalized on loans (negative amortization).
(3) Includes $55.5 million of one-to-four unit residential ARMs transferred
from the held for investment portfolio during the three months ended
September 30, 1999.
</FN>
</TABLE>
20
<PAGE>
The following table sets forth the composition of our loan and
mortgage-backed securities portfolios at the dates indicated. At September 30,
1999, approximately 94% of our real estate loans were secured by real estate
located in California, principally in Los Angeles, Orange, Santa Clara, San
Diego and San Mateo counties.
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT PORTFOLIO:
Loans secured by real estate:
Residential:
One-to-four units:
Adjustable ................................. $4,984,300 $4,118,763 $3,800,552 $3,721,728 $3,791,187
Adjustable - subprime ...................... 1,354,771 1,017,699 745,843 580,232 461,646
Fixed ...................................... 532,934 550,035 507,357 325,454 153,408
Fixed - subprime ........................... 18,027 14,748 10,932 8,719 7,516
- -----------------------------------------------------------------------------------------------------------------------------
Total one-to-four units ................. 6,890,032 5,701,245 5,064,684 4,636,133 4,413,757
Five or more units:
Adjustable ................................. 18,301 18,409 18,516 18,617 18,707
Fixed ...................................... 5,243 6,232 7,904 21,412 22,436
Commercial real estate:
Adjustable ................................... 37,647 38,483 39,641 39,360 44,215
Fixed ........................................ 111,265 111,076 111,606 101,430 112,687
Construction ................................... 190,441 178,526 147,246 127,761 92,779
Land ........................................... 61,263 71,314 74,959 44,859 39,222
Non-mortgage:
Commercial ..................................... 27,605 26,884 28,182 28,293 27,710
Automobile ..................................... 391,975 375,138 363,168 357,988 355,955
Other consumer ................................. 44,764 42,475 40,607 41,894 44,026
- -----------------------------------------------------------------------------------------------------------------------------
Total loans held for investment .............. 7,778,536 6,569,782 5,896,513 5,417,747 5,171,494
Increase (decrease) for:
Undisbursed loan funds ......................... (136,355) (146,603) (133,785) (108,414) (88,213)
Net deferred costs and premiums ................ 59,731 43,460 33,515 31,021 24,962
Allowance for estimated loss ................... (35,961) (34,345) (32,586) (31,517) (31,444)
- -----------------------------------------------------------------------------------------------------------------------------
Total loans held for investment, net ......... 7,665,951 6,432,294 5,763,657 5,308,837 5,076,799
- -----------------------------------------------------------------------------------------------------------------------------
SALE PORTFOLIO, NET:
Loans held for sale (primarily one-to-four units):
Adjustable ..................................... 62,635 5,711 -- 7,975 9,480
Fixed .......................................... 148,432 354,341 309,933 439,407 263,433
- -----------------------------------------------------------------------------------------------------------------------------
Total loans held for sale .................... 211,067 360,052 309,933 447,382 272,913
Mortgage-backed securities available for sale:
Adjustable ..................................... 8,260 8,822 9,887 10,996 12,795
Fixed .......................................... 15,323 16,961 19,070 21,150 25,336
- -----------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities available for
sale ....................................... 23,583 25,783 28,957 32,146 38,131
- -----------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed securities
held for sale and available for sale ....... 234,650 385,835 338,890 479,528 311,044
- -----------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed securities ... $7,900,601 $6,818,129 $6,102,547 $5,788,365 $5,387,843
=============================================================================================================================
</TABLE>
We carry loans for sale at the lower of cost or market. At September 30,
1999, no valuation allowance was required as the market value exceeded book
value on an aggregate basis.
We carry mortgage-backed securities available for sale at fair value which,
at September 30, 1999, reflected an unrealized loss of $17,000. The current
quarter-end unrealized loss, less the associated tax effect, is reflected within
a separate component of other comprehensive income (loss) until realized.
21
<PAGE>
DEPOSITS
At September 30, 1999, our deposits totaled $6.3 billion, up $1.1 billion
or 21.9% from the year-ago quarter end and up $1.3 billion or 25.2% from
year-end 1998. Compared to the year-ago period, our transaction accounts--i.e.,
checking, regular passbook and money market increased $364 million or 33.7% and
our certificates of deposit increased $768 million or 18.7%. The following table
sets forth information concerning our deposits and average rates paid at the
dates indicated.
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999 March 31, 1999 December 31, 1998 September 30, 1998
------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
(Dollars in Thousands) Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transaction accounts 2.36% $1,444,515 2.40% $1,362,880 2.34% $1,313,707 2.30% $1,238,062 2.18% $1,080,734
Certificates of
deposit:
Less than 3.00% ... 2.49 11,084 2.58 23,239 2.60 23,324 2.62 25,126 2.63 26,686
3.00-3.49 ......... 3.02 15 3.01 268 3.01 323 3.01 593 3.03 449
3.50-3.99 ......... 3.94 2,236 3.91 44,532 3.91 47,813 3.88 51,474 3.91 40,115
4.00-4.49 ......... 4.37 436,442 4.40 578,371 4.39 604,692 4.39 428,316 4.16 14,754
4.50-4.99 ......... 4.78 1,189,830 4.80 1,208,190 4.80 1,004,947 4.80 668,204 4.88 468,922
5.00-5.99 ......... 5.53 3,138,246 5.38 2,181,871 5.41 2,015,702 5.53 2,421,333 5.57 3,162,420
6.00-6.99 ......... 6.17 86,490 6.11 71,254 6.06 192,320 6.06 204,065 6.06 382,502
7.00 and greater .. 7.24 2,454 7.25 2,319 7.24 2,454 7.24 2,560 7.25 2,798
- ----------------------------------------------------------------------------------------------------------------------------------
Total certificates
of deposit ..... 5.25 4,866,797 5.05 4,110,044 5.09 3,891,575 5.26 3,801,671 5.50 4,098,646
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits . 4.59% $6,311,312 4.39% $5,472,924 4.40% $5,205,282 4.53% $5,039,733 4.81% $5,179,380
==================================================================================================================================
</TABLE>
BORROWINGS
During the 1999 third quarter, our borrowings increased $178 million to
$1.5 billion, primarily reflecting increases in Federal Home Loan Bank ("FHLB")
advances. This followed an increase of $456 million during the second quarter of
1999. The following table sets forth information concerning our FHLB advances
and other borrowings at the dates indicated.
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
(Dollars in Thousands) 1999 1999 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank advances ..................... $1,477,207 $1,298,438 $842,677 $695,012 $197,935
Other borrowings .................................... 8,501 8,794 8,638 8,708 12,166
- ---------------------------------------------------------------------------------------------------------------------------
Total borrowings ................................ $1,485,708 $1,307,232 $851,315 $703,720 $210,101
===========================================================================================================================
Weighted average rate on borrowings during the period 5.35% 5.21% 5.36% 5.61% 5.91%
Total borrowings as a percentage of total assets .... 17.48 17.83 12.91 11.22 3.55
===========================================================================================================================
</TABLE>
CAPITAL SECURITIES
On July 23, 1999, we issued $120 million in capital securities through the
Trust. The capital securities pay quarterly cumulative cash distributions at an
annual rate of 10.00% of the liquidation value of $25 per share. Interest
expense including the amortization of deferred issuance costs on our capital
securities was $2.3 million for the third quarter of 1999. For further
information regarding our capital securities, see "Notes To Consolidated
Financial Statements - Note (5) - Capital Securities."
22
<PAGE>
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our market risk arises primarily from interest rate risk in our
lending and deposit taking activities. This interest rate risk occurs to the
degree that our interest-bearing liabilities reprice or mature more rapidly or
on a different basis than our interest-earning assets. Since our earnings depend
primarily on our net interest income, which is the difference between the
interest and dividends earned on interest-earning assets and the interest paid
on interest-bearing liabilities, one of our principal objectives is to actively
monitor and manage the effects of adverse changes in interest rates on net
interest income while maintaining asset quality. There has been no significant
change in our market risk since December 31, 1998.
The following table sets forth the repricing frequency of our major asset
and liability categories as of September 30, 1999, as well as other information
regarding the repricing and maturity differences between interest-earning assets
and interest-bearing liabilities in future periods. We refer to these
differences as "gap." We have determined the repricing frequencies by reference
to projected maturities, based upon contractual maturities as adjusted for
scheduled repayments and "repricing mechanisms"--provisions for changes in the
interest and dividend rates of assets and liabilities. We assume prepayment
rates on substantially all of our loan portfolio based upon our historical loan
prepayment experience and anticipated future prepayments. Repricing mechanisms
on a number of our assets are subject to limitations, like caps on the amount
that interest rates and payments on our loans may adjust. Accordingly, these
assets do not normally respond to changes in market interest rates as completely
or rapidly as our liabilities. The interest rate sensitivity of our assets and
liabilities illustrated in the table would vary substantially if we used
different assumptions or if actual experience differed from the assumptions
shown.
23
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------------------------------------
Within 7 - 12 2 - 5 6 - 10 Over Total
(Dollars in Thousands) 6 Months Months Years Years 10 Years Balance
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities and FHLB stock ..(1) $ 102,714 $ -- $ 143,050 $ -- $ -- $ 245,764
Loans and mortgage-backed securities:
Mortgage-backed securities .........(2) 12,762 4,264 4,423 1,721 413 23,583
Loans secured by real estate:
Residential:
Adjustable ....................(2) 6,045,848 296,839 111,412 -- -- 6,454,099
Fixed .........................(2) 182,058 29,236 184,272 141,815 169,732 707,113
Commercial real estate ...........(2) 41,425 9,440 86,555 7,072 1,845 146,337
Construction .....................(2) 85,727 -- -- -- -- 85,727
Land .............................(2) 34,763 38 338 351 -- 35,490
Non-mortgage:
Commercial .......................(2) 17,062 -- -- -- -- 17,062
Consumer .........................(2) 131,042 82,293 217,855 -- -- 431,190
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans and mortgage-backed securities 6,550,687 422,110 604,855 150,959 171,990 7,900,601
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ......... $6,653,401 $ 422,110 $ 747,905 $ 150,959 $ 171,990 $8,146,365
- ---------------------------------------------------------------------------------------------------------------------------------
Deposits, borrowings and capital securities:
Interest-bearing deposits:
Fixed maturity deposits ............(1) $2,134,836 $ 1,749,919 $ 982,042 $ -- $ -- $4,866,797
Transaction accounts ...............(3) 1,250,405 -- -- -- -- 1,250,405
Non-interest-bearing transaction accounts 194,110 -- -- -- -- 194,110
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits ....................... 3,579,351 1,749,919 982,042 -- -- 6,311,312
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowings .............................. 953,893 14,624 82,403 434,788 -- 1,485,708
Capital securities ...................... -- -- -- -- 120,000 120,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits, borrowings and
capital securities ................ $4,533,244 $ 1,764,543 $1,064,445 $ 434,788 $ 120,000 $7,917,020
=================================================================================================================================
Excess (shortfall) of interest-earning assets
over interest-bearing liabilities ....... $2,120,157 $(1,342,433) $ (316,540) $(283,829) $ 51,990 $ 229,345
Cumulative gap .............................. 2,120,157 777,724 461,184 177,355 229,345
Cumulative gap - as a % of total assets:
September 30, 1999 ...................... 24.94% 9.15% 5.43% 2.09% 2.70%
December 31, 1998 ....................... 23.84 7.48 9.07 3.40 4.00
September 30, 1998 ...................... 19.11 0.97 3.59 4.20 4.49
=================================================================================================================================
<FN>
(1) Based upon contractual maturity and repricing date.
(2) Based upon contractual maturity, repricing date and projected repayment and
prepayments of principal.
(3) Subject to immediate repricing.
</FN>
</TABLE>
Our six-month gap at September 30, 1999 was a positive 24.94%. This means
that more interest-earning assets reprice within six months than
interest-bearing liabilities. This compares to a positive six-month gap of
23.84% at December 31, 1998, and 19.11% at September 30, 1998. We continue to
pursue our strategy of emphasizing the origination of adjustable rate mortgages.
For the twelve months ended September 30, 1999, we originated and purchased for
investment $3.8 billion of adjustable rate loans which represented approximately
84% of all loans we originated and purchased for investment during the period.
At September 30, 1999, 96% of our interest-earning assets mature, reprice
or are estimated to prepay within five years, down from 98% at December 31, 1998
and 99% at September 30, 1998. At September 30, 1999, loans and mortgage-backed
securities with adjustable interest rates represented 85% of our loans and
mortgage-backed securities portfolios. During the third quarter of 1999, we
continued to offer residential fixed rate loan products to our customers
24
<PAGE>
primarily for sale in the secondary market. We price and originate fixed rate
mortgage loans for sale into the secondary market to increase opportunities for
originating adjustable rate mortgages and generate fee and servicing income. We
also originate fixed rate loans for portfolio to facilitate the sale of real
estate acquired in settlement of loans and which meet specific yield and other
approved guidelines.
At September 30, 1999, $7.1 billion or 89% of our total loan portfolio,
including mortgage-backed securities, consisted of adjustable rate loans,
construction loans, and loans with a due date of five years or less, compared to
$5.0 billion or 92% at December 31, 1998 and $5.0 billion or 91% at September
30, 1998.
The following table sets forth on a consolidated basis the interest rate
spread on our interest-earning assets and interest-bearing liabilities at the
dates indicated.
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
1999 1999 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted average yield:
Loans and mortgage-backed securities 7.33% 7.47% 7.59% 7.72% 7.82%
Federal Home Loan Bank stock ....... 5.24 5.29 5.29 5.44 5.86
Investment securities .............. 5.85 5.84 5.61 5.40 5.77
- ----------------------------------------------------------------------------------------------------------
Earning assets yield ............ 7.28 7.41 7.52 7.65 7.73
- ----------------------------------------------------------------------------------------------------------
Weighted average cost:
Deposits ........................... 4.59 4.39 4.40 4.53 4.81
Borrowings:
Federal Home Loan Bank advances . 5.45 5.24 5.30 5.47 5.85
Other borrowings ................ 8.68 8.67 8.70 8.69 8.36
- ----------------------------------------------------------------------------------------------------------
Combined borrowings ........... 5.46 5.26 5.33 5.51 6.00
Capital securities ................. 10.13 -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Combined funds cost ............. 4.84 4.56 4.53 4.66 4.86
- ----------------------------------------------------------------------------------------------------------
Interest rate spread ............ 2.44% 2.85% 2.99% 2.99% 2.87%
==========================================================================================================
</TABLE>
The period end weighted average yield on our loan and mortgage-backed
securities portfolios at September 30, 1999, was 7.33%, down from 7.72% at
December 31, 1998, and 7.82% at September 30, 1998. At September 30, 1999, our
single family adjustable rate mortgage portfolio, including mortgage-backed
securities, totaled $6.4 billion with a weighted average rate of 7.10%, compared
to $4.3 billion with a weighted average rate of 7.53% at December 31, 1998, and
$4.3 billion with a weighted average rate of 7.56% at September 30, 1998.
PROBLEM LOANS AND REAL ESTATE
Non-Performing Assets
Non-performing assets consist of loans on which we have ceased the accrual
of interest, which we refer to as non-accrual loans, real estate acquired in
settlement of loans and repossessed automobiles. Non-performing assets increased
during the quarter by $5 million to $35 million at September 30, 1999, or 0.41%
of total assets. The majority of the increase during the quarter was due to
subprime residential assets. Non-performing assets at quarter end include
non-accrual loans aggregating $1.3 million which were not contractually past
due, but were deemed non-accrual due to our assessment of the borrower's ability
to pay.
25
<PAGE>
The following table summarizes our non-performing assets at the dates
indicated.
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
(Dollars in Thousands) 1999 1999 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential, one-to-four units .......... $16,318 $15,522 $16,579 $15,571 $15,397
Residential, one-to-four units - subprime 9,719 6,010 4,379 1,975 2,479
Other ................................... 3,563 4,281 4,127 4,829 20,677
- ---------------------------------------------------------------------------------------------------------------
Total non-accrual loans .............. 29,600 25,813 25,085 22,375 38,553
Real estate acquired in settlement of loans . 5,213 4,015 4,686 4,475 5,423
Repossessed automobiles ..................... 335 256 319 569 611
- ---------------------------------------------------------------------------------------------------------------
Total non-performing assets ............. $35,148 $30,084 $30,090 $27,419 $44,587
===============================================================================================================
Allowance for loan losses (1):
Amount .................................. $35,962 $34,345 $32,586 $31,517 $31,444
As a percentage of non-performing loans . 121.49% 133.05% 129.90% 140.86% 81.56%
Non-performing assets as a percentage of
total assets ............................ 0.41 0.41 0.46 0.44 0.75
===============================================================================================================
<FN>
(1) Allowance for loan losses does not include the allowance for real estate
and real estate acquired in settlement of loans.
</FN>
</TABLE>
At September 30, 1999, the recorded investment in loans for which we
recognized impairment totaled $13 million. The total allowance for possible
losses related to these loans was $1 million. During the third quarter of 1999,
total interest recognized on the impaired loan portfolio was $0.4 million,
increasing the year-to-date total to $1.4 million.
Delinquent Loans
During the 1999 third quarter, our delinquencies as a percentage of total
loans outstanding increased from 0.48% to 0.55%, but remained below 0.65% at
year-end 1998 and 0.70% a year ago. This increase primarily occurred in our
residential one-to-four units category and our residential one-to-four
units-subprime category.
26
<PAGE>
The following table indicates the amounts of our past due loans at the
dates indicated.
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
-----------------------------------------------------------------------------------
30-59 60-89 90+ 30-59 60-89 90+
(Dollars in Thousands) Days Days Days (1) Total Days Days Days (1) Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units ................... $11,306 $3,441 $12,804 $27,551 $ 5,834 $3,812 $11,910 $21,556
One-to-four units - subprime ........ 3,669 3,278 3,697 10,644 2,328 1,235 3,092 6,655
Five or more units .................. -- -- -- -- -- -- -- --
Commercial real estate ................. -- -- -- -- -- -- -- --
Construction ........................... -- -- -- -- -- -- -- --
Land ................................... -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans ............. 14,975 6,719 16,501 38,195 8,162 5,047 15,002 28,211
Non-mortgage:
Commercial ............................. -- -- -- -- -- -- -- --
Automobile ............................. 4,548 367 571 5,486 3,133 489 895 4,517
Other consumer ......................... 161 33 175 369 169 36 233 438
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans ......................... $19,684 $7,119 $17,247 $44,050 $11,464 $5,572 $16,130 $33,166
==================================================================================================================================
Delinquencies as a percentage of total loans 0.25% 0.09% 0.22% 0.55% 0.17% 0.08% 0.23% 0.48%
==================================================================================================================================
March 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units ................... $ 8,463 $4,700 $13,180 $26,343 $ 9,841 $6,014 $12,832 $28,687
One-to-four units - subprime ........ 1,177 2,281 1,385 4,843 244 784 947 1,975
Five or more units .................. -- -- -- -- -- -- 155 155
Commercial real estate ................. -- -- -- -- -- -- -- --
Construction ........................... -- -- -- -- -- -- -- --
Land ................................... -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans ............. 9,640 6,981 14,565 31,186 10,085 6,798 13,934 30,817
Non-mortgage:
Commercial ............................. -- -- -- -- -- -- -- --
Automobile ............................. 3,248 383 1,000 4,631 4,650 888 1,048 6,586
Other consumer ......................... 144 76 226 446 334 45 344 723
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans ......................... $13,032 $7,440 $15,791 $36,263 $15,069 $7,731 $15,326 $38,126
==================================================================================================================================
Delinquencies as a percentage of total loans 0.21% 0.12% 0.25% 0.58% 0.26% 0.13% 0.26% 0.65%
==================================================================================================================================
September 30, 1998
---------------------------------------
<S> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units ................... $10,601 $4,302 $12,408 $27,311
One-to-four units - subprime ........ 741 1,334 505 2,580
Five or more units .................. 155 -- -- 155
Commercial real estate ................. -- -- -- --
Construction ........................... -- -- -- --
Land ................................... -- -- -- --
- ---------------------------------------------------------------------------------------
Total real estate loans ............. 11,497 5,636 12,913 30,046
Non-mortgage:
Commercial ............................. -- -- -- --
Automobile ............................. 5,330 1,105 990 7,425
Other consumer ......................... 119 143 496 758
- ---------------------------------------------------------------------------------------
Total loans ......................... $16,946 $6,884 $14,399 $38,229
=======================================================================================
Delinquencies as a percentage of total loans 0.31% 0.13% 0.26% 0.70%
=======================================================================================
<FN>
(1) All 90 day or greater delinquencies are on non-accrual status and reported
as part of non-performing assets.
</FN>
</TABLE>
27
<PAGE>
Allowance for Losses on Loans and Real Estate
We establish valuation allowances for losses on loans and real estate on a
specific and general basis. We determine specific allowances based on the
difference between the carrying value of the asset and our net fair value. We
determine general valuation allowances based on historical loss experience,
current and anticipated levels and trends of delinquent and non-performing
loans, and the economic environment in our market areas.
Allowances for losses on all assets were $39 million at September 30, 1999,
$40 million at December 31, 1998, and $41 million at September 30, 1998.
Our total allowance for possible loan losses was $36 million at September
30, 1999, up from $32 million at year-end and $31 million at September 30, 1998.
Virtually all of our current quarter-end allowance represented general loan
valuation allowances, of which $3 million represents an unallocated portion.
These general loan valuation allowances may be included as a component of
risk-based capital, up to a maximum of 1.25% of our risk-weighted assets. Net
charge-offs totaled $1.2 million in the 1999 third quarter, down from $1.3
million in the year-ago quarter. Included in the current quarter net charge-offs
were $0.1 million associated with one-to-four unit residential loans and $1.1
million associated with automobile loans. For the first nine months of 1999, our
net charge-offs were $3.6 million, compared to net charge-offs of $3.4 million
in the year-ago period. The year-ago period included a $1.4 million recovery
from the settlement. Adjusting year-ago results to exclude that recovery, net
charge-offs would have been down $1.2 million between nine-month periods.
The following table is a summary of the activity of our allowance for loan
losses during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $34,345 $32,586 $31,517 $31,444 $31,736
Provision .................... 2,838 2,798 2,381 1,180 985
Charge-offs .................. (1,423) (1,280) (1,520) (1,574) (1,540)
Recoveries ................... 202 241 208 467 263
- ------------------------------------------------------------------------------------------------------
Balance at end of period ..... $35,962 $34,345 $32,586 $31,517 $31,444
======================================================================================================
</TABLE>
28
<PAGE>
The following table indicates our allocation of the total valuation
allowance for loan losses to the various categories of loans at the dates
indicated.
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999 March 31, 1999
------------------------------------------------------------------------------------------------
Gross Allowance Gross Allowance Gross Allowance
Loan Percentage Loan Percentage Loan Percentage
Portfolio to Loan Portfolio to Loan Portfolio to Loan
(Dollars in Thousands) Allowance Balance Balance Allowance Balance Balance Allowance Balance Balance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units .......... $19,496 $6,890,032 0.28% $16,896 $5,701,245 0.30% $15,735 $5,064,684 0.31%
Five or more units ......... 276 23,544 1.17 285 24,641 1.16 299 26,420 1.13
Commercial real estate ........ 2,463 148,912 1.65 2,808 149,559 1.88 2,729 151,247 1.80
Construction .................. 2,242 190,441 1.18 2,082 178,526 1.17 1,732 147,246 1.18
Land .......................... 764 61,263 1.25 900 71,314 1.26 944 74,959 1.26
Non-mortgage:
Commercial .................... 227 27,605 0.82 193 26,884 0.72 202 28,182 0.72
Automobile .................... 7,099 391,975 1.81 7,832 375,138 2.09 7,566 363,168 2.08
Other consumer ................ 595 44,764 1.33 549 42,475 1.29 579 40,607 1.43
Not specifically allocated ........ 2,800 -- -- 2,800 -- -- 2,800 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans held for investment $35,962 $7,778,536 0.46% $34,345 $6,569,782 0.52% $32,586 $5,896,513 0.55%
====================================================================================================================================
December 31, 1998 September 30, 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One-to-four units .......... $14,299 $4,636,133 0.31% $13,603 $4,413,757 0.31%
Five or more units ......... 401 40,029 1.00 409 41,143 0.99
Commercial real estate ........ 2,632 140,790 1.87 3,656 156,902 2.33
Construction .................. 1,508 127,761 1.18 1,087 92,779 1.17
Land .......................... 568 44,859 1.27 498 39,222 1.27
Non-mortgage:
Commercial .................... 218 28,293 0.77 204 27,710 0.74
Automobile .................... 8,344 357,988 2.33 8,349 355,955 2.35
Other consumer ................ 747 41,894 1.78 838 44,026 1.90
Not specifically allocated ........ 2,800 -- -- 2,800 -- --
- --------------------------------------------------------------------------------------------------
Total loans held for investment $31,517 $5,417,747 0.58% $31,444 $5,171,494 0.61%
==================================================================================================
</TABLE>
The following table is a summary of the activity of our allowance for real
estate and joint ventures held for investment during the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 7,389 $7,770 $7,717 $8,151 $ 9,558
Provision (reduction) ........ (3,162) (265) 53 (214) (139)
Charge-offs .................. (1,792) (116) -- (220) (1,268)
Recoveries ................... -- -- -- -- --
- ------------------------------------------------------------------------------------------------
Balance at end of period ..... $ 2,435 $7,389 $7,770 $7,717 $ 8,151
================================================================================================
</TABLE>
29
<PAGE>
In addition to losses charged against the allowance for loan losses, we
have recorded losses on real estate acquired in settlement of loans by direct
write-off to net operations of real estate acquired in settlement of loans and
against an allowance for losses specifically established for these assets. As of
September 30, 1999, we are no longer maintaining an allowance for real estate
acquired in settlement of loans as the related individual assets are recorded at
the lower of cost or fair value. The following table is a summary of the
activity of our allowance for real estate acquired in settlement of loans during
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(In Thousands) 1999 1999 1999 1998 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 509 $ 547 $ 533 $ 582 $ 671
Provision (reduction) ........ (136) 9 26 (14) 160
Charge-offs .................. (373) (47) (12) (35) (249)
Recoveries ................... -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Balance at end of period ..... $-- $ 509 $ 547 $ 533 $ 582
=================================================================================================
</TABLE>
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of funds generated in the third quarter of 1999 were:
o a net increase of $838 million in deposits;
o principal repayments (including prepayments but excluding our
refinances of our existing loans) on loans and mortgage-backed
securities of $419 million;
o a net increase of $178 million in borrowings;
o a net decrease of $149 million of loans held for sale; and
o net proceeds of $115 million from the issuance of capital securities.
We used these funds primarily to originate loans held for investment of
$1.7 billion (net of our refinances of $27 million).
At September 30, 1999, the Bank's ratio of regulatory liquidity was 4.1%,
compared to 4.0% at both December 31, 1998 and September 30, 1998.
Stockholders' equity totaled $516 million at September 30, 1999, compared
to $481 million at December 31, 1998 and $471 million at September 30, 1998.
Downey Financial Corp. had liquid assets, including due from Bank -
interest-bearing balances of $73 million at September 30, 1999, compared to $9
million at year-end 1998. The increase primarily reflected the $115 million of
net proceeds from the issuance of capital securities less the $50 million
contributed to the Bank as additional capital. Further capital contributions to
the Bank are anticipated. Downey Financial Corp. can obtain additional funds by
means of dividends from subsidiaries, subject to certain limitations, or
issuance of further debt or equity.
30
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The following table is a reconciliation of the Bank's stockholder's equity
to federal regulatory capital as of September 30, 1999. The core and tangible
capital ratios were 5.98% and the risk-based capital ratio was 11.46%. The
Bank's capital ratios exceed the "well capitalized" standards of 5.00% for core
and 10.00% for risk-based, as defined by regulation. For information regarding a
capital contribution to the Bank by Downey, see "Notes To Consolidated Financial
Statements - Note (5) - Capital Securities."
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-Based Capital
-------------------- ------------------ ----------------------
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholder's equity $557,925 $557,925 $557,925
Adjustments:
Deductions:
Investment in subsidiary, primarily real estate . (49,578) (49,578) (49,578)
Goodwill ........................................ (4,188) (4,188) (4,188)
Non-permitted mortgage servicing rights ......... (3,044) (3,044) (3,044)
Additions:
Unrealized gains on securities available for sale 738 738 738
General loss allowance - Investment in DSL
Service Company ............................... 1,408 1,408 1,408
General loan valuation allowances (1) ........... -- -- 35,522
- ----------------------------------------------------------------------------------------------------------------------------
Regulatory capital ..................................... 503,261 5.98% 503,261 5.98% 538,783 11.46%
Well capitalized requirement ........................... 126,308 1.50 (2) 421,027 5.00 469,987 10.00 (3)
- ----------------------------------------------------------------------------------------------------------------------------
Excess ................................................. $376,953 4.48% $ 82,234 0.98% $ 68,796 1.46%
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Limited to 1.25% of risk-weighted assets.
(2) Represents the minimum requirement for tangible capital, as no "well
capitalized" requirement has been established for this category.
(3) A third requirement is Tier 1 capital to risk-weighted assets of 6.00%,
which the Bank met and exceeded with a ratio of 10.71%.
</FN>
</TABLE>
YEAR 2000
Risks of the Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to represent the calendar year--e.g., "99"
for "1999". Software so developed, and not corrected, could produce inaccurate
or unpredictable results or system failures commencing January 1, 2000, when
dates present a lower two digit year number than dates in the prior century.
These occurrences may have a material adverse effect on our financial condition,
results of operations, business or business prospects, as Downey, like most
financial organizations, is significantly impacted by the potential year 2000
issue due to the nature of financial information. Potential impacts to us may
arise from software, computer hardware, and other equipment both within our
direct control and outside our ownership, yet with which we electronically or
operationally interface. Financial institution regulators have intensively
focused upon year 2000 exposures, issuing guidance concerning the
responsibilities of management and the board of directors. Year 2000 testing and
certification is being addressed as a key safety and soundness issue in
conjunction with regulatory exams; and the Office of Thrift Supervision has
authority to bring enforcement actions against any institution under its
supervision which it believes is not properly addressing year 2000 compliance
issues.
State of Readiness
We have established a four-phase process to address the year 2000 issue. In
addition, our board of directors oversees the year 2000 compliance project's
progress through monthly status reports and quarterly reviews with the year 2000
project manager.
31
<PAGE>
As part of the first phase, which is completed, we inventoried all of our
data systems to determine which are most critical to support customer
transaction processing and provide customer services. This inventory not only
included in-house systems, but those provided by third party vendors as well. We
prioritized systems as being:
o mission critical;
o high risk;
o moderate risk; or
o low risk.
From this system, we developed modification plans which place priority
emphasis on those systems requiring change and classified mission critical or
high risk. We contacted third party vendors during this phase to determine their
process and timeline in correcting any year 2000 compliance issues. In addition,
we also contacted our commercial loan borrowers to determine the extent of their
preparations for year 2000 and any potential impact year 2000 may have on their
businesses and ability to repay loan obligations to us. Commercial lending does
not represent a significant portion of our loan portfolio--i.e., substantially
less than 1.0%; therefore, we believe the year 2000 preparedness of our
commercial loan borrowers does not pose a significant risk.
Phase two of the process consisted of making appropriate year 2000
programming changes to our in-house systems, while phase three consists of
acceptance testing and sign-off of both our in-house and vendor provided
systems. The fourth and final phase of the year 2000 compliance project includes
installation of the system modifications into our daily operation. The fourth
phase is scheduled to occur once a system has been successfully tested and
determined to be year 2000 compliant.
By the end of 1998, we completed programming and substantially completed
acceptance testing for our in-house mainframe system. At the end of first
quarter 1999, we completed acceptance testing and installation of the in-house
mainframe system, which performs all significant loan, deposit and general
ledger accounting processes.
For our developed PC-based systems classified mission critical, we have
completed all programming changes, acceptance testing and installation. We
completed programming and acceptance testing of all other of our developed
PC-based systems by the end of the second quarter, with installation of year
2000 modifications completed during the third quarter of 1999.
Year 2000 acceptance testing and installation of all third party vendor
changes is substantially completed. There are no outstanding mission critical
systems requiring installation. Any new systems released during the remainder of
1999 will require third party vendors to represent that their systems are year
2000 compliant. In addition to these representations, we will test vendor
programs or review testing conducted by others for year 2000 compliance.
In addition to the computer systems utilized by us, we have also
inventoried other essential services that year 2000 issues may impact like
telecommunications and utilities. We are monitoring these essential service
providers to determine their progress and how they are addressing year 2000
issues. To date, no information exists to suggest these essential services will
not be available.
Costs to Address the Year 2000 Issue
Currently, we estimate that year 2000 project costs will approximate $6.3
million. This cost is in addition to existing personnel who are working on the
year 2000 compliance project and includes estimates for hardware and software
renovation or replacement, as well as additions to existing staff who will be
specifically devoted to the project. Approximately 50% of the year 2000
compliance project cost represents costs to migrate to a new personal computer
environment and to replace specific older automated teller machines, both of
which we might otherwise have implemented or replaced during the period
notwithstanding the year 2000 issue. Thus, that portion of year 2000 costs will
be amortized over the useful life of the equipment. Of the estimated total
expense, approximately $3.7 million has been incurred to date, $0.1 million in
1997, $1.8 million in 1998 and $1.8 million during the first nine months of
1999.
32
<PAGE>
The table below summarizes by year the estimated amount and anticipated
timing of the planned year 2000 expense.
<TABLE>
<CAPTION>
(In Millions) 1997 1998 1999 2000 Thereafter Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Estimated Year 2000 expense $0.1 $1.8 $2.6 $1.0 $0.8 $6.3
- ----------------------------------------------------------------------------
</TABLE>
As we progress in addressing the year 2000 compliance project and
additional information becomes available, estimates of costs could change. At
this time, no significant data system projects have been delayed as a result of
our year 2000 compliance effort.
Contingency Plans
We believe our year 2000 compliance project should enable us to be
successful in modifying our computer systems to be year 2000 compliant. As
previously stated, we have completed acceptance testing and installation with
respect to our in-house mainframe system which performs all significant loan,
deposit and general ledger accounting processes, as well as our developed
PC-based systems classified mission critical. Also, programming and acceptance
testing of all other of our developed PC-based systems and installation has been
completed. In addition to year 2000 compliance system modification plans, we
have also developed contingency plans for all other systems classified as
mission critical and high risk. Our contingency plans provide timetables to
pursue various alternatives based upon the failure of a system to be adequately
modified or sufficiently tested and validated to ensure year 2000 compliance.
However, there can be no assurance that either the compliance process or our
contingency plans will avoid partial or total system interruptions or the costs
necessary to update hardware and software would not have a material adverse
effect upon our financial condition, results of operations, business or business
prospects.
33
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits
4.1 Junior Subordinated Indenture dated as of July 23, 1999 between Downey
Financial Corp. and Wilmington Trust Company as Indenture Trustee.
4.2 10% Junior Subordinated Debenture due September 15, 2029 Principal Amount
$123,711,350.
4.3 Certificate of Trust of Downey Financial Capital Trust I, dated as of May
25, 1999.
4.4 Trust Agreement of Downey Financial Capital Trust I, dated May 25, 1999.
4.5 Amended and Restated Trust Agreement of Downey Financial Capital Trust I,
between Downey Financial Corp., Wilmington Trust Company and the
Administrative Trustees named therein, dated as of July 23, 1999.
4.6 Certificate Evidencing Common Securities of Downey Financial Capital Trust
I, 10% Common Securities.
4.7 Certificate Evidencing Capital Securities of Downey Financial Capital Trust
I, 10% Capital Securities (Global Certificate).
4.8 Common Securities Guarantee Agreement of Downey Financial Corp.
(Guarantor), dated July 23, 1999.
4.9 Capital Securities Guarantee Agreement of Downey Financial Corp. and
Wilmington Trust Company, dated as of July 23, 1999.
27 Financial Data Schedule.
(B) Reports on Form 8-K during last quarter ended September 30, 1999.
The Registrant filed with the Commission two Current Reports on Form 8-K.
The first, dated July 14, 1999, was the Company's press announcement of
second quarter 1999 earnings. The second, dated July 15, 1999, reported
that on June 2, 1999, litigation had been filed against sixteen large banks
located in California, including the Bank.
SIGNATURES: Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DOWNEY FINANCIAL CORP.
Date: November 2, 1999 /s/ Daniel D. Rosenthal
----------------------------------------------------
Daniel D. Rosenthal
President and Chief Executive Officer
Date: November 2, 1999 /s/ Thomas E. Prince
----------------------------------------------------
Thomas E. Prince
Executive Vice President and Chief Financial Officer
34
<PAGE>
-----------------------------------------------------------
DOWNEY FINANCIAL CORP.
TO
WILMINGTON TRUST COMPANY
TRUSTEE
------------------------------------
JUNIOR SUBORDINATED INDENTURE
DATED AS OF JULY 23, 1999
-----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION.................................................1
Section 1.1. Definitions..............................................1
Section 1.2. Compliance Certificate and Opinions......................9
Section 1.3. Forms of Documents Delivered to Trustee.................10
Section 1.4. Acts of Holders.........................................11
Section 1.5. Notices, Etc. to Trustee and Company....................13
Section 1.6. Notice to Holders; Waiver...............................13
Section 1.7. Conflict with Trust Indenture Act.......................13
Section 1.8. Effect of Headings and Table of Contents................13
Section 1.9. Successors and Assigns..................................13
Section 1.10. Separability Clause.....................................14
Section 1.11. Benefits of Indenture...................................14
Section 1.12. Governing Law...........................................14
Section 1.13. Non-Business Days.......................................14
ARTICLE II SECURITY FORMS.............................................14
Section 2.1. Forms Generally.........................................14
Section 2.2. Form of Face of Security................................15
Section 2.3. Form of Reverse of Security.............................18
Section 2.4. Additional Provisions Required in Global Security.......20
Section 2.5. Form of Trustee's Certificate of Authentication.........21
ARTICLE III THE SECURITIES.............................................21
Section 3.1. Title and Terms.........................................21
Section 3.2. Denominations...........................................24
Section 3.3. Execution, Authentication, Delivery and Dating..........24
Section 3.4. Temporary Securities....................................25
Section 3.5. Registration, Transfer and Exchange.....................26
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities........27
Section 3.7. Payment of Interest; Interest Rights Preserved..........28
Section 3.8. Persons Deemed Owners...................................29
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 3.9. Cancellation............................................29
Section 3.10. Computation of Interest.................................30
Section 3.11. Deferrals of Interest Payment Dates.....................30
Section 3.12. Right of Set-Off........................................31
Section 3.13. Agreed Tax Treatment....................................31
Section 3.14. Shortening of Stated Maturity...........................31
Section 3.15. CUSIP Numbers...........................................32
ARTICLE IV SATISFACTION AND DISCHARGE.................................32
Section 4.1. Satisfaction and Discharge of Indenture.................32
Section 4.2. Application of Trust Money..............................33
ARTICLE V REMEDIES...................................................33
Section 5.1. Events of Default.......................................33
Section 5.2. Acceleration of Maturity; Rescission and Annulment......34
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.................................................35
Section 5.4. Trustee May File Proofs of Claim........................36
Section 5.5. Trustee May Enforce Claim Without Possession of
Securities..............................................37
Section 5.6. Application of Money Collected..........................37
Section 5.7. Limitation on Suits.....................................38
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest; Direct Action by Holders of
Capital Securities......................................38
Section 5.9. Restoration of Rights and Remedies......................39
Section 5.10. Rights and Remedies Cumulative..........................39
Section 5.11. Delay or Omission Not Waiver............................39
Section 5.12. Control by Holders......................................39
Section 5.13. Waiver of Past Defaults.................................40
Section 5.14. Undertaking for Costs...................................40
Section 5.15. Waiver of Usury, Stay or Extension Laws.................41
ARTICLE VI THE TRUSTEE................................................41
Section 6.1. Certain Duties and Responsibilities.....................41
Section 6.2. Notice of Defaults......................................42
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 6.3. Certain Rights of Trustee...............................42
Section 6.4. Not Responsible for Recitals or Issuance of Securities..43
Section 6.5. May Hold Securities.....................................43
Section 6.6. Money Held in Trust.....................................43
Section 6.7. Compensation and Reimbursement..........................44
Section 6.8. Disqualification; Conflicting Interests.................44
Section 6.9. Corporate Trustee Required; Eligibility.................44
Section 6.10. Resignation and Removal; Appointment of Successor.......45
Section 6.11. Acceptance of Appointment by Successor..................46
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business................................................47
Section 6.13. Preferential Collection of Claims Against Company.......48
Section 6.14. Appointment of Authenticating Agent.....................48
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY..........49
Section 7.1. Company to Furnish Trustee Names and Addresses of
Holders.................................................49
Section 7.2. Preservation of Information, Communications to Holders..49
Section 7.3. Reports by Trustee......................................50
Section 7.4. Reports by Company......................................50
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.......51
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms....51
Section 8.2. Successor Corporation Substituted.......................51
ARTICLE IX SUPPLEMENTAL INDENTURES....................................52
Section 9.1. Supplemental Indentures without Consent of Holders......52
Section 9.2. Supplemental Indentures with Consent of Holders.........53
Section 9.3. Execution of Supplemental Indentures....................54
Section 9.4. Effect of Supplemental Indentures.......................55
Section 9.5. Conformity with Trust Indenture Act.....................55
Section 9.6. Reference in Securities to Supplemental Indentures......55
ARTICLE X COVENANTS..................................................55
Section 10.1. Payment of Principal, Premium and Interest..............55
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 10.2. Maintenance of Office or Agency.........................55
Section 10.3. Money for Security Payments to be Held in Trust.........56
Section 10.4. Statement as to Compliance..............................57
Section 10.5. Reserved................................................57
Section 10.6. Additional Sums.........................................57
Section 10.7. Additional Covenants....................................58
Section 10.8. Payment of Expenses.....................................59
ARTICLE XI REDEMPTION OF SECURITIES...................................60
Section 11.1. Applicability of This Article...........................60
Section 11.2. Election to Redeem; Notice to Trustee...................60
Section 11.3. Selection of Securities to be Redeemed..................60
Section 11.4. Notice of Redemption....................................61
Section 11.5. Deposit of Redemption Price.............................62
Section 11.6. Payment of Securities Called for Redemption.............62
Section 11.7. Right of Redemption of Securities Initially Issued to a
Downey Trust............................................62
ARTICLE XII SINKING FUNDS..............................................63
Section 12.1. Applicability of Article................................63
Section 12.2. Satisfaction of Sinking Fund Payments with Securities...63
Section 12.3. Redemption of Securities for Sinking Fund...............63
ARTICLE XIII SUBORDINATION OF SECURITIES................................65
Section 13.1. Securities Subordinate to Senior and Subordinated Debt..65
Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc..........65
Section 13.3. Prior Payment to Senior and Subordinated Debt Upon
Acceleration of Securities..............................66
Section 13.4. No Payment When Senior and Subordinated Debt in Default.67
Section 13.5. Payment Permitted If No Default.........................67
Section 13.6. Subrogation to Rights of Holders of Senior and
Subordinated Debt.......................................68
Section 13.7. Provisions Solely to Define Relative Rights.............68
Section 13.8. Trustee to Effectuate Subordination.....................69
Section 13.9. No Waiver of Subordination Provisions...................69
iv
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 13.10. Notice to Trustee.......................................69
Section 13.11. Reliance on Judicial Order or Certificate of
Liquidating Agent.......................................70
Section 13.12. Trustee Not Fiduciary for Holders of Senior and
Subordinated Debt.......................................70
Section 13.13. Rights of Trustee as Holder of Senior and Subordinated
Debt; Preservation of Trustee's Rights..................70
Section 13.14. Article Applicable to Paying Agents.....................70
Section 13.15. Certain Conversions or Exchanges Deemed Payment.........71
v
<PAGE>
DOWNEY FINANCIAL CORP.
Reconciliation and tie between the Trust Indenture Act of 1939 (including
cross-references to provisions of Sections 310 to and including 317 which,
pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the
Trust Reform Act of 1990, are a part of and govern the Indenture whether or not
physically contained therein) and the Junior Subordinated Indenture, dated as of
July 23, 1999.
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
--------------- ---------
ss.310 (a) (1), (2) and (5)........................... Not Applicable
(a) (3)........................................ Not Applicable
(a) (4)........................................ Not Applicable
(b)............................................ 6.8
............................................... 6.10
(c)............................................ Not Applicable
ss.311 (a)............................................ 6.13(a)
(b)............................................ 6.13(b b) (2)
............................................... 7.3(a) (2)
............................................... 7.3(a) (2)
ss.312 (a)............................................ 7.1
............................................... 7.2(a)
(b)............................................ 7.2(b)
(c)............................................ 7.2(c)
ss.313 (a)............................................ 7.3(a)
(b)............................................ 7.3(b)
(c)............................................ 7.3(a), 7.3(b)
(d)............................................ 7.3(c)
ss.314 (a) (1), (2) and (3)........................... 7.4
(a) (4)........................................ 10.5
(b)............................................ Not Applicable
(c) (1)........................................ 1.2
(c) (2)........................................ 1.2
(c) (3)........................................ Not Applicable
(d)............................................ Not Applicable
(e)............................................ 1.2
(f)............................................ Not Applicable
ss.315 (a)............................................ 6.1(a)
(b)............................................ 6.2
............................................... 7.3(a) (6)
(c)............................................ 6.1(b)
(d)............................................ 6.1(c)
(d) (1)........................................ 6.1(a) (1)
(d) (2)........................................ 6.1(c) (2)
(d) (3)........................................ 6.1(c) (3)
(e)............................................ 5.14
<PAGE>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
----------- ---------
ss.316 (a)............................................ 1.1
(a) (1) (A).................................... 5.12
(a) (1) (B).................................... 5.13
(a) (2)........................................ Not Applicable
(b)............................................ 5.8
(c)............................................ 1.4(f)
ss.317 (a) (1)........................................ 5.3
(a) (2)........................................ 5.4
(b)............................................ 10.3
ss.318 (a)............................................ 1.7
- ----------------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Junior Subordinated Indenture.
2
<PAGE>
JUNIOR SUBORDINATED INDENTURE, dated as of July 23, 1999, between DOWNEY
FINANCIAL CORP., a Delaware corporation (hereinafter called the "Company")
having its principal office at 3501 Jamboree Road, North Tower, Newport Beach,
California 92660, and WILMINGTON TRUST COMPANY, a Delaware banking corporation,
as Trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in series (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Company of the proceeds from the
issuance from time to time by one or more business trusts (each a "Downey
Trust," and, collectively, the "Downey Trusts") of capital trust interests in
such Trusts (the "Capital Securities") and common interests in such Trusts (the
"Common Securities" and, collectively with the Capital Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(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 which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) 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
1
<PAGE>
computation; provided, that when two or more principles are so generally
accepted, it shall mean that set of principles consistent with those in use by
the Company; and
(d) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities of any series the payment of which has not been made
on the applicable Interest Payment Date or other date when due, including
without limitation any interest which is deferred as the result of an Extension
Period, and which shall accrue at the rate per annum specified or determined as
specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means the sum of any additional taxes, duties and other
governmental charges to which a Downey Trust has become subject from time to
time as a result of a Tax Event.
"Administrative Trustee" means, in respect of any Downey Trust, each Person
identified as an "Administrative Trustee" in the related Trust Agreement, solely
in such Person's capacity as Administrative Trustee, of such Downey Trust under
such Trust Agreement and not in such Person's individual capacity, or any
successor administrative trustee appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities of
one or more series.
"Board of Directors" means either the board of directors of the Company or
any committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, or such committee of the Board of Directors or officers of the
Company to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
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"Business Day" means any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed.
"Capital Securities" has the meaning specified in the first recital of this
Indenture.
"Capital Securities Guarantee" means the Capital Securities Guarantee
Agreement substantially in the form attached hereto as Annex C, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series and operates directly or indirectly for the benefit
of holders of the related series of Capital Securities, in each case as amended
from time to time.
"Capital Treatment Event" means, in respect of any Downey Trust, the
receipt by the Company and the Downey Trust of an Opinion of Counsel experienced
in such matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such prospective change,
pronouncement, action or decision is announced on or after the original issuance
date of the Capital Securities of such Downey Trust, there is more than an
insubstantial risk that: (i) the Company will not be entitled to treat such
Capital Securities (or any substantial portion thereof) as "Tier I Capital" (or
the then equivalent thereof) for purposes of the holding company capital
adequacy guidelines of the primary federal regulator of the Company, as then in
effect and applicable to the Company, in which case such Opinion of Counsel
shall also state that the Company is subject to those capital adequacy
guidelines; or (ii) the Subsidiary Bank will not be entitled to treat the net
proceeds from the sale of Securities of a series issued to such Downey Trust
that are invested in the Subsidiary Bank (or any substantial portion thereof) as
"Tier I Capital" (or the then equivalent thereof) for purposes of the capital
adequacy guidelines of the primary federal regulator of the Subsidiary Bank, as
then in effect and applicable to the Subsidiary Bank (assuming for the purpose
of this clause (ii) that at least 50% of such net proceeds are invested in the
Subsidiary Bank by the Company in the form of a capital contribution or through
the purchase of common stock of the Subsidiary Bank).
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this 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.
"Common Securities" has the meaning specified in the first recital of this
Indenture.
"Common Securities Guarantee" means the Common Securities Guarantee
Agreement substantially in the form attached hereto as Annex D, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series, in each case, as amended from time to time.
"Common Stock" means the common stock, no par value, of the Company.
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"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by the Chairman of the Board
of Directors, the Vice Chairman of the Board of Directors, its Chief Executive
Officer, its President or a Vice President, and by its Chief Financial Officer,
its Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered.
"Corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person whether incurred on or prior to the date of this
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all dividends
of another Person the payment of which, in either case, such Person has
guaranteed or is responsible or liable for, directly or indirectly, as obligor
or otherwise.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Delaware Trustee" means in respect to any Downey Trust, the commercial
bank or trust company identified as the "Delaware Trustee" in the related Trust
Agreement, solely in its capacity as Delaware Trustee of such Downey Trust under
such Trust Agreement and not in its individual capacity, or its successor in
interest in such capacity or any successor Delaware trustee appointed as therein
provided.
"Depository" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depository by the Company pursuant to Section 3.1 with
respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
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"Distributions," with respect to the Trust Securities issued by a Downey
Trust, means amounts payable in respect of such Trust Securities as provided in
the related Trust Agreement and referred to therein as "Distributions."
"Dollar" or "U.S. $" means the currency of the United States of America
that, as at the time of payment, is legal tender for the payment of public and
private debts.
"Downey Trust Guarantee" means the guarantee by the Company of
distributions on the Capital Securities of a Downey Trust to the extent provided
in the related Capital Securities Guarantee.
"Downey Trust" has the meaning specified in the first recital of this
Indenture.
"Event of Default" has the meaning specified in Article V unless otherwise
specified in the supplemental indenture or the Officers' Certificate delivered
pursuant to Section 3.1 hereof creating a series of Securities.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Extension Period" has the meaning specified in Section 3.11.
"Financing Entity" has the meaning specified in the definition of Senior
and Subordinated Debt.
"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depository or
its nominee for such series, and registered in the name of such Depository or
its nominee.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof or one or more
Officers' Certificates delivered pursuant to Section 3.1 and shall include the
terms of each particular series of Securities established as contemplated by
Section 3.1.
"Interest Payment Date" means as to each series of Securities the Stated
Maturity of an installment of interest on such Securities.
"Investment Company Event" means, in respect of a Downey Trust, the receipt
by the Company and the Downey Trust of an Opinion of Counsel experienced in such
matters to the effect that, as the result of any change in law or regulation or
any written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, which
change becomes effective or which written change is announced on or after the
original issuance date of the Capital Securities of such Downey Trust, there is
more
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than an insubstantial risk that such Downey Trust is or will be considered an
"investment company" that is required to be registered under the 1940 Act.
"Junior Subordinated Payment" has the meaning specified in Section 13.2.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in Section
5.1(c).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the Chief
Executive Officer, the President or a Vice President, and by the Chief Financial
Officer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of nationally recognized
independent counsel, who may be counsel for the Company (such counsel for the
Company may include Manatt, Phelps & Phillips, LLP), but not an employee of the
Company, and who shall be reasonably acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in each
Security.
"Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent in
trust for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this
Indenture; and
(iii) Securities in substitution for or in lieu of which other Securities
have been authenticated and delivered pursuant to Section 3.5 or Section 3.6 or
which have been paid unless proof satisfactory to the Trustee is presented that
any such Securities are held by Holders in whose hands such Securities are
valid, binding and legal obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal amount of Outstanding
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Securities owned by the Company or any other
obligor upon the Securities or, unless all the Securities of a series shall then
be held by an Affiliate of the Company, any Affiliate of the Company or such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right to act with respect to such Securities and that the
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pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor. Upon the written request of the
Trustee, the Company shall furnish to the Trustee promptly an Officers'
Certificate listing and identifying all Securities, if any, known by the Company
to be owned or held by or for the account of the Company, or any other obligor
on the Securities or any Affiliate of the Company or such obligor, and, subject
to the provisions of Section 6.1, the Trustee shall be entitled to accept such
Officers' Certificate as conclusive evidence of the facts therein set forth and
of the fact that all Securities not listed therein are Outstanding for the
purpose of any such determination.
"Paying Agent" means the Trustee or any Person authorized by the Company to
pay the principal of or interest on any Securities on behalf of the Company.
"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.
"Place of Payment" means, with respect to the Securities of any series, the
place or places where the principal of (and premium, if any) and interest on the
Securities of such series are payable pursuant to Sections 3.1 and 3.11.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any Downey Trust, the commercial
bank or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such Downey Trust under
such Trust Agreement and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as
therein provided.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of a series, the date which
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Responsible Officer" when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee from time to time to administer
its corporate trust matters.
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"Securities" or "Security" means any debt securities or debt security, as
the case may be, authenticated and delivered under this Indenture.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.
"Senior and Subordinated Debt" means the principal of (and premium, if any)
and interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt of the Company, whether incurred on or prior to the date of this Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is expressly provided that
such Debt is not superior in right of payment to the Securities or ranks on a
parity in right of payment with or junior in right of payment to the Securities,
or to other Debt which by its express terms ranks on a parity with, or junior
to, the Securities in right of payment, provided, however, that Senior and
Subordinated Debt shall not be deemed to include (a) any Debt of the Company
which, when incurred and without respect to any election under Section 1111(b)
of the Bankruptcy Reform Act of 1978, as amended, or any successor provision
thereto was without recourse to the Company, (b) any Debt of the Company to any
of its Subsidiaries, (c) Debt to any employee of the Company, (d) any
Securities, (e) in respect of a Downey Trust, any Debt between or among the
Company and any of its Affiliates, including all other debt securities and
guarantees in respect of those debt securities issued to any other Downey Trust,
or trustee of any other Downey Trust, partnership, limited liability company or
other entity affiliated with the Company which is a financial vehicle of the
Company (a "Financing Entity") in connection with the issuance by that Financing
Entity of preferred securities or other securities that rank on a parity in
right of payment with or junior in right of payment to, the related series of
Capital Securities issued by such Downey Trust or the Company's guarantee in
connection with such issuance by such Financing Entity which guarantee ranks on
a parity in right of payment with, or junior in right of payment to, the Downey
Trust Guarantee with respect to such related series of Capital Securities, (f)
any trade accounts payable or accrued liabilities arising in the Company's
ordinary course of business, and (g) any liabilities for federal, state, local
or other taxes.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Security or any installment
of principal thereof or interest thereon means the date specified pursuant to
the terms of such Security as the date on which the principal of such Security
or such installment of interest is due and payable, and in the case of such
principal, as such date may be shortened or extended as provided pursuant to the
terms of such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
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"Subsidiary Bank" means Downey Savings and Loan Association, F.A., a
federally chartered savings and loan association and the principal Subsidiary of
the Company.
"Tax Event" means the receipt by the Company and the Downey Trust of an
Opinion of Counsel experienced in such matters to the effect that as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which prospective change, pronouncement, action or decision is
announced on or after the original issuance date of the Capital Securities of
such Downey Trust, there is more than an insubstantial risk that (i) such Downey
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 of Securities held by such Downey Trust, (ii) interest
payable by the Company on such series of Securities is not, or within 90 days of
the date of such Opinion of Counsel will not be, deductible by the Company, in
whole or in part, for United States Federal income tax purposes or (iii) such
Downey 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 Agreement" means the Trust Agreement substantially in the form
attached hereto as Annex A, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex B, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15
U.S.C.ss.ss. 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Vice President" when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
Section 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have
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been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent (including covenants compliance with which
constitute a condition precedent), if any, have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
Section 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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Section 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent or proxy duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments is or are
delivered to the Trustee, and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a Person acting in other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
(c) The fact and date of the execution by any Person of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient and in accordance
with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
(as defined below) by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Company from setting a new record date for any
action for which a
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record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be canceled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities of the relevant series on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities of the relevant series in
the manner set forth in Section 1.6.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(b) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be canceled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 1.6, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section,
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
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Section 1.5. Notices, Etc. to Trustee and Company
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, any holder of Capital Securities or the
Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, or
(b) the Company by the Trustee, any Holder or any holder of Capital
Securities shall be sufficient for every purpose (except as otherwise provided
in Section 5.1) hereunder if in writing and mailed, first class, postage
prepaid, to the Company, addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
Section 1.7. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act through operation of Section 318(c) thereof, such imposed duties shall
control.
Section 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
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Section 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns, the Holders of Senior and Subordinated Debt, the Holders of the
Securities and, to the extent expressly provided in Sections 5.2, 5.8, 5.9,
5.11, 5.13, 9.1 and 9.2, the holders of Capital Securities, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles thereof.
Section 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day) with the same force
and effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity.
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
The Securities of each series shall be in substantially the forms set forth
in this Article, or in such other form or forms as shall be established by or
pursuant to a Board Resolution or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with applicable tax
laws or the rules of any securities exchange or as may, consistently herewith,
be determined by the officers executing such securities, as evidenced by their
execution of the Securities. If the form of Securities of any series is
established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 3.3 with respect to
the authentication and delivery of such Securities.
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The Trustee's certificate of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
Section 2.2. Form of Face of Security.
DOWNEY FINANCIAL CORP.
__% JUNIOR SUBORDINATED DEBENTURE DUE ___________
Registered Principal Amount:
No. CUSIP No.:
DOWNEY FINANCIAL CORP., a corporation organized and existing under the laws
of California (hereinafter called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________, or registered assigns, the
principal sum of $_______ Dollars on ________; provided that the Company may
shorten the Stated Maturity of the principal of this Security to a date not
earlier than ________. The Company further promises to pay interest on said
principal sum from ________ or from the most recent interest payment date (each
such date, an "Interest Payment Date") on which interest has been paid or duly
provided for, quarterly (subject to deferral as set forth herein) in arrears on
the _____ day of _____, _____, _____ and _____ of each year commencing ________
at the rate of ____% per annum, until the principal hereof is paid or duly
provided for or made available for payment plus Additional Interest, if any
(without duplication and to the extent that payment of such interest is
enforceable under applicable law), at the rate of ____% per annum, compounded
quarterly. The amount of interest payable for any period shall be computed on
the basis of twelve 30-day months and a 360-day year. The amount of interest
payable for any partial period shall be computed on the basis of the actual
number of days elapsed in a 30-day month. In the event that any date on which
interest is payable on this Security is not a Business Day, then a payment of
the interest payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on the date the payment
was originally payable. A "Business Day" shall mean any day other than a
Saturday or Sunday or a day on which banking institutions in the City of New
York are authorized or required by law or executive order to remain closed. The
interest installment so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered on the Regular Record Date for such interest installment, which shall
be [insert Record Date] next preceding such Interest Payment Date. Any such
interest installment not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date
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and may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than ____ days prior to such Special Record Date, or be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in said Indenture.
[If applicable insert--So long as no Event of Default has occurred and is
continuing, the Company shall have the right at any time during the term of this
Security to defer payment of interest on this Security, at any time or from time
to time, for up to 20 consecutive quarterly interest payment periods with
respect to each deferral period (each an "Extension Period") (at the end of
which the Company shall pay all interest then accrued and unpaid (together with
Additional Interest thereon at the rate of ___% per annum, compounded quarterly,
to the extent permitted by applicable law)); provided, however, that no
Extension Period shall extend beyond the Stated Maturity of the principal of
this Security; [if applicable, insert--provided, further, that at any time while
an Extension Period is in effect and the Company shortens the Stated Maturity of
the principal of this Security to end before the last day of such Extension
Period, then the Extension Period will be deemed to end on the Stated Maturity;]
provided, further, that at any time while an Extension Period is in effect and
the Company elects to redeem all Outstanding Securities of this series before
the last day of such Extension Period, then the Extension Period will be deemed
to end on such Redemption Date; provided, further, that during any such
Extension Period, the Company shall not, and shall not permit any Subsidiary of
the Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock (which includes common and preferred stock), or (ii)
make any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank on a parity
with or junior in right of payment to this Security, (iii) make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any Subsidiary of the Company (if such guarantee ranks on a parity with or
junior in right of payment to this Security) (other than (a) any dividend in a
form of stock, warrants, options or other rights where the dividend or the stock
issuable upon the exercise of the warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks on parity with or
junior in right of payment to such stock), (b) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Downey
Trust Guarantee related to the ___% Capital Securities issued by [name of
Trust], and (d) purchases of Common Stock related to the issuance of Common
Stock or rights under any of the Company's benefit plans for its directors,
officers or employees) or (iv) redeem, purchase or acquire less than all of the
Securities of this series or the ___% Capital Securities issued by [name of
Trust]. Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed ___ consecutive interest payment periods
or to extend beyond the Stated Maturity of this Security. Upon the termination
of any such Extension Period and upon the payment of all amounts then due on any
Interest Payment Date, and subject to the foregoing limitation, the Company may
elect to begin a new Extension Period. No interest shall be due and payable
during an Extension Period except at the end thereof. The Company shall give the
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Trustee, the Property Trustee and the Administrative Trustees of [name of Trust]
notice of its election to begin or extend any Extension Period at least ___
Business Days prior to the earlier of (i) the date on which Distributions on the
Capital Securities or interest on this Security would be payable except for the
election to begin or extend such Extension Period, or (ii) the date the
Administrative Trustees are or the Indenture Trustee is required to give notice
to the New York Stock Exchange or any applicable stock exchange or automated
quotation system on which the Capital Securities are or this Security is then
listed or quoted or to holders of such Capital Securities or the holder of this
Security of the record date or (iii) the date the interest is payable, but in
any event not less than ___ Business Days prior to such record date. The Trustee
shall give notice of the Company's election to begin or extend an Extension
Period to the Holders of this Security. There is no limitation on the number of
times that the Company may elect to begin an Extension Period.]
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Trustee or at the office of
such paying agent or paying agents as the Company may designate from time to
time, maintained for that purpose in the United States, in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company payment of interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the Securities
Register or (ii) by transfer to an account maintained by the person entitled
thereto, in immediately available funds, at such place and to such account as
may be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, unsecured and will rank junior and subordinate and subject in
right of payment to the prior payment in full of all Senior and Subordinated
Debt, and this Security is issued subject to the provisions of the Indenture
with respect thereto. Each Holder of this Security, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee on his behalf to take such actions as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes. Each Holder hereof, by his
acceptance hereof, waives all notice of the acceptance of the subordination
provisions contained herein and in the Indenture by each holder of Senior and
Subordinated Debt, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
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DOWNEY FINANCIAL CORP.
By: _____________________________
[President or Vice President]
Attest:
- -------------------------------------
[Secretary or Assistant Secretary]
Section 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under a Junior Subordinated Indenture, dated as of ________, 1999 (herein
called the "Indenture"), between the Company and Wilmington Trust Company, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof, limited in aggregate principal amount to
$_________.
All terms used in this Security that are defined in the Indenture and in
the Amended and Restated Trust Agreement, dated as of _____________, 1999, as
amended (the "Amended and Restated Trust Agreement"), for [insert name of trust]
among Downey Financial Corp., as Depositor, and the Trustees named therein,
shall have the meanings assigned to them in the Indenture or the Amended and
Restated Trust Agreement, as the case may be.
[If applicable, insert--The Company may at any time, at its option, on or
after ________, and subject to the terms and conditions of Article XI of the
Indenture], redeem this Security [in whole at any time] [or in part from time to
time], at a redemption price equal to [insert redemption price] to the
Redemption Date.]
[If applicable, insert--Upon the occurrence and during the continuation of
a Tax Event, Investment Company Event or Capital Treatment Event in respect of a
Downey Trust, the Company may, at its option, at any time within 90 days of the
occurrence of such Tax Event, Investment Company Event or Capital Treatment
Event redeem this Security, [if applicable, insert--in whole but not in part],
subject to the provisions of Section 11.7 and the other provisions of Article XI
of the Indenture, at a redemption price equal to [insert redemption price] to
the Redemption Date.]
[If applicable, insert--In the event of redemption of this Security in part
only, a new Security or Securities of this series for the portion hereof not
redeemed will be issued in the name of the Holder hereof upon the cancellation
hereof.]
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
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The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
[If the Security is not a Discount Security,--As provided in and subject to
the provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities of this series may declare the
principal amount of all the Securities of this series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if given
by Holders), provided that, in the case of the Securities of this series issued
to a Downey Trust, if upon an Event of Default, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Securities of this
series fails to declare the principal of all the Securities of this series to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the Capital Securities then outstanding shall have such
right by a notice in writing to the Company and the Trustee; and upon any such
declaration the principal amount of and the accrued interest (including any
Additional Interest) on all the Securities of this series shall become
immediately due and payable, provided that the payment of principal and interest
(including any Additional Interest) on such Securities shall remain subordinated
to the extent provided in Article XIII of the Indenture.]
[If the Security is a Discount Security,--As provided in and subject to the
provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than such portion
of the principal amount as may be specified in the terms of this series may
declare an amount of principal of the Securities of this series to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), provided that, in the case of the Securities of this
series issued to a Downey Trust, if upon an Event of Default, the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series fails to declare the principal of all the Securities of this
series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Capital Securities then outstanding shall
have such right by a notice in writing to the Company and the Trustee. Such
amount shall be equal to [insert formula for determining the amount]. Upon any
such declaration, such amount of the principal of and the accrued interest
(including any Additional Interest) on all the Securities of this series shall
become immediately due and payable, provided that the payment of principal and
interest (including any Additional Interest) on such Securities shall remain
subordinated to the extent provided in Article XIII of
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the Indenture. Upon payment (i) of the amount of principal so declared due and
payable and (ii) of interest on any overdue principal and overdue interest (in
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and interest, if any, on this Security shall terminate.]
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities of this series are issuable only in registered form without
coupons in minimum denominations of $25 and any integral multiples of $25 in
excess thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of such series of a different
authorized denomination, as requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and local
tax purposes it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.
Section 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 2.2 and 2.3, bear a legend in substantially the following
form:
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"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY
OR BY THE DEPOSITORY AND ANY NOMINEE TO A SUCESSOR DEPOSITORY OR TO A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY."
Section 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
[INSERT NAME OF TRUSTEE]
as Trustee
By: ______________________________
Authorized Officer
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate (such Officers' Certificate shall have the effect of a supplemental
indenture for all purposes hereunder), or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of a series:
(a) the title of the securities of such series, which shall distinguish the
Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.7 and except for any
Securities which, pursuant to Section 3.3, are deemed never to have been
authenticated and
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delivered hereunder); provided, however, that the authorized aggregate principal
amount of such series may be increased above such amount by a Board Resolution
to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof and
whether such Stated Maturity may be shortened as provided in Section 3.14;
(d) the rate or rates, if any, at which the Securities of such series shall
bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 3.11 or as otherwise set forth therein, of the Company to
defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of such series shall be payable, the place or places
where the Securities of such series may be presented for registration of
transfer or exchange, and the place or places where notices and demands to or
upon the Company in respect of the Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any, the
price or prices at which and the terms and conditions upon which the Securities
of such series may be redeemed, in whole or in part, at the option of the
Company;
(g) the obligation or the right, if any, of the Company to prepay, repay or
purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $25 and any integral multiples of $25
in excess thereof;
(i) if other than Dollars, the currency or currencies (including currency
unit or units) in which the principal of (and premium, if any) and interest, if
any, on the Securities of the series shall be payable, or in which the
Securities of the series shall be denominated;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series that shall be payable upon
declaration of acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the
Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such
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series in bearer form, registrable or not registrable as to principal, and with
or without interest coupons;
(m) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the manner
in which such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall
initially be issuable in the form of a temporary Global Security representing
all or such portion of the Securities of such series and provisions for the
exchange of such temporary Global Security for definitive Securities of such
series;
(o) if applicable, that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective Depositaries for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 2.4 and any circumstances in addition to or in
lieu of those set forth in Section 3.5 in which any such Global Security may be
exchanged in whole or in part for registered Securities, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depository for such Global Security or a nominee
thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of
such series;
(q) the terms of any right to convert or exchange Securities of such series
into any other securities or property of the Company, and the additions or
changes, if any, to this Indenture with respect to the Securities of such series
to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement, Capital Securities Guarantee and Common Securities Guarantee, if
different from the forms attached hereto as Annexes A, B, C and D, respectively;
(s) the relative degree, if any, to which the Securities of the series
shall be senior to or be subordinated to other series of Securities in right of
payment, whether such other series of Securities are Outstanding or not; and
(t) any other terms of the Securities of such series.
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided herein or in or pursuant
to such Board Resolution and set forth in such Officers' Certificate or in any
such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
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The Securities shall be subordinated in right of payment to Senior and
Subordinated Debt as provided in Article XIII.
Section 3.2. Denominations.
The Securities of each series shall be in registered form without coupons
and shall be issuable in minimum denominations of $25 and integral multiples of
$25 in excess thereof, unless otherwise specified as contemplated by Section
3.1.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its President
or one of its Vice Presidents under its corporate seal reproduced or impressed
thereon and attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver
Securities of any series executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form or terms of
the Securities of the series have been established by or pursuant to one or more
Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Opinion of
Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 2.1, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant to
Board Resolution as permitted by Section 3.1, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect
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the Trustee's own rights, duties or immunities under the Securities and this
Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
For so long as the sole Holder of any series of the Securities is a
Property Trustee, such Securities shall be issued in registered definitive form
without interest coupons.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder. Notwithstanding the foregoing, if any Security shall have
been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.9, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any denomination, substantially of the tenor of the
definitive Securities of such series in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more definitive Securities
of the same series of authorized denominations having the same Original Issue
Date and Stated Maturity and having the same terms as such temporary Securities.
Until so exchanged, the temporary Securities of any series shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities
of such series.
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Section 3.5. Registration, Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated for that purpose the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of the same series of any
authorized denominations, of a like aggregate principal amount, of the same
Original Issue Date and Stated Maturity and having the same terms.
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated Maturity
and having the same terms, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if
so required by the Company or the Securities Registrar) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
The provisions of clauses (a), (b), (c) and (d) below shall apply only to
Global Securities:
(a) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depository designated for such Global Security or
a nominee thereof and delivered to such Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
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(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depository for such Global Security or a nominee
thereof unless (i) such Depository (A) has notified the Company that it is
unwilling or unable to continue as Depository for such Global Security or (B)
has ceased to be a clearing agency registered under the Exchange Act at a time
when the Depository is required to be so registered to act as depositary, in
each case unless the Company has approved a successor Depository within 90 days
of such notification or the Company becoming aware of the Depository ceasing to
be so registered, (ii) there shall have occurred and be continuing an Event of
Default with respect to such Global Security, (iii) the Company in its sole
discretion determines that such Global Security will be so exchangeable or
transferable or (iv) there shall exist such circumstances, if any, in addition
to or in lieu of the foregoing as have been specified for this purpose as
contemplated by Section 3.1.
(c) Subject to clause (b) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued in
exchange for a Global Security or any portion thereof shall be registered in
such names as the Depository for such Global Security shall direct.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Section, Section 3.4, 3.6, 9.6 or 11.6 or
otherwise, shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depository for such Global Security or a nominee thereof.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (i) to issue, register the transfer of or exchange
any Security of any series during a period beginning at the opening of business
15 calendar days before the day of mailing of a notice of redemption of any
Securities called for redemption and ending at the close of business on the day
of mailing of notice of redemption or (ii) to transfer or exchange any Security
so selected for redemption in whole or in part, except, in the case of any
Security to be redeemed in part, any portion thereof not to be redeemed.
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security, and
(ii) such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon its request the Trustee shall authenticate and deliver, in lieu of
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any such destroyed, lost or stolen Security, a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity as such destroyed, lost or stolen Security, and bearing
a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section 3.6 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date, shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
in respect of Securities of such series. The initial payment of interest on any
Security of any series which is issued between a Regular Record Date and the
related Interest Payment Date shall be payable as provided in such Security or
in the Board Resolution pursuant to Section 3.1 with respect to the related
series of Securities.
Any interest on any Security which is payable, but is not timely paid or
duly provided for, on any Interest Payment Date for Securities of such series
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when
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deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon, the Trustee shall fix
a Special Record Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first class, postage prepaid,
to each Holder of a Security of such series at the address of such Holder as it
appears in the Securities Register not less than 10 days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at the expense
of the Company, cause a similar notice to be published at least once in a
newspaper, customarily published in the English language on each Business Day
and of general circulation in the state of California, but such publication
shall not be a condition precedent to the establishment of such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Persons in whose names the Securities of such series (or
their respective Predecessor Securities) are registered on such Special Record
Date and shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of the series in respect of which interest is in default
may be listed and, upon such notice as may be required by such exchange (or by
the Trustee if the Securities are not listed), if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.7, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
Section 3.8. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.7) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
Section 3.9. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities
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canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Securities shall be destroyed by the Trustee and the
Trustee shall deliver to the Company a certificate of such destruction.
Section 3.10. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for Securities
of any series, interest on the Securities of each series for any period shall be
computed on the basis of a 360-day year of twelve 30-day months and interest on
the Securities of each series for any partial period shall be computed on the
basis of the actual number of days elapsed in a 30-day month.
Section 3.11. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 2.1 or Section 3.1 with respect to
the Securities of a particular series, so long as no Event of Default has
occurred and is continuing, the Company shall have the right during the term of
such series to defer the payment of interest on such Securities, at any time and
from time to time, for such period or periods as may be specified as
contemplated by Section 3.1 (each, an "Extension Period"). No Extension Period
shall end on a date other than an Interest Payment Date. At the end of any such
Extension Period, the Company shall pay all interest then accrued and unpaid on
the Securities (together with Additional Interest thereon, at the rate specified
for the Securities of such series, compounded quarterly, to the extent permitted
by applicable law); provided, however, that no Extension Period shall extend
beyond the Stated Maturity of the principal of the Securities of such series;
provided, further, that at any time while an Extension Period is in effect and
(i) the Company shortens the Stated Maturity of the principal of such Securities
to end before the last day of such Extension Period, then the Extension Period
will be deemed to end on the Stated Maturity or (ii) the Company elects to
redeem all Outstanding Securities of such Securities before the last day of such
Extension Period, then the Extension Period will be deemed to end on such
Redemption Date; provided, further, that during any such Extension Period, the
Company shall not, and shall not permit any Subsidiary to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock), (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that ranks on a parity with or junior in right of
payment to the Securities of such series or (iii) make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
Subsidiary of the Company if such guarantee ranks on a parity with or junior in
right of payment to the Securities of such series (other than (a) any dividend
in a form of stock, warrants, options or other rights where the dividend or the
stock issuable upon the exercise of the warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks on parity with
or junior in right of payment to such stock, (b) any declaration of a dividend
in connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Downey
Trust Guarantee related to the Capital Securities issued by the Downey Trust
holding Securities of such series, and (d) purchases of Common Stock related to
the issuance of Common Stock or rights under any of the Company's benefit plans
for its directors, officers or employees) or (iv) redeem, purchase or acquire
less than all of the Securities of such series or any of such Capital
Securities.
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Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period, provided that such extension does not cause such
Extension Period to extend beyond the Stated Maturity of the principal of such
Securities. Upon termination of any Extension Period and upon the payment of all
accrued and unpaid interest and any Additional Interest then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period, subject to
the above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. The Company shall give the Trustee and the
Property Trustee and the Administrative Trustees of the Downey Trust holding
Securities of such series notice of its election of any Extension Period (or an
extension thereof) at least one Business Day prior to the earlier of (i) the
next succeeding date on which Distributions on the Capital Securities of such
Downey Trust or the interest on such Securities would be payable except for the
election to begin or extend such Extension Period or (ii) the date the
Administrative Trustees are or the Trustee is required to give notice to the New
York Stock Exchange or any applicable stock exchange or automated quotation
system on which the Capital Securities or the Securities are then listed or
quoted or to holders of such Capital Securities or such Securities of the record
date or (iii) the date such interest is payable, but in any event not less than
one Business Day prior to such record date. The Trustee shall promptly give
notice of the Company's election to begin or extend an Extension Period to the
Holders of the Outstanding Securities of such series. There is no limitation on
the number of times that the Company may elect to begin or extend an Extension
Period.
Section 3.12. Right of Set-Off.
With respect to the Securities of a series issued to a Downey Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make hereunder in
respect of any such Security to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a payment under the Capital
Securities Guarantee or the Common Securities Guarantee relating to such
Security or under Section 5.8.
Section 3.13. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States Federal, state and local tax purposes it is intended that such
Security constitute indebtedness.
Section 3.14. Shortening of Stated Maturity.
If specified as contemplated by Section 2.1 or Section 3.1 with respect to
the Securities of any series, the Company shall have the right to shorten the
Stated Maturity of the principal of the Securities of such series at any time to
any date not earlier than the first date on which the Company has the right to
redeem the Securities of such series; provided, however, that the shortened date
must fall on an Interest Payment Date. In the event that the Company elects to
shorten the Stated Maturity of the Securities of any series, it shall give
notice to the Trustee, and the Trustee shall give notice of such shortening to
the Holders of such Securities no less than 60 days prior to the effectiveness
thereof.
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Section 3.15. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of redemption
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall, upon Company Request, cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 4.1) and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered (other than
(A) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.6 and (B) Securities for
whose payment money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.3) have been
delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the Trustee for
cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity within
one year of the date of deposit, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (ii) (A), (B) or (C) above, has deposited
or caused to be deposited with the Trustee as trust funds in trust for such
purpose an amount in the currency or currencies in which the Securities of such
series are payable sufficient to pay and discharge the entire indebtedness on
such Securities not theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest (including any Additional Interest)
to the date of
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such deposit (in the case of Securities which have become due and payable) or to
the Stated Maturity or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7, the obligation of
the Company under Section 10.2, the obligations of the Trustee to any
Authenticating Agent under Section 6.14 and, if money shall have been deposited
with the Trustee pursuant to subclause (ii) of clause (a) of this Section, the
obligations of the Trustee under Section 4.2 and the last paragraph of Section
10.3 shall survive.
Section 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 shall be held in trust and
applied by the Trustee, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default", wherever used herein with respect to the Securities of
any series, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(a) default in the payment of any interest upon any Security of that
series, including any Additional Interest or Additional Sums in respect thereof,
when it becomes due and payable, and continuance of such default for a period of
30 days (subject to the deferral of any due date as the result of an Extension
Period); or
(b) default in the payment of the principal of any Security of that series
at its Maturity; or
(c) default in the performance, or breach, in any material respect, of any
covenant of the Company in this Indenture or the Securities of that series
(other than a covenant in this
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Indenture for the benefit of any other series of Securities, and other than a
covenant, a default in the performance of which is elsewhere in this Section 5.1
specifically dealt with), and continuance of such default or breach for a period
of 90 days after there has been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied; or
(d) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company 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
(e) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit for creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due and
its willingness to be adjudicated a bankrupt, or the taking of corporate action
by the Company in furtherance of any such action; or
(f) any other Event of Default provided with respect to Securities of that
series.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
5.1(d) or 5.1(e) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all the Securities of
that series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), provided that, in the case of
the Securities of a series issued to a Downey Trust, if, upon an Event of
Default, the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Securities of that series fail to declare the principal of all
the Securities of that series to be immediately due and payable, the holders of
at least 25% in aggregate Liquidation Amount (as defined in the Trust Agreement
under which such Downey Trust is formed) of the related series of Capital
Securities issued by such Downey Trust then outstanding shall have such right by
a notice in writing to the Company and the Trustee; and upon any such
declaration such principal amount (or specified portion thereof) of and the
accrued interest (including any Additional Interest) on all the Securities of
such series shall become immediately due and payable. Payment of principal
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and interest (including any Additional Interest) on such Securities shall remain
subordinated to the extent provided in Article XIII notwithstanding that such
amount shall become immediately due and payable as herein provided. If an Event
of Default specified in Section 5.1(d) or 5.1(e) with respect to Securities of
any series at the time Outstanding occurs, the principal amount of all the
Securities of that series (or, if the Securities of that series are Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms of that series) shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum sufficient to
pay:
(i) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(ii) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities, and
(iii) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(b) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which has
become due solely by such acceleration, have been cured or waived as provided in
Section 5.13.
In the case of Securities of a series issued to a Downey Trust, the holders
of a majority in aggregate Liquidation Amount (as defined in the Trust Agreement
under which such Downey Trust is formed) of the related series of Capital
Securities issued by such Downey Trust then outstanding shall also have the
right to rescind and annul such declaration and its consequences by written
notice to the Company and the Trustee subject to the satisfaction of the
conditions set forth in clauses (a) and (b) above of this Section 5.2.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(a) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest becomes
due and payable and such
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default continues for a period of 30 days (subject to the deferral of any due
date as a result of an Extension Period), or
(b) default is made in the payment of the principal of (and premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal, including any sinking fund payment or
analogous obligations (and premium, if any) and interest (including any
Additional Interest); and, in addition thereto, all amounts owing the Trustee
under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities of
any series shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including any Additional Interest) owing and
unpaid in respect to the Securities and to file such other papers or
documents as may be necessary or advisable and to take any and all actions
as are authorized under the Trust Indenture Act in order to have the claims
of the Holders and any predecessor to the Trustee under Section 6.7 allowed
in any such judicial proceedings; and
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(ii) in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such
claims and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee for distribution in
accordance with Section 5.6, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or premium,
if any) or interest (including any Additional Interest), upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due and
unpaid upon such series of Securities for principal (and premium, if any) and
interest (including any Additional Interest), in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such series of
Securities for principal (and premium, if any) and interest (including any
Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
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Section 5.7. Limitation on Suits.
No Holder of any Securities of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(b) the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request:
(d) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and
Interest; Direct Action by Holders of Capital Securities.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.7)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder. In the case of Securities of a series issued to a Downey Trust, any
holder of the related series of Capital Securities issued by such Downey Trust
shall have the right, upon the occurrence of an Event of Default described in
Section 5.1(a) or 5.1(b), to institute a suit directly against the Company for
enforcement of payment to such holder of principal of (premium, if any) and
(subject to Section 3.7) interest (including any Additional Interest) on the
Securities having a principal amount equal to the aggregate Liquidation Amount
(as defined in the Trust Agreement under which such Downey Trust is formed) of
such Capital Securities of the related series held by such holder and further
provided that the Company will be subrogated to the rights of such holders of
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such related series of Capital Securities to the extent of any payment made by
the Company to any Holder of the Securities of such series in such a suit.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee, any Holder or any holder of Capital Securities has
instituted any proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee, such Holder or such holder of Capital
Securities, then and in every such case the Company, the Trustee, the Holders
and such holder of Capital Securities shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee, the
Holders and the holders of Capital Securities shall continue as though no such
proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Holder of any Security or any
holder of any Capital Security to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee. Every right and remedy given by this Article or by law to the Holders
may be exercised from time to time, and as often as may be deemed expedient, by
the Holders. The right and remedy given to the holders of Capital Securities by
Section 5.8 and Section 5.2 (so long as such holders meet the percentage,
majority and all other requirements set forth in such Section 5.2) may be
exercised from time to time, and as often as may be deemed expedient, by the
holders of Capital Securities.
Section 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that:
(a) such direction shall not be in conflict with any rule of law or with
this Indenture,
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(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(c) subject to the provisions of Section 6.1, the Trustee shall have the
right to decline to follow such direction if a Responsible Officer or Officers
of the Trustee shall, in good faith, determine that the proceeding so directed
would be unjustly prejudicial to the Holders not joining in any such direction
or would involve the Trustee in personal liability.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series and, in the case of any Securities of a
series issued to a Downey Trust, the holders of Capital Securities issued by
such Downey Trust may waive any past default hereunder and its consequences with
respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series (unless the
conditions set forth in clauses (a) and (b) of Section 5.2 are satisfied), or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Any such waiver shall be deemed to be on behalf of the Holders of all the
Securities of such series or, in the case of a waiver by holders of Capital
Securities issued by such Downey Trust, by all holders of Capital Securities
issued by such Downey Trust.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
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Section 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default;
(A) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(B) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provisions
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
(A) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(B) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(C) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of Holders pursuant to
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Section 5.12 relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture with respect to the Securities
of such series.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
6.1.
Section 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the Securities
Register, notice of such default, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including any Additional
Interest) on any Security of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities of such series; and provided, further,
that, in the case of any default of the character specified in Section 5.1(c),
no such notice to Holders of Securities of such series shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to Securities of such
series.
Section 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
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(d) the Trustee may consult with counsel and the advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of the Securities or the proceeds thereof.
Section 6.5. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
Section 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
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Section 6.7. Compensation and Reimbursement.
The Company agrees
(a) to pay to the Trustee from time to time compensation for all services
rendered by it hereunder in such amounts as the Company and the Trustee shall
agree 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) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(c) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense (including the reasonable compensation and the
expenses and disbursements of its agents and counsel) incurred without
negligence or bad faith, arising out of or in connection with the acceptance or
administration of this trust or the performance of its duties hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. This indemnification shall survive the termination of this
Agreement.
To secure the Company's payment obligations in this Section 6.7, the
Company and the Holders agree that the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the Trustee. Such lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(d) or (e) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor statute.
Section 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing
herein shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of said Section 310(b).
Section 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the United
States of America or of any State or Territory or the District of Columbia,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
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(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section 6.9, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
6.9, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article VI. Neither the Company nor any Person directly or
indirectly controlling, controlled by or under common control with the Company
shall serve as Trustee for the Securities of any series issued hereunder.
Section 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article VI shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 6.9 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to all Securities, or (ii)
subject to Section 5.14, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee with respect to the Securities of
that or those series. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee with respect to the Securities of such series and supersede
the successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, subject to Section 5.14, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of such series as their names and addresses appear in the
Securities Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm
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to, and to vest in, each successor Trustee all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates, (2) if the
retiring Trustee is not retiring with respect to all Securities, shall contain
such provisions as shall be deemed necessary or desirable to confirm that all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series as to which the retiring Trustee is not
retiring shall continue to be vested in the retiring Trustee, and (3) shall add
to or change any of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such Trustees co-trustees of the same
trust and that each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other
such Trustee and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers,
trusts, and duties of the retiring Trustee with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates;
but, on request of the Company or any successor Trustee, such retiring Trustee
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder with respect to the Securities
of that or those series to which the appointment of such successor Trustee
relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in paragraph
(a) or (b) of this Section 6.11, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article VI.
Section 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article VI, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
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Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original issue
and upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 3.6, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any State or Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section 6.14 the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.14.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment in the manner provided in Section 1.6 to all Holders
of Securities of the series with respect to which such Authenticating Agent will
serve. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor
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hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section 6.14.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.14, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment with respect to one or more series is made pursuant to
this Section 6.14, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
[INSERT NAME OF TRUSTEE]
As Trustee
By:
As Authenticating Agent
By:
Authorized Officer
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after January 15 and July 15 in
each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of January 1 and July 1 of such year; and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished; and
provided, however, that the Company will not furnish or cause to be furnished a
list of the names and addresses of the Holders for so long as the Trustee is the
Securities Registrar.
Section 7.2. Preservation of Information, Communications to Holders.
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(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
Section 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than July 15 in each calendar year,
commencing with the first July 15 after the first issuance of Securities under
this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed and also with the Commission. The Company will notify the
Trustee when any Securities are listed on any stock exchange.
Section 7.4. Reports by Company.
The Company shall file with the Trustee and with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee with the annual reports and the information, documents and other reports
which are specified in Sections 13 and 15(d) of the Exchange Act. The Company
also shall comply with the other provisions of Trust Indenture Act Section
314(a).
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ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
as an entirety or substantially as an entirety to the Company, unless:
(a) either the Company shall be the continuing Person, in the case of a
merger, or the successor Person, if other than the Company, formed by the
consolidation or into which the Company is merged or which acquires by
conveyance, transfer or lease, the properties and assets of the Company as an
entirety or substantially as an entirety is organized under the laws of the
United States or any state of the United States or the District of Columbia, and
the successor Person expressly assumes, by execution of an indenture
supplemental hereto, in form satisfactory to the Trustee, all of the Company's
obligations under the Securities of each series, each Capital Securities
Guarantee and Common Securities Guarantee relating to such series, and this
Indenture and the due and punctual performance and observance of every
obligation in such Securities of each series, such Capital Securities Guarantee
and Common Securities Guarantee relating to such series and this Indenture to be
performed or observed by the Company.
(b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and any such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee, subject to Section 6.1,
may rely upon such Officers' Certificate and Opinion of Counsel as conclusive
evidence that such transaction complies with this Section 8.1.
Section 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with Section
8.1, the successor corporation formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein; and in the event of any such
conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
dissolved and liquidated.
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Such successor Person may cause to be signed, and may issue either in its
own name or in the name of the Company, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor Person instead
of the Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication pursuant to such provisions and
any Securities which such successor Person thereafter shall cause to be signed
and delivered to the Trustee on its behalf for the purpose pursuant to such
provisions. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form may be made in the Securities thereafter to be
issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
provided, however, that the form and terms of Securities of any series may be
established by a Board Resolution, as set forth in the Officers' Certificate
delivered to the Trustee pursuant to Section 3.1, without entering into a
supplemental indenture for all purposes hereunder, for any of the following
purposes:
(a) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(b) to convey, transfer, assign, mortgage or pledge any property to or with
the Trustee or to surrender any right or power herein conferred upon the
Company; or
(c) to establish the form or terms of Securities of any series as permitted
by Sections 2.1 or 3.1; or
(d) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants are
expressly being included solely for the benefit of such series) or to surrender
any right or power herein conferred upon the Company; or
(e) to add any additional Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default are
to be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or
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(f) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only when
there is no Security Outstanding of any series created prior to the execution of
such supplemental indenture which is entitled to the benefit of such provision;
or
(g) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (g) shall not
adversely affect the interests of any Holder of Securities of any series in any
material respect for so long as they remain Outstanding or, in the case of the
Securities of a series issued to a Downey Trust and for so long as any of the
related series of Capital Securities issued by such Downey Trust shall remain
outstanding, the holders of such Capital Securities; or
(h) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 6.11(b); or
(i) to comply with the requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(a) except to the extent permitted by Sections 3.11 or 3.14 or as otherwise
specified as contemplated by Section 2.1 or Section 3.1 with respect to the
deferral of the payment of interest on the Securities of any series or the
shortening of the Stated Maturity of the Securities of any series, change the
Stated Maturity of the principal of, or any installment of interest (including
any Additional Interest) on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or extend the time of payment of
interest thereon or reduce any amount payable upon the redemption thereof, or
reduce the amount of principal of a Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 5.2, or change the place of payment where, or the coin or currency in
which, any Security or interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the date it
is due and payable, or
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(b) reduce the percentage in principal amount of the Outstanding Securities
of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver provided for in this Indenture, or
(c) modify any of the provisions of this Section, Section 5.13 or Section
10.5, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby, or
(d) modify the provisions in Article XIII of this Indenture, including the
definitions relating thereto, with respect to the subordination of Outstanding
Securities of any series in a manner adverse to the Holders thereof;
provided, further, that, in the case of the Securities of a series issued to a
Downey Trust, so long as any of the related series of Capital Securities issued
by such Downey Trust remains outstanding, (i) no such amendment shall be made
that adversely affects the holders of such Capital Securities in any material
respect, and no termination of this Indenture shall occur, and no waiver of any
Event of Default or compliance with any covenant under this Indenture shall be
effective, without the prior consent of the holders of at least a majority of
the aggregate Liquidation Amount (as defined in the Trust Agreement under which
such Downey Trust is formed) of such Capital Securities then outstanding unless
and until the principal (and premium, if any) of the Securities of such series
and all accrued and unpaid interest (including any Additional Interest) thereon
have been paid in full and (ii) no amendment shall be made to Section 5.8 of
this Indenture that would impair the rights of the holders of Capital Securities
provided therein without the prior consent of the holders of each Capital
Security then outstanding unless and until the principal (and premium, if any)
of the Securities of such series and all accrued and unpaid interest (including
any Additional Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities or Capital Securities, or
which modifies the rights of the Holders of Securities or holders of Capital
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities or holders of Capital Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional series of Securities created by
any supplemental indenture permitted by this Article or the modifications
thereby of any series of Securities previously created by this Indenture, the
Trustee shall be entitled to receive, and (subject to Section 6.1) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by
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this Indenture, and that all conditions precedent have been complied with. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article IX or
delivery to the Trustee of the Officers' Certificate pursuant to Section 3.1
hereof (which Officers' Certificate shall have the effect of a supplemental
indenture for all purposes hereunder), this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article IX and every
Officers' Certificate delivered to the trustee pursuant to Section 3.1 hereof
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX or delivery to the Trustee of
the Officers' Certificate pursuant to Section 3.1 hereof (which Officers'
Certificate shall have the effect of a supplemental indenture for all purposes
hereunder) may, and shall if required by the Company, bear a notation in form
approved by the Company as to any matter provided for in such supplemental
indenture or such Officers' Certificate. If the Company shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Company, to any such supplemental indenture or such Officers' Certificate may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of such Securities and this Indenture.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities, an office or agency where Securities of that series may be presented
or surrendered for payment and an office or agency where Securities of that
series may be surrendered for transfer or exchange and where notices and demands
to or upon the Company in respect of the Securities of that series and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its
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Corporate Trust Office, as its agent for said purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain such office
or agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
of such purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities of any series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation and any change in
the location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of such
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to 10:00 a.m. New York time on each due date of the principal of or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal and premium
(if any) or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section 10.3, that such
Paying Agent will:
(a) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest:
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) comply with the provisions of the Trust Indenture Act applicable to it
as a Paying Agent.
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The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Company Request to the Company,
or (if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed property law) be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the state of
California, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
Section 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end of
each calendar year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. For the purpose of this Section 10.4, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
Section 10.5. Reserved.
Section 10.6. Additional Sums.
In the case of the Securities of a series issued to a Downey Trust, so long
as no Event of Default has occurred and is continuing, except as otherwise
specified as contemplated by Section 2.1 or Section 3.1, in the event that (i)
such Downey Trust is the Holder of all of the Outstanding Securities of such
series, (ii) a Tax Event in respect of such Downey Trust shall have occurred and
be continuing, and (iii) the Company shall not have (A) redeemed the Securities
of such series pursuant to Section 11.7 or (B) terminated such Downey Trust
pursuant
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to Section 9.2(b) of the related Trust Agreement, the Company shall pay to such
Downey Trust (and its permitted successors or assigns under the related Trust
Agreement) for so long as such Downey Trust (or its permitted successor or
assignee) is the registered holder of any Securities of such series, such
additional amounts as may be necessary in order that the amount of Distributions
(including any Additional Amounts (as defined in such Trust Agreement)) then due
and paid or payable by such Downey Trust on the related Capital Securities and
Common Securities that at any time remain outstanding in accordance with the
terms thereof shall not be reduced as a result of any Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made; provided, however, that the deferral of the payment
of interest pursuant to Section 3.11 on the Securities shall not defer the
payment of any Additional Sums that may be due and payable.
Section 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of any
series that it shall not, and it shall not permit any Subsidiary of the Company
to, (a) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any shares of the
Company's capital stock (which includes common and preferred stock), (b) make
any payment of principal of or interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank on a parity
with or junior in right of payment to the Securities of such series or (c) make
any guarantee payments with respect to any guarantee by the Company of debt
securities of any Subsidiary of the Company if such guarantee ranks on a parity
with or junior in right of payment to the Securities (other than (i) any
dividend in a form of stock, warrants, options or other rights where the
dividend or the stock issuable upon the exercise of the warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks on parity with or junior in right of payment to such stock, (ii) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(iii) payments under the Downey Trust Guarantee related to the Capital
Securities issued by the Downey Trust holding Securities of such series, and
(iv) purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Company's benefit plans for its directors, officers consultants
or employees) or (d) redeem, purchase or acquire less than all of the Securities
of such series or any of the Capital Securities issued by the Downey Trust
holding such Securities if at such time any of the following events specified in
clauses (i) through (iv) shall have occurred and is continuing, (i) an Event of
Default with respect to the Securities of such series as specified in Section
5.1(a) or 5.1(b), (ii) any event of which the Company has actual knowledge that
(A) constitutes or with the giving of notice or the lapse of time or both, would
constitute an Event of Default with respect to the Securities of such series
other than an Event of Default specified in Section 5.1(a) or 5.1(b), and (B) in
respect of which the Company shall not have taken reasonable steps to cure,
(iii) if the Securities of such series are held by a Downey Trust, the Company
shall be in default with
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respect to its payment of any obligations under the Downey Trust Guarantee
relating to the Capital Securities issued by such Downey Trust, or (iv) the
Company shall have given notice of its election to begin an Extension Period
with respect to the Securities of such series as provided herein, or such
Extension Period, or any extension thereof, shall be continuing.
The Company covenants with each Holder of Securities of a series issued to
a Downey Trust (i) to maintain, directly or indirectly, 100% ownership of the
Common Securities of such Downey Trust; provided, however, that any permitted
successor of the Company hereunder may succeed to the Company's ownership of
such Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate
such Downey Trust, except having received prior to such termination, winding-up
or liquidation all required regulatory approvals and except (a) in connection
with a distribution of the Securities of such series to the holders of Trust
Securities in liquidation of such Downey Trust or (b) in connection with certain
mergers, consolidations or amalgamations permitted by the related Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of such Trust Agreement, to cause such Downey Trust to remain
classified as a grantor trust and not an association taxable as a corporation
for United States federal income tax purposes.
Section 10.8. Payment of Expenses.
In the case of Securities of a series issued to a Downey Trust, in
connection with the offering, sale and issuance of the Securities to such Downey
Trust and in connection with the sale of the Trust Securities by such Downey
Trust, the Corporation, in its capacity as borrower with respect to the
Securities of such series, shall:
(a) pay all costs and expenses relating to the offering, sale and issuance
of the Securities of such series and compensation of the Trustee in accordance
with the provisions of Section 6.7;
(b) pay all costs and expenses of such Downey Trust (including, but not
limited to, costs and expenses relating to the organization of such Downey
Trust, the offering, sale and issuance of the Trust Securities (including
commissions to the underwriters or initial purchasers in connection therewith)),
the fees and expenses of the Property Trustee (including fees and expenses of
the Property Trustee in connection with any enforcement of the rights of the
Holders of the Securities of such series and the related Capital Securities
issued by such Downey Trust), the Delaware Trustee and the Administrative
Trustees, the costs and expenses relating to the operation of the Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the acquisition,
financing, and disposition of assets of the Trust;
(c) be primarily and fully liable for any indemnification obligations
arising with respect to the Trust Agreement;
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(d) pay any and all taxes (other than United States withholding taxes
attributable to such Downey Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of such Downey Trust; and
(e) pay all other fees, expenses, debts, obligations and liabilities (other
than in respect of the Trust Securities) related to the Trust.
The obligations set forth in this Section 10.8 are intended to be for the
benefit of and will be enforceable by, any Person to whom any of such costs,
expenses, obligations, taxes or liabilities are owed (a "Creditor"), whether or
not the Creditor has received notice. The Creditor may enforce the Company's
obligations in this Section 10.8 directly against the Company and the Company
waives any right or remedy to require that any action be brought against such
Downey Trust or any other person or entity before proceeding against the
Company.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article.
Redemption of Securities of any series (whether by operation of a sinking
fund or otherwise) as permitted or required by any form of Security issued
pursuant to this Indenture shall be made in accordance with such form of
Security and this Article; provided, however, that if any provision of any such
form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern. Except as otherwise set forth
in the form of Security for such series, each Security of such series shall be
subject to partial redemption only in the amount of $25 or, in the case of the
Securities of a series issued to a Downey Trust, $25, or integral multiples of
$25 in excess thereof.
Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
or pursuant to a Board Resolution. In case of any redemption at the election of
the Company of less than all of the Securities of any particular series and
having the same terms, the Company shall, not less than 30 nor more than 60 days
prior to the Redemption Date (unless a shorter notice shall be satisfactory to
the Trustee), notify the Trustee of such date and of the principal amount of
Securities of that series to be redeemed. In the case of any redemption of
Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities, the Company shall furnish the Trustee
with an Officers' Certificate and an Opinion of Counsel evidencing compliance
with such restriction.
Section 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate
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and which may provide for the selection for redemption of a portion of the
principal amount of any Security of such series, provided that the portion of
the principal amount of any Security not redeemed shall be in an authorized
denomination (which shall not be less than the minimum authorized denomination)
for such Security. If less than all the Securities of such series and of a
specified tenor are to be redeemed (unless such redemption affects only a single
Security), the particular Securities to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities of such series and specified tenor not previously called for
redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for partial redemption and the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the Company, any
Affiliate or any Subsidiary thereof shall not be included in the Securities
selected for redemption.
Section 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Security or portion thereof, and that interest thereon,
if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price; and
(f) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The notice if mailed in
the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the Holder receives such notice.
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In any case, a failure to give such notice by mail or any defect in the notice
to the Holder of any Security designated for redemption as a whole or in part
shall not affect the validity of the proceedings for the redemption of any other
Security.
Section 11.5. Deposit of Redemption Price.
Prior to 12:00 noon, Eastern time on the Redemption Date specified in the
notice of redemption given as provided in Section 11.4, the Company will deposit
with the Trustee or with one or more Paying Agents (or if the Company is acting
as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including Additional Interest) on, all the
Securities which are to be redeemed on that date.
Section 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4, the
Securities or portion of Securities with respect to which such notice has been
given shall become due and payable on the date and at the place or places stated
in such notice at the applicable Redemption Price. On presentation and surrender
of such Securities at a Place of Payment in said notice specified, the said
Securities or the specified portions thereof shall be paid and redeemed by the
Company at the applicable Redemption Price, together with accrued interest
(including any Additional Interest) to the Redemption Date; provided, however,
that interest on any Security of any series which is payable and is punctually
paid or duly provided for, on any Interest Payment Date falling on or before a
Redemption Date shall be paid according to the provisions of Section 3.7;
provided, further, that, unless otherwise specified as contemplated by Section
3.1, installments of interest whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.7.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities of the same series, of
authorized denominations, in aggregate principal amount equal to the portion of
the Security not redeemed so presented and having the same Original Issue Date,
Stated Maturity and terms. If a Global Security is so surrendered, such new
Security will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 11.7. Right of Redemption of Securities Initially Issued to a Downey
Trust.
In the case of the Securities of a series initially issued to a Downey
Trust, except as otherwise specified as contemplated by Section 3.1, the
Company, at its option, may redeem such Securities (i) on or after the date five
years after the Original Issue Date of such Securities, in whole at any time or
in part from time to time, or (ii) upon the occurrence and during the
continuation of a Tax Event, Investment Company Event, or Capital Treatment
Event, at any
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time within 90 days following the occurrence of such Tax Event, Investment
Company Event or Capital Treatment Event in respect of such Downey Trust, in
whole (but not in part) in each case at a Redemption Price equal to 100% of the
principal amount thereof plus accrued and unpaid interest.
ARTICLE XII
SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any sinking fund payment in excess of such minimum amount which is
permitted to be made by the terms of such Securities of any series is herein
referred to as an "optional sinking fund payment". If provided for by the terms
of any Securities of any series, the cash amount of any sinking fund payment may
be subject to reduction as provided in Section 12.2. Each sinking fund payment
shall be applied to the redemption of Securities of any series as provided for
by the terms of such Securities.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment with
respect to any Securities of a series in cash, the Company may at its option, at
any time no more than 16 months and no less than 30 days prior to the date on
which such sinking fund payment is due, deliver to the Trustee Securities of
such series (together with the unmatured coupons, if any, appertaining thereto)
theretofore purchased or otherwise acquired by the Company, except Securities of
such series that have been redeemed through the application of mandatory or
optional sinking fund payments pursuant to the terms of the Securities of such
series, accompanied by a Company Order instructing the Trustee to credit such
obligations and stating that the Securities of such series were originally
issued by the Company by way of bona fide sale or other negotiation for value;
provided that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the redemption price for such Securities, as
specified in the Securities so to be redeemed, for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the
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portion thereof, if any, which is to be satisfied by delivering and crediting
Securities pursuant to Section 12.2 and will also deliver to the Trustee any
Securities to be so delivered. Such Officers' Certificate shall be irrevocable
and upon its delivery the Company shall be obligated to make the cash payment or
payments therein referred to, if any, on or before the succeeding sinking fund
payment date. In the case of the failure of the Company to deliver such
Officers' Certificate (or, as required by this Indenture, the Securities and
coupons, if any, specified in such Officers' Certificate), the sinking fund
payment due on the succeeding sinking fund payment date for such series shall be
paid entirely in cash and shall be sufficient to redeem the principal amount of
the Securities of such series subject to a mandatory sinking fund payment
without the right to deliver or credit securities as provided in Section 12.2
and without the right to make the optional sinking fund payment with respect to
such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash
plus any unused balance of any preceding sinking fund payments made with respect
to the Securities of any particular series shall be applied by the Trustee (or
by the Company if the Company is acting as its own Paying Agent) on the sinking
fund payment date on which such payment is made (or, if such payment is made
before a sinking fund payment date, on the sinking fund payment date immediately
following the date of such payment) to the redemption of Securities of such
series at the Redemption Price specified in such Securities with respect to the
sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee
(or, if the Company is acting as its own Paying Agent, segregated and held in
trust by the Company as provided in Section 10.3) for such series and together
with such payment (or such amount so segregated) shall be applied in accordance
with the provisions of this Section 12.3. Any and all sinking fund moneys with
respect to the Securities of any particular series held by the Trustee (or if
the Company is acting as its own Paying Agent, segregated and held in trust as
provided in Section 10.3) on the last sinking fund payment date with respect to
Securities of such series and not held for the payment or redemption of
particular Securities of such series shall be applied by the Trustee (or by the
Company if the Company is acting as its own Paying Agent), together with other
moneys, if necessary, to be deposited (or segregated) sufficient for the
purpose, to the payment of the principal of the Securities of such series at
Maturity. The Trustee shall select the Securities to be redeemed upon such
sinking fund payment date in the manner specified in Section 11.3 and cause
notice of the redemption thereof to be given in the name of and at the expense
of the Company in the manner provided in Section 11.4. Such notice having been
duly given, the redemption of such Securities shall be made upon the terms and
in the manner stated in Section 11.6. On or before each sinking fund payment
date, the Company shall pay to the Trustee (or, if the Company is acting as its
own Paying Agent, the Company shall segregate and hold in trust as provided in
Section 10.3) in cash a sum in the currency in which Securities of such series
are payable (except as provided pursuant to Section 3.1) equal to the principal
and any interest accrued to the Redemption Date for Securities or portions
thereof to be redeemed on such sinking fund payment date pursuant to this
Section 12.3.
Neither the Trustee nor the Company shall redeem any Securities of a series
with sinking fund moneys or mail any notice of redemption of Securities of such
series by operation of the sinking fund for such series during the continuance
of a default in payment of interest, if any, on any Securities of such series or
of any Event of Default (other than an Event of Default occurring as a
consequence of this paragraph) with respect to the Securities of such series,
except that if the notice of redemption shall have been provided in accordance
with the provisions hereof, the
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Trustee (or the Company, if the Company is then acting as its own Paying Agent)
shall redeem such Securities if cash sufficient for that purpose shall be
deposited with the Trustee (or segregated by the Company) for that purpose in
accordance with the terms of this Article XII. Except as aforesaid, any moneys
in the sinking fund for such series at the time when any such default or Event
of Default shall occur and any moneys thereafter paid into such sinking fund
shall, during the continuance of such default or Event of Default, be held as
security for the payment of the Securities and coupons, if any, of such series;
provided, however, that in case such default or Event of Default shall have been
cured or waived herein, such moneys shall thereafter be applied on the next
sinking fund payment date for the Securities of such series on which such moneys
may be applied pursuant to the provisions of this Section 12.3.
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior and Subordinated Debt.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article XIII, the payment of the
principal of (and premium, if any) and interest (including any Additional
Interest) on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
amounts then due and payable in respect of all Senior and Subordinated Debt.
Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, receivership or debt restructuring or other similar proceedings
relative to the Company (each such event, if any, herein sometimes referred to
as a "Proceeding"), then the holders of Senior and Subordinated Debt first shall
be entitled to receive payment in full of all such Senior and Subordinated Debt,
or provision shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior and Subordinated
Debt, before the Holders of the Securities are entitled to receive or retain any
payment or distribution of any kind or character, whether in cash, property or
securities (including any payment or distribution which may be payable or
deliverable by reason of the payment of any other Debt of the Company
subordinated to the payment of the Securities, such payment or distribution
being hereinafter referred to as a "Junior Subordinated Payment"), on account of
principal of (or premium, if any) or interest (including any Additional
Interest) on the Securities or on account of the purchase or other acquisition
of Securities by the Company or any Subsidiary and to that end the holders of
Senior and Subordinated Debt shall be entitled to receive, for application to
the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, which may be payable or deliverable in respect of the Securities in any
such Proceeding.
In the event that, notwithstanding the foregoing provisions of this Section
13.2, the Trustee or the Holder of any Security shall have received any payment
or distribution of assets of
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the Company of any kind or character, whether in cash, property or securities,
including any Junior Subordinated Payment, before all Senior and Subordinated
Debt are paid in full or payment thereof is provided for in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior and
Subordinated Debt, and if such fact shall, at or prior to the time of such
payment or distribution, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment or distribution shall be
paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company for application to the payment of all
Senior and Subordinated Debt remaining unpaid, to the extent necessary to pay
all Senior and Subordinated Debt in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior and Subordinated Debt.
For purposes of this Article XIII only, the words "any payment or
distribution of any kind or character, whether in cash, property or securities"
shall not be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment which securities are subordinated in
right of payment to all then outstanding Senior and Subordinated Debt to
substantially the same extent as the Securities are so subordinated as provided
in this Article XIII. The consolidation of the Company with, or the merger of
the Company into, another Person or the liquidation or dissolution of the
Company following the sale of all or substantially all of its properties and
assets as an entirety to another Person upon the terms and conditions set forth
in Article VIII shall not be deemed a Proceeding for the purposes of this
Section 13.2 if the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by sale such properties and
assets as an entirety, as the case may be, shall, as a part of such
consolidation, merger, or sale comply with the conditions set forth in Article
VIII.
Section 13.3. Prior Payment to Senior and Subordinated Debt Upon Acceleration
of Securities.
In the event that any Securities are declared due and payable before their
Stated Maturity as a result of an Event of Default that has occurred and is
continuing, then and in such event the holders of the Senior and Subordinated
Debt outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior and Subordinated Debt (including any amounts due upon acceleration), or
provision shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior and Subordinated
Debt, before the Holders of the Securities are entitled to receive any payment
or distribution of any kind or character, whether in cash, properties or
securities (including any Junior Subordinated Payment) by the Company on account
of the principal of (or premium, if any) or interest (including any Additional
Interest) on the Securities or on account of the purchase or other acquisition
of Securities by the Company or any Subsidiary; provided, however, that nothing
in this Section 13.3 shall prevent the satisfaction of any sinking fund payment
in accordance with this Indenture or as otherwise specified as contemplated by
Section 3.1 for the Securities of any series by delivering and crediting
pursuant to Section 12.2 or as otherwise specified as contemplated by Section
3.1 for the Securities of any series Securities which have been acquired (upon
redemption or otherwise) prior to such declaration of acceleration.
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In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 13.3, and if such fact shall, at or prior
to the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section 13.3 shall not apply to any payment with
respect to which Section 13.2 would be applicable.
Section 13.4. No Payment When Senior and Subordinated Debt in Default.
In the event and during the continuation of any default in the payment of
principal of (or premium, if any) or interest on any Senior and Subordinated
Debt and any applicable grace period after the default has ended, or in the
event that any event of default with respect to any Senior and Subordinated Debt
shall have occurred and be continuing and shall have resulted in such Senior and
Subordinated Debt becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable, unless and until such
event of default shall have been cured or waived or shall have ceased to exist
and such acceleration shall have been rescinded or annulled, then no payment or
distribution of any kind or character, whether in cash, properties or securities
(including any Junior Subordinated Payment) shall be made by the Company on
account of principal of (or premium, if any) or interest (including any
Additional Interest), if any, on the Securities or on account of the purchase or
other acquisition of Securities by the Company or any Subsidiary, in each case
unless and until all such Senior and Subordinated Debt is paid in full;
provided, however, that nothing in this Section 13.4 shall prevent the
satisfaction of any sinking fund payment in accordance with this Indenture or as
otherwise specified as contemplated by Section 3.1 for the Securities of any
series by delivering and crediting pursuant to Section 12.2 or as otherwise
specified as contemplated by Section 3.1 for the Securities of any series
Securities which have been acquired (upon redemption or otherwise) prior to such
default in payment or event of default.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 13.4, and if such fact shall, at or prior
to the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company which will then be obligated to pay such
payment to the holders of its Senior and Subordinated Debt at the time
outstanding.
The provisions of this Section 13.4 shall not apply to any payment with
respect to which Section 13.2 would be applicable.
Section 13.5. Payment Permitted If No Default.
Nothing contained in this Article XIII or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
the pendency of any Proceeding referred to in Section 13.2 or under the
conditions described in Sections 13.3 and 13.4, from making payments at any time
of principal of (and premium, if any) or interest (including Additional
Interest) on the Securities, or (b) the application by the Trustee of any
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money deposited with it hereunder to the payment of or on account of the
principal of (and premium, if any) or interest (including any Additional
Interest) on the Securities or the retention of such payment by the Holders, if,
at the time of such application by the Trustee, it did not have knowledge that
such payment would have been prohibited by the provisions of this Article XIII.
Section 13.6. Subrogation to Rights of Holders of Senior and Subordinated Debt.
Subject to the payment in full of all amounts due or to become due on all
Senior and Subordinated Debt, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior and
Subordinated Debt, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of such Senior and
Subordinated Debt pursuant to the provisions of this Article XIII (equally and
ratably with the holders of all indebtedness of the Company which by its express
terms is subordinated to Senior and Subordinated Debt of the Company to
substantially the same extent as the Securities are subordinated to the Senior
and Subordinated Debt and is entitled to like rights of subrogation by reason of
any payments or distributions made to holders of such Senior and Subordinated
Debt) to the rights of the holders of such Senior and Subordinated Debt to
receive payments and distributions of cash, property and securities applicable
to the Senior and Subordinated Debt until the principal of (and premium, if any)
and interest on the Securities shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior and
Subordinated Debt of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments pursuant to the provisions of this Article XIII to
the holders of Senior and Subordinated Debt by Holders of the Securities or the
Trustee shall, as among the Company, its creditors other than holders of Senior
and Subordinated Debt, and the Holders of the Securities, be deemed to be a
payment or distribution by the Company to or on account of the Senior and
Subordinated Debt.
Section 13.7. Provisions Solely to Define Relative Rights.
The provisions of this Article XIII are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior and Subordinated Debt on the other hand.
Nothing contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as between the Company and the
Holders of the Securities, the obligations of the Company, which are absolute
and unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including any Additional Interest) on the
Securities as and when the same shall become due and payable in accordance with
their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than their rights
in relation to the holders of Senior and Subordinated Debt; or (c) prevent the
Trustee or the Holder of any Security from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture including, without
limitation, filing and voting claims in any Proceeding, subject to the rights,
if any, under this Article XIII of the holders of Senior and Subordinated Debt
to receive cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder.
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Section 13.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article XIII and appoints the Trustee his or her attorney-in-fact for any and
all such purposes.
Section 13.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior and Subordinated
Debt to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior and Subordinated Debt may, at any time and from
to time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior and Subordinated Debt, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Senior and Subordinated Debt, or otherwise amend or supplement in any
manner Senior and Subordinated Debt or any instrument evidencing the same or any
agreement under which Senior and Subordinated Debt is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior and Subordinated Debt; (iii) release any Person liable
in any manner for the collection of Senior and Subordinated Debt; and (iv)
exercise or refrain from exercising any rights against the Company and any other
Person.
Section 13.10. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article XIII or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior and Subordinated Debt or from any trustee, agent
or representative therefor; provided, however, that if the Trustee shall not
have received the notice provided for in this Section 13.10 at least two
Business Days prior to the date upon which by the terms hereof any monies may
become payable for any purpose (including, without limitation, the payment of
the principal of (and premium, if any) or interest (including any Additional
Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received and
shall not be affected by any notice to the contrary which may be received by it
within two Business Days prior to such date.
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Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior and Subordinated Debt (or a trustee therefor) to
establish that such notice has been given by a holder of Senior and Subordinated
Debt (or a trustee therefor). In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior and Subordinated Debt to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior and Subordinated Debt held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article XIII, the Trustee, subject to the provisions of Section 6.1, and
the Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior and
Subordinated Debt and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XIII.
Section 13.12. Trustee Not Fiduciary for Holders of Senior and Subordinated
Debt.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior and Subordinated Debt
and shall not be liable to any such holders if it shall in good faith mistakenly
pay over or distribute to Holders of Securities or to the Company or to any
other Person cash, property or securities to which any holders of Senior and
Subordinated Debt shall be entitled by virtue of this Article or otherwise.
Section 13.13. Rights of Trustee as Holder of Senior and Subordinated Debt;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article XIII with respect to any Senior and Subordinated Debt
which may at any time be held by it, to the same extent as any other holder of
Senior and Subordinated Debt, and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder.
Section 13.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article XIII shall in such case (unless the context otherwise
requires) be construed as extending to and including
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such Paying Agent within its meaning as fully for all intents and purposes as if
such Paying Agent were named in this Article XIII in addition to or in place of
the Trustee.
Section 13.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article XIII only, (a) the issuance and delivery
of junior securities upon conversion or exchange of Securities shall not be
deemed to constitute a payment or distribution on account of the principal of
(or premium, if any) or interest (including any Additional Interest) on
Securities or on account of the purchase or other acquisition of Securities, and
(b) the payment, issuance or delivery of cash, property or securities (other
than junior securities) upon conversion or exchange of a Security shall be
deemed to constitute payment on account of the principal of such security. For
the purposes of this Section 13.15, the term "junior securities" means (i)
shares of any stock of any class of the Company and (ii) securities of the
Company which are subordinated in right of payment to all Senior and
Subordinated Debt which may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article XIII.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
DOWNEY FINANCIAL CORP.
By: /s/ Daniel D. Rosenthal
------------------------------------
Daniel D. Rosenthal
President & Chief Executive Officer
Attest:
By: /s/ Donald E. Royer
-----------------------------
Donald E. Royer
Corporate Secretary
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ Patricia A. Evans
------------------------------------
Its: Financial Services Officer
------------------------------------
Attest:
By: /s/ Virginia N. Karablacas
-----------------------------
Its: Assistant Vice President
----------------------------
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[Face of Security]
DOWNEY FINANCIAL CORP.
10% JUNIOR SUBORDINATED DEBENTURE DUE SEPTEMBER 15, 2029
CUSIP NO. 261018 AA 3
REGISTERED NO. 1 PRINCIPAL AMOUNT: $123,711,350
Downey Financial Corp., a corporation organized and existing under the laws
of Delaware (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to Wilmington Trust Company, as Property Trustee of
Downey Financial Capital Trust I, the principal sum of $123,711,350 on September
15, 2029; provided that the Company may shorten the Stated Maturity of the
principal of this Debenture to a date not earlier than July 23, 2004. The
Company further promises to pay interest on said principal sum from the date of
original issuance or from the most recent interest payment date (each such date,
an "Interest Payment Date") on which interest has been paid or duly provided
for, quarterly (subject to deferral as set forth herein) in arrears on the 15th
day of March, June, September and December of each year commencing September 15,
1999 at the rate of 10% per annum, until the principal hereof is paid or duly
provided for or made available for payment plus Additional Interest, if any,
(without duplication and to the extent that payment of such interest is
enforceable under applicable law), at the rate of 10% per annum, compounded
quarterly. The amount of interest payable for any period shall be computed on
the basis of twelve 30-day months and a 360-day year. The amount of interest
payable for any partial period shall be computed on the basis of the actual
number of days elapsed in a 30-day month. In the event that any date on which
interest is payable on this Debenture is not a Business Day, then a payment of
the interest payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on the date the payment
was originally payable. A "Business Day" shall mean any day other than a
Saturday or Sunday or a day on which banking institutions in the City of New
York are authorized or required by law or executive order to remain closed. The
interest installment so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
installment, which shall be the 15th day, whether or not a Business Day,
immediately preceding such Interest Payment Date. Any such interest installment
not so punctually paid or duly provided for shall forthwith cease to be payable
to the Holder on such Regular Record Date and may either be paid to the Person
in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Debentures not less than 10 days prior to such Special
Record Date, or be paid at any time in any
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other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right at any time during the term of this Debenture to defer
payment of interest on this Debenture, at any time or from time to time, for up
to 20 consecutive quarterly interest payment periods with respect to each
deferral period (each an "Extension Period") (at the end of which the Company
shall pay all interest then accrued and unpaid (together with Additional
Interest thereon at the rate of 10% per annum, compounded quarterly, to the
extent permitted by applicable law)); provided, however, that no Extension
Period shall end on a date other than an Interest Payment Date and all interest
then accrued and unpaid will be payable to the Person in whose name this
Debenture is registered at the close of business on the immediately preceding
Regular Record Date; provided, further, that no Extension Period shall extend
beyond the Stated Maturity of the principal of this Debenture; provided,
further, that at any time while an Extension Period is in effect and the Company
shortens the Stated Maturity of the principal of this Debenture to end before
the last day of the such Extension Period, then the Extension Period will be
deemed to end on the Stated Maturity; provided further, that at any time while
an Extension Period is effect and the Company elects to redeem all Outstanding
Debentures before the last day of such Extension Period, then the Extension
Period will be deemed to end on such Redemption Date; provided, further, that
during any such Extension Period, the Company shall not, and shall not permit
any Subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (which includes common and
preferred stock), (ii) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank on a parity with or junior in right of payment to this Debenture,
(iii) make any guarantee payments with respect to any guarantee by the Company
of the debt securities of any Subsidiary of the Company (if such guarantee ranks
on a parity with or junior in right of payment to this Debenture) (other than
(a) any dividend in a form of stock, warrants, options or other rights where the
dividend or the stock issuable upon the exercise of the warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks on parity with or junior in right of payment to such stock, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (c)
payments under the Downey Trust Guarantee related to the 10% Capital Securities
issued by Downey Financial Capital Trust I (the "Capital Securities"), and (d)
purchases of Common Stock related to the issuance of Common Stock or rights
under any of the Company's benefit plans for its directors, officers or
employees) or (iv) redeem, purchase or acquire less than all of the Debentures
or the Capital Securities. Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period, provided that such
extension does not cause such Extension Period to exceed 20 consecutive interest
payment periods or to extend beyond the Stated Maturity of this Debenture. Upon
the termination of any such Extension Period and upon the payment of all amounts
then due on any Interest Payment Date, and subject to the foregoing limitation,
the Company may elect to begin a new Extension Period. No interest shall be due
and payable during an Extension Period except at the end thereof. The Company
shall give the Trustee, the Property Trustee and the Administrative Trustees of
Downey Financial Capital Trust I notice of its election to begin or extend any
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Extension Period at least one Business Day prior to the earlier of (i) the date
on which Distributions on the Capital Securities or interest on this Debenture
would be payable except for the election to begin or extend such Extension
Period, (ii) the date the Administrative Trustees are or Indenture Trustee is
required to give notice to the New York Stock Exchange or any applicable stock
exchange or automated quotation system on which the Capital Securities are or
this Debenture is then listed or quoted or to holders of such Capital Securities
or of this Debenture of the record date, or (iii) the date the interest is
payable, but in any event not less than one Business Day prior to such record
date. The Trustee shall give notice of the Company's election to begin or extend
an Extension Period to the Holder of this Debenture. There is no limitation on
the number of times that the Company may elect to begin an Extension Period.
Payment of the principal of (and premium, if any) and interest on this
Debenture will be made at the office or agency of the Trustee or at the office
of such paying agent or paying agents as the Company may designate from time to
time, maintained for that purpose in the United States, in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company payment of interest may be made (i) by check mailed to the address
of the person entitled thereto as such address shall appear in the Securities
Register of (ii) by transfer to an account maintained by the person entitled
thereto, in immediately available funds, at such place and to such account as
may be designated by the Person entitled thereto as specified in the Securities
Register.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, unsecured and will rank junior and subordinate and subject in
right of payment to the prior payment in full of all Senior and Subordinated
Debt, and this Debenture is issued subject to the provisions of the Indenture
with respect thereto. Each Holder of this Debenture, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee on his behalf to take such actions as may be necessary or appropriate to
effectuate the subordination so provided, and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes. Each Holder hereof, by his
acceptance hereof, waives all notice of the acceptance of the subordination
provisions contained herein and in the Indenture by each holder of Senior and
Subordinated Debt, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Debenture
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
DOWNEY FINANCIAL CORP.
By: /s/ Daniel D. Rosenthal
-----------------------------------
Daniel D. Rosenthal
President & Chief Executive Officer
Attest:
By: /s/ Donald E. Royer
--------------------------
Donald E. Royer
Corporate Secretary
This is one of the Debentures referred to in the within mentioned Indenture.
Dated: July 23, 1999
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ Joseph B. Feil
-------------------------------
Authorized Officer
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[Reverse of Security]
This Debenture is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under a Junior Subordinated Indenture, dated as of July 23, 1999 (herein
called the "Indenture"), between the Company and Wilmington Trust Company, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Debentures, and of the terms upon which the Debentures are, and
are to be, authenticated and delivered. This Debenture is one of the series
designated on the face hereof, limited in aggregate principal amount to
$123,711,350. The Indenture does not limit the aggregate principal amount of
other Securities which may be issued thereunder.
All terms used in this Debenture that are defined in the Indenture and in
the Amended and Restated Trust Agreement, dated as of July 23, 1999, as amended
(the "Trust Agreement"), for Downey Financial Capital Trust I among Downey
Financial Corp., as Depositor, and the Trustees named therein, shall have the
meanings assigned to them in the Indenture or the Trust Agreement, as the case
may be.
The Company may at any time, at its option, on or after July 23, 2004, and
subject to the terms and conditions of Article XI of the Indenture, and subject
to the Company having received any necessary regulatory approval to do so if
then required under applicable capital guidelines or policies, redeem this
Debenture in whole at any time or in part from time to time, without premium or
penalty, at a redemption price equal to the accrued and unpaid interest on the
Debenture so redeemed to the Redemption Date, plus 100% of the principal amount
thereof; provided, however, that the Company may not redeem less than all of the
Debentures then Outstanding unless the Company has paid or pays on or prior to
such Redemption Date all interest then accrued on the Debentures (together with
Additional Interest thereon, if any, at the rate specified herein for the
Debentures to the extent permitted by applicable law).
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company may, at its option, at any
time within 90 days of the occurrence of such Tax Event, Investment Company
Event or Capital Treatment Event redeem the Debentures, in whole but not in
part, subject to the provisions of Section 11.7 and the other provisions of
Article XI of the Indenture, at a redemption price equal to the accrued and
unpaid interest on the Debentures to the Redemption Date, plus 100% of the
principal amount thereof; provided, however, that the Company will not have the
option to redeem the Debentures upon the occurrence of a Tax Event, Investment
Company Event or Capital Treatment Event if there is available to the Company or
Downey Financial Capital Trust I the opportunity to eliminate, within the 90-day
period, the Tax Event, Investment Company Event or Capital Treatment Event, as
the case may be, by taking some ministerial action, such as filing a form or
making an election or pursuing some other reasonable measure that will have no
adverse effect on the Company, Downey Financial Capital Trust I, or the holders
of the Capital Securities and will involve no material cost, and, in that case,
the Company will pursue such measure instead of redemption.
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In the event of redemption of this Debenture in part only, a new Debenture
for the portion hereof not redeemed will be issued in the name of the Holder
hereof upon the cancellation hereof.
The Indenture contains provisions for satisfaction and discharge of the
entire indebtedness of this Debenture upon compliance by the Company with
certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities of each series to be affected by such supplemental indenture. The
Indenture also contains provisions permitting Holders of specified percentages
in principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Debenture shall be conclusive and binding upon such Holder and
upon all future Holders of this Debenture and of any Debenture issued upon the
registration of transfer hereof or in exchange therefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Debenture.
As provided in and subject to the provisions of the Indenture, if an Event
of Default with respect to the Debentures at the time Outstanding occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Debentures may declare the
principal amount of all the Debentures to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders),
provided that, in the case of the Debentures issued to Downey Financial Capital
Trust I, if upon an Event of Default, the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Debentures fails to declare the
principal of all the Debentures to be immediately due and payable, the holders
of at least 25% in aggregate Liquidation Amount of the Capital Securities then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest (including any Additional Interest) on all the Debentures shall become
immediately due and payable, provided that the payment of principal and interest
(including any Additional Interest) on such Debentures shall remain subordinated
to the extent provided in Article XIII of the Indenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Debenture at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Debenture is registrable in the Securities Register,
upon surrender of this Debenture for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of
6
<PAGE>
transfer in form satisfactory to the Company and the Securities Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing and
thereupon one or more new Securities of this series, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Debenture is registered as the owner hereof for
all purposes, whether or not this Debenture be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
The Debentures are issuable only in registered form without coupons in
minimum denominations of $25 and any integral multiples of $25 in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Debentures are exchangeable for a like aggregate principal amount of
Debentures of a different authorized denomination, as requested by the Holder
surrendering the same.
The Company and, by its acceptance of this Debenture, the Holder of, and
any Person that acquires a beneficial interest in, this Debenture agree that for
United States Federal, state and local tax purposes it is intended that this
Debenture constitute indebtedness.
THE INDENTURE AND THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.
7
<PAGE>
CERTIFICATE OF TRUST
OF
DOWNEY FINANCIAL CAPITAL TRUST I
THIS CERTIFICATE OF TRUST of DOWNEY FINANCIAL CAPITAL I (the "Trust"),
dated May 25, 1999, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. (ss.) 3801 et seq.).
1. Name. The name of the business trust being formed hereby is DOWNEY
FINANCIAL CAPITAL TRUST I.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware are Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon its
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ W. Chris Sponeberg
-------------------------------------
W. Chris Sponeberg
Assistant Vice President
/s/ Daniel D. Rosenthal
-------------------------------------
Daniel D. Rosenthal
Administrative Trustee
/s/ Thomas E. Prince
-------------------------------------
Thomas E. Prince
Administrative Trustee
/s/ Paul G. Woollatt
-------------------------------------
Paul G. Woollatt
Administrative Trustee
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of May 25, 1999 (this "Trust Agreement"),
among Downey Financial Corp., a Delaware corporation (the "Depositor"), (ii)
Wilmington Trust Company a Delaware banking corporation, as trustee (the
"Delaware Trustee"), and (iii) Daniel D. Rosenthal, Thomas E. Prince and Paul G.
Woollatt, each an individual, as trustees (the "Administrative Trustees" and,
together with the Delaware Trustee, the "Trustees"). The Depositor and the
Trustees hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "DOWNEY
FINANCIAL CAPITAL TRUST I" in which name the Trustees, or the Depositor to the
extent provided herein, may engage in the transactions contemplated hereby, make
and execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to the
Trustees the sum of Ten Dollars ($10.00). The Trustees hereby acknowledge
receipt of such amount in trust from the Depositor, which amount shall
constitute the initial trust estate. The Trustees hereby declare that they will
hold the trust estate in trust for the Depositor. It is the intention of the
parties hereto that the Trust created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq.
(the "Business Trust Act"), and that this document constitutes the governing
instrument of the Trust. The parties hereto hereby ratify the Trustees' filing
of a Certificate of Trust with the Delaware Secretary of State under the name
"DOWNEY FINANCIAL CAPITAL TRUST I."
3. The Depositor and the Trustees will enter into an amended and restated
Trust Agreement, satisfactory to each such party and substantially in the form
included as an exhibit to the 1933 Act Registration Statement (as defined
below), to provide for the contemplated operation of the Trust created hereby
and the issuance of the Capital Securities and Common Securities referred to
therein. Prior to the execution and delivery of such amended and restated Trust
Agreement, the Trustees shall not have any duty or obligation hereunder or with
respect to the trust estate, except as otherwise required by applicable law or
as may be necessary to obtain prior to such execution and delivery any licenses,
consents or approvals required by applicable law or otherwise.
4. The Depositor and the Trustees hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on Form S-3 (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the registration
under the Securities Act of 1933, as amended, of the Capital Securities of the
Trust and possibly certain other securities and (b) if required, a Registration
Statement on Form 8-A (the "1934 Act Registration Statement")
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<PAGE>
(including all pre-effective and post-effective amendments thereto) relating to
the registration of the Capital Securities of the Trust under the Securities
Exchange Act of 1934, as amended; (ii) to file with the New York Stock Exchange
or a national stock exchange (each, an "Exchange") and execute on behalf of the
Trust one or more listing applications and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Capital Securities to be listed on any of the Exchanges;
(iii) to file and execute on behalf of the Trust such applications, reports,
surety bonds, irrevocable consents, appointments of attorney for service of
process and other papers and documents as shall be necessary or desirable to
register the Capital Securities under the securities or blue sky laws of such
jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or
desirable; and (iv) to execute on behalf of the Trust that certain Underwriting
Agreement relating to the Capital Securities, among the Trust, the Depositor and
the Underwriters named therein, substantially in the form included as an exhibit
to the 1933 Act Registration Statement. In the event that any filing referred to
in clauses (i), (ii) and (iii) above is required by the rules and regulations of
the Commission, an Exchange or state securities or blue sky laws to be executed
on behalf of the Trust by one or more of the Trustees, each of the Trustees, in
such Trustee's capacity as a trustee of the Trust, is hereby authorized and, to
the extent so required, directed to join in any such filing and to execute on
behalf of the Trust any and all of the foregoing, it being understood that the
Delaware Trustee in its capacity as a trustee of the Trust shall not be required
to join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the Exchange or
state securities or blue sky laws. In connection with the filings referred to
above, the Depositor and Daniel D. Rosenthal, Thomas E. Prince and Paul G.
Woollatt, each as Trustees and not in their individual capacities, hereby
constitutes and appoints Daniel D. Rosenthal and Thomas E. Prince, and each of
them, as the Depositor's or such Trustee's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for the Depositor or
such Trustee or in the Depositor's or such Trustee's name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to the 1933 Act Registration Statement and the 1934 Act Registration
Statement (if required) and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, the Exchange and
administrators of the state securities or blue sky laws, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully and to all intents and purposes as the Depositor or such Trustee might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their respective substitute or
substitutes, shall do or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees initially shall be four (4) and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by a
written instrument signed by the Depositor which may increase or decrease the
number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise meets
the requirements of applicable Delaware
2
<PAGE>
law. Subject to the foregoing, the Depositor is entitled to appoint or remove
without cause any Trustee at any time. The Trustees may resign upon thirty (30)
days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware (without regard to conflict of laws of
principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed as of the day and year first above written.
Downey Financial Corp.
as Depositor
By:/s/ Donald E. Royer
------------------------------------------------
Donald E. Royer
Executive Vice President and General Counsel
WILMINGTON TRUST COMPANY
as Trustee
By:/s/ W. Chris Sponenberg
------------------------------------------------
Name: W. Chris Sponenberg
Title: Assistant Vice President
By:/s/ Daniel D. Rosenthal
------------------------------------------------
Daniel D. Rosenthal, as Administrative Trustee
By:/s/ Thomas E. Prince
------------------------------------------------
Thomas E. Prince, as Administrative Trustee
By:/s/ Pual G. Woollatt
------------------------------------------------
Paul G. Woollatt, as Administrative Trustee
3
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
among
Downey Financial Corp., as Depositor,
Wilmington Trust Company,
as Property Trustee,
Wilmington Trust Company,
as Delaware Trustee,
and
The Administrative Trustees Named Herein
Dated as of July 23, 1999
<PAGE>
TABLE OF CONTENTS
----------------- PAGE
ARTICLE I. Defined Terms.......................................................1
Section 1.1. Definitions......................................................1
ARTICLE II. Establishment of the Trust........................................10
Section 2.1. Name............................................................10
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 Capital Securities..............................11
Section 2.5. Issuance of the Common Securities; Subscription and Purchase of
Debentures......................................................11
Section 2.6. Declaration of Trust............................................12
Section 2.7. Authorization to Enter into Certain Transactions................12
Section 2.8. Assets of Trust.................................................15
Section 2.9. Title to Trust Property.........................................15
ARTICLE III. Payment Account..................................................15
Section 3.1. Payment Account.................................................15
ARTICLE IV. Distributions, Redemption.........................................16
Section 4.1. Distributions...................................................16
Section 4.2. Redemption......................................................17
Section 4.3. Subordination of Common Securities..............................19
Section 4.4. Payment Procedures..............................................20
Section 4.5. Tax Returns and Reports.........................................20
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust.....................21
Section 4.7. Payments under Indenture or Pursuant to Direct Actions..........21
ARTICLE V. trust Securities Certificates......................................21
Section 5.1. Initial Ownership...............................................21
Section 5.2. The Trust Securities Certificates...............................21
Section 5.3. Execution and Delivery of Trust Securities Certificates.........22
Section 5.4. Registration of Transfer and Exchange of Capital Securities
Certificates....................................................22
Section 5.5. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates....................................................23
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<PAGE>
Section 5.6. Persons Deemed Securityholders..................................23
Section 5.7. Access to List of Securityholders'Names and Addresses...........23
Section 5.8. Maintenance of Office or Agency.................................24
Section 5.9. Appointment of Paying Agent.....................................24
Section 5.10.Ownership of Common Securities by Depositor.....................25
Section 5.11.Book-Entry Capital Securities Certificates; Common Securities
Certificate.....................................................25
Section 5.12.Notices to Clearing Agency......................................26
Section 5.13.Definitive Capital Securities Certificates......................26
Section 5.14.Rights of Securityholders.......................................26
ARTICLE VI. Acts of Securityholders, Meetings, Voting.........................28
Section 6.1. Limitations on Voting Rights....................................28
Section 6.2. Notice of Meetings..............................................29
Section 6.3. Meetings of Capital Securityholders.............................29
Section 6.4. Voting Rights...................................................30
Section 6.5. Proxies, etc....................................................30
Section 6.6. Securityholder Action by Written Consent........................30
Section 6.7. Record Date for Voting and Other Purposes.......................30
Section 6.8. Acts of Securityholders.........................................31
Section 6.9. Inspection of Records...........................................32
ARTICLE VII. Representations and Warranties...................................32
Section 7.1. Representations and Warranties of the Bank......................32
Section 7.2. Representations and Warranties of Depositor.....................33
ARTICLE VIII. The Trustees....................................................33
Section 8.1. Certain Duties and Responsibilities.............................33
Section 8.2. Certain Notices.................................................35
Section 8.3. Certain Rights of Property Trustee..............................35
Section 8.4. Not Responsible for Recitals or Issuance of Securities..........37
Section 8.5. May Hold Securities.............................................37
Section 8.6. Compensation; Indemnity; Fees...................................37
Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees....38
Section 8.8. Conflicting Interests...........................................39
Section 8.9. Co-Trustees and Separate Trustee................................39
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<PAGE>
Section 8.10.Resignation and Removal; Appointment of Successor...............40
Section 8.11.Acceptance of Appointment by Successor..........................41
Section 8.12.Merger, Conversion, Consolidation or Succession to Business.....42
Section 8.13.Preferential Collection of Claims Against Depositor or Trust....42
Section 8.14.Reports by Property Trustee.....................................43
Section 8.15.Reports to the Property Trustee.................................43
Section 8.16.Evidence of Compliance with Conditions Precedent................44
Section 8.17.Number of Trustees..............................................44
Section 8.18.Delegation of Power.............................................44
Section 8.19.Voting..........................................................45
ARTICLE IX. Dissolution, Liquidation and Merger...............................45
Section 9.1. Dissolution Upon Expiration Date................................45
Section 9.2. Early Dissolution...............................................45
Section 9.3. Dissolution.....................................................45
Section 9.4. Liquidation.....................................................46
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the
Trust...........................................................47
ARTICLE X. Miscellaneous Provisions...........................................48
Section 10.1. Limitation of Rights of Securityholders........................48
Section 10.2. Amendment......................................................48
Section 10.3. Counterparts...................................................50
Section 10.4. Separability...................................................50
Section 10.5. Governing Law..................................................50
Section 10.6. Payments Due on Non-Business Day...............................50
Section 10.7. Successors.....................................................50
Section 10.8. Headings.......................................................50
Section 10.9. Reports, Notices and Demands...................................51
Section 10.10.Agreement Not to Petition......................................51
Section 10.11.Trust Indenture Act; Conflict with Trust Indenture Act.........52
Section 10.12.Acceptance of Terms of Trust Agreement, Guarantee and
Indenture......................................................52
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<PAGE>
DOWNEY FINANCIAL CORP.
DOWNEY FINANCIAL CORP.
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Trust Agreement
Act Section Section
------------------- ---------------
( ss.) 310 (a) (1) 8.7
(a) (2) 8.7
(a) (3) 8.7
(a) (4) 2.7 (a) (ii)
(b)
( ss.) 311 (a) 8.13
(b) 8.13
( ss.) 312 (a) 5.7
(b) 5.7
(c) 5.7
( ss.) 313 (a) 8.14 (a)
(a) (4) 8.14 (b)
(b) 8.14 (b)
(c) 10.8
(d) 8.14 (c)
( ss.) 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
( ss.) 315 (a) 8.1 (a), 8.3(a)
(b) 8.2, 10.8
(c) 8.1 (a)
(d) 8.1, 8.3
(e) Not Applicable
( ss.) 316 (a) Not Applicable
(a) (1) (A) Not Applicable
(a) (1) (B) Not Applicable
(a) (2) Not Applicable
(b) 5.14
(c) 6.7
( ss.) 317 (a) (1) Not Applicable
(a) (2) Not Applicable
(b) 5.9
( ss.) 318 (a) 10.10
____
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed
to be a part of the Trust Agreement.
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT (this "Trust Agreement"), dated as of
July 23, 1999, among (i) Downey Financial Corp., a Delaware corporation
(including any successors or assigns, the "Depositor"), (ii) Wilmington Trust
Company, a Delaware banking corporation duly organized and existing under the
laws of the State of Delaware, as property trustee, (in such capacity, the
"Property Trustee" and, in its separate corporate capacity and not in its
capacity as Property Trustee, the "Bank"), (iii) Wilmington Trust Company, a
Delaware banking corporation organized under the laws of the State of Delaware,
as Delaware trustee (the "Delaware Trustee"), (iv) Daniel D. Rosenthal, an
individual, Thomas E. Prince, an individual, and Paul G. Woollatt, an
individual, each of whose address is c/o Downey Financial Corp., 3501 Jamboree
Road, North Tower, Newport Beach, California 92660 (each an "Administrative
Trustee" and collectively the "Administrative Trustees") (the Property Trustee,
the Delaware Trustee and the Administrative Trustees are referred to
collectively herein as the "Trustees") and (v) the several Holders, as
hereinafter defined.
WITNESSETH
WHEREAS, the Depositor, the Delaware Trustee and each of the Administrative
Trustees, have heretofore duly declared and established a business trust
pursuant to the Delaware Business Trust Act by the entering into a Declaration
of Trust, dated as of May 25, 1999 (the "Original Trust Agreement"), and by the
execution and filing by the Delaware Trustee with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on May 25, 1999, attached
as Exhibit A; and
WHEREAS, the parties desire to amend and restate the Original Trust
Agreement in its entirety as set forth herein to provide for, among other
things, (i) the issuance of the Common Securities by the Trust to the Depositor,
(ii) the issuance and sale of the Capital Securities by the Trust pursuant to
the Underwriting Agreement, (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Debentures and (iv) the
appointment of the Property Trustee;
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, hereby agrees as follows:
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;
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<PAGE>
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amounts" means, with respect to Trust Securities of a given
Liquidation Amount and for a given period, the amount of Additional Interest (as
defined in the Indenture) paid or payable by the Depositor on a Like Amount of
Debentures for such period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement, solely in such
Person's capacity as Administrative Trustee of the Trust created and continued
hereunder and not in such Person'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 Bankruptcy 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 Bankruptcy 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
2
<PAGE>
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 Law" means any Federal or state bankruptcy, insolvency,
reorganization or similar law.
"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 appropriate Trustees.
"Book-Entry Capital Securities Certificates" means a beneficial interest in
the Capital Securities 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 (a) a Saturday or Sunday, or (b) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed.
"Capital Security" means an undivided beneficial interest in the assets of
the Trust designated as "10% Capital Securities," having a Liquidation Amount of
$25 per security and having the rights provided therefor in this Trust
Agreement, including the right to receive Distributions and a Liquidation
Distribution as provided herein.
"Capital Securities Certificate" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit D.
"Capital Treatment Event" means the receipt by the Depositor and the Trust
of an Opinion of Counsel experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement, action or decision is announced on or
after the original issuance date of the Capital Securities, there is more than
an insubstantial risk that: (i) the Depositor will not be entitled to treat the
Capital Securities (or any substantial portion thereof) as "Tier I Capital" (or
the then equivalent thereof) for purposes of the holding company capital
adequacy guidelines of the primary federal regulator of the Depositor, as then
in effect and applicable to the Depositor, in which case such Opinion of Counsel
shall also state that the Depositor is subject to those capital adequacy
guidelines; or (ii) the Subsidiary Bank will not be entitled to treat the net
proceeds from the sale of the Debentures that are invested in the Subsidiary
Bank (or any substantial portion thereof) as "Tier I Capital" (or the then
equivalent thereof) for purposes of the capital adequacy guidelines of the
primary federal regulator of the Subsidiary Bank, as then in effect and
applicable to the Subsidiary Bank (assuming for the purpose of this clause
(ii) that at
3
<PAGE>
least 50% of such net proceeds are invested in the Subsidiary Bank by the
Depositor in the form of a capital contribution or through the purchase of
common stock of the Subsidiary Bank).
"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 Capital Securities Certificates,
substantially in the form attached as Exhibit B, as the same may be amended and
supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act. The Depository Trust Company will
act as the initial Clearing Agency hereunder.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, 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.
"Common Security" means an undivided 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.
"Common Securities Guarantee" means the Common Securities Guarantee
Agreement executed and delivered by the Depositor contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of holders of
the Common Securities, as amended from time to time.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal office of the Property Trustee located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration, and (ii) when used with respect to the Debenture
Trustee, the principal office of the Debenture Trustee located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration.
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"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
"Debenture Redemption Date" means, with respect to any 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 organized under the laws of the State of Delaware and any successor
thereto, as trustee under the Indenture.
"Debentures" means the $123,711,350 aggregate principal amount of the
Depositor's 10% Junior Subordinated Debentures, issued pursuant to the
Indenture.
"Definitive Capital Securities Certificates" means either or both (as the
context requires) of (a) Capital Securities Certificates issued as Book-Entry
Capital Securities Certificates as provided in Section 5.11(a) and (b) Capital
Securities 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. (ss.) 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 created and continued hereunder and not in its individual capacity,
or its successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.1.
"Early Dissolution Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events that has occurred
and is continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it becomes
due and payable, and continuation of such default for a period of 30 days; or
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
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(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of any of the Trustees in this Trust Agreement (other than
a default or breach in the performance of a covenant or warranty which is dealt
with in clause (b) or (c) above) and continuation of such default or breach for
a period of 60 days after there has been given, by registered or certified mail,
to the defaulting Trustee and the Trust by the Holders of at least 25% in
aggregate Liquidation Amount of the Outstanding Capital Securities, a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" has the meaning specified in Section 9.1.
"Extension Period" has the meaning specified in Section 4.1.
"Guarantee" means the Capital Securities Guarantee Agreement executed and
delivered by the Depositor and Wilmington Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the holders of the Capital Securities, as amended from time to
time.
"Holder" means a Securityholder.
"Indenture" means the Junior Subordinated Indenture, dated as of July 23,
1999, between the Depositor and the Debenture Trustee, as trustee, as amended or
supplemented from time to time.
"Investment Company Event" means the receipt by the Depositor and the Trust
of an Opinion of Counsel experienced in such matters to the effect that, as a
result of any change in law or regulation or any written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, which change is effective or
which written change is announced on or after the original issuance date of the
Capital Securities under this Trust Agreement, there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" that is required to be registered under the 1940 Act.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, adverse claim, 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
the Debentures to be contemporaneously redeemed in accordance with the
Indenture, allocated pro rata to the Common Securities then Outstanding and the
Capital Securities then Outstanding based upon the relative Liquidation Amounts
of the Common Securities then Outstanding and the Capital
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Securities then Outstanding, subject to the preferential rights of Capital
Securities if a Debenture Event of Default has occurred or is continuing, and
(b) with respect to a distribution of Debentures to Holders of Trust Securities
in connection with a dissolution or liquidation of the Trust, Debentures having
a principal amount equal to the Liquidation Amount of the Trust Securities of
the Holder to whom such Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution 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.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the Chief
Executive Officer, the President or a Vice President, and by the Chief Financial
Officer, 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 nationally recognized
independent counsel, who may be counsel for the Trust, the Property Trustee, the
Delaware Trustee or the Depositor (such counsel for the Depositor or the Trust
may include Manatt, Phelps & Phillips, LLC), but not an employee of any of the
Trust, the Property Trustee, the Delaware Trustee or the Depositor, and who
shall be reasonably acceptable to the Property Trustee.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
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"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 canceled by the Property Trustee or
delivered to the Property Trustee 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 in trust 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
Sections 5.4, 5.5, 5.11 and 5.13; provided, however, that in determining whether
the Holders of the requisite Liquidation Amount of the Outstanding Capital
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, 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 Capital Securities
that such Trustee knows to be so owned shall be so disregarded and (b) the
foregoing shall not apply at any time when all of the outstanding Capital
Securities are owned by the Depositor, one or more of the Trustees and/or any
such Affiliate. 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 Capital Securities and that the pledgee is not the Depositor or
any Affiliate of the Depositor. Upon the written request of any Trustee, the
Depositor shall furnish to such Trustee promptly an Officers' Certificate
listing and identifying all Trust Securities, if any, known by the Depositor to
be owned or held by or for the account of the Depositor, any Trustee or any
Affiliate of the Depositor or any Trustee, and, subject to the provisions of
Section 8.1, such Trustee shall be entitled to accept such Officers' Certificate
as conclusive evidence of the facts therein set forth and of the fact that all
Trust Securities not listed therein are Outstanding for the purpose of any such
determination.
"Owner" means each Person who is the beneficial owner of a Book-Entry
Capital Securities Certificate as reflected in the records of the Clearing
Agency or, if a Clearing Agency Participant is not the 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 Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures will be held and from
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which the Property Trustee, through the Paying Agent, shall make payments to the
Securityholders in accordance with Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement, solely in its capacity as Property Trustee
of the Trust heretofore created and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Capital 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.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.4.
"Securityholder" means a Person in whose name a Trust Security is
registered in the Securities Register; any such Person shall be deemed to be a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Stated Maturity" shall have the meaning specified in Section 4.1.
"Subsidiary Bank" means Downey Savings and Loan Association, F.A., a
federally chartered savings and loan association and the principal subsidiary of
the Depositor.
"Tax Event" means the receipt by the Depositor and the Trust of an Opinion
of Counsel experienced in such matters to the effect that as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which prospective change, pronouncement, action or decision is
announced on or after the original issuance date of the Capital Securities under
this Trust Agreement, there is more than an insubstantial risk that (i) the
Trust is, or will be within 90 days after the date of such Opinion of Counsel,
subject to United States Federal income tax with respect to income received or
accrued on the Debentures, (ii) interest payable by the Depositor on the
Debentures is not, or within 90 days after 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
after the date of
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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 on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (i) all exhibits hereto and (ii) for all purposes
of this Amended and Restated 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 amended and
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 Debentures, (b) any cash on deposit in, or
owing to, the Payment Account and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware Trustee
and the Administrative Trustees.
"Underwriters" means each of the Underwriters named in the Underwriting
Agreement.
"Underwriting Agreement" means that certain Underwriting Agreement dated as
of July 16, 1999, among the Trust, the Depositor, and Morgan Stanley & Co.
Incorporated, Dain Rauscher Wessels, a division of Dain Rauscher Incorporated,
A.G. Edwards & Sons, Inc., Prudential Securities Incorporated, and Sutro & Co.
Incorporated, as representatives of the Underwriters.
ARTICLE II.
ESTABLISHMENT OF THE TRUST
Section 2.1. Name.
The Trust continued hereby shall be known as "Downey Financial Capital
Trust I," 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
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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 19890-0001, Attention: Corporate Trust Administration, 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 Downey Financial Corp., 3501
Jamboree Road, North Tower, Newport Beach, California 92660.
Section 2.3. Initial Contribution of Trust Property; Organizational Expenses.
The Trustees acknowledges receipt in trust from the Depositor in connection
with the Trust Agreement of the sum of $10, which constituted the initial Trust
Property. The Depositor shall pay organizational expenses of the Trust as they
arise or shall, upon request of any Trustee, promptly reimburse such Trustee for
any such expenses paid by such Trustee. The Depositor shall make no claim upon
the Trust Property for the payment of such expenses.
Section 2.4. Issuance of the Capital Securities.
The Depositor and an Administrative Trustee, on behalf of the Trust and
pursuant to the Trust Agreement, have 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, Capital Securities Certificates, registered in the name
of the nominee of the initial Clearing Agency, as instructed by Morgan Stanley &
Co. Incorporated, as representative of the Underwriters, in an aggregate amount
of 4,800,000 Capital Securities having an aggregate Liquidation Amount of
$120,000,000, against receipt of such aggregate purchase price of such Capital
Securities of $120,000,000, which amount the Administrative Trustee shall
promptly deliver to the Property Trustee.
Section 2.5. Issuance of the Common Securities; Subscription and Purchase of
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 Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of 148,454
Common Securities having an aggregate Liquidation Amount of $3,711,350, against
payment by the Depositor of such amount, which amount such Administrative
Trustee shall promptly deliver to the Property Trustee. An Administrative
Trustee, on behalf of the Trust, shall subscribe to and purchase from the
Depositor Debentures, registered in the name of Cede & Co., as nominee of The
Depository Trust Company, and having an aggregate principal amount equal to
$3,711,350 and, in satisfaction of the purchase price for such Debentures, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of $3,711,350, such amount being the sum of the amounts delivered to the
Property Trustee pursuant to (i) the second sentence of Section 2.4 and (ii) the
first sentence of this Section 2.5.
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Section 2.6. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures,
and (b) to engage in those activities necessary, advisable or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it will hold the Trust Property in trust upon and subject to the conditions
set forth herein for the benefit of the Trust and the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative Trustees set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
Section 2.7. Authorization to Enter into Certain Transactions.
(a) The Trustees shall conduct the affairs of the Trust in accordance with
the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section and Section 2.6, and in accordance with the
following provisions (i) and (ii), the Trustees shall have the authority to
enter into all transactions and agreements determined by the Trustees to be
appropriate in exercising the authority, express or implied, otherwise granted
to the Trustees under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee shall have the
power and authority to act on behalf of the Trust with respect to the
following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver and
perform on behalf of the Trust, the Certificate Depository Agreement
and such other agreements as may be necessary or desirable in
connection with the purposes and function of the Trust;
(C) assisting in the registration (including the execution of a
registration statement on the appropriate form) of the Capital
Securities under the Securities Act of 1933, as amended, and under
state securities or blue sky laws, and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Capital Securities upon such
securities exchange or exchanges as shall be determined by the
Depositor and the registration of the Capital Securities under the
Exchange Act, and the preparation and filing of all periodic and other
reports and other documents pursuant to the foregoing;
(E) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the Debentures to
the Securityholders in accordance with this Trust Agreement;
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(F) the appointment of a Paying Agent, authenticating agent and
Securities Registrar in accordance with this Trust Agreement;
(G) registering transfer of the Trust Securities in accordance
with this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(I) unless otherwise determined by the Depositor, the Property
Trustee or the Administrative Trustees, or as otherwise required by
the Delaware Business Trust Act or the Trust Indenture Act, to execute
on behalf of the Trust (either acting alone or together with any or
all of the Administrative Trustees) any documents that the
Administrative Trustees have the power to execute pursuant to this
Trust Agreement; and
(J) the taking of any action incidental to the foregoing as the
Trustees may from time to time determine is necessary or advisable to
give effect to the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the effect of any such
action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power,
duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution through the Paying Agent of amounts owed to
the Securityholders in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and privileges of a
holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with the
terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
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(I) after an Event of Default (other than under paragraph (b),
(c), (d) or (e) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee) the taking of
any action incidental to the foregoing 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
Securityholder);
(J) so long as the Property Trustee is the Securities Registrar,
registering transfers of the Trust Securities in accordance with this
Trust Agreement; and
(K) except as otherwise provided in this Section 2.7(a)(ii), the
Property Trustee shall have none of the duties, liabilities, powers or
the authority of the Administrative Trustees set forth in Section
2.7(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein, (iii) take any action that would cause the
Trust to fail or cease to qualify as a "grantor trust" for United States federal
income tax purposes, (iv) incur any indebtedness for borrowed money or issue any
other debt or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. 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 Capital Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the Commission and
the execution by the Trust of a registration statement on the appropriate
form in relation to the 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 Capital
Securities and the determination of any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and the advice to
the Trustees of actions they must take on behalf of the Trust, and the
preparation for execution and filing of any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of any
such States;
(iii) the preparation for filing by the Trust and execution on behalf
of the Trust of an application to the Nasdaq National Market, the New York
Stock Exchange or any other national stock exchange for listing upon notice
of issuance of any Capital Securities;
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(iv) the preparation for filing by the Trust with the Commission and
the execution on behalf of the Trust of a registration statement on Form
8-A relating to the registration of the Capital Securities under Section
12(b) or 12(g) of the Exchange Act, including any amendments thereto;
(v) the negotiation of the terms of, and the execution and delivery
of, the Underwriting Agreement providing for the sale of the Capital
Securities; and
(vi) the taking of any other actions necessary or desirable 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
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
Capital Securities.
Section 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
Section 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Trust and the Securityholders in
accordance with this Trust Agreement.
ARTICLE III.
PAYMENT ACCOUNT
Section 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits in and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
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(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV.
DISTRIBUTIONS, REDEMPTION
Section 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including of Additional Amounts) will be made
on the Trust Securities at the rate and on the dates that payments of interest
(including of Additional Interest, Additional Sums and Additional Expenses as
defined in the Indenture) are made on the 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 the date of
original issuance of the Trust Securities, and, except in the event (and to
the extent) that the Depositor exercises its right to defer the payment of
interest on the Debentures (which the Depositor has the right to do
pursuant to the Indenture and as described in clause (ii) below), shall be
payable quarterly in arrears at the close of business on the 15th day of
March, June, September and December of each year, commencing on September
15, 1999. 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 (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on such date (each date on
which distributions are payable in accordance with this Section 4.1(a), a
"Distribution Date").
(ii) So long as no Debenture Event of Default has occurred and is
continuing, the Depositor has the right during the term of the Debentures
to defer the payment of interest on the Debentures, at any time and from
time to time, for up to 20 consecutive quarterly interest payment periods
(each, an "Extension Period") and, as a consequence of such extension,
Distributions will also be deferred. Despite such deferral, Distributions
will continue to accrue with interest thereon (to the extent permitted by
applicable law) at 10% per annum during any such Extension Period. No
Extension period will end on a date other than an Interest Payment Date (as
such term is defined in the Indenture). At the end of any such Extension
Period, the Depositor is required to pay all interest then accrued and
unpaid on the Debentures (together with Additional Interest thereon, at the
rate specified for the Debentures, compounded quarterly, to the extent
permitted by applicable law); provided however, that no Extension Period
will extend beyond the date on which principal of the Debentures is due and
payable (the "Stated Maturity"); provided further, that at any time while
an Extension Period is in effect and (i) the Depositor shortens the Stated
Maturity of the principal of the Debentures to end before the last day of
such Extension Period, then the Extension Period will be deemed to end on
the Stated Maturity or (ii) the Company elects to redeem all Outstanding
Debentures before the last day of such Extension Period, then the Extension
Period will be deemed to end on such Debenture Redemption Date. Prior to
the termination of any such Extension Period, the Depositor may
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further extend the Extension Period, provided that such extension does not
cause the Extension Period to exceed 20 consecutive quarterly interest
payment periods or to extend beyond the Stated Maturity of the principal of
the Debentures. Upon termination of any Extension Period and upon the
payment of all accrued and unpaid interest and any Additional Interest then
due on any Interest Payment Date, the Depositor may elect to begin a new
Extension Period. No interest shall be due and payable on the Debentures
during an Extension Period, except at the end thereof. There is no
limitation on the number of times that the Depositor may elect to begin or
extend an Extension Period. Payments of accrued Distributions will be
payable to Holders as they appear on the Securities Register for the Trust
Securities at the close of business on the record date immediately
preceding the end of the Extension Period.
(iii) Assuming payments of interest (including Additional Interest,
Additional Sums and Additional Expenses) on the 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 10% per
annum of the Liquidation Amount of the Trust Securities. The amount of
Distributions payable for any full period shall be computed on the basis of
a 360 day year of twelve 30-day months. The amount of Distributions for any
partial period shall be computed on the basis of the number of actual days
elapsed in a 30-day month. The amount of Distributions payable for any
period will include amounts accrued to but excluding the Distribution Date.
The amount of Distributions payable for any period shall include the
Additional Amounts, if any.
(iv) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand
and available in the Payment Account for the payment of such Distributions.
(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which shall be the date 15 days prior to the relevant Distribution
Date (whether or not a Business Day).
Section 4.2. Redemption.
(a) Upon the repayment or redemption at any time, in whole or in part of
any Debentures, the Trust will be required to redeem, subject to Section 4.3, a
Like Amount of Trust Securities at the Redemption Price; provided, however, that
the Trust may not redeem less than all of the Trust Securities then Outstanding
unless it has paid or pays on or prior to such Redemption Date all accumulated
and unpaid Distributions on all Trust Securities for all Distribution Periods
terminating on or prior thereto.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
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(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the
particular Trust Securities to be redeemed; and
(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.
(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption of
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the Trust
has funds then on hand and available in the Payment Account for the payment of
such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Capital Securities, then, by 12:00 noon, Eastern Time, on the Redemption Date,
with respect to Capital Securities held in book-entry form, the Property Trustee
will irrevocably deposit with the Clearing Agency for the Capital Securities,
only to the extent that the Trust has funds then on hand and available in the
Payment Account for the payment of the applicable Redemption Price and will give
such Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the Holders thereof. With respect to Capital Securities held
in certificated form, the Property Trustee, by 12:00 noon, Eastern Time, on the
Redemption Date will irrevocably deposit with the Paying Agent, only to the
extent that the Trust has funds then on hand and available in the Payment
Account for the payment of 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 Capital Securities Certificates.
Notwithstanding the foregoing, Distributions payable on any Distribution Date
falling 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 Register for the Trust Securities at the close of business 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 Distributions payable on or prior to the
Redemption Date, but without interest for any period from and after the
Redemption Date, on such Redemption Date and such 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), 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 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
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Price is actually paid, in which case the actual payment date will be the date
fixed for redemption for purposes of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be made
to the recordholders thereof as they appear on the Securities Register for the
Trust Securities.
(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
Redemption Price of Trust Securities to be redeemed shall be allocated on a pro
rata basis (based on Liquidation Amounts) among the Common Securities then
Outstanding and the Capital Securities then Outstanding. The particular 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 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 Capital Securities of a
denomination larger than $25. The Property Trustee shall promptly notify the
Security Registrar in writing of the Capital Securities selected for redemption
and, in the case of any 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 Capital Securities shall relate, in the case of any Capital
Securities redeemed or to be redeemed only in part, to the portion of the
aggregate Liquidation Amount of Capital Securities that has been or is to be
redeemed.
(g) If allowed under the applicable law, including without limitation
United States federal securities law, the Depositor or it subsidiaries (other
than the Trust) may at any time, and from time to time purchase Capital
Securities then Outstanding by tender, in the open market or by private
agreement; provided, however that neither the Depositor nor any of its
subsidiaries shall have this right during an Extension Period.
Section 4.3. Subordination of 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 Common Securities then
Outstanding and the Capital Securities then Outstanding based on the Liquidation
Amounts of the Common Securities then Outstanding and the Capital Securities
then Outstanding; provided, however, that if (i) a Debenture Event of Default
shall have occurred and be continuing as a result of any failure by the
Depositor to pay any amounts in respect of the Debentures when due, or (ii) the
Trust is dissolved or liquidated and (A) funds available to the Trust are
insufficient to pay in full the Liquidation Distribution payable on all
Outstanding Trust Securities or, (B) a Like Amount of Debentures are distributed
to Securityholders upon such dissolution or liquidation in accordance with
Article IX herein and the Holders of Capital Securities do not receive the full
amount of Debentures to which they are entitled, then no payment of any
Distribution (including Additional Amounts, if applicable) on, or applicable
Redemption Price of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless (1) payment in full in cash of all accumulated and unpaid Distributions
(including Additional
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Amounts, if applicable) on all Outstanding Capital Securities for all
Distribution periods terminating on or prior thereto, and in the case of payment
of the applicable Redemption Price, the full payment in cash of such Redemption
Price on all Outstanding Capital Securities then called for redemption, shall
have been made or provided for, or (2) the Trust is dissolved or liquidated and
the aggregate Liquidation Amount on all Capital Securities then Outstanding,
plus accumulated and unpaid Distributions thereon shall have been made or
provided for in cash or, in the event a Like Amount of Debentures are
distributed to Holders of Capital Securities upon such liquidation or
dissolution in accordance with Article IX herein, the distribution to each
Holder of Capital Securities of such Like Amount of Debentures to which such
holder is entitled shall have been made or duly provided for.
(b) All funds available to the Property Trustee shall first be applied to
the payment in full in cash of all Distributions on, or the Redemption Price or
Liquidation Amount (plus accumulated and unpaid Distributions) of, Capital
Securities then due and payable (including Additional Amounts, if applicable)
or, in the event a Like Amount of Debentures are distributed to Securityholders
upon dissolution or liquidation of the Trust, the Debentures available to the
Property Trustee shall first be distributed to Holders of Capital Securities.
(c) In the case of the occurrence of any Event of Default resulting from
any Debenture Event of Default, the Holder of 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 Capital Securities have been cured, waived or otherwise eliminated. Until
all such Events of Default under this Trust Agreement with respect to the
Capital Securities have been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the Holders of the Capital
Securities and not on behalf of the Holder of the Common Securities, and only
the Holders of the Capital Securities will have the right to direct the Property
Trustee to act on their behalf.
Section 4.4. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Capital Securities shall be made at the Property Trustee's option
either by wire transfer or check mailed to the address of the Person entitled
thereto as such address shall appear on the Securities Register or, if the
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 and Redemption Dates. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the 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 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
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Internal Revenue Service form required to be provided on such form. The
Administrative Trustees shall provide the Depositor and the Property Trustee
with a copy of all such returns and reports promptly after such filing or
furnishing. The Trustees shall comply with United States federal withholding and
backup withholding tax laws and information reporting requirements with respect
to any payments to Securityholders under the Trust Securities.
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust.
Upon receipt under the Debentures of Additional Sums, the Property Trustee
shall promptly pay any taxes, duties or governmental charges of whatsoever
nature (other than withholding taxes) imposed on the Trust by the United States
or any other taxing authority.
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Capital Securities shall be
reduced by the amount of any corresponding payment that such Holder (and any
Owner with respect thereto) has directly received pursuant to Section 5.8 of the
Indenture or Section 5.14 of this Trust Agreement.
ARTICLE V.
TRUST SECURITIES CERTIFICATES
Section 5.1. Initial Ownership.
Upon the formation 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.
Section 5.2. The Trust Securities Certificates.
The Capital Securities Certificates shall be issued in minimum
denominations of $25 Liquidation Amount and integral multiples of $25 in excess
thereof, and the Common Securities Certificates shall be issued in denominations
of $25 Liquidation Amount and integral multiples thereof. The Trust Securities
Certificates shall be executed on behalf of the Trust by manual signature of at
least one Administrative Trustee. Trust Securities 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, 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 Securities Certificates or did
not hold such offices at the date of delivery of such Trust Securities
Certificates. A transferee of a Trust Securities 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
Securities Certificate in such transferee's name pursuant to Sections 5.4, 5.11
or 5.13.
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Section 5.3. Execution and Delivery of Trust Securities Certificates.
On the Closing Date, the Administrative Trustees shall cause Trust
Securities Certificates, in an aggregate Liquidation Amount as provided in
Section 2.4, to be executed on behalf of the Trust and delivered to or upon the
written order of the Depositor, signed by its chief executive officer, its
president, any executive vice president or any vice president, treasurer or
assistant treasurer or controller without further corporate action by the
Depositor, in authorized denominations.
Section 5.4. Registration of Transfer and Exchange of Capital Securities
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 Securities Certificates and transfers and exchanges of Capital
Securities Certificates (the "Securities Register") in which, the registrar
designated by the Depositor (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Capital Securities Certificates and Common Securities Certificates (subject
to Section 5.10 in the case of the Common Securities Certificates) and
registration of transfers and exchanges of Capital Securities Certificates as
herein provided. The Property Trustee shall be the initial Securities Registrar.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.8, the
Administrative Trustees or any one of them shall execute and deliver, in the
name of the designated transferee or transferees, one or more new Capital
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee or
Trustees.
The Securities Registrar shall not be required to register the transfer of
any Capital Securities that have been called for redemption. At the option of a
Holder, Capital Securities Certificates may be exchanged for other Capital
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.8.
Every Capital Securities 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 Capital Securities Certificate surrendered for registration of
transfer or exchange shall be canceled and subsequently disposed of by an
Administrative Trustee in accordance with such Person's customary practice. The
Trust shall not be required to (i) issue, register the transfer of, or exchange
any Capital Securities during a period beginning at the opening of business 15
calendar days before the date of mailing of a notice of redemption of any
Capital Securities called for redemption and ending at the close business on the
day of such mailing or (ii) register the transfer of or exchange any Capital
Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Capital Securities being redeemed in part.
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No service charge shall be made for any registration of transfer or
exchange of Capital Securities 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 Capital Securities
Certificates.
Section 5.5. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities 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 Securities
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
Securities Certificate shall have been acquired by a bona fide purchaser, the
Administrative Trustees, or any one of them, on behalf of the Trust shall
execute and make available for delivery, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust
Securities Certificate of like class, tenor and denomination. In connection with
the issuance of any new Trust Securities 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 Securities Certificate issued
pursuant to this Section shall constitute conclusive evidence of an undivided
beneficial interest in the assets of the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Trust Securities 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 Securities Certificate shall be registered in the Securities
Register as the owner of such Trust Securities Certificate for the purpose of
receiving Distributions and for all other purposes whatsoever, and neither the
Trustees nor the Securities Registrar shall be bound by any notice to the
contrary.
Section 5.7. Access to List of Securityholders' Names and Addresses.
At any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee (a) semi-annually on or before January 1
and July 1 in each year, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Securityholders as of the
most recent Record Date and (b) promptly after receipt by any Administrative
Trustee or the Depositor of a request therefor from the Property Trustee, such
other information as the Property Trustee may reasonably require in order to
enable the Property Trustee to discharge its obligations under this Trust
Agreement, 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 Trust Agreement or under the Trust Securities, and the corresponding rights
of the Trustee shall be as provided in the Trust Indenture Act. Each
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Securityholder, 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.
Section 5.8. Maintenance of Office or Agency.
The Administrative Trustees shall maintain an office or offices or agency
or agencies where Capital Securities 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 Securities Certificates may be served. The
Administrative Trustees initially designate the principal corporate trust office
of the Property Trustee, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, as
the principal corporate trust office for such purposes. The Administrative
Trustees shall give prompt written notice to the Depositor and to the
Securityholders of any change in the location of the Securities Register or any
such office or agency. If Definitive Capital Securities Certificates are issued
to Owners pursuant to Section 5.13, so long as the Capital Securities remain
Outstanding in such form, the Depositor will at all times maintain an office or
offices or agency or agencies where Capital Securities 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 Securities Certificates
may be served in the Borough of Manhattan, City of New York.
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 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 removal of a
Paying Agent such Paying Agent shall also return all funds in its possession to
the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall
apply to the Property Trustee also in its role as Paying
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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. Any reference
in this Trust Agreement to the Paying Agent shall include any co-paying agent
unless the context requires otherwise. If Definitive Capital Securities are
issued to Owners pursuant to section 5.13, so long as the Capital Securities
remain Outstanding in such form, the Depositor will at all times maintain a
Paying Agent for the Capital Securities in the Borough of Manhattan, City of New
York.
Section 5.10. Ownership of Common Securities by Depositor.
At the Closing Date, the Depositor shall acquire and retain beneficial and
record ownership of the 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
Common Securities shall be void. The Administrative Trustees shall cause each
Common Securities Certificate issued to the Depositor to contain a legend
stating "THIS CERTIFICATE IS NOT TRANSFERABLE".
Section 5.11. Book-Entry Capital Securities Certificates; Common Securities
Certificate.
(a) The Capital Securities Certificates, upon original issuance, will be
issued in the form of a typewritten Capital Securities Certificate or
Certificates representing Book-Entry Capital Securities Certificates, to be
delivered to The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Trust. Such Capital Securities 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 Capital Securities Certificate representing such Owner's interest in
such Capital Securities, except as provided in Section 5.13. Unless and until
Definitive Capital Securities 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, the Paying Agent and the Trustees shall
be entitled to deal with the Clearing Agency for all purposes of this Trust
Agreement relating to the Book-Entry Capital Securities Certificates
(including the payment of the Liquidation Amount of and Distributions on
the Capital Securities evidenced by Book-Entry Capital Securities
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 Capital Securities
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
Capital Securities 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
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payments on the Capital Securities to such Clearing Agency Participants. Any
Clearing Agency designated pursuant hereto will not be deemed an agent of the
Trustee for any purpose.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities 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 Capital
Securities 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 Capital Securities Certificates.
If (a) the Clearing Agency (A) has notified the Depositor that it is
unwilling or unable to continue as Clearing Agency with respect to the
Book-Entry Capital Securities Certificates or (B) has ceased to be a clearing
agency registered under the Exchange Act at a time when the Clearing Agency is
required by applicable law or regulation to be so registered to act as a
clearing agency and in each case the Depositor has not appointed a successor
clearing agency within 90 days of such notification or the Depositor becoming
aware of the Clearing Agency ceasing to be so registered, or (b) the Depositor
in its sole discretion determines that such Capital Securities Certificates will
be so exchangeable or transferable, then the Property Trustee shall notify the
Clearing Agency and the Clearing Agency shall notify all Owners of Book-Entry
Capital Securities Certificates and the other Trustees of the occurrence of any
such event and of the availability of the Definitive Capital Securities
Certificates to Owners of such class or classes, as applicable. Upon surrender
to the Property Trustee of the typewritten Capital Securities Certificate or
Certificates representing the Book Entry Capital Securities Certificates by the
Clearing Agency, accompanied by registration instructions, the Administrative
Trustees, or any one of them, shall execute the Definitive Capital Securities
Certificates in accordance with the instructions of the Clearing Agency. 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
Capital Securities Certificates, the Trustees shall recognize the Holders of the
Definitive Capital Securities Certificates as Securityholders. The Definitive
Capital Securities Certificates shall be engraved and executed in accordance
with the applicable rules of the Nasdaq National Market, the New York Stock
Exchange or such other national exchange or over-the-counter market on which the
Capital Securities are then listed for trading.
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
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Securities shall be personal property giving only the rights specifically set
forth therein and in this Trust Agreement. The Trust Securities shall have no
preemptive or similar rights and when issued and delivered to Securityholders
against payment of the purchase price therefor will be fully paid and
nonassessable by the Trust. The Holders of the Trust 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 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 Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the 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 Debentures shall become immediately due
and payable, provided that the payment of principal and interest on such
Debentures shall remain subordinated to the extent provided in the Indenture.
At any time after such a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as in the Indenture
provided, the Holders of a majority in Liquidation Amount of the Capital
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(A) all overdue installments of interest (including any
Additional Interest (as defined in the Indenture)) on all of the
Debentures,
(B) the principal of (and premium, if any, on) any Debentures
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the 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 Debentures, other than
the non-payment of the principal of the Debentures which has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of a majority in aggregate Liquidation Amount of the Capital
Securities may, on behalf of the Holders of all the Capital Securities, waive
any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured or waived and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended
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without the consent of the holder of each outstanding Debenture. No such
rescission or waiver 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 Capital
Securities all or part of which is represented by Book-Entry Capital Securities
Certificates, a record date shall be established for determining Holders of
Outstanding 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 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 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(a)
or 5.1(b) of the Indenture, any Holder of 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 Debentures having a principal amount equal to
the Liquidation Amount of the 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 Capital Securities shall have no right to exercise directly any right
or remedy available to the holders of, or in respect of, the Debentures.
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 10.2 and
in the Indenture and as otherwise required by law, no Holder of 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 Securities 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 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 execute any
trust or power conferred on the Debenture Trustee or the
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Property Trustee with respect to such Debentures, (ii) waive any past default
which is waivable under Section 5.13 of the Indenture, (iii) exercise any right
to rescind or annul a declaration that the principal of and interest on all the
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the Holders of at least a majority in Liquidation Amount of all Outstanding
Capital Securities, provided, however, that where a consent under the Indenture
would require the consent of each Holder of Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior written consent
of each Holder of Capital Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the Holders of Capital
Securities, except by a subsequent vote of the Holders of Capital Securities.
The Property Trustee shall notify all Holders of the Capital Securities of any
notice of default received from the Debenture Trustee with respect to the
Debentures. In addition to obtaining the foregoing approvals of the Holders of
the Capital Securities, prior to taking any of the foregoing actions, the
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 on account of that action.
(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 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
Capital Securities as a class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of the Holders of at least a majority in Liquidation Amount of the
Outstanding Capital Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Trust to fail to be classified as a
grantor trust for United States federal income tax purposes.
Section 6.2. Notice of Meetings.
Notice of all meetings of the Capital Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.9 to each Capital Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
Section 6.3. Meetings of Capital Securityholders.
No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Capital
Securityholders to vote on any matter upon the written request of Holders of
record of 25% of the Outstanding Capital Securities (based upon their
Liquidation Amount) and the Administrative Trustees or the Property Trustee may,
at any time in their discretion, call a meeting of Capital Securityholders to
vote on any matters as to which Capital Securityholders are entitled to vote.
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Holders of record of 50% of the Outstanding Capital Securities (based upon
their Liquidation Amount), present in person or by proxy, shall constitute a
quorum at any meeting of Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding more than a
majority of the Capital Securities (based upon their Liquidation Amount) held by
the Capital Securityholders of record present, either in person or by proxy, at
such meeting shall constitute the action of the Capital Securityholders, unless
this Trust Agreement requires a greater number of affirmative votes.
Section 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each $25 of Liquidation
Amount represented by their Trust Securities in respect of any matter as to
which such Securityholders are entitled to vote.
Section 6.5. Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of the Property Trustee, proxies may be solicited in
the name of the Property Trustee or one or more officers of the Property
Trustee. Only Securityholders of record shall be entitled to vote. When Trust
Securities are held jointly by several Persons, any one of them may vote at any
meeting in person or by proxy in respect of such Trust Securities, but if more
than one of them shall be present at such meeting in person or by proxy, and
such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Trust Securities. A
proxy purporting to be executed by or on behalf of a Securityholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger. No proxy shall be valid more
than three years after its date of execution.
Section 6.6. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding a majority of all Outstanding Trust
Securities (based upon their aggregate Liquidation Amount) entitled to vote in
respect of such action (or such larger proportion thereof as shall be required
by any express provision of this Trust Agreement) shall consent to the action in
writing (based upon their aggregate Liquidation Amount).
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
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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 Capital Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to take
any action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrative Trustees or among such Securityholders or Trustees with respect
to the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Securityholder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
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A Securityholder 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 (as defined
in the Guarantee), the Trust or any Person.
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 Bank.
The Bank hereby represents and warrants for the benefit of the Depositor
and the Securityholders that:
(a) the Bank is a Delaware banking corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) the Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and delivered
by the Bank and, assuming due authorization, execution and delivery by the other
parties thereto, constitutes the valid and legally binding agreement of the Bank
enforceable against it 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;
(d) 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 Bank and does not require any approval of stockholders of the Bank and such
execution, delivery and performance will not (i) violate the charter or bylaws
of the Bank, (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 Bank is a party or by
which it is bound, or (iii) violate any law, governmental rule or regulation of
the United States governing the banking or trust powers of the Bank or of the
State of Delaware or any order, judgment or decree applicable to the Bank;
(e) neither the authorization, execution or delivery by the Bank 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
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respect to any governmental authority or agency under any existing federal law
governing the banking, or trust powers of the Bank, as the case may be, under
the laws of the United States or the State of Delaware;
(f) there are no proceedings pending or, to the best the Bank'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 Bank 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 Securities 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 each such date, entitled to the benefits
of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Bank, the Property Trustee or the Delaware
Trustee, as the case may be, of Bank, this Trust Agreement.
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, unless
they are afforded reasonable indemnity against such risk or liability. 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. No
Administrative Trustee or the Delaware Trustee shall be subject to any liability
under this Trust Agreement except for its own grossly negligent action, its own
grossly 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
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equity, are agreed by the Depositor and the Securityholders to replace such
other duties and liabilities of the Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Securityholder,
by its acceptance of a Trust Security, agrees that it will look solely to the
revenue and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 8.1(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of judgment
made in good faith by an authorized officer of the Property Trustee, unless
it shall be proved that the Property Trustee was negligent in ascertaining
the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of the Trust Securities given in accordance
with this Trust Agreement 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 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 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.
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Section 8.2. Certain Notices.
(a) Within five Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit, in the manner and to the extent provided in Section
10.9, notice of such Event of Default to the Securityholders, the Administrative
Trustees and the Depositor, unless the Event of Default shall have been cured or
waived. For purposes of this Section the term "Event of Default" means any event
that is, or after notice or lapse of time or both would become, and Event of
Default.
(b) The Administrative Trustees shall transmit to the Securityholders, in
the manner and to the extent provided in Section 10.9, notice of the Depositor's
election to begin or further extend an Extension Period on the Debentures
(unless such election shall have been revoked) within the time specified for
transmitting such notice to the holders of the Debentures pursuant to the
Indenture as originally executed.
Section 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, so long as no Event of Default has
occurred and is continuing, and except as to any matter as to which the Capital
Securityholders are entitled to vote under the terms of this Trust Agreement,
the Property Trustee shall deliver a notice to the Depositor requesting written
instructions of the Depositor as to the course of action to be taken and the
Property Trustee shall take such action, or refrain from taking such action, as
the Property Trustee shall be instructed in writing to take, or to refrain from
taking, by the Depositor; provided, however, that if the Property Trustee does
not receive such instructions of the Depositor within ten Business Days after it
has delivered such notice, or such reasonably shorter period of time set forth
in such notice (which to the extent practicable shall not be less than two
Business Days), it may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the best interests of the Securityholders, in which event the
Property Trustee shall have no liability except for its own bad faith,
negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
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(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officers' Certificate which, upon receipt of
such request, shall be promptly delivered by the Depositor or the Administrative
Trustees;
(e) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement or any filing under tax or securities laws) or any rerecording,
refiling or registration thereof;
(f) the Property Trustee may consult with counsel and the advice of such
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, such counsel may be counsel
to the Depositor or any of its Affiliates, but not an employee thereof; the
Property Trustee shall have the right at any time to seek instructions
concerning the administration of this Trust Agreement from any court of
competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys, provided that the Property Trustee shall be responsible for its own
negligence or recklessness with respect to selection of any agent or attorney
appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which 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 instructions are received, and (iii) shall
be protected in acting in accordance with such instructions; and
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(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
Section 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
Section 8.5. May Hold Securities.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, except as provided in the definition of the term "Outstanding"
in Article I and subject to Sections 8.8 and 8.13, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
Section 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation for
all services rendered by them hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust) as specified in a separate agreement between any of the Trustees and the
Depositor;
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence, bad faith or willfulness;
and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any
Trustee, and (iv) any employee or agent of the Trust or its Affiliates,
(referred to herein as an "Indemnified Person") from and against any loss,
damage, liability, tax, penalty, expense or claim of any kind or nature
whatsoever incurred by such Indemnified Person by reason of the creation,
operation or dissolution of the Trust or any act or
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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 gross negligence (or ordinary negligence in the case of the Property
Trustee), bad faith or willful misconduct with respect to such acts or
omissions.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement.
No Trustee may claim any lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.6.
The Depositor and any Trustee may (subject to Section 8.8) 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
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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.
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 Holder of the Common Securities 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 Holder of the Common Securities 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 an 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
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such co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to the extent
that under any law of any jurisdiction in which any particular act is to be
performed, the Property Trustee shall be incompetent or unqualified to perform
such act, in which event such rights, powers, duties and obligations shall be
exercised and performed by such co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee or separate trustee appointed under this Section,
and, in case a Debenture Event of Default has occurred and is continuing, the
Property Trustee shall have power to accept the resignation of, or remove, any
such co-trustee or separate trustee without the concurrence of the Depositor.
Upon the written request of the Property Trustee, the Depositor shall join with
the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Trustee (the "Relevant Trustee") and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee had been
made 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 Common
Securityholder. 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 an Event of Default shall have occurred and be continuing, any
Trustee may be removed at any time by Act of the Common Securityholder. If an
Event of Default shall have occurred and be continuing, the Property Trustee or
the Delaware Trustee, or both of them, may be removed at such time by Act of the
Holders of a majority in Liquidation Amount of the Capital Securities, delivered
to the Relevant Trustee (in its individual capacity and on behalf of the Trust).
In no event will the Holders of the Capital Securities have the right to vote to
appoint, remove or replace the Administrative Trustees. An Administrative
Trustee may be removed by the Common Securityholder at any time.
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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 Common Securityholder, by Act of the 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 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 Common Securityholder by Act of the 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 Common Securityholder or the Capital Securityholders and accepted
appointment in the manner required by Section 8.11, any Securityholder who has
been a Securityholder of Trust Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Relevant Trustee.
The Property Trustee shall give notice of each resignation and each removal
of a Trustee and each appointment of a successor Trustee to all Securityholders
in the manner provided in Section 10.9 and shall give notice to the Depositor.
Each notice shall include the name of the successor Relevant Trustee and the
address of its Corporate Trust Office if it is the Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of the remaining Administrative Trustees
if there are at least two of them or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees or Delaware Trustee, as the case may be, set forth
in Section 8.7).
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
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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 request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held by such retiring
Relevant Trustee hereunder with respect to the Trust Securities and the Trust.
Upon 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 first or second preceding paragraph, as the case may be.
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.
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,
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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) Not later than March 31 of each year commencing with the year
commencing January 1, 2000, the Property Trustee shall transmit to all
Securityholders in accordance with Section 10.9, and to the Depositor, a brief
report dated as of the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect;
(ii) a statement that the Property Trustee has complied with all of
its obligations under this Trust Agreement during the twelve-month period
(or, in the case of the initial report, the period since the Closing Date)
ending with such December 31 or, if the Property Trustee has not complied
in any material respect with such obligations, a description of such
noncompliance; and
(iii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by
the Property Trustee in the performance of its duties hereunder which it
has not previously reported and which in its opinion materially affects the
Trust Securities.
(b) In addition 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.
(c) 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
New York Stock Exchange or such other national exchange or such other
interdealer quotation system or self-regulatory organization upon which the
Trust Securities are listed or traded, with the Commission and with the
Depositor.
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
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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.
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 five (5) provided that the Holder of
all of the 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.
Section 8.18. Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
2.7(a), including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from time to
time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Administrative Trustees or otherwise as the Administrative Trustees may
deem expedient, to the extent such delegation is not prohibited by applicable
law or contrary to the provisions of this Trust Agreement, as set forth herein.
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Section 8.19. Voting.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by not
less than a majority of the Administrative Trustees, unless there are only two,
in which case both must consent.
ARTICLE IX.
DISSOLUTION, LIQUIDATION AND MERGER
Section 9.1. Dissolution Upon Expiration Date.
Unless dissolved earlier, the Trust shall automatically dissolve on
September 15, 2029 (the "Expiration Date"), following the distribution of the
Trust Property in accordance with Section 9.4.
Section 9.2. Early Dissolution.
The first to occur of any of the following events is an "Early Dissolution
Event," upon the occurrence of which the Trust shall dissolve:
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Depositor (or any other Holder of the Common Securities);
(b) the written direction to the Property Trustee from the Depositor at any
time before the 30th day before the Stated Maturity to dissolve the Trust and
distribute Debentures to Securityholders in exchange for a Like Amount of the
Capital Securities (which direction is subject to the Depositor's having
received (i) all required regulatory approvals and (ii) an Opinion of Counsel
experienced in the following matters to the effect that such dissolution and
distribution will not cause the Holders to recognize income, gain or loss for
United States federal income tax purposes and will be subject to federal income
tax with respect to the Debentures on the same amounts, in the same manner and
at the same times as would have been the case if the Holders had remained
Securityholders);
(c) the redemption of all of the Capital Securities in connection with the
redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Trust or the Depositor (or
any other Holder of the Common Securities) by a court of competent jurisdiction.
Section 9.3. Dissolution.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall dissolve upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of
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the Administrative Trustees, including the performance of any tax reporting
obligations with respect to the Trust or the Securityholders, and (d) the filing
of a Certificate of Cancellation by the Administrative Trustee under the
Business Trust Act.
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 Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 9.4(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register. All notices of
liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for certificates
representing the Like Amount of the 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 Debentures to Securityholders,
the Administrative Trustees 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 Debentures in exchange for the Outstanding Trust
Securities 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 Debentures will be issued to holders
of Trust Securities 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 Debentures listed on the New York Stock
Exchange or on such other exchange, interdealer quotation system or
self-regulatory organization on which the Capital Securities are then listed,
(iv) any Trust Securities Certificates not so surrendered for exchange will be
deemed to represent a Like Amount of Debentures, accruing interest at the rate
provided for in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered and (v) all rights of Securityholders holding
Trust Securities will cease, except the right of such Securityholders to receive
a Like Amount of Debentures upon surrender of Trust Securities Certificates and
to receive accrued and unpaid interest on such Debentures.
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(d) In the event that, notwithstanding the other provisions of this Section
9.4, whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the 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 manner as the Property Trustee determines. In such
event, on the date of the dissolution of the Trust, Securityholders will be
entitled to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount due and payable upon liquidation of the Trust, whether
payable in cash or out of the assets of the Trust 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 Common Securities will be entitled to receive Liquidation
Distributions upon any such winding-up or termination pro rata (determined as
aforesaid) with Holders of Capital Securities, except that, if a Debenture Event
of Default has occurred and is continuing as a result of any failure by the
Depositor to pay any amounts due in respect of the Debentures when due or if
funds available to the Trust are insufficient to pay in full the Liquidation
Distribution payable on all Outstanding Capital Securities, Holders of the
Capital Securities shall have a priority over the Holders of Common Securities.
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the
Trust.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any corporation or other Person,
except pursuant to this Section 9.5 or Section 9.4. At the request of the
Depositor, with the consent of the Administrative Trustees and without the
consent of the Holders of the 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 as an
entirety or substantially as an entirety to a trust organized as such under the
laws of any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Trust with respect to the Trust Securities
or (b) substitutes for the Trust Securities other securities having
substantially the same terms as the Common Securities (the "Successor Common
Securities") and the Capital Securities (the "Successor Capital Securities") so
long as the Successor Common Securities are subordinated in right of payment to
the Successor Capital Securities to the same extent and in the same manner as
the Common Securities are subordinated in right of payment to the Capital
Securities, (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 Debentures, (iii) the Successor Capital Securities are listed or
traded, or any Successor Capital Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which the
Capital Securities are then listed or traded, if any, (iv) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Capital Securities) to be
downgraded by any nationally recognized statistical rating organization which
gives ratings to the Capital Securities (including any Successor Capital
Securities),
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(v) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Capital 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, experienced in the following matters to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Capital Securities (including any Successor
Capital 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 or will be classified as other than a
grantor trust for United States federal income tax purposes and (viii) the
Depositor or the successor entity owns all of the Successor Common Securities of
such successor entity and guarantees the obligations of such successor entity
under the Successor Capital Securities at least to the extent provided by the
Guarantee and under the Successor Common Securities at least to the extent
provided by the Common Securities Guarantee. Notwithstanding the foregoing, the
Trust shall not, except with the consent of holders of 100% in Liquidation
Amount of the Outstanding Capital Securities, consolidate, amalgamate, merge
with or into, or be replaced by or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any other Person or
permit any other Person to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the Trust or the successor entity 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 or incapacity 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. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee, the Administrative Trustees and the Depositor, without the consent of
any Securityholders, (i) to cure any ambiguity, correct or supplement any
provision herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Trust Agreement, which shall not be inconsistent with the other provisions
of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Trust will be classified for United States federal income tax purposes as a
grantor trust at all
48
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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), 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 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Administrative Trustees and the Property
Trustee with (i) the consent of Securityholders representing not less than a
majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel,
experienced in the following matters to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with the terms of
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 registration as
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 the amount or timing of any payment of
the Redemption Price of, or the amount or timing of any payment or distribution
of funds or property (including Debentures) payable or distributable upon
liquidation or dissolution of the Trust or otherwise adversely affect the amount
or change the time of any Distribution required to be made in respect of the
Trust Securities or the amount of funds or property (including Debentures)
required to be paid or distributed in respect of the Trust Securities, or (ii)
restrict the right of a Securityholder to institute suit for the enforcement of
any of the foregoing payments on or after the date it is due; 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 10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Administrative Trustee shall enter into or consent to any amendment to this
Trust Agreement which would (i) cause the Trust to fail or cease to qualify for
the exemption from status of an investment company under the 1940 Act, (ii)
cause the Trust to fail or cease to be classified as a grantor trust for United
States federal income tax purposes, or (iii) cause the Capital Securities to be
delisted by the New York Stock Exchange or such other national exchange or
over-the-counter market on which the Capital Securities are then listed for
trading.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Delaware Trustee or the Depositor, as the case may
be, this Trust Agreement may not be amended in a manner which imposes any
additional obligation on the Depositor or the Delaware Trustee.
(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.
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(g) Neither the Property Trustee nor the Delaware Trustee shall be required
to enter into any amendment to this Trust Agreement which affects its own
rights, duties or immunities under this Trust Agreement. The Property Trustee
shall be entitled to receive an Opinion of Counsel and an Officers' Certificate
stating that any amendment to this Trust Agreement is in compliance with this
Trust Agreement.
Section 10.3. Counterparts.
This Trust Agreement may be executed in one or more counterparts, each of
which shall be an original and all of which shall constitute one and the same
instrument.
Section 10.4. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.5. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES).
Section 10.6. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day that is a Business Day, 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.
50
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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 Common
Securityholder or the Depositor, to Downey Financial Corp., 3501 Jamboree Road,
North Tower, Newport Beach, California 92660 Attention: Donald E. Royer,
facsimile number: (949) 725-0619. 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
19890-0001; (b) with respect to the Delaware Trustee, to Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001, 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 Downey Financial Capital
Trust I." 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 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 Trustee or the Trust may assert. The provisions of this Section
10.10 shall survive the termination of this Trust Agreement.
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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 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 to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required 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 Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 10.12. Acceptance of Terms of Trust Agreement, 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 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.
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IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Trust Agreement this 23rd day of July, 1999.
DOWNEY FINANCIAL CORP. DOWNEY FINANCIAL CAPITAL TRUST I
By: /s/ Daniel D. Rosenthal /s/ Paul G. Woollatt
----------------------- -----------------------
Daniel D. Rosenthal Paul G. Woollatt,
President & Chief Executive Officer as Administrative Trustee
WILMINGTON TRUST COMPANY,
As Property Trustee /s/ Daniel D. Rosenthal
-----------------------
Daniel D. Rosenthal,
as Administrative Trustee
By: /s/ Patricia A. Evans
----------------------
Name: Patricia A. Evans
Title: Financial Services Officer
/s/ Thomas E. Prince
-----------------------
Thomas E. Prince,
as Administrative Trustee
WILMINGTON TRUST COMPANY,
As Delaware Trustee
By: /s/ Patricia A. Evans
----------------------
Name: Patricia A. Evans
Title: Financial Services Officer
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EXHIBIT A
CERTIFICATE OF TRUST
OF
DOWNEY FINANCIAL CAPITAL TRUST I
THIS CERTIFICATE OF TRUST of DOWNEY FINANCIAL CAPITAL I (the "Trust"),
dated May 25, 1999, is being duly executed and filed by the undersigned, as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. (ss.) 3801 et seq.).
1. Name. The name of the business trust being formed hereby is DOWNEY
FINANCIAL CAPITAL TRUST I.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware are Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon its
filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust,
have executed this Certificate of Trust as of the date first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ W. Chris Sponeberg
-------------------------
W. Chris Sponeberg
Assistant Vice President
/s/ Daniel D. Rosenthal
----------------------------
Daniel D. Rosenthal
Administrative Trustee
/s/ Thomas E. Prince
----------------------------
Thomas E. Prince
Administrative Trustee
/s/ Paul G. Woollatt
----------------------------
Paul G. Woollatt
Administrative Trustee
A-1
<PAGE>
EXHIBIT B
The Depository Trust Company,
55 Water Street, 49th Floor,
New York, New York 10041-0099
__________, 1999
Attention: _______________
General Counsel's Office
Re: DOWNEY FINANCIAL CAPITAL TRUST I 10% Capital Securities
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 DOWNEY
FINANCIAL CAPITAL TRUST I 10% Capital Securities, (the "Capital Securities"), of
DOWNEY FINANCIAL CAPITAL TRUST I, a Delaware business trust (the "Issuer"),
formed pursuant to an Amended and Restated Trust Agreement between Downey
Financial Corp. ("Downey") and Wilmington Trust Company, as Property Trustee,
Wilmington Trust Company, as Delaware Trustee, and the Administrative Trustees
named therein. The payment of distributions on the Capital Securities, and
payments due upon liquidation of the Issuer or redemption of the Capital
Securities, to the extent the Issuer has funds available for the payment thereof
are guaranteed by Downey to the extent set forth in a Capital Securities
Guarantee Agreement dated July 23, 1999 by Downey with respect to the Capital
Securities. Downey and the Issuer propose to sell the Capital Securities to
certain Underwriters (the "Underwriters") pursuant to an Underwriting Agreement
dated July 16, 1999 by and among the Underwriters, the Issuer and Downey , and
the Underwriters wish to take delivery of the Capital Securities through DTC.
Wilmington Trust Company is acting as transfer agent and registrar with respect
to the Capital Securities (the "Transfer Agent and Registrar").
To induce DTC to accept the Trust Preferred Securities as eligible for
deposit at DTC, and to act in accordance with DTC's rules with respect to the
Capital Securities, the Issuer, the Transfer Agent and Registrar and DTC agree
among each other as follows:
1. Prior to the closing of the sale of the Capital Securities to the
Underwriters, which is expected to occur on or about July 23, 1999, there
shall be deposited with DTC one or more global certificates (individually
and collectively, the "Global Certificate") registered in the name of DTC's
Capital Securities nominee, Cede & Co., representing an aggregate of
4,800,000 Capital Securities and bearing the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange, or payment, and any
certificate issued is registered in
B-1
<PAGE>
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. The Amended and Restated Trust Agreement of the Issuer provides for
the voting by holders of the Capital Securities under certain limited
circumstances. The Issuer shall establish a record date for such purposes
and shall, to the extent possible, give DTC notice of such record date not
less than 15 calendar days in advance of such record date.
3. In the event of a stock split, conversion, recapitalization,
reorganization or any other similar transaction resulting in the
cancellation of all or any part of the Capital Securities outstanding, the
Issuer or the Transfer Agent and Registrar shall send DTC a notice of such
event at least 5 business days prior to the effective date of such event.
4. In the event of distribution on, or an offering or issuance of
rights with respect to, the Capital Securities outstanding, the Issuer or
the Transfer Agent and Registrar shall send DTC a notice specifying: (a)
the amount of and conditions, if any, applicable to the payment of any such
distribution or any such offering or issuance of rights; (b) any applicable
expiration or deadline date, or any date by which any action on the part of
the holders of Capital Securities is required; and (c) the date any
required notice is to be mailed by or on behalf of the Issuer to holders of
Capital Securities or published by or on behalf of the Issuer (whether by
mail or publication, the "Publication Date"). Such notice shall be sent to
DTC by a 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 the Publication Date. The Issuer or the Transfer Agent
and Registrar will forward such notice either in a separate secure
transmission for each CUSIP number or in a secure transmission of multiple
CUSIP numbers (if applicable) that 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
calendar days nor more than 60 calendar days prior to the payment of any
such distribution or any such offering or issuance of rights with respect
to the Capital Securities. After establishing the amount of payment to be
made on the Capital Securities, the Issuer or the Transfer Agent and
Registrar will notify DTC's Dividend Department of such payment 5 business
days prior to payment date. Notices to DTC's Dividend Department by
telecopy shall be sent to (212) 709-1723. Such notices by mail or by any
other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
B-2
<PAGE>
The Issuer or the Transfer Agent and Registrar shall confirm DTC's
receipt of such telecopy by telephoning the Dividend Department at (212)
709-1270.
5. In the event of a redemption by the Issuer of the Capital
Securities, notice specifying the terms of the redemption and the
Publication Date of such notice shall be sent by the Issuer or the Transfer
Agent and Registrar to DTC not less than 30 calendar days prior to such
event by a secure means in the manner set forth in paragraph 4. Such
redemption notice shall be sent to DTC's Call Notification Department at
(516) 227-4164 or (516) 227-4190, and receipt of such notice shall be
confirmed by telephoning (516) 227-4070. Notice by mail or by any other
means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719
6. In the event of any invitation to tender the Capital Securities,
notice specifying the terms of the tender and the Publication Date of such
notice shall be sent by the Issuer or the Transfer Agent and Registrar to
DTC by a secure means and in a timely manner as described in paragraph 4.
Notices to DTC pursuant to this paragraph and notices of other corporate
actions (including mandatory tenders, exchanges and capital changes) shall
be sent, unless notification to another department is expressly provided
for herein, by telecopy to DTC's Reorganization Department at (212)
709-1093 or (212) 709-1094 and receipt of such notice shall be confirmed by
telephoning (212) 709-6884, or by mail or any other means to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall contain the CUSIP
number or numbers of the Capital Securities and the accompanying
designation of the Capital Securities, which, as of the date of this
letter, is "DOWNEY FINANCIAL CAPITAL TRUST I 10% Capital Securities.
8. Distribution payments or other cash payments with respect to the
Capital Securities evidenced by the Global Certificate shall be received by
Cede & Co., as nominee of DTC, or its registered assigns in next day funds
on each payment date (or in accordance with existing arrangements between
the Issuer or the Transfer Agent and Registrar and DTC). Such payments
shall be made payable to the order of Cede & Co., and shall be addressed as
follows:
NDFS Redemption Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
B-3
<PAGE>
9. DTC may by prior written notice direct the Issuer and the Transfer
Agent and Registrar to use any other telecopy number or address of DTC as
the number or address to which notices or payments may be sent.
10. In the event of a conversion, redemption, or any other similar
transaction (e.g., tender made and accepted in response to the Issuer's or
the Transfer Agent and Registrar's invitation) necessitating a reduction in
the aggregate number of Capital Securities outstanding evidenced by Global
Certificates, DTC, in its discretion: (a) may request the Issuer or the
Transfer Agent and Registrar to issue and countersign a new Global
Certificate; or (b) may make an appropriate notation on the Global
Certificate indicating the date and amount of such reduction.
11. DTC may discontinue its services as a securities depositary with
respect to the Capital Securities at any time by giving at least 90 days'
prior written notice to the Issuer and the Transfer Agent and Registrar (at
which time DTC will confirm with the Issuer or the Transfer Agent and
Registrar the aggregate number of Trust Preferred Securities deposited with
it) and discharging its responsibilities with respect thereto under
applicable law. Under such circumstances, the Issuer may determine to make
alternative arrangements for book-entry settlement for the Capital
Securities, make available one or more separate global certificates
evidencing Capital Securities to any Participant having Capital Securities
credited to its DTC account, or issue definitive Capital Securities to the
beneficial holders thereof, and in any such case, DTC agrees to cooperate
fully with the Issuer and the Transfer Agent and Registrar, and to return
the Global Certificate, duly endorsed for transfer as directed by the
Issuer or the Transfer Agent and Registrar, together with any other
documents of transfer reasonably requested by the Issuer or the Transfer
Agent and Registrar.
12. In the event that the Issuer determines that beneficial owners of
Capital Securities shall be able to obtain definitive Capital Securities,
the Issuer or the Transfer Agent and Registrar shall notify DTC of the
availability of certificates. In such event, the Issuer or the Transfer
Agent and Registrar shall issue, transfer and exchange certificates in
appropriate amounts, as required by DTC and others, and DTC agrees to
cooperate fully with the Issuer and the Transfer Agent and Registrar and to
return the Global Certificate, duly endorsed for transfer as directed by
the Issuer or the Transfer Agent and Registrar, together with any other
documents of transfer reasonably requested by the Issuer or the Transfer
Agent and Registrar.
13. This letter 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 shall together constitute but one and the same instrument.
B-4
<PAGE>
Nothing herein shall be deemed to require the Transfer Agent and
Registrar to advance funds on behalf of DOWNEY FINANCIAL CAPITAL TRUST I.
Very truly yours,
DOWNEY FINANCIAL CAPITAL TRUST I
(as Issuer)
By:________________________________________
Thomas E. Prince, Administrative Trustee
WILMINGTON TRUST COMPANY,
as Trustee, Paying Agent and Registrar
By:________________________________________
Name:
Title:
RECEIVED AND ACCEPTED:
THE DEPOSITORY TRUST COMPANY
By:__________________
Authorized Officer
B-5
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES 148,454
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
DOWNEY FINANCIAL CAPITAL TRUST I
10% COMMON SECURITIES
(LIQUIDATION AMOUNT $25 PER COMMON SECURITY)
DOWNEY FINANCIAL CAPITAL TRUST I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that DOWNEY
FINANCIAL CORP. (the "Holder") is the registered owner of 148,454 common
securities of the Trust representing undivided beneficial interests of the Trust
and designated the 10% Common Securities (liquidation amount $25 per Common
Security) (the "Common Securities"). In accordance with Section 5.10 of the
Trust Agreement (as defined below) the Common Securities are not transferable
and any attempted transfer hereof shall be void. The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities are set forth in, and this certificate and the Common
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 23, 1999, as the same may be amended from time to time
(the "Trust Agreement") including the designation of the terms of the Common
Securities as set forth therein. The Trust will furnish a copy of the Trust
Agreement 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.
IN WITNESS WHEREOF, an Administrative Trustee of the Trust has executed
this certificate this 23rd day of July, 1999.
DOWNEY FINANCIAL CAPITAL
TRUST I
By:________________________________________
Thomas E. Prince, Administrative Trustee
C-1
<PAGE>
EXHIBIT D
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 "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY. THIS
CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME
OF A PERSON OTHER THAN THE DEPOSITORY 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
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR TO A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY (55 WATER STREET, NEW YORK) TO DOWNEY FINANCIAL CAPITAL TRUST I OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL
SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
CERTIFICATE NUMBER S-001 NUMBER OF CAPITAL SECURITIES 4,800,000
CUSIP NO. 261016 20 8
----------
CERTIFICATE EVIDENCING CAPITAL SECURITIES
OF
DOWNEY FINANCIAL CAPITAL TRUST I
10% CAPITAL SECURITIES,
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
DOWNEY FINANCIAL CAPITAL TRUST I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co
(the "Holder") is the registered owner of Four Million Eight Hundred Thousand
(4,800,000) Capital Securities of the Trust representing an undivided beneficial
interest in the assets of the Trust and designated the DOWNEY FINANCIAL CAPITAL
TRUST I 10% Capital Securities (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,
D-1
<PAGE>
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 23, 1999, 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. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
respective meanings given them in the Trust Agreement. The Holder is entitled to
the benefits of the Guarantee Agreement entered into by Downey Financial Corp.,
a California corporation, and Wilmington Trust Company, as guarantee trustee,
dated as of July 23, 1999, (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.
IN WITNESS WHEREOF, an Administrative Trustee of the Trust has executed
this certificate this 23rd day of July, 1999.
DOWNEY FINANCIAL CAPITAL TRUST I
By:________________________________________
Thomas E. Prince, Administrative Trustee
D-2
<PAGE>
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 Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: __________________________________
Signature: _____________________________________________________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
ss.
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
SEC Rule 17Ad-15.
<PAGE>
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER C-1 NUMBER OF COMMON SECURITIES 148,454
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
DOWNEY FINANCIAL CAPITAL TRUST I
10% COMMON SECURITIES
(LIQUIDATION AMOUNT $25 PER COMMON SECURITY)
DOWNEY FINANCIAL CAPITAL TRUST I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that DOWNEY
FINANCIAL CORP. (the "Holder") is the registered owner of One Hundred
Forty-Eight Thousand Four Hundred Fifty Four (148,454) Common Securities of the
Trust representing undivided beneficial interests of the Trust and designated
the 10% Common Securities (liquidation amount $25 per Common Security) (the
"Common Securities"). In accordance with Section 5.10 of the Trust Agreement (as
defined below), the Common Securities are not transferable and any attempted
transfer hereof shall be void. The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Common
Securities are set forth in, and this certificate and the Common 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 23, 1999, as the same may be amended from time to time (the "Trust
Agreement") including the designation of the terms of the Common Securities as
set forth therein. The Trust will furnish a copy of the Trust Agreement 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.
IN WITNESS WHEREOF, an Administrative Trustee of the Trust has executed
this certificate this 23rd day of July, 1999.
DOWNEY FINANCIAL CAPITAL
TRUST I
By: /s/ Thomas E. Prince
----------------------------------------
Thomas E. Prince, Administrative Trustee
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 "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY. THIS
CAPITAL SECURITY IS EXCHANGEABLE FOR CAPITAL SECURITIES REGISTERED IN THE NAME
OF A PERSON OTHER THAN THE DEPOSITORY 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
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR TO A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS CAPITAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY (55 WATER STREET, NEW YORK) TO DOWNEY FINANCIAL CAPITAL TRUST I OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CAPITAL
SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
CERTIFICATE NUMBER S-001 NUMBER OF CAPITAL SECURITIES 4,800,000
CUSIP NO. 261016 20 8
----------
CERTIFICATE EVIDENCING CAPITAL SECURITIES
OF
DOWNEY FINANCIAL CAPITAL TRUST I
10% CAPITAL SECURITIES
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
DOWNEY FINANCIAL CAPITAL TRUST I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that Cede &
Co. (the "Holder") is the registered owner of Four Million Eight Hundred
Thousand (4,800,000) Capital Securities of the Trust representing an undivided
beneficial interest in the assets of the Trust and designated the DOWNEY
FINANCIAL CAPITAL TRUST I 10% Capital Securities (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
<PAGE>
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 23, 1999, 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. Capitalized or otherwise defined terms used but not otherwise
defined herein shall have the respective meanings given them in the Trust
Agreement. The Holder is entitled to the benefits of the Capital Securities
Guarantee Agreement entered into by Downey Financial Corp., a California
corporation, and Wilmington Trust Company, as guarantee trustee, dated as of
July 23, 1999 (the "Capital Securities Guarantee"), to the extent provided
therein. The Trust will furnish a copy of the Trust Agreement and the Capital
Securities 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.
IN WITNESS WHEREOF, an Administrative Trustee of the Trust has executed
this certificate this 23rd day of July, 1999.
DOWNEY FINANCIAL CAPITAL TRUST I
By: /s/ Thomas E. Prince
----------------------------------------
Thomas E. Prince, Administrative Trustee
2
<PAGE>
-------------------------------------
COMMON SECURITIES GUARANTEE AGREEMENT
DOWNEY FINANCIAL CORP.
Dated as of July 23, 1999
-------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
Article I DEFINITIONS AND INTERPRETATION.................................2
SECTION 1.1 Definitions and Interpretation.................2
Article II GUARANTEE......................................................3
SECTION 2.1 Guarantee......................................3
SECTION 2.2 Waiver of Notice and Demand....................3
SECTION 2.3 Obligations Not Affected.......................4
SECTION 2.4 Rights of Holders..............................4
SECTION 2.5 Guarantee of Payment...........................5
SECTION 2.6 Subrogation....................................5
SECTION 2.7 Independent Obligations........................5
Article III SUBORDINATION..................................................5
SECTION 3.1 Subordination..................................5
SECTION 3.2 Pari Passu Guarantees..........................5
Article IV TERMINATION....................................................5
SECTION 4.1 Termination....................................5
Article V MISCELLANEOUS..................................................6
SECTION 5.1 Successors and Assigns.........................6
SECTION 5.2 Amendments.....................................6
SECTION 5.3 Notices........................................6
SECTION 5.4 Benefit........................................7
SECTION 5.5 Governing Law..................................7
i
<PAGE>
COMMON SECURITIES GUARANTEE AGREEMENT
This COMMON SECURITIES GUARANTEE AGREEMENT (the "Common Securities
Guarantee"), dated as of July 23, 1999, is executed and delivered by DOWNEY
FINANCIAL CORP., a Delaware corporation (the "Guarantor"), for the benefit of
the Holders (as defined herein) from time to time of the Common Securities (as
defined herein) of DOWNEY FINANCIAL CAPITAL TRUST I, a Delaware business trust
(the "Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
July 23, 1999 (the "Trust Agreement"), among the Guarantor as Depositor,
Wilmington Trust Company as Property Trustee, Wilmington Trust Company as
Delaware Trustee, the Administrative Trustees named therein and the holders from
time to time of undivided beneficial interests in the assets of the Trust, the
Trust is issuing on the date hereof common securities having an aggregate
liquidation amount of $3,711,350 to meet the capital requirements of the Trust;
such common securities being designated the 10% Common Securities (the "Common
Securities");
WHEREAS, as incentive for the Holders to purchase the Common Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth in this Common Securities Guarantee, to pay the Guarantee Payments (as
defined herein) to the Holders of the Common Securities and to make certain
other payments on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering the Capital
Securities Guarantee Agreement, dated as of July 23, 1999 (the "Capital
Securities Guarantee"), for the benefit of the holders of the Capital Securities
(as defined in the Trust Agreement), the terms of which provide that if: (i) a
Debenture Event of Default (as defined in the Trust Agreement) has occurred and
is continuing or (ii) the Trust is dissolved or liquidated and funds available
to the Trust are insufficient to pay in full the amounts due on the Capital
Securities and the Common Securities or if Debentures (as defined in the Trust
Agreement) are distributed to Holders of the Common Securities and holders of
the Capital Securities upon such liquidation or dissolution and the holders of
Capital Securities do not receive the full amount of Debentures to which they
are entitled, the rights of Holders of the Common Securities to receive
Guarantee Payments under this Common Securities Guarantee are subordinated, to
the extent and in the manner set forth herein, to the rights of holders of
Capital Securities to receive Guarantee Payments under the Capital Securities
Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of Common
Securities, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, the Guarantor executes and delivers this Common Securities Guarantee
for the benefit of the Holders.
1
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions and Interpretation
------------------------------
In this Common Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Common Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution of
this Common Securities Guarantee have the same meaning when used in this Common
Securities Guarantee unless otherwise defined in this Common Securities
Guarantee;
(c) a term defined anywhere in this Common Securities Guarantee has the
same meaning throughout;
(d) all references to "the Common Securities Guarantee" or "this Common
Securities Guarantee" are references to this Common Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Common Securities Guarantee to Articles and
Sections are references to Articles and Sections of this Common Securities
Guarantee unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning as in
the Trust Indenture Act unless otherwise defined in this Common Securities
Guarantee; and
(g) a reference to the singular includes the plural and vice versa.
(a) "Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Common Securities, to the extent not
paid or made by or on behalf of the Trust: (i) any accumulated and unpaid
Distributions (as defined in the Trust Agreement) that are required to be paid
on such Common Securities, to the extent the Trust shall have funds legally
available therefor at such time, (ii) the applicable Redemption Price (as
defined in the Trust Agreement), to the extent the Trust shall have funds
legally available therefor at such time, with respect to any Common Securities
called for redemption, and (iii) upon a voluntary or involuntary termination,
winding-up or liquidation of the Trust (other than in connection with the
distribution of Debentures to the Holders in exchange for Common Securities as
provided in the Trust Agreement), the lesser of (a) the Liquidation Distribution
(as defined in the Trust Agreement) or (b) the amount of assets of the Trust
remaining available for distribution to the Holders after satisfaction of
liabilities to creditors of the Trust as required by applicable law; provided,
however, that if (i) a Debenture Event of Default shall have occurred and be
continuing as a result of any failure by the Depositor to pay any amounts in
respect of the Debentures when due, or (ii) the Trust is dissolved or liquidated
and (A) funds available to the Trust are insufficient to pay in full the
Liquidation Distribution payable on all Outstanding Trust Securities or, (B) a
Like Amount of Debentures are distributed to Securityholders upon such
2
<PAGE>
dissolution or liquidation in accordance with Article IX of the Trust Agreement
and the Holders of Capital Securities do not receive the full amount of
Debentures to which they are entitled, then no payment of any Distribution
(including Additional Amounts, if applicable) on, or applicable Redemption Price
of, any Common Security, and no other payment on account of the redemption,
liquidation or other acquisition of Common Securities, shall be made unless (1)
payment in full in cash of all accumulated and unpaid Distributions (including
Additional Amounts, if applicable) on all Outstanding Capital Securities for all
Distribution periods terminating on or prior thereto, and in the case of payment
of the applicable Redemption Price, the full payment in cash of such Redemption
Price on all Outstanding Capital Securities then called for redemption, shall
have been made or provided for, or (2) the Trust is dissolved or liquidated and
the aggregate Liquidation Amount on all Capital Securities then Outstanding,
plus accumulated and unpaid Distributions thereon shall have been made or
provided for in cash or, in the event a Like Amount of Debentures are
distributed to Holders of Capital Securities upon such liquidation or
dissolution in accordance with Article IX of the Trust Agreement, the
distribution to each Holder of Capital Securities of such Like Amount of
Debentures to which such holder is entitled shall have been made or duly
provided for.
"Holder" means any holder, as registered on the books and records of the
Trust, of any Common Securities.
"Other Guarantees" means any guarantees similar to the Guarantee issued,
from time to time, by the Guarantor on behalf of holders of one or more series
of capital securities issued by any Downey Trust (as defined in the Indenture)
other than the Trust.
ARTICLE II
GUARANTEE
SECTION 2.1. Guarantee
---------
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by or on behalf of the Trust), as and when due, regardless of any defense, right
of set-off or counterclaim which the Trust may have or assert other than the
defense of payment (the "Guarantee"). The Guarantee is a continuing guarantee,
and the Guarantor fully, knowingly and unconditionally waives any right the
Guarantor may have to revoke the Guarantee as to any future transactions. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Trust to pay such amounts to the Holders.
SECTION 2.2. Waiver of Notice and Demand
---------------------------
The Guarantor hereby waives notice of acceptance of this Common Securities
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the Trust or
any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.
3
<PAGE>
SECTION 2.3. Obligations Not Affected
------------------------
The obligations, covenants, agreements and duties of the Guarantor under
this Common Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Common Securities to be performed or
observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Common Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Common Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Common Securities, or any
action on the part of the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Common Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor;
it being the intent of this Section 2.3 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 2.4. Rights of Holders
-----------------
The Guarantor expressly acknowledges that any Holder of Common Securities
may institute a legal proceeding directly against the Guarantor to enforce its
rights under this Common Securities Guarantee, without first instituting a legal
proceeding against the Trust or any other Person.
4
<PAGE>
SECTION 2.5. Guarantee of Payment
--------------------
This Common Securities Guarantee creates a guarantee of payment and not of
collection.
SECTION 2.6. Subrogation
-----------
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Trust in respect of any amounts paid to such Holders by the
Guarantor under this Common Securities Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Common Securities Guarantee, if, at the time
of any such payment, any amounts are due and unpaid under this Common Securities
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.
SECTION 2.7. Independent Obligations
-----------------------
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Common Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Common Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 2.3 hereof.
ARTICLE III
SUBORDINATION
SECTION 3.1. Subordination
-------------
The obligations of the Guarantor under this Guarantee will constitute
unsecured obligations of the Guarantor and will rank subordinate and junior in
right of payment to all Senior and Subordinated Debt in the same manner as the
Debentures.
SECTION 3.2. Pari Passu Guarantees
---------------------
The obligations of the Guarantor under this Guarantee shall rank pari passu
with the obligations of the Guarantor under all Other Guarantees.
ARTICLE IV
TERMINATION
SECTION 4.1. Termination
-----------
This Common Securities Guarantee shall terminate and be of no further force
or effect upon (i) full payment of the applicable Redemption Price of all the
Common Securities, (ii) the distribution of Debentures to the Holders in
exchange for all of the Common Securities or
5
<PAGE>
(iii) full payment of the amounts payable in accordance with the Trust Agreement
upon liquidation or dissolution of the Trust. Notwithstanding the foregoing,
this Common Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must restore payment
of any sums paid with respect to the Common Securities or under this Common
Securities Guarantee.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Successors and Assigns
----------------------
All guarantees and agreements contained in this Common Securities Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Common
Securities then outstanding.
SECTION 5.2. Amendments
----------
Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Common Securities Guarantee may only be amended with the
prior approval of the Holders of a majority in Liquidation Amount of all the
outstanding Common Securities. The provisions of Article VI of the Trust
Agreement concerning meetings of Holders of the Trust Securities shall apply to
the giving of such approval.
SECTION 5.3. Notices
-------
All notices provided for in this Common Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first-class mail, as follows:
(a) if given to the Trust, in care of the Administrative Trustee at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Holders):
Downey Financial Capital Trust I
c/o Downey Financial Corp.
3501 Jamboree Road, North Tower
Newport Beach, California 92660
Facsimile No.: (949) 725-0619
Attention: Donald E. Royer
(b) if given to the Guarantor, at the Guarantor's mailing address set forth
below (or such other address as the Guarantor may give notice of to the Holders
of the Common Securities):
Downey Financial Corp.
3501 Jamboree Road, North Tower
6
<PAGE>
Newport Beach, California 92660
Facsimile No.: (949) 725-0619
Attention: Donald E. Royer
(c) if given to any Holder of Common Securities, at the address set forth
on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first-class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 5.4. Benefit
-------
This Common Securities Guarantee is solely for the benefit of the Holders
and is not separately transferable from the Common Securities.
SECTION 5.5. Governing Law
-------------
THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAW PRINCIPLES THEREOF.
This Common Securities Guarantee is executed as of the day and year first
above written.
DOWNEY FINANCIAL CORP.
By: /s/ Daniel D. Rosenthal
-----------------------------------
Daniel D. Rosenthal
President & Chief Executive Officer
7
<PAGE>
---------------------------------------------
CAPITAL SECURITIES GUARANTEE AGREEMENT
BETWEEN
DOWNEY FINANCIAL CORP.
(AS GUARANTOR)
AND
WILMINGTON TRUST COMPANY
(AS TRUSTEE)
DATED AS OF
JULY 23, 1999
---------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
Article I DEFINITIONS.................................................2
SECTION 1.1 Definitions.................................................2
Article II. TRUST INDENTURE ACT.........................................4
SECTION 2.1 Trust Indenture Act; Application............................4
SECTION 2.2 List of Holders.............................................4
SECTION 2.3 Reports by the Guarantee Trustee............................4
SECTION 2.4 Periodic Reports to the Guarantee Trustee...................5
SECTION 2.5 Evidence of Compliance with Conditions Precedent............5
SECTION 2.6 Events of Default; Waiver...................................5
SECTION 2.7 Event of Default; Notice....................................5
SECTION 2.8 Conflicting Interests.......................................6
Article III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE..........6
SECTION 3.1 Powers and Duties of the Guarantee Trustee..................6
SECTION 3.2 Certain Rights of Guarantee Trustee.........................7
SECTION 3.3 Indemnity...................................................9
Article IV. GUARANTEE TRUSTEE...........................................9
SECTION 4.1 Guarantee Trustee. Eligibility.............................9
SECTION 4.2 Appointment, Removal and Resignation of the Guarantee
Trustee.....................................................9
Article V. GUARANTEE..................................................10
SECTION 5.1 Guarantee..................................................10
SECTION 5.2 Waiver of Notice and Demand................................10
SECTION 5.3 Obligations Not Affected...................................10
SECTION 5.4 Rights of Holders..........................................11
SECTION 5.5 Guarantee of Payment.......................................12
SECTION 5.6 Subrogation................................................12
SECTION 5.7 Independent Obligations....................................12
Article VI. SUBORDINATION..............................................12
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 6.1 Subordination..............................................12
SECTION 6.2 Pari Passu Guarantees......................................12
Article VII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.......13
SECTION 7.1 Guarantor May Consolidate, Etc., Only on Certain Terms.....13
SECTION 7.2 Successor Guarantor Substituted............................13
Article VIII. TERMINATION................................................14
SECTION 8.1 Termination................................................14
Article IX. MISCELLANEOUS..............................................14
SECTION 9.1 Successors and Assigns.....................................14
SECTION 9.2 Amendments.................................................14
SECTION 9.3 Notices....................................................14
SECTION 9.4 Benefit....................................................15
SECTION 9.5 Interpretation.............................................15
SECTION 9.6 Governing Law..............................................16
ii
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CROSS-REFERENCE TABLE*
Section of Trust Section of
Indenture Act of 1939, as amended Guarantee Agreement
--------------------------------- -------------------
310(a) 4.1(a)
310(b) 4.1(c), 2.8
310(c) Inapplicable
311(a) 2.2(b)
311(b) 2.2(b)
311(c) Inapplicable
312(a) 2.2(a)
312(b) 2.2(b)
311(c) Inapplicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Inapplicable
314(c) 2.5
314(d) Inapplicable
314(e) 1.1, 2.5, 3.2
314(f) 2.1, 3.2
315(a) 3.1(d)
315(b) 2.7
315(c) 3.1
315(d) 3.1(d)
316(a) 1.1, 2.6, 5.4
316(b) 5.3
316(c) 9.2
317(a) Inapplicable
317(b) Inapplicable
318(a) 2.1(b)
318(b) 2.1
318(c) 2.1(a)
- --------
* This Cross-Reference Table does not constitute part of the Capital Securities
Guarantee and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>
CAPITAL SECURITIES GUARANTEE AGREEMENT
This CAPITAL SECURITIES GUARANTEE AGREEMENT (the "Capital Securities
Guarantee"), dated as of July 23, 1999, is executed and delivered by DOWNEY
FINANCIAL CORP., a Delaware corporation (the "Guarantor") having its principal
office at 3501 Jamboree Road, North Tower, Newport Beach, California 92660, and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the
"Guarantee Trustee"), for the benefit of the Holders (as defined herein) from
time to time of the Capital Securities (as defined herein) of DOWNEY FINANCIAL
CAPITAL TRUST I, a Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
July 23, 1999 (the "Trust Agreement"), among the Guarantor as Depositor,
Wilmington Trust Company as Property Trustee, Wilmington Trust Company as
Delaware Trustee, the Administrative Trustees named therein and the holders from
time to time of undivided beneficial interests in the assets of the Trust, the
Trust is issuing on the date hereof $120,000,000 aggregate Liquidation Amount
(as defined in the Trust Agreement) of its 10% Capital Securities, Liquidation
Amount $25 per Capital Security (the "Capital Securities");
WHEREAS, the Capital Securities will be issued by the Trust and the
proceeds thereof, together with the proceeds from the issuance of the Trust's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which were deposited with
Wilmington Trust Company, as Property Trustee under the Trust Agreement, as
trust assets;
WHEREAS, as an incentive for the Holders to purchase the Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Capital Securities the
Guarantee Payments (as defined herein) and to make certain other payments on the
terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering the Common
Securities Guarantee Agreement, dated as of July 23, 1999 (the "Common
Securities Guarantee"), for the benefit of holders of the Common Securities (as
defined herein) the terms of which provide that if (i) a Debenture Event of
Default (as defined in the Trust Agreement) shall have occurred and is
continuing or (ii) the Trust is dissolved or liquidated and funds available to
the Trust are insufficient to pay in full the amounts due on the Capital
Securities and the Common Securities or if Debentures are distributed to holders
of the Common Securities and Holders of the Capital Securities upon such
liquidation or dissolution and the Holders of Capital Securities do not receive
the full amount of Debentures to which they are entitled, the rights of holders
of the Common Securities to receive Guarantee Payments under the Common
Securities Guarantee are subordinated, to the extent and in the manner set forth
in the Common Securities Guarantee, to the rights of Holders of Capital
Securities to receive Guarantee Payments under this Capital Securities
Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, the Guarantor executes and delivers this Capital Securities Guarantee
for the benefit of the Holders.
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ARTICLE I. DEFINITIONS
SECTION 1.1 Definitions.
As used in this Capital Securities Guarantee, the terms set forth below
shall, unless the context otherwise requires, have the following meanings.
Capitalized or otherwise defined terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Trust Agreement and the
Indenture (as defined herein), each as in effect on the date hereof.
"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.
"Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Trust.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Capital Securities Guarantee; provided, however,
that, except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 90 days after receipt of such notice.
"Guarantee" has the meaning set forth in Section 5.1.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Trust: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) that are required to be paid on such Capital
Securities, to the extent the Trust shall have funds legally available therefor
at such time, (ii) the applicable Redemption Price (as defined in the Trust
Agreement), to the extent the Trust shall have funds legally available therefor
at such time, with respect to any Capital Securities called for redemption, and
(iii) upon a voluntary or involuntary termination, winding up or liquidation of
the Trust (other than in connection with the distribution of Debentures to the
Holders in exchange for Capital Securities as provided in the Trust Agreement),
the lesser of (a) the Liquidation Distribution (as defined in the Trust
Agreement) or (b) the amount of assets of the Trust remaining available for
distribution to the Holders after satisfaction of liabilities to creditors of
the Trust as required by applicable law.
"Guarantee Trustee" means Wilmington Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Capital Securities Guarantee, and thereafter means each
such Successor Guarantee Trustee.
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"Holder" means any holder, as registered on the books and records of the
Trust, of any Capital Securities; provided, however, that in determining whether
the holders of the requisite percentage of Capital Securities have given any
request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the
Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of July 23,
1999, as supplemented and amended, between the Guarantor and Wilmington Trust
Company, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount of the Capital Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then outstanding
Capital Securities issued by the Trust.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman or a Vice Chairman of the Board of Directors of such
Person or the President or a Vice President of such Person, and by the Chief
Financial Officer, the Secretary or an Assistant Secretary of such Person, and
delivered to the Guarantee Trustee. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this Capital
Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Other Guarantees" means any guarantees similar to the Guarantee issued,
from time to time, by the Guarantor on behalf of holders of one or more series
of capital securities issued by any Downey Trust (as defined in the Indenture)
other than the Trust.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
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"Responsible Officer" means, with respect to the Guarantee Trustee, any
officer of the Corporate Trust Department of the Guarantee Trustee and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Securities Act" means the Securities Act of 1933, as amended.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II. TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
(a) This Capital Securities Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Capital Securities
Guarantee and shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Capital Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2 List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semiannually, on or before January 15 and July 15 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders ("List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such; provided, however
that the Guarantor is not required to furnish a List of Holders to the Guarantee
Trustee for so long as the Guarantee Trustee is the Securities Registrar for the
Capital Securities. The Guarantee Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Guarantee Trustee.
Not later than March 31 of each year, commencing on the year beginning
January 1, 2000, the Guarantee Trustee shall provide to the Holders such reports
as are required by Section 313 of the
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Trust Indenture Act, if any, in the form and in the manner provided by Section
313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the
requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act, in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee, on an annual basis,
such evidence of compliance with such conditions precedent, if any, provided for
in this Capital Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Capital Securities
may, by vote, on behalf of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Capital Securities Guarantee, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent therefrom.
SECTION 2.7 Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of a
default which with notice or the passage of time, or both, could become an Event
of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all such defaults known to the Guarantee Trustee, unless such
defaults have been cured before the giving of such notice, provided, that,
except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any such
default unless the Guarantee Trustee shall have received written notice, or a
Responsible Officer charged with the administration of this Capital Securities
Guarantee shall have obtained written notice, of such default.
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SECTION 2.8 Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in this
Capital Securities Guarantee for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS
OF THE GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Guarantee Trustee.
(a) This Guarantee shall be held by the Guarantee Trustee for the benefit
of the Holders, and the Guarantee Trustee shall not transfer this Guarantee to
any Person except to a Holder exercising his or her rights pursuant to Section
5.4(iv) or to a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The
right, title and interest of the Guarantee Trustee shall automatically vest in
any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee
Trustee of its appointment hereunder, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Capital Securities Guarantee, and no implied covenants shall be read into this
Capital Securities Guarantee against the Guarantee Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section
2.6), the Guarantee Trustee shall exercise such of the rights and powers vested
in it by this Capital Securities Guarantee, and use the same degree of care and
skill in its exercise thereof, as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs.
(d) No provision of this Capital Securities Guarantee shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Capital Securities
Guarantee, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Capital Securities Guarantee; and
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(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Capital Securities
Guarantee; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Capital Securities
Guarantee;
(ii) The Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was negligent
in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation
Amount of the Capital Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Capital Securities Guarantee; and
(iv) no provision of this Capital Securities Guarantee shall require
the Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this Capital
Securities Guarantee or adequate indemnity against such risk or liability
is not reasonably assured to it.
SECTION 3.2 Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Capital Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Capital Securities
Guarantee, the Guarantee Trustee shall deem it desirable that a matter be
proved or established before taking, suffering or omitting to take any
action hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and rely upon an
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Officers' Certificate which, upon receipt of such request from the Guarantee
Trustee, shall be promptly delivered by the Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel, and the
written advice or opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or opinion. Such legal
counsel may be legal counsel to the Guarantor or any of its Affiliates and
may be one of its employees. The Guarantee Trustee shall have the right at
any time to seek instructions concerning the administration of this Capital
Securities Guarantee from any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Capital Securities Guarantee
at the request or direction of any Holder, unless such Holder shall have
provided to the Guarantee Trustee such adequate security and indemnity as
would satisfy a reasonable person in the position of the Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided that, nothing contained in this Section
3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the rights
and powers vested in it by this Capital Securities Guarantee.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
(viii) Whenever in the administration of this Capital Securities
Guarantee the Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking any
other action hereunder, the Guarantee Trustee (A) may request instructions
from the Holders, (B) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (C)
shall be protected in acting in accordance with such instructions.
(b) No provision of this Capital Securities Guarantee shall be deemed to
impose any duty or obligation on the Guarantee Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on it
in any jurisdiction in which it shall be illegal, or in which the Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive
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power or authority available to the Guarantee Trustee shall be construed to be a
duty to act in accordance with such power and authority.
SECTION 3.3 Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee for, and to hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on the part of the Guarantee Trustee, arising out of or in connection
with the acceptance or administration of this Capital Securities Guarantee,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
ARTICLE IV. GUARANTEE TRUSTEE
SECTION 4.1 Guarantee Trustee. Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of Section
310(a) of the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section
4.1(a)(ii) and to the extent permitted by the Trust Indenture Act, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of the Guarantee Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee
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Trustee may resign from office (without need for prior or subsequent accounting)
by an instrument in writing executed by the Guarantee Trustee and delivered to
the Guarantor, which resignation shall not take effect until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Guarantee Trustee and delivered
to the Guarantor and the resigning Guarantee Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
SECTION 5.1 Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full on a
subordinated basis to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by or on behalf of the Trust), as and when due,
regardless of any defense, right of set-off or counterclaim which the Trust may
have or assert other than the defense of payment (the "Guarantee"). The
Guarantee is a continuing guarantee, and the Guarantor fully, knowingly and
unconditionally waives any right the Guarantor may have to revoke the Guarantee
as to any future transactions. The Guarantor's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Trust to pay such amounts to the
Holders.
SECTION 5.2 Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Capital Securities
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Trust or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Capital Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Trust;
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(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Capital Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Capital Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor;
it being the intent of this Section 5.3 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4 Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Capital Securities
Guarantee will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this
Guarantee on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Capital Securities Guarantee or exercising
any trust or power conferred upon the Guarantee Trustee under this Capital
Securities Guarantee; and (iv) notwithstanding the rights of the Guarantee
Trustee to enforce this Capital Securities Guarantee under Article III, any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Capital Securities Guarantee, without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other Person; notwithstanding the foregoing, if the Guarantor has failed to make
a Guarantee Payment, a Holder may directly institute a proceeding against the
Guarantor for enforcement of this
11
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Capital Securities Guarantee for such payment and the Guarantor waives any right
or remedy to require that any action be brought first against the Trust or any
other Person or entity before proceeding directly against the Guarantor.
SECTION 5.5 Guarantee of Payment.
This Capital Securities Guarantee creates a guarantee of payment and not of
collection. This Guarantee will not be discharged except by payment of the
Guarantee Payments in full (without duplication of amounts theretofore paid by
the Trust) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.
SECTION 5.6 Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Trust in respect of any amounts paid to the Holders by the Guarantor
under this Capital Securities Guarantee and shall have the right to waive
payment by the Trust pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Capital Securities Guarantee, if, at the time
of any such payment, any amounts are due and unpaid under this Capital
Securities Guarantee. If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.
SECTION 5.7 Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Capital Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Capital Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. SUBORDINATION
SECTION 6.1 Subordination.
The obligations of the Guarantor under this Guarantee will constitute
unsecured obligations of the Guarantor and will rank subordinate and junior in
right of payment to all Senior and Subordinated Debt in the same manner as the
Debentures.
SECTION 6.2 Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee shall rank pari passu
with the obligations of the Guarantor under all Other Guarantees.
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<PAGE>
ARTICLE VII. CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 7.1 Guarantor May Consolidate, Etc., Only on Certain Terms.
The Guarantor shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Guarantor or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to the Guarantor, unless:
(a) either the Guarantor shall be the continuing Person, in the case of a
merger, or the successor Person (if other than the Guarantor) formed by the
consolidation or into which the Guarantor is merged or which acquires by
conveyance, transfer or lease, the properties and assets of the Guarantor as an
entirety or substantially as an entirety is organized under the laws of the
United States or any state of the United States or the District of Columbia, and
the successor Person expressly assumes the Guarantor's obligations under this
Capital Securities Guarantee and the due and punctual performance and observance
of every obligation in this Capital Securities Guarantee;
(b) immediately after giving effect thereto, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing;
(c) such consolidation, merger, conveyance, transfer or lease is permitted
under the Trust Agreement and the Indenture and does not give rise to any breach
or violation of the Trust Agreement or the Indenture; and
(d) the Guarantor has delivered to the Guarantee Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and assumption of the Guarantor's
obligations under this Capital Securities Guarantee comply with this Article and
that all conditions precedent herein provided for relating to such transaction
have been complied with; and the Guarantee Trustee, subject to Section 3.1
hereof, may rely upon such Officers' Certificate and Opinion of Counsel as
conclusive evidence that such transaction complies with this Section 7.1.
SECTION 7.2 Successor Guarantor Substituted.
Upon any consolidation or merger by the Guarantor with or into any other
Person, or any conveyance, transfer or lease by the Guarantor of its properties
and assets substantially as an entirety to any Person in accordance with Section
7.1, the successor Person formed by such consolidation or into which the
Guarantor is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Guarantor under this Capital Securities Guarantee with the same effect as if
such successor Person had been named as the Guarantor herein; and in the event
of any such conveyance, transfer or lease the Guarantor shall be discharged from
all obligations and covenants under this Capital Securities Guarantee.
13
<PAGE>
ARTICLE VIII. TERMINATION
SECTION 8.1 Termination.
This Capital Securities Guarantee shall terminate and be of no further
force or effect upon the (i) full payment of the applicable Redemption Price of
all Capital Securities, (ii) the distribution of Debentures to the Holders in
exchange for all of the Capital Securities or (iii) full payment of the amounts
payable in accordance with the Trust Agreement upon liquidation or dissolution
of the Trust. Notwithstanding the foregoing, this Capital Securities Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any Holder must restore payment of any sums paid with respect to the
Capital Securities or under this Capital Securities Guarantee.
ARTICLE IX. MISCELLANEOUS
SECTION 9.1 Successors and Assigns.
All guarantees and agreements contained in this Capital Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Capital Securities then outstanding. Except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
Article VII hereof and Article VIII of the Indenture, the Guarantor shall not
assign its obligations hereunder.
SECTION 9.2 Amendments.
Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Capital Securities Guarantee may not be amended without
the prior approval of the Holders of not less than a Majority in Liquidation
Amount of all outstanding Capital Securities. The provisions of Article VI of
the Trust Agreement concerning meetings of the Holders of the Trust Securities
shall apply to the giving of such approval.
SECTION 9.3 Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such other
address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
Downey Financial Corp.
3501 Jamboree Road, North Tower
Newport Beach, California 92660
Facsimile No.: (949) 725-0619
14
<PAGE>
Attention: Donald E. Royer
(b) if given to the Trust, in care of the Guarantee Trustee, at the Trust's
(and the Guarantee Trustee's) address set forth below or such other address as
the Guarantee Trustee on behalf of the Trust may give notice to the Holders:
Downey Financial Capital Trust I
c/o Downey Financial Corp.
3501 Jamboree Road, North Tower
Newport Beach, California 92660
Facsimile No.: (949) 725-0619
Attention: Donald E. Royer
with a copy to:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Facsimile No.: (302) 651-1576
Attention: Corporate Trust Administration
(c) if given to any Holder, at the address set forth on the books and
records of the Trust.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 9.4 Benefit.
This Guarantee is solely for the benefit of the Holders and subject to
Section 3.1(a) is not separately transferable from the Capital Securities.
SECTION 9.5 Interpretation.
In this Capital Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Capital Securities Guarantee but not
defined in the preamble hereto have the respective meanings assigned to them in
Section 1.1;
(b) a term defined anywhere in this Capital Securities Guarantee has the
same meaning throughout;
15
<PAGE>
(c) all references to "the Capital Securities Guarantee" or "this Capital
Securities Guarantee" are to this Capital Securities Guarantee as modified,
supplemented or amended from time to time;
(d) all references in this Capital Securities Guarantee to Articles and
Sections are to Articles and Sections of this Capital Securities Guarantee
unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Capital Securities Guarantee unless otherwise defined in this
Capital Securities Guarantee or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include the
masculine, feminine and neuter genders.
SECTION 9.6 Governing Law.
THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
16
<PAGE>
THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and year first
above written.
Downey Financial Corp.
By: /s/ Daniel D. Rosenthal
-----------------------------------
Daniel D. Rosenthal
President & Chief Executive Officer
Wilmington Trust Company
as Guarantee Trustee
By: /s/ Patricia A. Evans
-----------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
17
<PAGE>
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0
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